What changed in this filing

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Item 9A. Controls and Procedures

2023-03-16 compared with 2022-03-29 · 243 added, 436 removed, 994 unchanged (41% of the section changed)

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Our disclosure controls and procedures are intended to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, our management has concluded that, as of as of December 31, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level because we have identified a material weakness in our internal control over financial reporting as discussed below.

Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were effective.

Our management has concluded that the financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives.

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Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm as we are not an accelerated filer, nor a large accelerated filer.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management have concluded that, as of December 31, 2021, we did not maintain effective controls over the preparation, review, presentation and disclosure of our financial statements relating to bad debt.

Specifically, we noted the following

We did not design or maintain effective controls with respect to the review of the accounting for bad debt reserves, including maintaining effective controls to prevent or detect errors in the assessment of bad debt reserves.

Specifically, our policy for bad debt reserves was primarily based on customer relationships and managements view of the collectability of the receivables.

The bad debt expense analysis resulted in a material adjustment to accounts receivable and bad debt expense for the year ended December 31, 2021.

We did not maintain effective controls to identify and maintain segregation of duties to support the identification, authorization, approval, accounting for, and the disclosure of bad debt reserves.

These control deficiencies did not result in a misstatement to our consolidated financial statements for the year ended December 31, 2021 following the adjustment to accounts receivable as discussed above.

However, these control deficiencies, if not remediated, could result in a misstatement to the annual or interim consolidated financial statements which would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected.

Accordingly, our management has determined that these control deficiencies constitute material weaknesses.

Remediation Plans

Our management, with oversight from our Audit Committee, is in the process of developing and implementing remediation plans in response to the identified material weaknesses described above.

Specifically, we are revising our bad debt reserve policy to consider the time of the balances outstanding along with the credit worthiness of the customer and revising our review and approval policies and procedures to include segregation of duties and approvals.

We believe the measures described above will remediate the control deficiencies we have identified and strengthen our internal control over financial reporting.

We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our financial reporting controls and procedures.

Remediation of Prior Year Material Weakness

The material weakness that was previously disclosed as of December 31, 2021 was remediated as of December 31, 2022.

See Management’s Report on Internal Control over Financial Reporting above.

As disclosed in the quarterly reports on Form 10-Q for the first three quarters of 2022, the Company has implemented and executed the Company’s remediation plans, and as of December 31, 2022, such remediation plans were successfully tested and the material weakness was deemed remediated.

Changes in Internal Control Over Financial Reporting

During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

We previously disclosed material weaknesses in our internal control over financial reporting related to the matter discussed above.

We took actions to remediate the material weaknesses relating to our internal controls over financial reporting, as described below.

The remedial activities we took included weekly meetings with the financial team to review any issues arising from accounts receivable, implementation of a new policy for the identification, authorization, approval, accounting for, and the disclosure of bad debt reserves.

The new policy no longer primarily relies on management’s view of customer relationships, rather it provides supporting controls around management’s view collectability of receivables and better segregates the duties to support the identification, authorization, approval, accounting for, and the disclosure of bad debt reserves.

As a result of the remediation activities and controls in place as of December 31, 2022, described above, we have remediated the previously disclosed material weaknesses.

However, completion of remediation does not provide assurance that our remediated controls will continue to operate properly or that our financial statements will be free from error.

There may be undetected material weaknesses in our internal control over financial reporting, as a result of which we may not detect financial statement errors on a timely basis.

Moreover, in the future we may implement new offerings and engage in business transactions, such as acquisitions, reorganizations or implementation of new information systems, that could require us to develop and implement new controls and could negatively affect our internal control over financial reporting and result in material weaknesses.

We continue to develop our internal controls, processes and reporting systems in an effort to maintain the effectiveness of our internal control over financial reporting, and we expect to incur ongoing costs in this effort.

However, we may not be successful in developing and maintaining adequate internal controls, which may undermine our ability to provide accurate, timely and reliable reports on our financial and operating results.

There were no additional changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Other Information

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

Directors, Executive Officers and Corporate Governance

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Lim has more than 26 years of experience in the banking and finance industry.

For more than the past five years, he has been a fellow of the Singapore Institute of Directors and is currently an independent non-executive director on the board of two publicly listed companies on the Singapore Stock Exchange.

For more than the past five years, he has been a fellow of the Singapore Institute of Directors and is currently an independent non-executive director on the board of three publicly listed companies, with two on the Singapore Stock Exchange and one on the Bursa Malaysia Stock Exchange.

Lim has served in various directorship roles throughout the past including with CSE Global Limited until April 2017, Across Asia Limited (Cayman Islands) until August 2017, and OUE Commercial REIT Management Private Limited until September 2019.

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Ltd., EpicQuant Pte.

Ltd., Kairos Asia Outreach, and TML FinTech Pte.

and Kairos Asia Outreach.

Lim has worked in various senior management positions for several regional and multi-national organizations, including UBS Capital Asia Pacific Limited, The NatSteel Group, Rothschild Ventures Asia Limited and The Singapore Technologies Group.

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Our executive officers are appointed by our Board and serve at its discretion.

Each member of the Board attended at least 75% of the total meetings held by the Board.

Audit Committee

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Chairman and CEO (2)

2,835,090 (2)

Nick Jennings (5)

_______________

The amounts shown in this column represent the aggregate grant date fair value of stock, option and/or warrant award, as applicable, granted during the year computed in accordance with FASB ASC Topic 718.

See Note 2 of the notes to our audited consolidated financial statements contained in this Annual Report on Form 10-K for a discussion of valuation assumptions made in determining the grant date fair value of the awards.

During the year ended December 31, 2020, we issued Dr.

Shane five and ten-year warrants to purchase an aggregate of 543,750 shares of common stock as executive compensation.

The exercise price of the warrants range was $1.20-6.95 per share, based on the three-day trailing VWAP on the date of issuance.

Utilizing the Black-Scholes pricing model, we determined the fair value of the warrants issued to Dr.

Shane was approximately $2,835,000, with the following assumptions:

During the year ended December 31, 2022, we issued an option to purchase 172,500 shares of common stock to our Chief Executive Officer at an exercise price of $1.12 per share pursuant to an employment agreement.

The option was valued at $178,281 and has a contractual term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

volatility, 156%;

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risk free interest rate, 1.65%;

and a life of 5-10 years.

The grant date fair value of each share of common stock underlying the warrants range was $1.04-6.99.

We recognized equity-based compensation to Dr.

Shane of approximately $2,835,000 on the warrants during the year ended December 31, 2020 pursuant to an employment agreement.

and an expected life of 5 years.

The grant date fair value of each share of common stock underlying the warrant was $1.03.

Please refer to Item 11 Employment Agreements for additional details of Dr.

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The $314,500 is included as other compensation.

During the year ended December 31, 2020, we issued Ms.

Shane a ten-year warrant to purchase an aggregate of 6,250 shares of common stock as executive compensation.

The exercise price of the warrant was $4.00 per share.

Utilizing the Black-Scholes pricing model, we determined the fair value of the warrants issued to Ms.

Shane was approximately $25,000, with the following assumptions:

volatility, 173%;

expected dividend yield, 0%;

risk free interest rate, 0.68%;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrants was $4.00.

