What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-10 compared with 2022-08-15 · 204 added, 166 removed, 394 unchanged (48% of the section changed)

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Business Update

The first half of 2022 has delivered growth and improvement in our comparable year over year sales, customer sales order and improved financial operating results.

We grew revenue for the six months ended June 30, 2022 by 6% when compared to the same prior year period due to increased demand for our SteraMist mobile equipment.

Our reportable quarter over quarter revenue for the three months ended June 30, 2022 was flat with the same prior period.

However, as discussed below, we did secure several key sales orders for custom built in units in the second quarter of 2022 which will be recognized into revenue in the next few quarters (2022-2023), also contributing to our growing revenue pipeline.

We have experienced some pullback in spending in healthcare and our smaller clients;

however, we continue to see increased spending from our life sciences which is our largest vertical.

Through June 30, 2022, we have received $5,600,000 in sales orders from key global fortune 500 customers of which revenue recognition will be upon delivery throughout 2022 and early 2023.

The third quarter delivered continued growth in customer sales orders, sequential quarterly growth in revenue and improved financial operating results.

In evaluating sales related performance, management analyzes our revenue recognized for GAAP purposes which is presented in our quarterly and annual statement of operations as well our sales orders we receive from customers during those same accounting periods.

We define a “sales order” as a document we generate for our internal use in processing a customer order.

Our sales orders essentially translate the format of the customer purchase orders we receive from our customers into the format used by us.

We also evaluate our “customer sales backlog” which is defined as pending sales orders where revenue has not yet been recognized.

Management believes analyzing the sales order and backlog metrics are useful in measuring our overall sales and business development performance as it gauges the overall volume of sales and business development activities.

With the current years increase in demand for our Custom Engineered Systems (CES), we have seen our current sales orders and revenue pipeline increase when compared to the same period last year.

The increase in customer sales orders has resulted in a customer sales backlog of approximately $2,659,000 as of September 30, 2022.

Our customer orders or contracts for mobile equipment, CES systems and iHP services are subject to the delivery timelines requested by our customers which affect the timing of the related revenue recognition.

For the three months ended September 30, 2022, we received approximately $2,300,000 in sales orders and/or winning contract bids from our customers, which represents 5% growth when compared to the same prior year period.

For the nine months ended September 30, 2022, we have received $7,900,000 in sales orders from including key global fortune 500 customers of which revenue recognition will be upon delivery throughout 2022 and 2023.

This represents 25% growth when compared to the first half of 2022.

The increase in sales orders is largely attributable to increased demand for our Custom Engineered Systems (CES) as well as iHP Service engagements.

A key driver to our longer-term growth is strengthening demand for our Custom Engineered Systems (CES).

Partnering with our domestic and International manufacturing sales representatives, we are building awareness for CES.

We have secured several new orders for our iHP CES and more set to close eminently, revenue recognition will be upon delivery throughout 2022 and early 2023.

As we install CES units, we can expect to see the increase in solution sales as these units are designed to be used at regular schedules that will require the solution during the use.

We believe based upon current orders, recent additional booking and pending negotiations, that we will surpass our original 2022 budget and analyst expectations.

Our overall financial operating results for the three and six months ended June 30, 2022 showed improvement when compared to the prior year.

We reduced operating expenses by 16% and 21% for the three and six months ended June 30, 2022, respectively, when compared to the same prior year periods.

We reduced our loss from operations by 28% and 44% for the three and six months ended June 30, 2022 when compared to the same prior year periods.

Through June 30, 2022, we used approximately $451,000 in cash from operations, an approximate $2,061,000 improvement over the cash used in operations of $2,512,000 during the six months ended June 30, 2021.

The improved cash flow is primarily due to the lower reported loss and customer deposits we received in the current year as well as inventory purchases in the prior quarter as supplies were replenshined.

The customer deposits primarily represent down payments made by our customers for orders that will be recognized into revenue as the projects are completed and delivered.

Due to continued growth in CES orders we expect receipt of additional deposits in the second half of 2022 which will provide a benefit to our cash flows and sales pipeline.

The increase in sales orders is largely attributable to increased demand for our CES as well routine and new iHP Service engagements.

A key driver to our longer-term growth is the solid demand for our CES by referrals to the product line hosting tours of current installed systems, continuing brand awareness via our domestic independent manufacturing sales representatives and growing the network of international partners.

We have secured several new orders for our iHP CES and expect to receive additional new order in the near future for which revenue will be recognized upon delivery for the remainder of 2022 and 2023.

As we install CES units, we can expect to see the increase in solution sales as these units are contracted to be used at set regular schedules.

For example, two of the installs currently being manufactured are expected to generate $250,000 in BIT Solution revenue annually starting at the end of the 2023.

As of September 30, 2022, our customer sales backlog was as follows:

As of September 30, 2022

Expected Revenue Recognition

Value of Contracts or Sales Orders

Cash Deposits

For the Three Months Ending December 31, 2022

For the Year Ending December 31, 2023

Customer Sales Backlog

As the market shifted to fully automatic disinfection decontamination, TOMI continues to market and submit bids on CES projects and building the pipeline for these installations.

Further, TOMI has expanded bandwidth to meet the demands for the product line and has not been significantly affected by the global supply chain issues.

Our customer orders or contracts for CES systems could be subject to vendor and supply chain constraints as well construction and delivery timelines set forth by our customers which could affect the timing of revenue recognition for those orders.

Our revenue increased sequentially for the three months ended September 30, 2022 by 20% as compared to the three months ended June 30, 2022 due to increased demand for our SteraMist mobile equipment.

Our financial operating results also showed sequential quarterly improvement compared to the second quarter of 2022 with 24% reduction in our loss from operations due to the higher revenue, gross profit and lower operating expenses.

The financial operating results for nine months ended September 30, 2022, improved in comparison to the same prior year period as our operating expenses declined by 16%.

