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Item 9A. Controls and Procedures

2024-04-01 compared with 2023-03-16 · 251 added, 221 removed, 1016 unchanged (32% 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 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.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, our management concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our internal control over financial reporting was not effective as a result of the material weakness described below.

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.

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

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.

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.

OTHER INFORMATION

During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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From January 2014 to September 2015, Ms.

Shane served as a paralegal with Levi Lubarsky Feigenbaum & Weiss LLP, where she worked with the firm’s managing partners and staff attorneys and directed all operational aspects of the litigation cycle from inception through appeal.

From September 2009 to January 2014, she served as a paralegal with Olshan Frome Wolosky LLP, where she managed all regulatory and compliance issues, litigation procedures and advertising and promotional matters.

Shane received a B.A.

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Lim has more than 28 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 three publicly listed companies, with two on the Singapore Stock Exchange and one on the Bursa Malaysia 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 two publicly listed companies, one on the Singapore Stock Exchange and the other on Bursa Malaysia.

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.

In addition to his role with Tomi Environmental Solutions Inc., Dr.

Lim holds current directorship positions with the following companies, Arise Asset Management Pte, Ltd., OUE Limited, Jumbo Group Limited, TPT Corporation (Cayman Islands), Asri Asset Management Pte.

Lim holds current directorship positions with the following companies, Arise Asset Management Pte, Ltd., OUE Limited, VS Industry Berhad, TPT Corporation (Cayman Islands), Asri Asset Management Pte.

Ltd., EpicQuant Pte.

and Kairos Asia Outreach.

Ltd., QQ Fintech Pte.

Ltd., 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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The Board adopted a Code of Ethics in 2008 that applies to, among other persons, Board members, officers (including our Chief Executive Officer), contractors, consultants and advisors.

Our Code of Ethics, which is available at http://investor.tomimist.com/TOMZ/code_of_ethics/2139, sets forth written standards designed to deter wrongdoing and to promote:

Our Code of Ethics, which is available at http://investor.tomimist.com/TOMZ/code_of_ethics/2139, along with any future amendments thereto, sets forth written standards designed to deter wrongdoing and to promote:

honest and ethical conduct including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

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The option was valued at $76,635 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:

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

volatility, 139%;

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and an expected life of 10 years.

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

The grant date fair value of each share of common stock underlying the option was $0.76.

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

Shane’s annual compensation.

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

Shane on February 11, 2014 (the “Warrant”), to provide us with an option to repurchase the Warrant from Dr.

Shane at a negotiated price.

In connection with the Warrant Amendment, we repurchased the warrant from Dr.

Shane (the “Repurchase”) for an aggregate cash consideration of $314,500, representing a 15% discount of the net exercise cash value of the Warrant, which was calculated using the closing price of the Common Stock on the Nasdaq on February 11, 2021 of $5.36, less the exercise price of the warrants in the amount of $2.40.

The Warrant Amendment and the Repurchase was considered, approved and adopted by a disinterested majority of Our board of directors.

The $314,500 is included as other compensation.

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 option received by our Chief Executive Officer with the following assumptions:

volatility, 156%;

expected dividend yield, 0%;

risk free interest rate, 1.65%;

and an expected life of 5 years.

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

During the year ended December 31, 2023, we issued an option to purchase 50,000 shares of common stock to our Chief Operating Officer at an exercise price of $0.85 per share pursuant to an employment agreement.

The option was valued at $37,817 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:

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

volatility, 139%;

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and an expected life of 10 years.

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

The grant date fair value of each share of common stock underlying the option was $0.76.

The other compensation in the amount of $12,000 represents an auto allowance pursuant to Ms.

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Shane’s annual compensation.

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 option received by our Chief Executive Officer with the following assumptions:

volatility, 156%;

expected dividend yield, 0%;

risk free interest rate, 1.65%;

and an expected life of 5 years.

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

During the year ended December 31, 2023, we issued an option to purchase 25,000 shares of common stock to our Chief Financial Officer at an exercise price of $0.85 per share pursuant to an employment agreement.