During the year ended December 31, 2020, we issued Ms.

Shane’s options to purchase an aggregate of 31,250 shares of common stock as executive compensation.

The exercise price of the option was $7.06 per share.

Utilizing the Black-Scholes pricing model, we determined the fair value of the option issued to Ms.

Shane was approximately $202,000, with the following assumptions:

During the year ended December 31, 2022, we issued an option to purchase 57,500 shares of common stock to our Chief Operating Officer at an exercise price of $1.12 per share pursuant to an employment agreement.

The option was valued at $59,427 and has a contractual term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

volatility, 156%;

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risk free interest rate, 1.65%;

and a life of 5 years.

The grant date fair value of each share of common stock underlying the options was $6.47.

In aggregate, we recognized equity-based compensation to Ms.

Shane of approximately $227,000 on the options during the year ended December 31, 2020.

and an expected life of 5 years.

The grant date fair value of each share of common stock underlying the warrant was $1.03.

The other compensation in the amount of $13,500 represents an auto allowance pursuant to Ms.

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Shane’s annual compensation.

During the year ended December 31, 2020, we issued Mr.

Jennings a ten-year warrant to purchase an aggregate of 6,250 shares of common stock as executive compensation.

The exercise price of the warrant was $4.00 per share.

Utilizing the Black-Scholes pricing model, we determined the fair value of the warrants issued to Mr.

Jennings was approximately $25,000, with the following assumptions:

During the year ended December 31, 2022, 2022 we issued an option to purchase 40,000 shares of common stock to our Chief Financial Officer at an exercise price of $1.12 per share pursuant to an employment agreement.

The option was valued at $41,340 and has a contractual term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

volatility, 156%;

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risk free interest rate, 1.65%;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrants was $4.00.

We recognized equity-based compensation to Mr.

Jennings of approximately $25,000 on the options during the year ended December 31, 2020.

and an expected life of 5 years.

The grant date fair value of each share of common stock underlying the warrant was $1.03.

Please refer to Item 11 Employment Agreement for additional details of Mr.

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Nick Jennings

________________

Reflects the 1-for-8 reverse stock split of our Common Stock and Series A Preferred Stock effected on September 10, 2020.

Warrants vested in increments of 125,000 on February 11, 2014, February 11, 2015, and February 11, 2016 and have a term of five years.

Warrants vested on July 17, 2017 and have a term of five years.

Warrants vested on December 22, 2017 and have a term of five years.

Warrants vested on November 19, 2018 and have a term of five years.

Warrants vested on January 31, 2020 and have a term of five years.

Warrants vested on April 24, 2020 and have a term of ten years.

Warrants April 24, 2020 and have a term of ten years.

Warrants vested on October 01, 2020 and have a term of ten years.

Options vested on January 18, 2022 and have a term of ten years.

Warrants vested on December 22, 2017 and were modified to expire on December 22, 2032

Warrants vested on November 19, 2018 and were modified to expire on November 19, 2032.

Warrants vested on January 26, 2019 and where modified to expire on January 26, 2034.

Options pursuant to the 2016 Plan vested on January 5, 2018 and have a term of five years.

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Options pursuant to the 2016 Plan vested on October 01, 2020 and have a term of five years.

Options vested on January 18, 2022 and have a term of ten years.

Options pursuant to the 2016 Plan vested on January 26, 2018 and have a term of five years.

Warrants vested on April 24, 2020 and have a term of ten years.

Options vested on January 18, 2022 and have a term of ten years.

Employment Agreements, Termination of Employment and Change-in-Control Arrangements

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Fees earned or

Option awards

Walter Johnsen (1)

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Lim Boh Soon (3)

Paul also received $99,000 in cash compensation in exchange for legal services rendered during 2021.

In January 2021, we issued Mr.

Paul 12,500 shares of common stock that were valued at $52,625.

Paul resigned from his position as a director with the company on August 2, 2021.

Johnsen was elected to the Board on January 29, 2016.

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The term of his agreement as director commenced on February 1, 2018 for up to three years unless re-elected or until a successor is elected, or resignation or removal.

Mr Lim was re-elected to the board for a 3-year term at our 2021 annual meeting.

Lim was re-elected to the board for a 3-year term at our 2021 annual meeting.

Our agreement with Mr.

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Equity compensation plans not approved by security holders

1,185,447 (3)

(1) Reflects the 1-for-8 reverse stock split of our Common Stock and Series A Preferred Stock effected on September 10, 2020.

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information with respect to the beneficial ownership of our common stock and Series A preferred stock (together, “Voting Stock”) as of February 25, 2022 for:

The following table sets forth certain information with respect to the beneficial ownership of our common stock and Series A preferred stock (together, “Voting Stock”) as of March 7, 2023 for:

each person (or group of affiliated persons) known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock or Series A preferred stock;

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Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the following table have sole voting and investment power with respect to all shares of Voting Stock that they beneficially own, subject to applicable community property laws.

Applicable percentage ownership is based on 16,811,513 shares of common stock and 63,750 shares of Series A preferred stock outstanding at February 25, 2022.

In computing the number of shares of Voting Stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of Voting Stock subject to options, warrants or other convertible securities held by that person or entity that are currently exercisable or releasable or that will become exercisable or releasable within 60 days of February 25, 2022.

Applicable percentage ownership is based on 16,811,513 shares of common stock and 63,750 shares of Series A preferred stock outstanding at March 7, 2023.

We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.

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(2) Based on Form 3 filed with the SEC by Lau Sok Huy on January 24, 2018.

(3) Consists of:

(i) 2,411,023 shares of Common Stock held of record by Dr.

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and (iv) 1,410,000 shares of Common Stock issuable upon the exercise of warrants and options to purchase Common Stock held by Dr.

Shane that are exercisable or will become exercisable within 60 days of February 25, 2022.

Shane that are exercisable or will become exercisable within 60 days of March 7, 2023.

Shane is a co-trustee of the Shane Family Trust and may be deemed to share voting and investment power over the securities held by the trust.

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Shane disclaims ownership of such shares held by his wife, except to the extent of his pecuniary interest.

(4) Consists of:

(i) 236,414 shares of Common Stock held of record by Ms.

and (ii) 238,750 shares of Common Stock issuable upon the exercise of warrants and options to purchase Common Stock held by Ms.

Shane that are exercisable or will become exercisable within 60 days of February 25, 2022.

Shane that are exercisable or will become exercisable within 60 days of March 7, 2023.

(5) Consists of:

(i) 26,519 shares of Common Stock held of record by Mr.

and (ii) 77,500 shares of Common Stock issuable upon the exercise of warrants and options to purchase Common Stock held by Mr.

Jennings that are exercisable or will become exercisable within 60 days of February 25, 2022.

Jennings that are exercisable or will become exercisable within 60 days of March 7, 2023.

(6) Consists of:

(i) 88,750 shares of Common Stock held of record by Mr.

and (ii) 3,125 shares of Common Stock issuable upon exercise of stock options that are exercisable or will become exercisable within 60 days of February 25, 2022.

and (ii) 3,125 shares of Common Stock issuable upon exercise of stock options that are exercisable or will become exercisable within 60 days of March 7, 2023.