Our loss from operations for the nine months ended September 30, 2022 improved by 32% when compared to the same prior year periods.

Through September 30, 2022, we used approximately $929,000 in cash from operations, an approximate $2,894,000 improvement over the cash used in operations of $3,823,000 during the nine months ended September 30, 2022.

The improved cash flow is primarily due to the lower reported loss and cash deposits we received in the current year in connection with deferred revenue as well as inventory purchases in the prior period as our stock was replenished.

The deferred revenue is attributable to customer deposits which primarily represent down payments made by our customers for orders that will be recognized into revenue as the projects are completed and delivered.

As our customer base grows, we continue to address the need for timely responses to inquiries, questions, orders and support.

TOMI corporate’s support focus along with the launch of the SteraMist Support Portal available on desktop as well as via a mobile app which provides ease of use for sales support, branding, and assistance to our TOMI Service Network providers, sales representatives, and international distributors and end users.

Studies remain a focus as TOMI continues to pursue a wide array of industries.

Studies focused on Botrytis cinerea and Mycotoxin, as well as furthering testing on chemical and biological warfare agents will further enhance TOMI’s ability to further penetrate the market.

Our manufacturing capacity and capabilities were improved in the first half of 2022 with the addition of ARM Enertech Associates who can manufacture our CES in their Pennsylvania facility.

We have increased staff since our last report, specifically adding members to our customer experience, sales, and technology departments.

Recently, TOMI hired a sales director with significant sales experience in the clinical healthcare industry.

Part of this background includes using the TOMI SteraMist system during his emergency medical support (EMS) service for the past seven years.

Our new sales director is an innovative sales leader with an extensive record of success in developing, supporting, and implementing strategic plans to increase market share and penetration, TOMI expects to increase use of SteraMist in many of its Commercial industries (i.e., Schools, Emergency Services, and Transportation).

Another recent sales director hire has worked many years as an independent manufacturing representative with a focus on the Life Science and vivarium market.

Since his tenure with TOMI, he has expanded into the food safety industry and is working on opportunities to acquire new customers for our products.

TOMI’s new launch of the SteraMist Support Portal now available on desktop as well as via a mobile app provides ease of use for sales support, branding, and assistance to our TOMI Service Network providers, sales representatives, and international distributors and end users.

Our manufacturing capacity and capabilities were improved in the first half of 2022 with the addition of ARM Enertech Associates who manufactures our CES in their Pennsylvania facility.

Furthermore, our existing manufacturer Planet Innovation has expanded into California providing easier access to our internal technology team and a lower cost in domestic shipment charges.

We anticipate these developments will reduce our overall costs and manufacturing lead times.

We also added staff to our Technology department with the hiring of an electrical mechanical engineer and an electrical engineer to assist in research & development, prototype testing, and assembly of our products.

We anticipate these developments to reduce overall costs and manufacturing lead times.

Product Development

As many industrial companies are reducing R&D and capital expenditures spending due to the current economic conditions, TOMI is moving ahead with new products in development.

In 2022, we intend to increase capital expenditures (CapEx) and operating expenditures (OpEx), including development of new products, services and process technologies to sharpen our competitive advantage.

In addition, we intend to expand our commercial service location to meet the expanding needs of our customers.

Our recent products developed and launched are as follows:

The second half of 2020 showed us that our customers prefer a disinfection device with lower cost and more versatility.

To respond, we developed the Backpack (SteraPak) that includes our award winning 6-log and above kill technology and speed.

In addition, our solution and process are environmentally friendly as the only by-product from our decontamination process is oxygen and water in the form of humidity.

Our solution is OMRI certified and organically listed in the United States and Canada it is sustainably a green product with no or very little carbon footprint.

We have competitively priced our SteraPak and expect to bring SteraMist to the largest cleaning market in the world, including members of ISSA (International Sanitary Supply Association) and its divisions IEHA (Integrated Environment and Health Assessment) and EMEA (Europe, Middle East & Africa).

These organizations have historically been price conscious and were resistant early on to our SteraMist pricing of our professional decontamination equipment (SteraMist Surface and Environment Unit).

As planned, we introduced our new innovative SteraPak domestically towards the end of the third quarter 2021.

During the third quarter 2021, we established and expanded our production capacity with the construction and purchase of the tooling and molds used in the production of our SteraPak.

Our tooling and molds will allow us to streamline production and reduce manufacturing lead times and costs on the SteraPak.

Other updated products that have been incorporated into our product line include the Select Plus, which is a hybrid product consisting of the Company’s current Surface Select and Environment systems.

The unit will allow for enhanced flexibility by using a single applicator to decontaminate full-room to small-space volume while maintaining the size of the current Surface Select unit with more robust process controls.

After the release of the SteraPak, the TOMI technology team quickly began designing new SteraMist products, which include the Select Plus-a hybrid product consisting of the Company’s current Surface Select and Environment systems.

The unit will provide enhanced flexibility by using a single applicator to decontaminate full-room to small-space volume while maintaining the size of the current Surface Select unit with more robust process controls.

The iHP SteraMist Transport System has been designed for the transportation market, specifically ambulances.

The iHP SteraMist Transport System is a simple timer based fogging system that can be installed semi-permanently or permanently and used for any transport and/or cargo vehicle.

The iHP SteraMist Transport System is a timer based fogging system that can be installed semi-permanently or permanently and used for any transport and/or cargo vehicle.

It will be an easy-to-use turn-key integration system.

The implementation of this product and our patented non-corrosive iHP technology will certainly replace the number one competitor in this marketplace, which uses an extremely harsh chemical.

Many of our customers have been waiting for the release and demonstration of these new products, especially the SteraPak.

We are currently testing prototypes for each of these two units which will be released before the end of 2022.

All SteraMist systems will remain important to the marketplace as they are designed for specific needs and budgets.