The option was valued at $18,909 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:

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

volatility, 139%;

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and an expected life of 10 years.

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

The grant date fair value of each share of common stock underlying the option was $0.76.

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

Jennings’ annual compensation.

In January 2022, the compensation committee approved cash bonuses to the COO and CFO which were paid in January 2022.

The cash bonuses were accrued for as of December 31, 2021.

During the year ended December 31, 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 option received by our Chief Executive Officer with the following assumptions:

volatility, 156%;

expected dividend yield, 0%;

risk free interest rate, 1.65%;

and an expected life of 5 years.

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

Outstanding Equity Awards at 2023 Fiscal Year-End

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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.

Options vested on January 26, 2023 and have a term of ten years.

Options pursuant to the 2016 Plan vested on January 3, 2019 and have a term of five years.

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

Options vested on January 26, 2023 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.

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

Options vested on January 26, 2023 and have a term of ten years.

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

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

The term of the agreement is three years.

The initial term of his 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 Dr.

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Option awards

Other Compensation

Walter Johnsen (1)

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We currently maintain one compensation plan:

the 2016 Plan.

the 2016 Equity Incentive Plan (the “2016 Plan”).

The 2016 Plan was approved by the Board on January 29, 2016 and received shareholder approval on July 7, 2017.

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Accordingly, we will issue future awards under the 2016 Plan.

On December 30, 2020, we received shareholder approval to amend and restate the 2016 Equity Incentive Plan to increase the maximum number of shares of common stock authorized from issuance by 1,375,000, from 625,000 shares to 2,000,000.

On December 30, 2020, we received shareholder approval to amend and restate the 2016 Plan to increase the maximum number of shares of common stock authorized from issuance by 1,375,000, from 625,000 shares to 2,000,000.

The following table provides information as of December 31, 2023 with respect to compensation plans under which our equity securities are authorized for issuance.

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Series A Preferred Stock

% of Total Voting

Name of Beneficial Owner

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

(3) Consists of:

(i) 2,430,164 shares of Common Stock held of record by Dr.

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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) 267,664 shares of Common Stock held of record by Ms.

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Shane that are exercisable or will become exercisable within 60 days of March 7, 2024.

(5) Consists of:

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

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Jennings that are exercisable or will become exercisable within 60 days of March 7, 2024.

(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 March 7, 2024.

(7) Consists of:

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

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

(9) Consists of:

(i) 3,357,220 shares of Common Stock;

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and (iii) 545,000 shares of Common Stock issuable upon exercise of stock options that are exercisable or will become exercisable within 60 days of March 7, 2024.

Changes in Control

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our Company.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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Lim, the Board has determined that each of them is “independent” under Nasdaq corporate governance rules.

Shane and Elissa Shane are not independent directors as they are employees of the Company.

Shane and Ms.

Elissa Shane are not independent directors as they are employees of the Company.

No director will be considered “independent” unless the Board affirmatively determines that the director has no direct or indirect material relationship with the Company.

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All Other Fees (4)

(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.

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

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 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.

(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.

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 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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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Documents filed as part of this report:

(a) Documents filed as part of this report:

(1) Financial Statements.

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Form of Placement Agent Warrant

Form of TOMI Environmental Solutions, Inc.

12% Convertible Note

Amended and Restated 2016 Equity Incentive Plan, as adopted by the Registrant’s stockholders on December 30, 2020

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

Form of Securities Purchase Agreement, dated as of November 7, 2023, between TOMI Environmental Solutions, Inc.

and the purchasers named therein

Form of Registration Rights Agreement, dated as of November 7, 2023, between TOMI Environmental Solutions, Inc.

and the purchasers named therein

Code of Ethics

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XBRL Taxonomy Extension Presentation Linkbase

Cover Page Interactive Data File

Indicates a management contract or compensatory plan.

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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 16, 2023

April 1, 2024

TOMI ENVIRONMENTAL SOLUTIONS, INC.