(7) Consists of:

(i) 88,750 shares of Common Stock held of record by Ms.

and (ii) 3,125 shares of Common Stock issuable upon exercise of stock options that are exercisable or will become exercisable within 60 days of February 25, 2022.

and (ii) 3,125 shares of Common Stock issuable upon exercise of stock options that are exercisable or will become exercisable within 60 days of March 7, 2023.

(8) Consists of 143,774 shares of Common Stock held of record by Dr.

(9) Consists of:

(i) 3,306,830 shares of Common Stock;

(ii) 1,150,000 shares of Common Stock issuable upon the exercise of warrants to purchase Common Stock;

and (iii) 420,000 shares of Common Stock issuable upon exercise of stock options that are exercisable or will become exercisable within 60 days of February 25, 2022.

and (iii) 582,500 shares of Common Stock issuable upon exercise of stock options that are exercisable or will become exercisable within 60 days of March 7, 2023.

Changes in Control

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Principal AccountING Fees and Services

On August 30, 2021, the Audit Committee of the Company determined that it is in the best interest of the Company to change the Company’s independent registered public accounting firm, Wolinetz, Lafazan & Company, P.C.

(“Wolinetz, Lafazan & Company”), because the lead partner announced his decision to resign for personal reasons, and the firm would no longer have sufficient resources to continue to serve as the Company’s independent registered public accounting firm.

Accordingly, the Audit Committee terminated the engagement of Wolinetz, Lafazan & Company, effective as of August 30, 2021.

The reports of Wolinetz, Lafazan & Company on the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2020 and 2019 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principle.

During two fiscal years ended December 31, 2020 and the subsequent interim period through August [30], 2021, there were no disagreements as described under Item 304(a)(1)(iv) of Regulation S-K with Wolinetz, Lafazan & Company on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Wolinetz, Lafazan & Company’s satisfaction, would have caused Wolinetz, Lafazan & Company to make reference to the subject matter thereof in connection with its reports on the financial statements of the Company for such years.

In addition, during the two fiscal years ended December 31, 2020 and the subsequent interim period through August 30, 2021, there were no reportable events as described under Item 304(a)(1)(v) of Regulation S-K.

The Company has provided Wolinetz, Lafazan & Company with a copy of a Current Report on Form 8-K announcing the resignation and appointment, and requested that Wolinetz, Lafazan & Company furnish it with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with the above statements.

A copy of Wolinetz, Lafazan & Company’s letter, dated September 1, 2021, was attached hereto as Exhibit 16.1 to the Form 8-K.

Effective as of August 30, 2021, the Audit Committee approved the engagement of Rosenberg Rich Baker Berman, P.A as the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements as of and for the year ending December 31, 2021 subject to Rosenberg Rich Baker Berman, P.A.

completion of its standard client acceptance procedures.

During the years ended December 31, 2020 and December 31, 2019 and the subsequent interim period through August 30, 2021, the Company did not consult with Rosenberg Rich Baker Berman, P.A.

with respect to (i) the application of accounting principles to a specified transaction, either completed or proposed, the type of audit opinion that might be rendered on our financial statements, and neither a written report nor oral advice was provided to us by Rosenberg Rich Baker Berman, P.A.

that was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue, or (ii) any other matter that was the subject of a disagreement or a “reportable event.”

Accountant Fees

The following table presents the aggregate fees billed for audit and other services provided by our independent registered public accounting firms, Wolinetz, Lafazan & Company and and Rosenberg Rich Baker Berman, P.A, during the 2021 and 2020 fiscal years:

The following table presents the aggregate fees billed for audit and other services provided by our independent registered public accounting firm, Rosenberg Rich Baker Berman, P.A., during the 2022 and 2021 fiscal years:

For the Fiscal Years

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(1) Audit Fees- Audit fees represent the professional services rendered for the audit of our annual financial statements and the review of our financial statements included in quarterly reports, along with services normally provided by the accounting firm in connection with statutory and regulatory filings or engagements.

Audit-Related Fees- Audit-related fees represent professional services rendered for assurance and related services by Wolinetz, Lafazan & Company, P.C.

and Rosenberg Rich Baker Berman, P.A that were reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees.

(2) Audit-Related Fees- Audit-related fees represent professional services rendered for assurance and related services by Rosenberg Rich Baker Berman, P.A.

that were reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees.

(3) Tax Fees- Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning.

All Other Fees- All other fees represent fees billed for products and services provided by Wolinetz, Lafazan & Company, P.C and Rosenberg Rich Baker Berman, P.A other than the services reported for the other categories.

(4) All Other Fees- All other fees represent fees billed for products and services provided by Rosenberg Rich Baker Berman, P.A other than the services reported for the other categories.

Pre-Approval Policies and Procedures of the Audit Committee

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The exhibits listed on the accompanying Exhibit Index are filed (or incorporated by reference herein) as part of this Annual Report on Form 10-K.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

March 29, 2022

TOMI ENVIRONMENTAL SOLUTIONS, INC.

/s/ HALDEN S.

Halden S Shane

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

POWER OF ATTORNEY

The undersigned directors and officers of TOMI Environmental Solutions, Inc.

constitute and appoint Halden S.

Shane and Nick Jennings, or either of them, as their true and lawful attorney and agent with power of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorney and agent may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments hereto;

and we do hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ HALDEN S.

Chairman of the Board and Chief Executive

March 29, 2022

Officer (Principal Executive Officer)

/s/ NICK JENNINGS

Chief Financial Officer (Principal Financial

March 29, 2022

Nick Jennings

Officer and Principal Accounting Officer)

/s/ ELISSA J.

March 29, 2022

/s/ WALTER C.

March 29, 2022

/s/ LIM BOH SOON

March 29, 2022

FORM 10-K SUMMARY

EXHIBIT INDEX

Exhibit Number

Description of Exhibit

Filed Herewith

Articles of Restatement of the Registrant, effective October 6, 2009

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Shane, effective as of January 1, 2018

Amendment to Executive Employment Agreement

Form of Securities Purchase Agreement dated as of September 26, 2021, between the Registrant and the purchasers named therein

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The information in Exhibit 32.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act (including this report), unless the Registrant specifically incorporates the foregoing information into those documents by reference.

March 16, 2023

TOMI ENVIRONMENTAL SOLUTIONS, INC.

/s/ HALDEN S.

Halden S Shane

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

POWER OF ATTORNEY

The undersigned directors and officers of TOMI Environmental Solutions, Inc.

constitute and appoint Halden S.

and we do hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue hereof.

/s/ HALDEN S.

Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

March 16, 2023

/s/ NICK JENNINGS

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

March 16, 2023

Nick Jennings

/s/ ELISSA J.

March 16, 2023

/s/ WALTER C.

March 16, 2023

/s/ LIM BOH SOON

March 16, 2023

TOMI ENVIRONMENTAL SOLUTIONS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING c

To the Board of Directors and

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of TOMI Environmental Solutions, Inc.