The Select Surface Unit perform most of the functionality that the Plus offers and is priced at a lower cost, although Select Plus will provide additional options that are appealing to certain customers, such as laboratory and pharmaceutical companies.

The Select Surface Unit performs most of the functionality that the Plus offers and is priced at a lower cost, although Select Plus will provide additional options that are appealing to certain customers, such as laboratory and pharmaceutical companies.

The SteraPak is a more cost-effective product and designed for residential and commercial real estate including large buildings and public space, any area that needs quick consistent disinfection.

There are many new and existing clients that are interested in the SteraPak due to the cost and mobility.

In the fourth quarter of 2022, TOMI launched its fourth generation SteraMist Environment System.

The system will now be 24 voltages, allowing for universal outlet usage and convert even more of the hydrogen peroxide BIT Solution to hydroxyl radicals thus lowering H 2 O 2 PPM levels allowing for faster turnaround time.

In addition, the unit will have eight (8) outputs where four (4) are dedicated to our regular process of Injection, Dwell, and Aeration along with a light beacon status bar and four (4) are programmable to meet the customer needs for any external equipment they may desire to work with the system.

In third quarter of 2021, we expanded our SteraMist ® BIT ™ solution product line with a 32-ounce bottle for the SteraPak, and the introduction of a ten (10) liter and five (5) gallon bottle.

These three new additions bring the BIT Solution product line to a total of five (5) options provided to our customers, which should also benefit our razor razor-blade business model.

These new products and service introductions can significantly impact net sales, cost of sales and operating expenses.

We expect these new products and service introductions will positively impact our net sales, cost of sales and operating expenses.

The timing of product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new inventory following a product launch, and channel inventory of an older product often declines as the launch of a newer product approaches.

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SteraMist® BIT™ brings to the world a mechanical and automated method of cleaning using a game-changing technology and EPA registered Hospital-HealthCare disinfectant providing an upgrade to existing disinfecting and cleaning protocols while limiting liability in a facility when it comes to resistant infectious pathogens.

We maintain this registration in all fifty (50) states, Washington DC, Canada, and approximately thirty-five (35) other countries.

We maintain this registration in all fifty (50) states, Washington DC, Canada, and approximately forty (40) other countries receive our product.

Our SteraMist ® products are designed to address a wide spectrum of industries using iHP ™ .

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Long term, ongoing projects and validations continue to be a focus and lead to proposals and interest for our CES permanent decontamination room.

As these are longer lead-time sales that can take months to design, build and implement, we expect installations to have impact to our results in 2022.

Further, we believe that post COVID pandemic has brought some attention to the SteraMist product line, as our CES in Pfizer Missouri was recently showcased in a New York Times article as they featured their COVID vaccine processes.

In addition, our iHP Corporate Service team treated one of four fill lines in a North Carolina pharmaceutical company that manufactures one of the COVID vaccines, with the remaining three lines set to be decontaminated in the future with SteraMist.

For 2022 and beyond, TOMI expects growth in SteraMist Custom Engineered Systems (CES) bids and the manufacturing and implementation of these fully automated decontamination systems.

As these are longer lead-time sales and manufactured upon order that can take months to design, procure, assemble, and implement, we expect installations to have impact to our results in 2022.

TOMI’s iHP service department continues to grow with new and existing customers in several divisions.

In the life science sector, TOMI’s iHP service department has kept its relationships with large pharmaceuticals (Pfizer/ThermoFisher) as well as adding several smaller life science companies (ForDoz/Lonza) to a regular decontamination schedule.

In addition to these productions’ facilities, TOMI has treated four BSL-3 research laboratories in all parts of the country within the last two months (UNM/UNC/Bioqual/Scripps).

The food safety department steadily gains traction as several plant/produce companies have expressed interest as new and emerging bacteria, toxins, and fungi hamper production.

Finally, the commercial division is a stable source of revenue for TOMI and its service network as many public facilities are feeling the effects of Hurricane Ian.

For 2022 and beyond, TOMI expects growth in SteraMist CES bids and the manufacturing and implementation of these fully automated decontamination systems.

The installed CES will also result in increased solution sales for Life Sciences as the CES’s are used at regular intervals.

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Our customers that have successfully adopted our technology in Hospital-Healthcare facilities, have recurring revenue and reorder rates of our BIT ™ Solution.

We plan to continue to expand our marketing, advertising and educational campaigns targeted at the Hospital-Healthcare marketing in an effort to grow our customer base and increase adoption of our SteraMist ® line of products.

We plan to continue to expand our marketing, advertising and educational campaigns targeted at the Hospital-Healthcare marketing to grow our customer base and increase adoption of our SteraMist ® line of products.

Our team of technicians and representatives train, maintain, and service capital equipment throughout the world for our Hospital-HealthCare customers.

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TOMI provides protocol development and implementation of SteraMist ® as it is critical in the healthcare setting, including pandemic preparedness.

UCLA recently completed a successful collection of critical data for the Shield Study.

The Shield Study is a multi-year study comparing SteraMist with manual clean.

The Study was conducted by multiple well-established hospitals.

Initial findings have been positive regarding ease of use, overall efficacy, and quick turnaround time of patient rooms.

TOMI looks forward to announcing the full results as soon as they are available to make public.

TOMI anticipates this study will assist in the expansion of current HealthCare customers to follow the model of Gila River Health Care.

Gila River is one of TOMI’s largest Healthcare customers owning a total of fourteen (14) Surface Units and Two (2) SteraPaks.

TOMI anticipates expansion of current HealthCare customers to follow the model of Gila River Health Care.

Gila River is one of TOMI’s largest Healthcare customers owning a total of fourteen (14) Surface Units and six (6) SteraPaks.

The Gila River Indian Community (GRIC) is an Indian reservation in Arizona that is made up of seven (7) districts and is home to the Akimel O’oodham (Pima) and the Pee-Posh (Maricopa) tribes.