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

March 16, 2023

April 1, 2024

/s/ NICK JENNINGS

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

March 16, 2023

April 1, 2024

Nick Jennings

/s/ ELISSA J.

March 16, 2023

April 1, 2024

/s/ WALTER C.

March 16, 2023

April 1, 2024

/s/ LIM BOH SOON

March 16, 2023

April 1, 2024

TOMI ENVIRONMENTAL SOLUTIONS, INC.

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Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING c

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

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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.

(the Company) as of years ended December 31, 2023 and 2022, 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, 2023 and 2022, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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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

As described further in Note 2 to the consolidated financial statements, the Company maintains an allowance for doubtful accounts against its accounts receivable balances based on the future estimated credit losses.

As of December 31, 2022, the allowance for doubtful accounts was $1.7 million, or 38% of total accounts receivable.

This estimate is determined based on internally developed qualitative and quantitative factors derived from the aging of receivables, the Company’s past collection history with customers, and economic trends and conditions.

Allowance for credit losses

As described further in Note 2 to the consolidated financial statements, the Company maintains an allowance for credit losses against its accounts receivable balances based on the future estimated credit losses.

As of December 31, 2023, the allowance for credit losses was $1.5 million, or 36% of total accounts receivable.

We identified the estimates used to determine the allowance for doubtful accounts as a critical audit matter.

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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.

There is also a high degree of subjectivity in management's assessment of the completeness and accuracy of the allowance for credit losses, 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:

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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.

Evaluating the reasonableness of management’s qualitative adjustments against the allowance for credit losses 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

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

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

Obtaining the Company’s E&O calculation and testing 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.

March 16, 2023

Somerset, New Jersey

April 1, 2024

TOMI ENVIRONMENTAL SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2023

December 31, 2022

Current Assets:

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Operating Lease - Right of Use Asset (Note - 7)

Capitalized Software Development Costs - net (Note 8)

Long Term Accounts Receivable - net

Total Other Assets

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Deferred Revenue

Current Portion of Long-Term Operating Lease

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

Total Current Liabilities

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

Convertible Notes Payable, net of discount of $ 301,985 and $ 0 at December 31, 2023 and 2022, respectively (Note 10)

Total Long-Term Liabilities

Total Liabilities

Commitments and Contingencies (Note 12)

Shareholders’ Equity:

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par value $ 0.01 per share, 1,000,000 shares authorized;

63,750 shares issued and outstanding at December 31, 2022 and December 31, 2021

63,750 shares issued and outstanding at December 31, 2023 and 2022, respectively

Cumulative Convertible Series B Preferred Stock;

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4,000 shares authorized;

none issued and outstanding at December 31, 2022 and December 31, 2021

none issued and outstanding at December 31, 2023 and 2022, respectively

Common stock;

par value $ 0.01 per share, 250,000,000 shares authorized;

19,763,955 and 19,680,955 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively.

19,923,955 and 19,763,955 shares issued and outstanding at December 31, 2023 and 2022, respectively

Additional Paid-In Capital

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Other Income (Expense):

Gain Upon Debt Extinguishment

Interest Income

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Additional Paid

Shareholders’

Total Shareholders’

Balance at January 1, 2022

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Common Stock Issued for Services Provided

Common Stock Issued in Private Placement

Warrants and Options Exercised

Net (Loss) for the year ended December 31, 2022

( 2,880,060 )

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Common Stock Issued for Services Provided

Warrants and Options Exercised

Net (Loss) for the year ended December 31, 2023

( 3,402,592 )

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For the Years Ended December 31,

Cash Flow From Operating Activities:

Net Income (Loss)

Cash Flow Used in Operating Activities:

$ ( 3,402,592 )

$ ( 2,880,060 )

Adjustments to Reconcile Net Income (Loss) to

Net Cash Provided by (Used) In Operating Activities:

Adjustments to Reconcile Net Loss to

Net Used In Operating Activities:

Depreciation and Amortization

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Amortization of Software Costs

Amortization of Deferred Financing Costs

Equity Compensation Expense

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Inventory Reserve

Gain Upon Debt Extinguishment

Changes in Operating Assets and Liabilities:

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Other Receivables

Long Term Accounts Receivable

Increase (Decrease) in:

1 unchanged sentence

Accrued Expenses

Deferred Revenue

Customer Deposits

Lease Liability

Net Cash Provided (Used) in Operating Activities

Net Cash Used in Operating Activities

( 3,598,585 )

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Net Cash Used in Investing Activities

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

TOMI ENVIRONMENTAL SOLUTIONS, INC.