(the Company) as of year ended December 31, 2021, and the related consolidated statements of operations, shareholders’ equity, and cash flow for the year then ended, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of year ended December 31, 2021 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of TOMI Environmental Solutions, Inc.

(the Company) as of year ended December 31, 2022 and 2021, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022 and 2021, and the related notes (collectively referred to as the financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of year ended December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for doubtful accounts

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We have identified the evaluation of the Company’s estimation of allowance for doubtful accounts as a critical audit matter.

There is a high degree of subjectivity in assessing the assumptions, which are used in estimating losses related to customer receivables.

There is an established policy for determining overall allowance for doubtful accounts with specific judgement in place for certain account balances that require additional evaluation and assessment which are used in estimating losses related to customer receivables.

There is also a high degree of subjectivity in management's assessment of the completeness and accuracy of the allowance for doubtful accounts, specifically the portion of the receivable expected to be collected, which requires a heightened level of auditor judgement in auditing the estimate.

Our audit procedures related to the allowance for doubtful accounts included:

Testing the mathematical accuracy of management’s allowance for doubtful accounts calculation as of December 31, 2021 by recalculating the historical loss rates for each risk pool, as well as recalculating the aging of receivables based on underlying source documentation.

Testing the mathematical accuracy of management’s allowance for doubtful accounts calculation as of December 31, 2022 by recalculating and independently applying the policy to each risk pool, as well as recalculating the aging of receivables based on underlying source documentation.

Recomputing current and historical collection rates for customer receivable balances and comparing the historical loss rates against the current period estimated loss rates within the respective risk pools and performing a retrospective analysis of the subsequent collections on customer receivables with certain risk characteristics.

Evaluating the reasonableness of management’s qualitative adjustments against the allowance for doubtful accounts by obtaining corroborating evidence which supports the adjustments and assumptions made by management in determining the allowance.

Inventory – Valuation associated with excess and obsolete (E&O) inventory

As further described in Note 2 to the consolidated financial statements, inventory is stated at the lower of cost or net realizable value.

At the balance sheet date, the Company evaluated inventories for excess quantities and obsolescence and included an inventory reserve against its inventory balances.

As of December 31, 2022, the inventory reserve was approximately $.01 million, or 2% of total inventory.

To estimate the amount of inventory that may be in excess or obsolete, the Company reviews inventory quantities on hand as well as historical and projected distribution levels.

The Company’s model assumes that inventory will be distributed on a first-in-first-out basis.

Due to the nature of the inventory and the levels of inventory purchased in prior years, estimating the amount of inventory that is in excess or potentially obsolete involves significant judgments and estimates.

Given the significant judgments associated with evaluating the valuation of E&O inventory, auditing the reasonableness of management’s estimates and assumptions involved especially subjective judgment and an increased extent of effort, therefore we identified the estimates used to determine the valuation of the E&O inventory as a critical audit matter.

Our audit procedures related to the Company’s valuation of E&O inventory included the following:

Evaluating the design and implementation of controls over the E&O inventory valuation.

Evaluating management’s future projections by comparing the historical sales.

Obtaining the Company’s E&O calculation and tested the mathematical accuracy.

Assessing the reasonableness of the assumptions used in the E&O calculation by developing an independent expectation and comparing our independent expectation to the results of the Company’s calculation.

Inquiring of the Company’s employees outside of the accounting department and evaluating other areas of the audit to identify business, product, or industry changes that may impact the inputs in the inventory valuation calculation.

/s/ Rosenberg Rich Baker Berman, P.A.

We have served as the Company’s auditor since 2021.

Somerset, New Jersey

March 16, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

TOMI ENVIRONMENTAL SOLUTIONS, INC.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of TOMI Environmental Solutions, Inc.

and Subsidiary (the “Company”) as of December 31, 2020, and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition — Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company generates revenue primarily from the manufacture, license, service and sale of its products.

The Company’s contracts with customers may include multiple performance obligations.

The Company enters into contracts that can include various combinations of products and services, which are primarily distinct and accounted for as separate performance obligations.

Management applies significant judgment in identifying and accounting for each performance obligation as a result of evaluating terms and conditions in contracts.

The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter include the following:

Determination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together.

The pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.

Identification of specific or key contract terms that may impact the timing and amount of revenue recognized.

Given these factors and due to the volume of transactions, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

The primary procedures we performed to address this critical audit matter included the following:

Considering the effectiveness of controls relating to the revenue recognition process, including controls over the identification and evaluation of the contractual terms and conditions that impact the identification of performance obligations and determination of revenue recognition.

Testing the completeness and accuracy of management’s identification and evaluation of the terms and conditions in contracts with customers by examining customer agreements on a test basis including reviewing and evaluating management’s identification of performance obligations.

WOLINETZ, LAFAZAN & COMPANY, P.C.

We have served as the Company's auditor since 2004.

Rockville Centre, NY

March 30, 2021

TOMI ENVIRONMENTAL SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEET S

December 31, 2021

December 31, 2020(1)

CONSOLIDATED BALANCE SHEETS

Current Assets:

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Accrued Expenses and Other Current Liabilities (Note 13)

Customer Deposits

Current Portion of Long-Term Operating Lease (Note 7)

Deferred Revenue

Current Portion of Long-Term Operating Lease

Total Current Liabilities

Long-Term Liabilities:

Loan Payable (Note 15)

Long-Term Operating Lease, Net of Current Portion (Note 7)

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The accompanying notes are an integral part of the consolidated financial statements.

Share amounts with respect to the common stock and Convertible Series A Preferred Stock have been retroactively restated to reflect the reverse split thereof, which was effected as of the close of business on September 10, 2020.

Refer to Note 10—Equity for further information.

TOMI ENVIRONMENTAL SOLUTIONS, INC.

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( 2,881,999 )

( 4,924,210 )

Other Income (Expense):

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( 2,880,060 )

( 4,509,585 )

Provision for Income Taxes (Note 16)

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$ ( 2,880,060 )

$ ( 4,435,499 )

Net income (loss) Per Common Share

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Diluted Weighted Average Common Shares Outstanding

Refer to Note 10—Equity for further information.

The accompanying notes are an integral part of the consolidated financial statements.

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Series A Preferred

Total Shareholders’

Additional Paid

Shareholders’

Balance at January 1, 2021

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Common Stock Issued for Services Provided

Conversion of Notes Payable into Common Stock

Warrants and Options Exercised

Reverse stock split adjustment

Common Stock Issued in Private Placement

( 4,435,499 )

Balance at December 31, 2021

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Common Stock Issued for Services Provided

Common Stock Issued in Private Placement

Warrants and Options Exercised

( 2,880,060 )

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( 46,423,637 )

Refer to Note 10—Equity for further information.

The accompanying notes are an integral part of the consolidated financial statements.