Gila River Health Care, a premier Native American healthcare system, provides high quality patient care, delivering a wide variety of medical services such as general surgery, dental, and emergency medicine, as well as associated health services such as pharmacy and laboratory operations, skilled nursing and rehabilitation.

TOMI Service Network

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Business Highlights and Recent Events

Total revenue for the six months ended June 30, 2022 and 2021, was $3,767,000 and $3,539,000, respectively, representing an increase of $228,000, or 6% compared to the same prior year period.

The increase in revenue was attributable to higher demand for our mobile equipment.

SteraMist product-based revenues for the six months ended June 30, 2022 and 2021, were $3,020,000 and $2,673,000, representing an increase of $347,000 or 13% when compared to the same prior year period.

During the first six months of 2022 we have received $5,600,000 in orders, of which we anticipate $2,300,000 will be recognized as revenue in our third and fourth quarter accounting periods of 2022.

This represents 35% growth in sales orders received for the six months ended June 30, 2022 when compared to the same prior year accounting period.

The growth in our orders was due to increased demand for our mobile equipment and Custom Engineered Systems (CES) from both the life science and hospital sectors.

We anticipate further growth in sales as our sales pipeline for the remainder of 2022 is robust and we believe based upon current orders and pending negotiations, that we will surpass our original 2022 budget and analyst expectations.

As of June 30, 2022, we maintain deposits for certain customers of approximately $607,000 which represent down payments on future CES orders that are expected to be recognized into revenue in future accounting periods.

We anticipate our customer deposits to continue to grow in the third quarter of 2022.

For the three months ended June 30, 2022 and 2021, our revenue was $1,458,000 and 1,466,000, respectively, essentially flat for the comparable periods.

However, during the second quarter of the current year, we were able to further build out our sales pipeline and received approximately $900,000 in customer orders that will be recognized into revenue in future periods.

We have received $2,300,000 and $7,900,000 in customer sales orders for the three and nine months ended September 30, 2022, respectively, of which we expect $2,659,000 will be recognized as revenue in the remainder of 2022 through our next calendar year 2023.

This represents 5% and 25% growth in sales orders received for the three and nine months ended September 30, 2022 when compared to the same prior year accounting periods.

The growth in our orders was due to increased demand for our mobile equipment and CES from both the life science and hospital sectors.

Total revenue for the three months ended September 30, 2022 and 2021, was $1,760,000 and $2,205,000, respectively, representing a decrease of $445,000, or 20% compared to the same prior year period.

During the third quarter of 2022, we received customer sales orders of $2,300,000 which represents 5% growth over the same prior year period and our deferred revenue increased $548,000.

For the nine months ended September 30, 2022 and 2021, our total revenue was $5,527,000 and $5,744,000, respectively, representing a decrease of $217,000, or 4% compared to the same prior year period.

The decline in revenue is due to the customer-imposed delivery restrictions for equipment and CES orders and the related impact to the timing of our revenue recognition and deferred revenue.

During the nine months ended September 30, 2022, we received $7,900,000 in customer sales orders, which represents 25% growth of the same prior year period and our deferred revenue increased $1,149,000.

As of September 30, 2022, our balance sheet has deferred revenue of $1,155,000 which represents down payments on future equipment and CES orders that are expected to be recognized into revenue in future accounting periods.

We believe that we possess the best technologies in the world in the disinfection and decontamination space.

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Customers are requesting and discussing the positive results of our product and the environmentally friendly results compared to the caustic results of other disinfectants.

Dangerous pathogens still exist and will exist long after we recover from this pandemic.

While the United States and most of the world is moving from the COVID-19 pandemic, there are many pathogens which are respiratory in nature that are still a looming threat;

these cases are occurring globally to this day.

We believe SteraMist can mitigate and reduce the impact of the next pandemic as it has already proved during the outbreaks of Ebola, MERS and recently with SARS CoV-2 pandemic.

As the world faces uncertainty with an ongoing war, SteraMist is prepared for a chemical and biological warfare with proven efficacy against many agents, as well as inventory and support readily to deploy at a moment’s notice.

The need for a speedy comprehensive mechanical disinfectant like SteraMist cannot be stressed enough and should be included as the new norm of cleaning.

SteraMist has a long past with fighting pandemics and outbreaks and implementing SteraMist for emergency preparedness is vital.

As coronavirus has taken the world by surprise, history has shown that other pandemics and viruses are deemed to follow.

Using a proven and trusted disinfectant, SteraMist, for emergency outbreaks and daily for preventative maintenance will alleviate the threat of infections from spreading and stop a possible outbreak.

As conferences and tradeshows are reopening in 2022 companies to exhibit live, TOMI will be attending multiple shows across the country.

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TOMI looks forward to making a large impact with live demonstrations of SteraMist disinfection technology throughout our multiple divisions.

On April 12, 2022, we announced the attendance of the RIA 2022 International Restoration Convention & Industry Expo.

This show provided insight on the future of restoration businesses regarding mergers and acquisitions and meetings with core entities to discuss SteraMist disinfection potential with large franchises.

On April 25, 2022, we released that TOMI was exhibiting at FDIC International, which is the largest fire and rescue conference.

As first-time exhibitors, we gained knowledge on the EMS market and their need for disinfection.

With concerns of corrosion, vehicle turnover time, and residues left behind by older technologies, SteraMist technology saw great interest as it does not corrode or damage equipment, leave residue, and quickly disinfects.

This market eagerly awaits the release of the iHP SteraMist Transport System.

On May 19, 2022, we announced Dr.

Halden Shane was to present at the H.C.

Wainwright Investment Conference.

On May 20, 2022, we announced that TOMI was to attend the INTERPHEX 2022 Technical Conference and exhibited three of our SteraMist mobile units.

INTERPHEX is designed to host and connect state-of-the-art market leaders in the pharmaceutical, biotechnology, and life sciences industries.