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Cash Flow From Financing Activities:

Proceeds from Issuance of Convertible Notes

Proceeds from Issuance of Stock and Warrants

Proceeds from Exercise of Options and Warrants

Net Cash From Financing Activities:

Increase (Decrease) In Cash and Cash Equivalents

Decrease In Cash and Cash Equivalents

( 1,527,674 )

( 1,450,710 )

Cash and Cash Equivalents - Beginning

1 unchanged sentence

Supplemental Cash Flow Information:

Cash Paid For Interest

Cash Paid (Refunded) for Income Taxes

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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 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.

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

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

Our business is organized into five divisions:

Healthcare, Life Sciences, TOMI Service Network, Food Safety and Commercial.

Life Sciences, Healthcare, TOMI Service Network, Food Safety and Commercial.

Invented under a defense grant in association with the Defense Advanced Research Projects Agency (“DARPA”) of the U.S.

Department of Defense, BIT™ is registered with the U.S.

Environmental Protection Agency (EPA) and uses a low percentage hydrogen peroxide as its only active ingredient to produce a fog composed mostly of a hydroxyl radical ( .

OH ion), known as ionized Hydrogen Peroxide (iHP™).

Environmental Protection Agency (the “EPA”) and uses a low percentage hydrogen peroxide as its only active ingredient to produce a fog composed mostly of a hydroxyl radical (.OH ion), known as ionized Hydrogen Peroxide (iHP™).

Represented by the SteraMist® brand of products, iHP™ produces a germ-killing aerosol that works like a visual non-caustic gas.

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Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S.

GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying consolidated financial statements and the accompanying notes.

The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying consolidated financial statements and the accompanying notes.

Actual results could differ materially from these estimates.

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Cash and Cash Equivalents

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

Cash and cash equivalents includes 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.

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For those customers to whom we extend credit, we perform periodic evaluations of their status and maintain allowances for potential credit losses as deemed necessary.

We have a policy of reserving for doubtful accounts based on our best estimate of the amount of potential credit losses in existing accounts receivable.

We have a policy of reserving for credit losses based on our best estimate of the amount of potential credit losses in existing accounts receivable.

We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt.

1 unchanged sentence

Bad debt expense for the years ended December 31, 2023 and 2022, was approximately $ 272,517 and $ 142,188 , respectively.

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

At December 31, 2023 and December 31, 2022, the allowance for doubtful accounts reserve was $ 1,494,347 and $ 1,678,000 .

Long-term trade accounts receivable, are principally amounts arising from the sale of goods and services with a contractual maturity date or realization period of greater than one year and are recognized as “Long-Term Accounts Receivable” in our Consolidated Balance Sheet.

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

3 unchanged sentences

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 $ 95,000 and $ 0 as of December 31, 2022 and December 31, 2021, respectively.

Our reserve for obsolete inventory was $ 95,000 as of December 31, 2023 and December 31, 2022.

Property and Equipment

14 unchanged sentences

Generally, variable lease payments are based on usage and common area maintenance.

These payments will be included as variable lease expense when recognized.

These payments will be included as variable lease expense in the period in which they are incurred.

Capitalized Software Development Costs

12 unchanged sentences

We assume responsibility for product reliability and results.

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

As of December 31, 2023, and December 31, 2022, our warranty reserve was $ 30,000 and $ 68,000 , respectively.

(See Note 15).

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Diluted income or (loss) per share is based on the treasury stock method and includes the effect from potential issuance of shares of common stock, such as shares issuable pursuant to the exercise of options and warrants and conversions of preferred stock or debentures.