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$ ( 2,880,060 )

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used) In Operating Activities:

$ ( 4,435,499 )

Adjustments to Reconcile Net Income (Loss) to

Net Cash Provided by (Used) In Operating Activities:

Depreciation and Amortization

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Accounts Receivable

( 2,502,043 )

( 1,388,986 )

Prepaid Expenses

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Accrued Expenses

Accrued Interest

Customer Deposits

Deferred Revenue

Lease Liability

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( 1,234,264 )

( 3,823,683 )

Cash Flow From Investing Activities:

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TOMI ENVIRONMENTAL SOLUTIONS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS – CONTINUED

CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED

For the Years Ended December 31,

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Proceeds from Issuance of Stock and Warrants

Proceeds from Exercise of Warrants and Options

Proceeds from Loan Payable

Repayment of Principal Balance on Convertible Note

Proceeds from Exercise of Options and Warrants

Net Cash From Financing Activities:

Increase In Cash and Cash Equivalents

Increase (Decrease) In Cash and Cash Equivalents

( 1,450,710 )

Cash and Cash Equivalents - Beginning

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Supplemental Cash Flow Information:

Cash Paid For Interest

Cash Paid for Income Taxes

Cash Paid (Refunded) for Income Taxes

Non-Cash Investing and Financing Activities:

Accrued Equity Compensation

Conversion of Note Payable into Common Stock

Equipment, net Transferred to Inventory

Patent and trademark costs reclassified from Other Assets

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TOMI Environmental Solutions, Inc., a Florida corporation (“TOMI”, the “Company”, “we”, “our” and “us”) is a global provider of disinfection and decontamination essentials through our premier Binary Ionization Technology® (BIT™) platform, under which we manufacture, license, service and sell our SteraMist® brand of products, including SteraMist® BIT™, a hydrogen peroxide-based mist and fog.

Our solution and process are environmentally friendly as the only biproduct from our decontamination process is oxygen and humidity.

Our solution and process are environmentally friendly as the only biproduct from our decontamination process is oxygen and water in the form of humidity.

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

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Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, held at financial institutions and other liquid investments with original maturities of three months or less.

Cash and cash equivalents include cash on hand, held at financial institutions and other liquid investments with original maturities of three months or less.

At times, these deposits may be in excess of insured limits.

At December, 2021 and 2020 there were no cash equivalents.

At December 31, 2022 and December 31, 2021, there were no cash equivalents.

Accounts Receivable

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Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Bad debt expense for the years ended December 31, 2021 and 2020 was $ 1,605,660 and $ 332,027 , respectively.

At December 31, 2021 and December 31, 2020, the allowance for doubtful accounts was $ 1,678,000 and $ 390,000 , respectively.

Bad debt expense for the years ended December 31, 2022 and 2021, was approximately $ 142,188 and $ 1,605,660 , respectively.

At December 31, 2022 and December 31, 2021, the allowance for doubtful accounts reserve was $ 1,678,000 .

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method.

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We record an allowance for estimated losses when the facts and circumstances indicate that particular inventories may not be usable.

Our reserve for obsolete inventory was $ 0 as of December 31, 2021 and December 31, 2020, respectively.

Our reserve for obsolete inventory was $ 95,000 and $ 0 as of December 31, 2022 and December 31, 2021, respectively.

Property and Equipment

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The periodic expense for the amortization of capitalized software development costs will be included in cost of sales.

Amortization expense for both the years ended December 31, 2021 and 2020, was $ 41,900 .

Amortization expense for the years ended December 31, 2022 and 2021, was $ 10,475 and $ 41,900 , respectively.

Accounts Payable

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We assume responsibility for product reliability and results.

As of December 31, 2021, and December 31, 2020, our warranty reserve was $ 68,000 (See Note 14).

As of December 31, 2022, and December 31, 2021, our warranty reserve was $ 68,000 .

(See Note 14).

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) Topic 740:

Income Taxes.

Net deferred tax benefits have been fully reserved at December 31, 2022 and December 31, 2021.

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Diluted net income or (loss) per share is computed similarly to basic net income or (loss) per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if such additional shares were dilutive.

Options, warrants, preferred stock and shares associated with the conversion of debt to purchase approximately 3.6 million and 2.2 million shares of common stock were outstanding at December 31, 2021 and 2020, respectively, but were excluded from the computation of diluted net loss per share at December 31, 2021 due to the anti-dilutive effect on net loss per share.

Options, warrants, and preferred stock 3.3 million and 3.6 million shares of common stock were outstanding at December 31, 2022 and 2021, respectively, but were excluded from the computation of diluted net loss per share at December 31, 2022 and 2021 due to the anti-dilutive effect on net loss per share.

For the Years Ended December 31,

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$ ( 2,880,060 )

Adjustments for convertible debt - as converted

Interest on convertible debt

$ ( 4,435,499 )

Net income (loss) attributable to common shareholders

$ ( 2,880,060 )

$ ( 4,435,499 )

Weighted average number of shares of common stock outstanding:

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$ ( 2,880,060 )

$ ( 4,435,499 )

Basic weighted-average shares

Effect of dilutive securities

Convertible Debt

Preferred Stock

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Net Income (Loss) Per Common Share:

Warrants, options and preferred stock for the years ended December 31, 2021 are not included in the computation of diluted weighted average shares as such inclusion would be anti-dilutive.

Warrants, options and preferred stock for the years ended December 31, 2022 and 2021 are not included in the computation of diluted weighted average shares as such inclusion would be anti-dilutive.

Revenue Recognition

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Product and Service Revenue

For The Years Ended

For The Years Ended December 31,

SteraMist Product

$ ( 16,792,000 )

Service and Training

$ ( 17,274,000 )

Revenue by Geographic Region

For The Years Ended

For The Years Ended December 31,

United States

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International

( 5,310,000 )

$ ( 17,274,000 )

Product revenue includes sales from our standard and customized equipment, solution and accessories sold with our equipment.

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Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term.

The expected term of the Company's warrants has been determined utilizing the "simplified" method for awards that qualify as "plain-vanilla" warrants.

The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its Common Stock and does not intend to pay dividends on its Common Stock in the foreseeable future.

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All recipients of awards under the 2016 Plan are required to enter into award agreements with us at the time of the award, and awards under the 2016 Plan are expressly conditioned upon such agreements.

For the years ended December 31, 2021 and 2020, we issued 50,000 and 50,000 shares of common stock, respectively, out of the 2016 Plan.

For the year ended December 31, 2022 and 2021, we issued 51,750 and 50,000 shares of common stock, respectively, out of the 2016 Plan.

Concentrations of Credit Risk

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Recently issued accounting pronouncements not yet adopted

In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures.

This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which we adopted on January 1, 2020.

This ASU also enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty.

In addition, the ASU amends the guidance on vintage disclosures to require entities to disclose current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20.

The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years.

Adoption of the ASU would be applied prospectively.

Early adoption is also permitted, including adoption in an interim period.

This ASU is currently not expected to have a material impact on our consolidated financial statements.

In October 2021, the FASB issued ASU No.

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This ASU is currently not expected to have a material impact on our consolidated financial statements.

Recently adopted accounting pronouncements

In November 2021, the FASB issued ASU No.

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The ASU is effective for annual periods beginning after December 15, 2021.

The disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application.

The ASU is currently not expected to have a material impact on our consolidated financial statements.

Recently adopted accounting pronouncements

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards.

The amendments in the ASU include removing exceptions to incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses, and exceptions to deferred tax liability recognition related to foreign subsidiary investments.

In addition, the ASU requires that entities recognize franchise tax based on an incremental method and requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination.