TOMI thrives in this marketplace due to SteraMist iHP technology offering quick, six-log kill decontamination with impressive material compatibility that provides unique advantages over competitors.

On June 3, 2022, we announced the inclusion of our SteraMist technology on the List Q for the use of its BIT solution to help fight the spread of rare or novel viruses such as Monkeypox virus, SARS-CoV-2 and its variants that causes COVID-19.

TOMI was notified of EPA’s inclusion on June 2, 2022.

On August 4, 2022, we announced received multiple purchase orders for TOMI’s iHP Custom Engineered System (CES).

On August 8, 2022, we announced that SteraMist provides protection against Monkeypox and other pathogens as the world combats increasing frequency of outbreaks.

On August 10, 2022, we announced SteraMist disinfection continues to make advancements in the Food Safety Industry and presented our products at the International Association for Food Production Annual Meeting, where renowned food safety, academic, and governmental professionals attended.

The Company demonstrated its SteraMist iHP cold plasma technology and how SteraMist preserves the shelf life of produce.

A poster summarizing the fourth and latest published paper by the USDA was presented at the meeting, which stated that “H 2 O 2 residues on the surface of tomato fruit decreased rapidly after the treatment.” Disinfecting food while leaving no residue on food is particularly important to maintain the quality and freshness of the product, and we believe that SteraMist, which uses H 2 O 2 solutions, is capable of providing this important advantage.

On September 8, 2022, we announced that Dr.

Halden Shane, Chief Executive Officer, will be presenting virtually at the H.C.

Wainwright 24 th Annual Global Investment Conference to be held September 12-14, 2022.

On September 27, 2022, we announced that a U.S.

based multinational pharmaceutical company is expanding the use of SteraMist decontamination products, advancing SteraMist as this pharmaceutical company’s decontamination standard.

On October 10, 2022, we announced purchase order for an iHP Custom Engineered System (CES) from Avid Bioservices, Inc.

(Avid) for implementation in Avid’s new purpose-built viral vector development and manufacturing facility in Costa Mesa, California.

On October 18, 2022, we announced that SteraMist is to be utilized by a world-renowned influenza vaccine company that focuses on innovative research, transformative technologies, production, and distribution.

On October 20, 2022, we announced that the U.S.

Department of Health and Human Services (HHS), the largest biomedical research agency in the world, has purchased SteraMist disinfection systems for its Africa-based Biosafety Level 3 Laboratory (BSL-3) laboratory.

Research Studies and Publications:

TOMI continues to be active in the global market, using registrations to expand sales opportunities.

Currently, TOMI is in the registration process for India, and renewal to meet new requirements in the Philippines.

Both markets offer excellent potential due to interest in the TOMI suite of decontamination/disinfection solutions.

TOMI is in the annual process of self-audit, where all SOPs are reviewed and updated as needed, and all compliments and complains and requests for changes/new equipment are evaluated.

TOMI has successfully completed a second 24-month storage stability, this one to meet US EPA requirements (first one was for EU BPR submission and had different methods/requirements).

With the patented 7.8% product, Binary Ionization Technology Solution is safe to ship by air and store under normal ambient conditions.

The study will be submitted for EPA review, and expiration date extended going forward upon EPA approval.

The EPA has registered our 0.35% hydrogen peroxide product for the use in green houses, pre harvests and post harvests.

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regulatory agencies in approving new submissions, including TOMI’s new 1% registration.

While TOMI continues to pursue the market for these two EPA registrations, we have partnered and conducted other food safety trials which have shown success in the market.

Partner Indoor Environmental Solutions and Consultants, or IESC, LLC completed their Forensic Architectural & Engineering Investigation and Decontamination Report with Kalera Indoor Farms.

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The recently received report outlines decontamination protocols and calculated savings and estimated service and purchasing options for Kalera.

TOMI has once again partnered with USDA Agricultural Research Service for continued research on BIT solution and the modeling of cold plasma-activated hydrogen peroxide process, evaluating concentration, treatment time, and dwell time on the efficacy of the technology against bacteria on stem scar and smooth surfaces of tomatoes.

Although the final paper is with the reviewers to the journal, the final draft of this latest publication was approved late March of this year.

Received great preliminary biotoxin iHP inactivation data against Ricin A Chain by a U.S.

government agency who will be expanding testing to Botulinum and SEB toxoids.

TOMI is working directly with the agency to find funding and supporting efforts to validate their toxoid protocols against fully functional toxins.

This same agency is constructing a scalable, reusable, portable iHP decontamination chamber for field remediation of biologically contaminated equipment.

Bio-Risk Decontamination and Restoration owner David Mark Quigley published the book Mycotoxin Deactivation:

A Successful Mycotoxin Treatment and Reduction Case Study on the assessment, identification, treatment, and deactivation and validation procedures of Mycotoxins highlighting SteraMist iHP as the treatment for deactivating and render them inert.

The book is available online at Amazon, Apple Books, and Rakuten kobo.

As previously discussed, TOMI has engaged HYGCEN Germany GmbH to perform a quantitative test of germ carriers for airborne room disinfection and testing of the effectiveness of a method for disinfecting room air to meet the new EU norm (standard) EN 17272.

Certification that Binary Ionization Technology meets the new standard will continue to position iHP as the premier decontamination/disinfection technology available on the market today.

On September 16, 2021, we announced that our technology has passed the EN 17272 evaluation.

The EN 17272 is the European standard for airborne room disinfection in the form of gas, steam and/or aerosol.

We have participated in a large multi-year federal funded study, known as the “SHIELD study” that compares hospital manual cleaning to a SteraMist ® mechanical cleaning.

Preliminary results collected by the current hospitals in the study is showing a decrease in the transference of pathogens resulting in HAIs and Clostridium difficile infections in the rooms that used SteraMist ® for their terminal clean, as compared to the rooms that have been manually cleaned.