Potentially dilutive securities as of December 31, 2022 consisted of 2,792,335 shares of common stock issuable upon exercise of outstanding warrants, 413,000 shares of common stock issuable upon outstanding options and 63,750 shares of common stock issuable upon conversion of outstanding shares of Preferred A stock (“Convertible Series A Preferred Stock”).

The computation of diluted EPS is similar to the computation of basic EPS except that the numerator may have to adjust for any dividends and income or loss associated with potentially dilutive securities that are assumed to have resulted in the issuance of shares of common stock and the denominator may have to adjust to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued during the period to reflect the potential dilution that could occur from shares of common stock issuable through a contingent shares issuance arrangement, stock options, warrants, or convertible preferred stock.

For purposes of determining diluted earnings per common share, the treasury stock method is used for stock options, and warrants, and the if-converted method is used for convertible preferred stock as prescribed in FASB ASC Topic 260.

Because of the net loss for the year ended December 31, 2023 and 2022, the impact of including these in our computation of diluted EPS was anti-dilutive.

Potentially dilutive securities as of December 31, 2023 consisted of 2,080,000 shares of common stock from convertible debentures, 2,772,096 shares of common stock issuable upon exercise of outstanding warrants, 617,542 shares of common stock issuable upon outstanding options and 63,750 shares of common stock issuable upon conversion of outstanding shares of Preferred A stock (“Convertible Series A Preferred Stock”).

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, 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,

Net Income (Loss)

Options, warrants, preferred stock and shares associated with the conversion of debt to purchase approximately 5.5 million and 3.3 million shares of common stock were outstanding at December 31, 2023 and 2022, respectively, but were excluded from the computation of diluted net loss per share at December 31, 2023 and 2022 due to the anti-dilutive effect on net loss per share.

For the Year Ended December 31,

$ ( 3,402,592 )

$ ( 2,880,060 )

Net income (loss) attributable to common shareholders

Net loss attributable to common shareholders

$ ( 3,402,592 )

1 unchanged sentence

Weighted average number of shares of common stock outstanding:

Net income (loss) attributable to common shareholders per share:

Net loss attributable to common shareholders per share:

The following provides a reconciliation of the shares used in calculating the per share amounts for the periods presented:

For the Years Ended December 31,

Net Income (Loss)

$ ( 3,402,592 )

2 unchanged sentences

Effect of dilutive securities

Convertible Debt

Preferred Stock

Diluted Weighted Average Shares

Net Income (Loss) Per Common Share:

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.

Net Loss Per Common Share:

Revenue Recognition

We recognize revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No.

2014-09, Revenue from Contracts with Customers (Topic 606).

We recognize revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, Revenue from Contracts with Customers (Topic 606).

We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

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Disaggregation of Revenue

The following table presents our revenues disaggregated by revenue source.

The following table presents our revenues disaggregated by revenue source (rounded to nearest thousandth).

Product and Service Revenue

For The Years Ended December 31,

For The Years Ended

SteraMist Product

$ ( 1,169,000 )

Service and Training

$ ( 983,000 )

Revenue by Geographic Region

For The Years Ended December 31,

For The Years Ended

United States

1 unchanged sentence

International

$ ( 983,000 )

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

19 unchanged sentences

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.

The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its common stock, par value $0.01 (the “Common Stock”) and does not intend to pay dividends on its Common Stock in the foreseeable future.

The expected forfeiture rate is estimated based on management’s best assessment.

On July 7, 2017, our shareholders approved the 2016 Equity Incentive Plan, or the 2016 Plan.

On July 7, 2017, our shareholders approved the Company’s Amended and Restated 2016 Equity Incentive Plan (the “2016 Plan”).

The 2016 Plan authorizes the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and performance units/shares.

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Recently issued accounting pronouncements not yet adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2023-07, Improvements to Reportable Segment Disclosures (Topic 280).

This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss.

This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources.

The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements.

Early adoption is also permitted.