We adopted ASU 2019-12 starting 2021, which did not have a material impact on our consolidated financial statements.

We adopted ASU 2021-10 starting in 2022, which did not have a material impact on our consolidated financial statements.

Inventories consist of the following at:

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Raw Materials

Inventory Reserve

VENDOR DEPOSITS

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Accumulated depreciation

Property and Equipment, net

For the years ended December 31, 2022 and 2021, depreciation was $ 314,669 and $ 299,665 , respectively.

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In April 2018, we entered into a 10 -year lease agreement for a new 9,000 -square-foot facility that contains office, warehouse, lab and research and development space in Frederick, Maryland.

The lease agreement was scheduled to commence on December 1, 2018 or when the property was ready for occupancy.

The lease agreement commenced in December 2018 when the property was ready for occupancy.

The agreement provided for annual rent of $ 143,460 , an escalation clause that increases the rent 3 % year over year, a landlord tenant improvement allowance of $ 405,000 and additional landlord work as discussed in the lease agreement.

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The components of lease expense are as follows within our consolidated statement of operations:

For the Year Ended December 31, 2022

For the Year Ended December 31, 2021

Operating lease expense

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Supplemental cash flow information related to leases where we are the lessee is as follows:

For the Year Ended December 31, 2022

For the Year Ended December 31, 2021

Cash paid for amounts included in the measurement of lease liabilities:

As of December 31, 2022, the maturities of our operating lease liability are as follows:

Operating Lease

December 31, 2023

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Accumulated Amortization

Capitalized Software Development Costs - net

Amortization expense for the years ended December 31, 2022 and 2021 was $ 10,475 and $ 41,900 , respectively.

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Furthermore, the Board could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock.

Reverse Stock Split

On September 9, 2020, the Board approved a reverse stock split of our common stock and our Convertible Series A Preferred Stock, in each case, at a ratio of 1-for-8 and without any change to the respective par value thereof (the “Reverse Stock Split”), and, on September 10, 2020 , we filed an Articles of Amendment to our Articles of Incorporation with the Department of State of the State of Florida to effect the Reverse Stock Split.

The Reverse Stock Split became effective as of September 10, 2020.

All per-share and share amounts have been retroactively restated.

Convertible Series A Preferred Stock

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Each share of Convertible Series B Preferred Stock may be converted (at the holder’s election) into two hundred shares of our common stock.

During the year ended December 31, 2020, we issued 50,000 shares of common stock valued at $ 48,000 to members of our Board (see Note 13).

During the year ended December 31, 2020, we issued 500 shares of common stock valued at $ 2,190 to a consultant.

In March 2020, 1,041,667 shares of common stock were issued in connection with the conversion of convertible notes payable aggregating $ 4,500,000 .

In March 2020, 10,417 shares of common stock were issued in connection with the exercise of warrants for which we received proceeds of $ 57,500 .

In May 2020, 2,500 shares of common stock were issued in connection with the exercise of options for which we received proceeds of $ 1,000 .

In June 2020, 26,940 shares of common stock were issued in connection with the exercise of warrants for which we received proceeds of $ 62,500 .

In July 2020, 26,940 shares of common stock were issued in connection with the exercise of warrants for which we received proceeds of $ 62,500 .

In October 2020, 12,500 shares of common stock were issued to our CFO in connection with the exercise of warrants for which we received proceeds of $ 30,000 .

In January 2021, we issued 50,000 shares of common stock valued at $ 228,000 to members of our Board (see Note 12).

In September 2021, we sold 2,869,442 shares of common stock through a registered direct offering and issued 1,434,721 warrants in a concurrent private placement.

In January 2021, we issued 50,000 shares of common stock valued at approximately $ 228,000 to members of our Board (see Note 12).

In September 2021, we sold 2,869,442 shares of common stock through a registered direct offering and issued 1,434,721 warrants to purchase common stock in a concurrent private placement.

We received net proceeds from the transaction of $ 4,581,651 , after deducting the placement agent’s fees and other estimated offering expenses.

The Warrants are exercisable at 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.

In addition, we issued 172,167 warrants to the placement agent which have a term of five years and an exercise price of $ 2.18 .

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

In addition, we issued 172,167 warrants to the placement agent which have a term of five years and an exercise price of $ 2.18 per share.

In January 2022, we issued 51,750 shares of common stock valued at approximately $54,000 to members of our Board pursuant to our equity plan (see Note 12).

Stock Options

In January 2020, we issued two options to purchase an aggregate of 31,250 shares of common stock to our Chief Operating Officer at an exercise price of $ 0.80 and $ 0.96 per share pursuant to her employment agreement with us.

The options were valued at a total of $ 23,595 and have a term of 5 years.

We utilized the Black-Scholes method to fair value the options received by the COO with the following assumptions:

In January 2022 we issued an option to purchase 172,500 shares of common stock to our Chief Executive Officer at an exercise price of $ 1.12 per share pursuant to an employment agreement.

The option was valued at $ 178,281 and has a contractual term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

volatility, 156 %;

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risk free interest rate, 1.65 %;

and a life of 5 years.

The grant date fair value of each share of common stock underlying the options was $0.72 and $ 0.80 .

The value of the stock option was included in accrued expenses at December 31, 2019.

In October 2020, we issued options to purchase an aggregate of 31,250 shares of common stock to our Chief Operating Officer at an exercise price of $ 7.06 per share pursuant to her employment agreement with us.

The options were valued at a total of $ 202,104 and have a term of 5 years.

We utilized the Black-Scholes method to fair value the options received by the COO with the following assumptions:

and an expected life of 5 years.

The grant date fair value of each share of common stock underlying the warrant was $ 1.03 .

In January 2022 we issued an option to purchase 57,500 shares of common stock to our Chief Operating Officer at an exercise price of $1.12 per share pursuant to an employment agreement.

The option was valued at $59,427 and has a contractual term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

volatility, 156%;

1 unchanged sentence

risk free interest rate, 1.65%;

and a life of 5 years.

The grant date fair value of each share of common stock underlying the options was $ 6.47 .

In December 2021, we issued options to purchase an aggregate of 10,500 shares of common stock to employees at an exercise price of $ 1.93 per share.

The options were valued at a total of $ 18,354 and have a term of 5 years.

We utilized the Black-Scholes method to fair value the options received by the employees with the following assumptions:

and an expected life of 5 years.

The grant date fair value of each share of common stock underlying the warrant was $1.03.

In January 2022 we issued an option to purchase 40,000 shares of common stock to our Chief Financial Officer at an exercise price of $ 1.12 per share pursuant to an employment agreement.

The option was valued at $ 41,340 and has a contractual term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

volatility, 156 %;

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risk free interest rate, 1.65 %;

and a life of 5 years.

The grant date fair value of each share of common stock underlying the options was $ 1.75 .

and an expected life of 5 years.

The grant date fair value of each share of common stock underlying the warrant was $ 1.03 .