Sufficient data has been collected to complete the study in 2021, and we expect that data to be provided to the examiners with a published paper to soon follow.

Recent SteraMist food safety customers and partners are conducting further studies to prove SteraMist in the industry.

Soli Organic Inc., one of the nation’s largest commercial indoor organic growing companies, obtained multiple SteraMist systems to protect their controlled indoor growing food process from costly fungus, Botrytis.

The combination of all SteraMist systems purchased will be used daily, on a continuous cycle, to disinfect everything from seed trays that the soil and plants sit in, and the plants themselves.

Additional studies have been conducted with Kalera that demonstrated the efficacy of SteraMist in a large-scale CEA vertical farm.

Analysis concluded dramatic reduction in fungal growth, mold spores, and yield loss from environmental bio-loads, with notable efficacy against Alternaria, a species causing 20% yield loss in all annual vegetable production.

Levels went from high/ medium to non-existent/nondetectable with the following spores:

Alternaria (Ulocladium), Aspergillus/Penicillium, Acremonium++, and Botrytis.

SteraMist is also working with a few partners in the cannabis industry.

Enviro-Mist has been testing cannabis flower incubated with Aspergillus flavus, Aspergillus fumigatus, Aspergillus niger, Aspergillus terreus, Escherichia Coli, Shigella Spp, Salmonella, Staphylococcus aureus, yeasts and molds and subsequently treated using ionized Hydrogen Peroxide (iHP) to the dried material.

Potency results of the cannabis plant were not affected, and no additional residual solvents were found.

The process was successful in complete remediation of all microbial contaminants.

Another partner TOMI is working with has proven SteraMist that has reduced microbial count on cannabis flower from 400cfu/g to non-detectable without affecting the level of THC.

SteraMist continues to penetrate the market with additional studies and bringing on premier clients.

Registrations & Intellectual Property (IP):

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We have obtained two related United States utility patents giving us protection of our technology until the year 2038.

We have obtained utility patents for our technologies in diverse countries such as Israel, Australia, Taiwan, Canada, Mexico, and, currently pending, in Brazil, and continue to pursue protections all over the world.

We have submitted utility patent applications in multiple countries, including Europe, China, Brazil, and Australia for further additional applications of SteraMist BIT, and a related application has already been determined novel and inventive in Taiwan.

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Financial Operations Overview

Our financial position as of June 30, 2022 and December 31, 2022, respectively, was as follows:

June 30, 2022

Our financial position as of September 30, 2022 and December 31, 2022, respectively, was as follows:

September 30, 2022

December 31, 2021

1 unchanged sentence

Cash and cash equivalents

Deferred Revenue

Accounts receivable, net

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Other Receivables

Current liabilities

Current liabilities – Excluding Deferred Revenue

Long-term liabilities

Working Capital

During the six months ended June 30, 2022, our debt and liquidity positions were affected by the following:

During the nine months ended September 30, 2022, our debt and liquidity positions were affected by the following:

Net cash used in operations of approximately $929,000.

Customer deposits received of approximately $607,000.

Results of Operations for the Three and Six Months Ended June 30, 2022 Compared to the Three and Six Months Ended June 30, 2021

Results of Operations for the Three and Nine Months Ended September 30, 2022 Compared to the Three and Nine Months Ended September 30, 2021

For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

Total Operating Expenses (1)

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$ (2,776,000 )

$ (2,289,000 )

Basic Net Income (Loss) per share

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Sales and Revenue

Total revenue for the three months ended June 30, 2022 and 2021, was $1,458,000 and $1,466,000, respectively, representing a decrease of $8,000, or 1% compared to the same prior year period.

For the six months ended June 30, 2022 and 2021, our total revenue was $3,767,000 and $3,539,000, respectively, representing an increase of $228,000, or 6% compared to the same prior year period.

Total revenue for the three months ended September 30, 2022 and 2021, was $1,760,000 and $2,205,000, respectively, representing a decrease of $445,000, or 20% compared to the same prior year period.

The decline in revenue is due to the customer-imposed delivery restrictions for equipment and CES orders and the related impact to our revenue recognition and deferred revenue.

As customers mature through the product and adoption cycle and our sales pipeline converts to revenue, we expect to generate more predictable sales quarter over quarter.

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For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

Product and Service Revenue

For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

SteraMist Product

Service and Training

SteraMist product-based revenues for the three months ended June 30, 2022 and 2021, were $1,134,000 and $1,026,000, representing an increase of $108,000 or 11% when compared to the same prior year period.

Product based revenues for the six months ended June 30, 2022 and 2021, were $3,020,000 and $2,673,000, representing an increase of $347,000 or 13% when compared to the same prior year period.

SteraMist product-based revenues for the three months ended September 30, 2022 and 2021, were $1,435,000 and $1,657,000, representing a decrease of $222,000 or 13% when compared to the same prior year period.

Product based revenues for the nine months ended September 30, 2022 and 2021, were $4,448,000 and $4,439,000, representing an increase of $119,000 or 3% when compared to the same prior year period.

The increase in product-based revenue was attributable to higher mobile equipment sales.

Our service-based revenue for the three months ended June 30, 2022 and 2021, was $324,000 and $440,000, respectively, representing a decrease of 26%.

For the six months ended June 30, 2022 and 2021, our service-based revenue was $747,000 and $866,000, representing a decrease of $119,000 or 14% when compared to the same prior period in 2021 The decline in service and training revenue was due to the timing of certain iHP service that occurred in the prior year period.

Our service-based revenue for the three months ended September 30, 2022 and 2021, was $325,000 and $548,000, respectively, representing a decrease of 41%.

For the nine months ended September 30, 2022 and 2021, our service-based revenue was $1,079,000 and $1,415,000, representing a decrease of $336,000 or 24% when compared to the same prior period in 2021.