This ASU will likely result in us including the additional required disclosures when adopted.

We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending December 31, 2024.

In December 2023, the FASB issued ASU No.

2023-09, Improvements to Income Tax Disclosures (Topic 740).

The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid.

The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024.

Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance.

This ASU will result in the required additional disclosures being included in our consolidated financial statements, once adopted.

Recently adopted accounting pronouncements

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

3 unchanged sentences

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.

We adopted the ASU prospectively on January 1, 2023.

This ASU did not have a material impact on our consolidated financial statements.

In October 2021, the FASB issued ASU No.

3 unchanged sentences

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

Adoption of the ASU should be applied prospectively.

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

If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption.

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.

2021-10, Government Assistance (Topic 832).

This ASU requires business entities to disclose information about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model.

The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the significant terms and conditions of the transactions.

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

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:

We adopted this ASU prospectively on January 1, 2023.

This ASU did not have a material impact on our consolidated financial statements.

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

ASU 2020-06 was issued to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity.

ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock and improves the disclosures for convertible instruments and related earnings per share guidance.

ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance.

For public entities that qualify as a filer with the SEC, excluding entities eligible to be smaller reporting companies, ASU 2020-06 is effective for fiscal annual periods beginning after December 15, 2021, including interim periods within those fiscal years.

For nonpublic entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption was permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

ASU 2020-06 must be adopted as of the beginning of a company’s annual fiscal year.

ASU 2020-06 may be adopted through either a modified retrospective method of transition or a fully retrospective method of transition.

The Company adopted ASU 2020-06 on January 1, 2021.

The adoption did not have an impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”), which provides new authoritative guidance with respect to the measurement of credit losses on financial instruments.

This update changes the impairment model for most financial assets and certain other instruments by introducing a current expected credit loss (“CECL”) model.

The CECL model is a more forward-looking approach based on expected losses rather than incurred losses, requiring entities to estimate and record losses expected over the remaining contractual life of an asset.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies.

The Company adopted ASU 2016-13 on January 1, 2023.

The adoption did not have an impact on our consolidated financial statements.

Inventories consist of the following at (rounded to the nearest thousandth):

December 31, 2023

December 31, 2022

Finished goods

1 unchanged sentence

Inventory Reserve

Inventory, net

VENDOR DEPOSITS

2 unchanged sentences

Property and equipment consist of the following at:

December 31, 2023

December 31, 2022

Furniture and fixtures

2 unchanged sentences

Tenant Improvement Allowance

Capitalized Costs in Progress – Tooling and Molds

Total Property and Equipment

Accumulated depreciation

8 unchanged sentences

Definite life intangible assets consist of the following:

December 31, 2023

December 31, 2022

Intellectual Property and Patents

2 unchanged sentences

Total Intangible Assets, net

Approximate future amortization is as follows:

Approximate future amortization is as follows (rounded to nearest thousandth):

December 31, 2024

7 unchanged sentences

We took occupancy of the property on December 17, 2018 and the lease was amended in March 2019 to provide for a 4-month rent holiday and a commencement date of April 1, 2019.

A 7 % discount rate was determined using used our incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

A 7 % discount rate was determined using our incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

1 unchanged sentence

Operating leases:

December 31, 2023

December 31, 2022

Operating lease right-of-use asset

6 unchanged sentences

Other information related to leases where we are the lessee is as follows:

December 31, 2023

December 31, 2022

Weighted-average remaining lease term:

7 unchanged sentences

As of December 31, 2023, the maturities of our operating lease liability are as follows:

Operating Lease

December 31, 2024

10 unchanged sentences

Capitalized software development costs consist of the following at:

December 31, 2023

December 31, 2022

Capitalized Software Development Costs

10 unchanged sentences

Amortization expense for the years ended December 31, 2023 and 2022 were $ 15,063 and $ 15,027 , respectively.