The following table summarizes stock options outstanding as of December 31, 2022 and 2021:

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December 31, 2021

Weighted Average

Exercise Price

Weighted Average

Exercise Price

Weighted Average Exercise Price

Outstanding, beginning of period

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Outstanding Options

Average Weighted

Exercisable Options

Life in Years

Exercise Price

Remaining Contractual Life in Years

Weighted Average Exercise Price

Stock Warrants

In January 2020 we issued a warrant to purchase 156,250 shares of common stock to our Chief Executive Officer at an exercise price of $ 1.20 per share pursuant to an employment agreement.

The warrant was valued at $ 164,201 and has a term of 5 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

volatility, 136 %;

expected dividend yield, 0 %;

risk free interest rate, 1.64 %;

and a life of 5 years.

The grant date fair value of each share of common stock underlying the warrant was $ 1.04 .

In January 2020 we issued a warrant to purchase 5,208 shares of common stock to an employee at an exercise price of $ 0.96 per share.

The warrant was valued at $ 3,594 and has a term of 5 years.

We utilized the Black-Scholes model to fair value the warrant received by the employee with the following assumptions:

volatility, 135 %;

expected dividend yield, 0 %;

risk free interest rate, 1.58 %;

and a life of 5 years.

The grant date fair value of each share of common stock underlying the warrant was $ 0.72 .

The value of the warrants was expensed in the fourth quarter of 2019 and included in accrued expenses at December 31, 2019.

In February 2020 we issued a warrant to purchase 18,750 shares of common stock to an employee at an exercise price of $ 1.20 per share.

The warrant was valued at $ 18,571 and has a term of 3 years.

We utilized the Black-Scholes model to fair value the warrant received by the employee with the following assumptions:

volatility, 155 %;

expected dividend yield, 0 %;

risk free interest rate, 1.64 %;

and a life of 3 years.

The grant date fair value of each share of common stock underlying the warrant was $ 0.96 .

In April 2020 we issued a warrant to purchase 12,500 shares of common stock to our Chief Executive Officer at an exercise price of $ 4.00 per share pursuant to an employment agreement.

The warrant was valued at $ 49,693 and has a term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

volatility, 173 %;

expected dividend yield, 0 %;

risk free interest rate, 0.68 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 4.00 .

In April 2020 we issued a warrant to purchase 6,250 shares of common stock to our Chief Operating Officer at an exercise price of $ 4.00 per share pursuant to an employment agreement.

The warrant was valued at $ 24,846 and has a term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Operating Officer with the following assumptions:

volatility, 173 %;

expected dividend yield, 0 %;

risk free interest rate, 0.68 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 4.00 .

In April 2020 we issued a warrant to purchase 6,250 shares of common stock to our Chief Financial Officer at an exercise price of $ 4.00 per share pursuant to an employment agreement.

The warrant was valued at $ 24,846 and has a term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Financial Officer with the following assumptions:

volatility, 173 %;

expected dividend yield, 0 %;

risk free interest rate, 0.68 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 4.00 .

In April 2020 we issued a warrant to purchase 3,750 shares of common stock to a consultant at an exercise price of 4.00 per share.

The warrant was valued at $ 14,908 and has a term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by the consultant with the following assumptions:

volatility, 173 %;

expected dividend yield, 0 %;

risk free interest rate, 0.68 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 4.00 .

In August 2020 we issued a warrant to purchase 893 shares of common stock to a consultant at an exercise price of $ 8.40 per share.

The warrant was valued at $ 6,372 and has a term of 3 years.

We utilized the Black-Scholes model to fair value the warrant received by the consultant with the following assumptions:

volatility, 166 %;

expected dividend yield, 0 %;

risk free interest rate, 0.13 %;

and a life of 3 years.

The grant date fair value of each share of common stock underlying the warrant was $ 7.13 .

In August 2020 we issued a warrant to purchase 595 shares of common stock to a consultant at an exercise price of $ 8.40 per share.

The warrant was valued at $ 4,249 and has a term of 3 years.

We utilized the Black-Scholes model to fair value the warrant received by the consultant with the following assumptions:

volatility, 166 %;

expected dividend yield, 0 %;

risk free interest rate, 0.13 %;

and a life of 3 years.

The grant date fair value of each share of common stock underlying the warrant was $ 7.14 .

In October 2020 we issued a warrant to purchase 375,000 shares of common stock to our Chief Executive Officer at an exercise price of $ 6.95 per share pursuant to an employment agreement.

The warrant was valued at $ 2,621,196 and has a term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

volatility, 162 %;

expected dividend yield, 0 %;

risk free interest rate, 0.67 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 6.99 .

On February 11, 2021, we agreed to amend (the “Warrant Amendment”) the warrant to purchase 125,000 shares of TOMI common stock, par value $0.01 (the “Common Stock”), issued by TOMI to Dr.

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In addition, we issued 172,167 warrants to the placement agent which have a term of five years and an exercise price of $ 2.18 .

In November 2022, we modified the terms of Dr.

Shane's, TOMI's Chief Executive Officer and a director on TOMI's board of directors, outstanding warrants to purchase 593,750 shares of common stock.

The terms of the warrants were increased by 10 years.

Pursuant to ASC 718, the modified terms of the warrants resulted in approximately $ 356,000 in incremental equity compensation expense for the year ended December 31, 2022.

We utilized the Black-Scholes method to fair value the warrants under the original and modified terms with the following range of assumptions:

volatility, 83 %- 163 %;

expected dividend yield, 0 %;

risk free interest rate, 4.31 %;

and a life of 0.12 - 11.23 years, respectively.

The grant date fair value range of each share of common stock underlying the warrant was $ 0.17 through $ 0.65 .

The following table summarizes the outstanding common stock warrants as of December 31, 2022 and 2021:

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December 31, 2021

Weighted Average

Exercise Price

Weighted Average

Exercise Price

Weighted Average Exercise Price

Number of Warrants

Weighted Average Exercise Price

Outstanding, beginning of period

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Outstanding Warrants

Average Weighted

Exercisable Warrants

Exercise Price

Average Weighted

Remaining Contractual

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COVID-19 Pandemic

The COVID-19 pandemic has increased the global demand for disinfection products and services that help prevent the spread and transmission of COVID-19 virus.

The COVID-19 pandemic has temporarily increased the global demand for disinfection products and services that help prevent the spread and transmission of COVID-19 virus.

The Company’s products have been identified as an essential disinfectant and decontamination vendor by various agencies and countries, which have materially affected its business and results of operations.

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Throughout 2021, the Company experienced a reduction of demand due to various factors, including the closure of our major customers’ business operations due to the pandemic, which resulted in the suspension of many of its ongoing long-term projects.

It is difficult to predict how COVID-19 pandemic will affect the Company’s financial performance in the remainder of 2022, as the global economy gradually reopens, customers adjust and change their operations, and the Company implements new marketing and sales strategies in response.

As the impact of the COVID-19 pandemic began to subside and economic activities gradually return to normal in 2022, customers reallocated their resources elsewhere and reduced their spending on disinfection products, which resulted in lower demand for our products.

It is difficult to predict how COVID-19 pandemic will affect the Company’s financial performance in early 2023, as the global economy gradually reopens, customers adjust and change their operations, and the Company implements new marketing and sales strategies in response.

CONTRACTS AND AGREEMENTS

Executive Agreements

On September 22, 2020, we entered into a three-year employment agreement with Dr.

Shane, effective October 1, 2020.

The agreement provides for a base annual salary of $ 500,000 .

The agreement also provides for a signing bonus of 375,000 warrants.

Shane is also entitled to a cash performance bonus and an annual issuance of an option to purchase 31,250 shares of common stock from the 2016 Plan at the discretion of the Board.

The agreement also provides that we will reimburse Dr.

Shane for the expenses associated with the use of an automobile up to $ 750 a month.

The term of the agreement is three years.

In the event Dr.

Shane is terminated as CEO as a result of a change in control, Dr.

Shane will be entitled to a lump sum payment of two years’ salary at the time of such termination.

On October 1, 2020, we entered into an employment agreement with Elissa J.

Shane, effective October 1, 2020.

Pursuant to her employment agreement, Ms.

Shane will receive an annual base salary of at least $ 270,000 , subject to annual review and discretionary increase by the Compensation Committee of the Board.

Shane is eligible to receive an annual cash bonus and other annual incentive compensation.

The agreement originally provided for a grant of 93,750 warrants.

Additionally, in connection with the execution of her employment agreement, on October 1, 2020, we issued Ms.

Shane a warrant to purchase 93,750 shares of Common Stock at an exercise price of $6.17 per share.

These provisions were subsequently amended to provide for the issuance to Ms.

Shane of 31,250 options from the 2016 Equity Plan at the closing price of $ 7.06 on the date of grant in lieu of the warrant grant and the 93,750 warrants were cancelled.

Shane acknowledged that the 31,250 options were in full consideration of the amount she was entitled to under the agreement.

Her employment agreement also provides that we will reimburse Ms.

Shane for reasonable and necessary business and entertainment expenses that she incurs in performing her duties.

During the term of her employment, Ms.

Shane will also be entitled to up to four weeks of paid vacation time annually, which will accrue up to six weeks, and to participate in our benefit plans and programs, including but not limited to all group health, life, disability and retirement plans.

Shane is also entitled to the sum of $ 1,000 per month as a vehicle allowance.

The initial term of her employment agreement is three years , which may be automatically extended for successive one-year terms, unless either party provides the other with 120 days’ prior written notice of its intent to terminate the agreement.

In the event Ms.

Shane is terminated as COO as a result of a change in control, Ms.

Shane will be entitled to a lump sum payment of one and a half years’ salary at the time of such termination.

Agreements with Directors

Director Compensation

In December 2017, we increased the annual fee to the members of our Board to $ 40,000 , to be paid in cash on a quarterly basis, with the exception of the audit committee chairperson, whose annual fee we increased to $ 45,000 , also to be paid in cash on a quarterly basis.

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For the year ended December 31, 2021, we issued an aggregate of 50,000 shares of common stock that were valued at $ 48,000 to members of our Board.

For the year ended December 31, 2022, we issued an aggregate of 51,750 shares of common stock that were valued at approximately $ 54,000 to members of our Board.

Manufacturing Agreement

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Cloud Computing Service Contract

In May 2020 we entered into an agreement for a cloud computing service contract.

Cloud Computing Service Contract

In May 2020 we entered into an agreement with a vendor for a cloud computing service contract.

The contract provides for annual payments in the amount of $ 30,409 and has a term of 5 years.

Approximate minimum payments under the contract are as follows:

December 31, 2022

Approximate minimum future payments under the contract are as follows:

December 31, 2023

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December 31, 2025

Other Agreements

TOMI Service Network (“TSN”) is a national service network composed of existing full-service restoration industry specialists that have entered initially into licensing agreements with us to become Primary Service Providers (“PSPs”).

The licensing agreements originally granted protected territories to PSPs to perform services using our SteraMist ® platform of products and also provide for potential job referrals to PSPs whereby we are entitled to referral fees.

Additionally, the agreement provides for commissions due to PSPs for equipment and solution sales they facilitate to other service providers in their respective territories.

As part of these agreements, we are obligated to provide to the PSPs various training, ongoing support and facilitate a referral network call center.

As of December 31, 2021, we have 205 network companies in TSN.

The nature and terms of our TSN agreements may represent multiple deliverable arrangements.

Each of the deliverables in these arrangements typically represent a separate unit of accounting.

There is no exclusivity in our TSN network.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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Sales Tax Payable

Income Taxes Payable (Note 16)

Accrued warranty (Note 14)

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Ending accrued warranty costs

On April 21, 2020, we received $ 410,700 in loan funding from the Paycheck Protection Program (the "PPP") established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act") and administered by the U.S.

Small Business Administration ("SBA").

The unsecured loan (the "PPP Loan") is evidenced by a promissory note of the Company, dated April 21, 2020 (the "Note") in the principal amount of $ 410,700 with City National Bank (the "Bank"), the lender.

Under the terms of the Note and the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0 % per annum.

The term of the Note is two years, though it may be payable sooner in connection with an event of default under the Note.

In May of 2021, the loan principal and related interest was forgiven and we recognized a gain upon debt extinguishment in our statement of operations in the amount of $ 414,583 for the year ended December 31, 2021.

The Company’s income tax expense (benefit) consisted of:

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$ ( 4,509,585 )

$ ( 2,781,060 )

$ ( 4,509,585 )

Our income tax expense differed from the amounts computed by applying the United States statutory corporate income tax rate for the following reasons:

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$ ( 2,880,060 )

$ ( 4,509,585 )

US statutory corporate income tax rate

Income tax expense computed at US statutory corporate income tax rate

Income tax expense (benefit) computed at US statutory corporate income tax rate

( 1,002,844 )

1 unchanged sentence

Change in valuation allowance on deferred tax assets

( 2,050,485 )

Provision to prior year tax return

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Gain Upon Debt Extinguishment

Meals and Entertainment

Income tax expense (benefit)

2 unchanged sentences

Reserve for Bad Debt

Inventory Reserve

Accrued Vacation

1 unchanged sentence

Intangible Assets

Capitalized Research and Development

Operating lease right-of-use liabilities

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There may be certain limitations as to the future annual use of the NOLs due to certain changes in our ownership.

Federal and state laws can impose substantial restrictions on the utilization of net operating loss and tax credit carry-forwards in the event of an “ownership change,” as defined in Section 382 of the Internal Revenue Code.

We did not perform 382 study to determine if ownership change occurred.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

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The Company had certain customers whose accounts receivable balances individually represented 10 % or more of the Company’s accounts receivable.

As of December 31, 2021, three customers accounted for 42 % of our gross accounts receivable.

As of December 31, 2022, one customers accounted for 14 % of our gross accounts receivable.

As of December 31, 2021, three customers accounted for 42 % of our gross accounts receivable.

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The option was valued at $ 37,817 and has a term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

We utilized the Black-Scholes model to fair value the warrant received by our Chief Operating Officer with the following assumptions:

volatility, 139 %;

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The option was valued at $ 18,909 and has a term of 10 years.

We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions:

We utilized the Black-Scholes model to fair value the warrant received by our Chief Financial Officer with the following assumptions:

volatility, 139 %;

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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-K

Item 9A. Controls and Procedures