The decline in service and training revenue was due to the timing of certain iHP service that occurred in the prior year period.

Revenue by Geographic Region

For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

United States

International

Our domestic revenue for the three months ended June 30, 2022 and 2021 was $1,206,000 and $1,184,000, respectively, an increase of $22,000, or 2% when compared to the same prior year period.

Internationally, our revenue for the three months ended June 30, 2022 and 2021, was approximately $252,000 and $282,000, respectively, representing a decrease of $30,000 or 11% when compared to the same prior year period.

Our domestic revenue for the three months ended September 30, 2022 and 2021 was $1,632,000 and $2,028,000, respectively, a decrease of $396,000, or 20% when compared to the same prior year period.

For the nine months ended September 30, 2022 and 2021, our domestic revenue was $4,366,000 and $5,017,000, respectively, representing a decrease of $681,000 or 13%.

Internationally, our revenue for the three months ended September 30, 2022 and 2021, was approximately $128,000 and $177,000, respectively, representing a decrease of $49,000 or 28% when compared to the same prior year period.

For the nine months ended September 30, 2022 and 2021, our domestic international revenue was $1,191,000 and $727,000, respectively, representing an increase of $464,000 or 64%.

Cost of Sales

For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

Cost of Sales

Cost of sales was $537,000 and $524,000 for the three months ended June 30, 2022 and 2021, respectively, an increase of $13,000, or 2%, compared to the prior year.

Our gross profit as a percentage of sales for the three months ended June 30, 2022 was 63.1% compared to 64.2% in the same prior period, respectively.

The lower gross profit is attributable to the product mix in sales.

Cost of sales was $1,425,000 and $1,362,000 for the six months ended June 30, 2022 and 2021, respectively, an increase of $63,000, or 5%, compared to the prior year.

The primary reason for the increase in cost of sales is attributable to higher revenue in the current period.

Our gross profit as a percentage of sales for the six months ended June 30, 2022 was 62.2% compared to 61.5% in the same prior period, respectively.

Cost of sales was $689,000 and $890,000 for the three months ended September 30, 2022 and 2021, respectively, a decrease of $201,000, or 23%, compared to the prior year.

Our gross profit as a percentage of sales for the three months ended September 30, 2022 was 60.9% compared to 59.6% in the same prior period, respectively.

The higher gross profit is attributable to the product mix in sales.

Cost of sales was $2,114,000 and $2,252,000 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $138,000, or 6%, compared to the prior year.

Our gross profit as a percentage of sales for the nine months ended September 30, 2022 was 61.8% compared to 60.8% in the same prior period, respectively.

The higher gross profit is attributable to the product mix in sales.

Professional Fees

For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

Professional Fees

Professional fees are comprised mainly of legal, accounting, and financial consulting fees.

Professional fees were $95,000 and $107,000 for the three months ended June 30, 2022 and 2021, respectively, a decrease of approximately $12,000, or 11%, in the current year period.

Professional fees were $285,000 and $280,000 for the six months ended June 30, 2022 and 2021, respectively, an increase of approximately $5,000, or 2%, in the current year period.

Professional fees were $106,000 and $118,000 for the three months ended September 30, 2022 and 2021, respectively, a decrease of approximately $12,000, or 10%, in the current year period.

Professional fees were $392,000 and $398,000 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of approximately $6,000, or 2%, in the current year period.

Depreciation and Amortization

For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

Depreciation and Amortization

Depreciation and amortization were approximately $83,000 and $72,000 for the three months ended June 30, 2022 and 2021, respectively, representing an increase of $11,000, or 15%.

Depreciation and amortization were approximately $165,000 and $156,000 for the six months ended June 30, 2022 and 2021, respectively, representing an increase of $9,000, or 6%.

Depreciation and amortization were approximately $83,000 and $70,000 for the three months ended September 30, 2022 and 2021, respectively, representing an increase of $13,000, or 19%.

Depreciation and amortization were approximately $248,000 and $226,000 for the nine months ended September 30, 2022 and 2021, respectively, representing an increase of $22,000, or 10%.

The increase in depreciation expense is due to a higher amount of fixed assets being depreciated in the current year periods when compared to the same prior year periods.

Selling Expenses

For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

Selling Expenses

Selling expenses for the three months ended June 30, 2022 were approximately $566,000, as compared to $335,000 for the quarter ended June 30, 2021, representing an increase of approximately $231,000 or 69%.

The increase in selling expenses is attributable to higher sales commissions and our increased tradeshow presence the current year period.

Selling expenses for the six months ended June 30, 2022 were approximately $907,000, as compared to $810,000 for the period ended June 30, 2021, representing an increase of approximately $97,000 or 12%.

The increase in selling expenses is attributable to higher sales commissions and our increased tradeshow presence the current year period.

Selling expenses for the three months ended September 30, 2022 were approximately $365,000, as compared to $465,000 for the quarter ended September 30, 2021, representing a decline of approximately $100,000 or 22%.

The decline in selling expenses is attributable to lower sales in the current year period and higher sales commissions and our increased tradeshow presence the current year period.

Selling expenses for the nine months ended September 30, 2022 were approximately $1,272,000, as compared to $1,275,000 for the period ended September 30, 2021, representing a decrease of approximately $3,000.

Research and Development

For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

Research and Development

Research and development expenses for the three months ended June 30, 2022 were approximately $99,000, as compared to $206,000 for the quarter ended June 30, 2021, representing a decrease of approximately $107,000, or 52%.

Research and development expenses for the six months ended June 30, 2022 were approximately $136,000, as compared to $401,000 for the period ended June 30, 2021, representing a decrease of approximately $265,000, or 66%.

The research and development expenses is attributable to product development charges we incurred on the prior year period which did not reoccur in the current year period.

Research and development expenses for the three months ended September 30, 2022 were approximately $118,000, as compared to $93,000 for the quarter ended September 30, 2021, representing an increase of approximately $25,000, or 27%.