CONVERTIBLE DEBT

On October and November 2023, we entered into a Securities Purchase Agreement (the “SPA”) with certain accredited investors (collectively, the “Investors”) pursuant to which we agreed to sell and issue to the Investors in a private placement transaction (the “Private Placement”) in one or more closings up to an aggregate principal amount of $ 5,000,000 of Convertible Notes (the “Notes”).

As of December 31, 2023, we issued and sold an aggregate of $ 2,600,000 of Notes to certain Investors pursuant to the SPA.

In October and November 2023, we sold and issued pursuant to the SPA convertible promissory notes (the “Notes”) to purchase an aggregate of 2,080,000 shares of common stock at an exercise price of $ 1.25 per share in exchange for aggregate gross proceeds of $ 2,600,000 .

The Notes mature and are due on the fifth anniversary of the issuance date in October and November of 2028.

The Notes bear simple interest at a rate of 12 % per annum, payable in equal monthly installments.

The Notes are convertible into shares of our Common Stock, at the option of the holder, at a conversion price of $1.25 per share, which shall not exceed $1.55 per share.

In addition, we can require Investors to convert the Notes at the then current conversion price at any time after 90 days from the issue date if the Common Stock has a closing bid price of $1.55 per share or higher on any twenty (20) days within a thirty (30) day period of consecutive trading days, or if a “fundamental change” occurs (as defined in the Securities Purchase Agreement) .

The Notes are unsecured and senior to other indebtedness subject to certain exceptions.

Interest expense related to the Notes for the years ended December 31, 2023 and 2022 was $ 54,892 and $ 0 , respectively.

Amortization of deferred financing costs were $ 10,413 and $ 0 for the years ended December 31, 2023 and 2022, respectively, which has been included with interest expense on the statement of operations.

Convertible notes consist of the following at:

Convertible notes

Debt issuance costs

Accumulated amortization

Convertible notes, net

SHAREHOLDERS’ EQUITY

10 unchanged sentences

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

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 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).

In January 2023, we issued 60,000 shares of Common Stock valued at approximately $ 51,000 to members of our Board pursuant to our equity plan (see Note 12).

Stock Options

23 unchanged sentences

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

In January 2023, we issued options to purchase 175,000 shares of Common Stock to Officers at an exercise price of $ 0.85 per share pursuant to an employment agreement.

The options were valued at $ 132,361 and have a contractual term of 10 years.

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

volatility, 139 %;

expected dividend yield, 0 %;

risk free interest rate, 3.59 %;

and an expected life of 5 years.

The grant date fair value of each share of Common Stock underlying the options was $ 0.76 .

In January 2023, we issued options to purchase 42,042 shares of Common Stock to employees at an exercise prices of $ 0.71 - $ 0.85 per share pursuant to an employment agreement.

The options were valued at $ 30,925 , in aggregate and have a contractual term of 10 years.

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

volatility, 139 %;

expected dividend yield, 0 %;

risk free interest rate, 3.59 %;

and an expected life of 5 years.

The grant date fair value of each share of Common Stock underlying the options was $ 0.76 .

The total stock based compensation for the years ended December 31, 2023 and 2022, was $ 163,286 and $ 653,843 , respectively which has been in included within General and Administration expense in our statement of operations.

The following table summarizes stock options outstanding as of December 31, 2023 and 2022:

1 unchanged sentence

December 31, 2022

Number of Options

Weighted Average Exercise Price

Number of Options

Weighted Average Exercise Price

2 unchanged sentences

Options outstanding and exercisable by price range as of December 31, 2023 were as follows:

Outstanding Options

Average Weighted

Exercisable Options

Remaining Contractual Life in Years

Weighted Average Exercise Price

Outstanding Options

Life in Years

Exercise Price

Stock Warrants

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.

Shane, TOMI’s Chief Executive Officer and a director on TOMI’s board of directors, on February 11, 2014 (the “Warrant”), to provide TOMI an option to repurchase the Warrant from Dr.

Shane at a negotiated price.

In connection with the Warrant Amendment, TOMI repurchased the warrant from Dr.

On the same date, the Warrant Amendment and the Repurchase was considered, approved and adopted by a disinterested majority of TOMI’s board of directors.

The $ 314,500 charge in connection with the warrant amendment has been included in General and Administrative expenses for the year ended December 31, 2021.

In September 2021, we issued 1,434,721 warrants in a private placement in connection with the sale common stock through a registered direct offering.

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 .

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, 2023 and 2022:

8 unchanged sentences

Outstanding Warrants

Average Weighted

Exercisable Warrants

Exercise Price

Average Weighted

Remaining Contractual

10 unchanged sentences

As of December 31, 2023 and 2022, there were no claims against us for product liability.

COVID-19 Pandemic

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.

The Company experienced a substantial increase in demand for our products and services in 2020 due to the pandemic.

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.

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

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.

Director compensation also includes the annual issuance of our common stock.

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.

In January 2023, we increased the annual fee to the non-employee members of our Board to $ 48,000 , to be paid in cash on a quarterly basis, with the exception of the audit committee chairperson, whose annual fee was increased to $ 54,600 , also to be paid in cash on a quarterly basis.

Non-employee Director compensation also includes the annual issuance of our Common Stock.

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.

For the year ended December 31, 2023, we issued an aggregate of 60,000 shares of Common Stock that were valued at approximately $ 51,000 to members of our Board.

Manufacturing Agreement

3 unchanged sentences

Cloud Computing Service Contract

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

6 unchanged sentences

Accrued expenses and other current liabilities consisted of the following at:

December 31, 2023

December 31, 2022

Payroll and related costs

2 unchanged sentences

Accrued warranty (Note 15)

Allowance for Sales Returns

Other accrued expenses

5 unchanged sentences

The following table presents warranty reserve activities at:

December 31, 2023

December 31, 2022

Beginning accrued warranty costs

25 unchanged sentences

US statutory corporate income tax rate

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

( 1,002,844 )

Income tax expense computed at US statutory corporate income tax rate

Reconciling items:

1 unchanged sentence

Provision to prior year tax return

( 1,188,884 )

Incentive stock options and warrants

Gain Upon Debt Extinguishment

Meals and Entertainment

Income tax expense (benefit)

6 unchanged sentences

Intangible Assets

Capitalized Research and Development

Capitalized R&D

Stock-Based Compensation

Operating lease right-of-use liabilities

20 unchanged sentences

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.

2 unchanged sentences

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

For the years ended December 31, 2022 and 2021, we had no customers who represented 10 % or more of revenue.

SUBSEQUENT EVENTS

Pursuant to the agreement with our Board of Directors, in January 2023, we issued an aggregate of 60,000 shares of common stock valued at approximately $ 51,000 to independent directors of the Board.

The agreements with our Board provide for the annual issuance of shares of our common stock.

In January 2023 we issued an option to purchase 100,000 shares of common stock to our Chief Executive Officer at an exercise price of $ 0.85 per share pursuant to an employment agreement.

The option was valued at $ 75,635 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, 139 %;

expected dividend yield, 0 %;

risk free interest rate, 3.59 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 0.76 .

In January 2023 we issued an option to purchase 50,000 shares of common stock to our Chief Operating Officer at an exercise price of $ 0.85 per share pursuant to an employment agreement.

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 Operating Officer with the following assumptions:

volatility, 139 %;

expected dividend yield, 0 %;

risk free interest rate, 3.59 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 0.76 .

In January 2023 we issued an option to purchase 25,000 shares of common stock to our Chief Financial Officer at an exercise price of $ 0.85 per share pursuant to an employment agreement.

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 Financial Officer with the following assumptions:

volatility, 139 %;

expected dividend yield, 0 %;

risk free interest rate, 3.59 %;

and a life of 10 years.

The grant date fair value of each share of common stock underlying the warrant was $ 0.76 .

As of December 31, 2023, two customers accounted for 27 % of our gross accounts receivable.

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

For the year ended December 31, 2023, we had 2 customers who represented 20 % of revenue.

For the year ended December 31, 2022, we had no customer who represented 10 % or more of revenue.

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