The increase is attributable to the timing of certain projects and testing that occurred in the current year period.

Research and development expenses for the nine months ended September 30, 2022 were approximately $225,000, as compared to $495,000 for the period ended September 30, 2021, representing a decrease of approximately $240,000, or 78%.

The decrease in research and development expenses is attributable to product development charges in connection with our SteraPak we incurred in the prior year period which did not reoccur in the current year period and lower product development costs associated with current R&D projects being performed internally.

Consulting Fees

For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

Consulting Fees

Consulting fees were $40,000 and $96,000 for the three months ended June 30, 2022 and 2021, respectively, representing a decrease of $56,000, or 58%, in the current quarter period.

Consulting fees were $103,000 and $202,000 for the six months ended June 30, 2022 and 2021, respectively, representing a decrease of $99,000, or 49%, in the current quarter period.

Consulting fees were $43,000 and $64,000 for the three months ended September 30, 2022 and 2021, respectively, representing a decrease of $21,000, or 33%, in the current quarter period.

Consulting fees were $146,000 and $266,000 for the nine months ended September 30, 2022 and 2021, respectively, representing a decrease of $120,000, or 45%, in the current quarter period.

The decrease is due to the timing of certain projects that occurred in the prior year that did not occur in the same current year period.

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For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

General and Administrative

General and administrative expense includes salaries and payroll taxes, rent, insurance expense, utilities, office expense, product registration costs, equity compensation and bad debt expense.

General and administrative expense was $902,000 and $1,319,000 for the three months ended June 30, 2022 and 2021, respectively, a decrease of $417,000 in the current period.

The decline in general and administrative expense is primarily attributable to lower payroll costs, insurance and bad debt expense in the current year period.

General and administrative expense was $2,268,000 and $3,032,000 for the six months ended June 30, 2022 and 2021, respectively, a decrease of $764,000 in the current period.

General and administrative expense was $1,009,000 and $991,000 for the three months ended September 30, 2022 and 2021, respectively, an increase of $18,000 in the current period.

General and administrative expense was $3,277,000 and $4,023,000 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $746,000 in the current period.

The decline in general and administrative expense is primarily attributable to lower payroll costs, insurance and bad debt expense in the current year period.

1 unchanged sentence

For The Three Months Ended

For The Six Months Ended

September 30,

For The Nine Months Ended

September 30,

Gain Upon Debt Extinguishment

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Gain upon debt extinguishment of $415,000 in connection with the forgiveness of a loan payable.

Interest income was approximately $1,000 for the six months ended June 30, 2022 and 2021.

Interest expense was $0 and $1,000 for the six months ended June 30, 2022 and 2021, respectively.

Interest income was approximately $1,000 for the nine months ended September 30, 2022 and 2021.

Interest expense was $0 and $1,000 for the nine months ended September 30, 2022 and 2021, respectively.

Liquidity and Capital Resources

As of June 30, 2022, we had cash and cash equivalents of $4,800,000 and working capital of $9,925,000.

As of September 30, 2022, we had cash and cash equivalents of $4,335,000 and working capital of $9,319,000.

Our principal capital requirements are to fund operations, invest in research and development and capital equipment, and the continued costs of public company reporting requirements.

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The Warrants have an exercise price of $1.68 per share, are exercisable immediately upon issuance and have a term of exercise equal to five years from the date of issuance.

For the six months ended June 30, 2022 and 2021, we incurred a loss from operations of ($1,523,000) and ($2,704,000), respectively.

Cash used in operations for the six months ended June 30, 2022 and 2021, was $451,000 and $2,512,000, respectively.

A breakdown of our statement of cash flows for the six months ended June 30, 2022 and 2021 is provided below:

For the six months ended June 30,

For the nine months ended September 30, 2022 and 2021, we incurred a loss from operations of ($2,175,000) and ($3,190,000), respectively.

Cash used in operations for the nine months ended September 30, 2022 and 2021, was $929,000 and $3,823,000, respectively.

A breakdown of our statement of cash flows for the nine months ended September 30, 2022 and 2021 is provided below:

For the nine months ended September 30,

Net Cash Provided By (Used) in Operating Activities

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Operating Activities

Cash used in operating activities for the six months ended June 30, 2022 and 2021 was $451,000 and $2,512,000, respectively.

Cash used in operating activities for the nine months ended September 30, 2022 and 2021 was $929,000 and $3,823,000, respectively.

The decline was attributable to a lower current year loss and customer deposits as well as increased purchases of inventory in the prior year to replenish our levels.

Investing Activities

Cash used in investing activities for the six months ended June 30, 2022 and 2021 was $66,000 and 198,000, respectively.

Cash used in investing activities for the nine months ended September 30, 2022 and 2021 was $78,000 and 295,000, respectively.

The decrease is attributable to fixed assets purchased in the prior year and capitalized patent and trademark costs.

Financing Activities

Cash provided by financing activities for six months ended June 30 2022 and 2021 was $0.

Cash provided by financing activities for nine months ended September 30 2022 and 2021 was $25,000 and $4,582,000, respectively.

The decrease as a result of the proceeds we received in connection with the sale of our common stock and warrants in the prior year period.

Our revenues can fluctuate due to the following factors, among others:

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Contract Balances

As of June 30, 2022, and December 31, 2021 we did not have any unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

As of September 30, 2022, and December 31, 2021 we did not have any unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Arrangements with Multiple Performance Obligations

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Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse.

The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits that are, on a more likely than not basis, not expected to be realized in accordance with Accounting Standards Codification (ASC) guidance for income taxes.

Net Income (Loss) Per Share

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We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations.

We had no long-lived asset impairment charges for the three months ended June 30, 2022 and 2021.

We had no long-lived asset impairment charges for the three and nine months ended September 30, 2022 and 2021.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis