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Item 7. Management’s Discussion and Analysis

2026-03-31 compared with 2025-04-14 · 283 added, 394 removed, 58 unchanged (92% of the section changed)

2 unchanged sentences

This discussion and analysis should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Annual Report on Form 10-K.

Annual and Quarterly Highlights

Business Update

For the year ended December 31, 2024, we increased our year-over-year annual revenue by 5%, continued to expand our customer base, diversify our product line, and secured significant agreements and new partnerships which will enhance our ability to distribute the SteraMist brand of products and services on a global scale, aiding in the utilization of iHP technology across all divisions worldwide.

In 2024, we expanded many existing relationships and established new key contacts.

Formally, we contracted with six different partners across various regions, including Malaysia, India, Canada, Korea, and the United Kingdom.

These collaborations span focused industries such as pharmaceuticals, vivarium, emergency services, and general disinfection and cleaning.

We are committed to nurturing these partnerships alongside our other 30 partners to further develop and strengthen the SteraMist brand in the global market.

In 2024, the service decontamination sector in the Life Sciences witnessed significant shifts among key competitors domestically, creating numerous opportunities for our Company.

On March 7, 2024, we announced the expansion of SteraMist iHP Corporate Service, with customers securing contracts for routine business through 2026.

This growth accelerated through the second and third quarters of 2024, culminating in a record-breaking revenue performance in quarter 3 2024.

Our commitment to supporting our clientele, including Pfizer, Inc.

and Thermo Fisher Scientific facilities, remains strong, while we successfully onboarding new customers, including multiple smaller engagements within the Food Safety sector.

These new relationships are expected to drive future sales across both capital equipment and routine service contracts.

This positive trend is already evident in 2025, with Quarter 1 showing a 41% increase in iHP Corporate Service revenue compared to Quarter 1 2024.

The addition of these customers further solidifies iHP’s position as a market leader in advanced decontamination solutions, serving corporate clients across life sciences and adjacent industries.

To enhance our market presence in the western United States, we formed a strategic partnership with EMAQ in the second quarter of 2024.

EMAQ has made a significant investment exceeding $1,000,000 in SteraMist iHP equipment and will act as our regional partner to expand iHP services in this area.

This collaboration is expected to drive substantial growth in solution sales, leveraging our razor-and-blade business model—where SteraMist delivery systems represent the razor, and our proprietary BIT Solution serves as the razor blade that is designed to generate ongoing revenue.

The partnership is progressing well, with both companies effectively combining strengths and resources to build business and expand opportunities.

In 2024, we made the decision to declassify the TOMI Service Network (TSN) to incorporate other industries outside of remediation;

however, we remain committed to supporting all our service providers that joined as TSN members.

Our focus extends not only to our current partners but also to onboarding additional providers who can offer their customers the fast, harsh chemical free SteraMist iHP disinfection decontamination technology.

A notable example of this is our collaboration with Triumvirate Environmental, a respected leader in Environmental, Health, and Safety (EHS) services since 1988, specializing in the life science, healthcare, higher education, and advanced manufacturing industries.

We are excited about the opportunity to work with Triumvirate Environmental and anticipate forming a robust partnership in the eastern United States as they become familiar with our innovative technology and many applications.

In November 2024, Bonneville Joint School District No.

93, located in Bonneville County, Idaho integrated SteraMist technology into its cleaning protocols.

This adoption underscores the district’s commitment to prioritizing the health and safety of its students and staff through advanced disinfection measures and demonstrates the versatility of our SteraMist technology and products to serve educational institutions.

Many industries within our four key divisions prioritize ease of use and automation, seeking repeatable, validated, and thoroughly tested disinfection and decontamination solutions.

TOMI dedicated significant resources to developing a variety of options tailored to meet diverse budgetary requirements in response to this market demand.

Among our offerings, the Custom Engineered System (CES) remains a favored choice, bolstered by a strong pipeline.

However, for customers with budget constraints, our Hybrid solutions and the newly introduced SteraMist Integrated System (SIS) have become preferred alternatives.

It is important to clarify that the revenue recognition and timing of completion do not directly correlate with the progress of our projects.

In 2024, we actively worked on and supported in some fashion seven (7) different custom projects, many of which have been previously reported on.

We have secured our first 2025 CES deal.

Collectively, these eight (8) deals are valued at approximately $3.7 million.

Additionally, we are pleased to announce that we have secured contracts for three (3) more SIS offerings this year, totaling approximately $575,000 in sales..

As these customers complete their internal evaluations and activate these iHP automated systems, we expect a significant boost in our BIT Solution sales, further enhancing our razor-and-blade business model.

With the successful completion of each project, our iHP technology is rapidly gaining popularity as the preferred decontamination solution for pharmaceutical and biotech companies.

Further, as we continue to install our technology to these projects, the product line evolves into a comprehensive turnkey solution.

To enhance our turnkey solutions, the end of 2024 and the beginning of 2025 marked a significant shift in our relationships with Original Equipment Manufacturers (OEMs).

By officially partnering with PBSC and collaborating with other industry players, TOMI is now equipped to offer a comprehensive range of iHP solutions tailored for customers requiring enclosures for controlled environments.

This development not only expands our SIS offerings but also creates an additional revenue stream for TOMI.

We are eager to see how these partnerships evolve throughout 2025.

TOMI will soon begin a project with a major conglomerate focused on the decontamination of heart monitoring devices.

This initiative exemplifies our strengthened relationships with OEMs and highlights the capabilities of our SIS product offerings.

Additionally, this project aligns with our goals to advancing healthcare initiatives.

We would also like to emphasize that we are fully aware of the numerous challenges currently impacting the food market.

In response, we have proactively engaged with key industry players to offer our solutions and support.

We are steadily increasing our presence in the food safety marketplace primarily from tradeshows we attended in the past.

As stated, we must demonstrate that we are a viable solution for this industry, and we are currently conducting numerous feasibility studies with both small and large companies.

In 2024 we entered the coffee industry with Mayorga Coffee and Organea Terra SRL, the desserts and ice cream industry with Lakeview Farms and Crank and Boom, egg white food manufacturing, pet food production and packaging, and a few agribusinesses have joined in adding iHP SteraMist to their sanitization standard operating procedures.

To further highlight the effectiveness of SteraMist iHP technology in the food industry, TOMI announced several collaborative efforts with prominent organizations on new studies exploring expanded applications and benefits of SteraMist iHP.

These partnerships have also opened doors to additional opportunities through introductions to their suppliers.

One of these collaborations involves a leading producer of health, hygiene, and nutrition products, where we are developing a specialized application for spraying conveyor belts to streamline the decontamination process for packaged goods, targeting pathogens such as Salmonella and Listeria.

This initiative represents a significant addition to our client portfolio, aligning with market trends driven by growing health awareness and increasing demand for sustainable, premium products.

We maintain an active focus on digital marketing initiatives and business development plans with existing customers.

In an effort to optimize our budget, we reduced our participation in tradeshows and redirected resources towards more effective lead generation strategies such as referrals and references.

While tradeshows offer valuable networking opportunities, we have found that for the short-term TOMI SteraMist’s strong reputation generates sufficient interest through other channels.

These alternative approaches have proven to be more cost-effective and efficient in driving new business and expanding our customer base.

Jude Hospital, a valued customer since 2021, exemplifies our success in referral and expansion, having added three additional SteraMist Surface Units to their facility in 2024.

Another notable example comes from the growing food industry, where an egg manufacturer purchased their first SteraPak in 2024 and has recently ordered three more units, with expectations for additional orders later in the year.

Our handheld devices illustrate the demand in various sectors, and throughout 2024, we remained committed to delivering all applications to our diverse customer base, showcasing the breadth of our offerings and the high level of satisfaction among our clients.

Another significant development in 2024 was the introduction of our SteraMist Pro Certified (SPC) program.

It is important to note that this initiative should not be confused with the discontinued TOMI Service Network (TSN);

rather, it is a program available to all customers across various divisions, including notable names such as Merck and ServiceMaster.

We anticipate that by the end of 2025, this program will greatly enhance our referral database, promote the utilization of SteraMist products, facilitate expansion with current customers, and educate all clientele on the proactive needs for effective disinfection and decontamination and many uses of SteraMist iHP.

Business Highlights and Recent Events

Total revenue for the year ended December 31, 2024, and 2023, was $7,739,000 and $7,355,000, respectively, representing an increase of $384,000, or 5% compared to the same prior year period.

The increase in revenue was attributable to the timing and fulfillment of customer orders.

This growth was driven by higher sales of SteraMist products and mobile equipment.

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

The COVID-19 pandemic along with the needs of the pharmaceutical and vivarium space has provided us with the opportunity and experience to implement a clear strategy to develop and manufacture additional products to add to our portfolio.

In addition, we continue to move our BIT technology as a standard in disinfection and decontamination globally.

This should lead to increased market share, profitability, and capability strength.

Our products are an environmentally friendly solution, and our processes address the concerns of sustainability.

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

SteraMist has established a successful track record in fighting pandemics and outbreaks and implementing SteraMist for emergency preparedness is vital.

The COVID-19 pandemic took the world by surprise, and history has shown that other pandemics and viruses are likely to follow.

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

On April 15, 2024, we announced our attendance at Interphex 2024 showcasing our new innovations.

Interphex 2024 provides an opportunity for a wide range of biotechnology industry leaders to discover SteraMist’s groundbreaking iHP technology which was held in New York City on April 16-18, 2024.

One June 6, 2024, we announced comprehensive cost reduction initiatives to align the Company’s cost structure with targeted profitability objectives.

The Company’s operational cash savings initiatives include a modification of compensation arrangement for our executive officers, pursuant to which executives will reduce their compensation by 30% of their current cash compensation for the remainder of 2024, and an optimization of our consulting arrangement, under which we terminated select external consulting agreements, with remaining consultants agreeing to reduce their consultant fees.

On June 13, 2024, we announced two recent sales in the Life Sciences sector, underscoring the Company’s successful strategic expansion in the sector and growth potential.

The first purchase agreement, signed with one of the largest private pharmaceutical companies in the world, includes the acquisition of a SteraMist Environment System and TOMI validation services for the client’s vivarium facility in Mexico.

The second purchase agreement arises from the Company’s collaboration with a trusted partner with decades of experience in big pharma.

This partnership facilitated the sale of the first Hybrid System to Indigo Pharmaceutical, Inc.

as announced in September 2023.

Continuing this momentum, the partner has now successfully sold another SteraMist Hybrid System to BeSpoke Pharmaceuticals, a Nevada-based manufacturer targeting 503B products.

On July 24, 2024, we announced that EMAQ Group, Inc.

purchased twenty (20) SteraMist Environment Systems, generating $1,180,280 in revenue which was recognized in the second quarter of 2024.

This strategic partnership aims to enhance the market penetration of SteraMist iHP decontamination solutions within the pharmaceutical industry and is expected to grant SteraMist iHP technology the significant traction it deserves, delivering decontamination solutions that meet the stringent demands of the pharmaceutical sector.

On August 22, 2024, we announced the expansion of our partnership with a global leader in laboratory testing and diagnostics services with multiple mobile equipment purchases and a Custom Engineered System (CES) to support the expansion of their Wisconsin facility.

On October 24, 2024, we announced that we secured a contract with the National Institute of Forensic Medicine (IPFN) in Malaysia.

The agreement represents strategic progress as we continue to expand our global footprint in critical environments and capitalize on growing global demand.

On November 26, 2024, we announced that Bonneville Joint School District No.

93, located in Bonneville County, Idaho, has integrated SteraMist technology into its cleaning protocols.

On December 17, 2024, we announced the expansion of our partnership with Betatek, Inc.

("Betatek"), transitioning the long-term Canadian partner from an independent manufacturing representative to an official SteraMist distributor.

This strategic move comes in response to the increasing demand for SteraMist in the Canadian market.

On December 26, 2024, we announced another installation of the Custom Engineered Solution (CES) at a renowned pharmaceutical facility in the United Kingdom.

2025 Highlights:

On January 10, 2025, we announced that we are supporting partners and clients preparing for emerging public health threats as concerns grow over Respiratory Syncytial Virus (RSV), Human Metapneumovirus (HMPV), and the highly pathogenic Avian Influenza (H5N1).

TOMI is leveraging its SteraMist technology to provide innovative infection prevention strategies essential to safeguard the health of government agencies, commercial clients, and school districts nationwide.

On January 30, 2025, we announced positive momentum in early revenue trends for the Company with year-over-year growth in its BIT Solution sales and iHP Corporate Service.

On February 4, 2025, we announced the deployment of our SteraMist iHP technology to support recovery efforts in California communities impacted by recent wildfires.

On February 27, 2025, we announced we achieved compliance, recognition and validation by a third vendor management and compliance management platform, Avetta, reflecting the Company’s commitment to health, safety, and environmental (HSE) excellence for its customers.

In April of 2024, we received the Gold Safety Award from Highwire.

Affiliations with Avetta, Highwire, and ISNetworld platforms opens new avenues for TOMI to engage with a broader network of industry leaders and stakeholders.

The collaboration fosters a culture of continuous improvement, enabling TOMI to enhance its service and integration offerings and stay ahead of evolving industry standards.

On March 6, 2025, we announced that Dr.

Halden Shane, Chairman of the Board and Chief Executive Officer of TOMI, will be participating in the Q1 Investor Summit Event, which was held virtually on March 11, 2025.

On March 20, 2025, we announced the deployment of SteraMist iHP technology at the NASA Johnson Space Center, marking the Company’s expansion into the aerospace sector.

On March 24, 2025, we announced a contract to install a SteraMist iHP CES at a leading university in Rhode Island, valued at approximately $450,000.

On March 25, 2025, we announced an OEM partnership with PBSC, a premier manufacturer specializing in high containment, material decontamination, and cleanroom solution.

Research Studies:

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

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

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

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

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

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

TOMI is conducting internal studies with the 0.35% on common pathogens in the food safety market to enhance protocols.

On March 11, 2024, we announced a groundbreaking study demonstrating the effectiveness of iHP against foot-and-mouth disease virus or FMDV.

Foot-and-mouth disease (FMD) represents a critical global threat, being an extremely contagious disease affecting a wide range of cloven-hoofed animals including cows, pigs, sheep, goats, and deer.

The rapid spread of FMDV among livestock can lead to significant economic losses and disrupt international trade if not promptly and effectively controlled.

TOMI’s recent study has proven SteraMist iHP technology to eliminate infectious FMDV from both porous (concrete) and non-porous (stainless steel) surfaces in the presence of organic soil load.

This achievement meets the stringent EPA standards for demonstrating virucidal efficacy.

The study, conducted by the Department of Homeland Security (DHS) Science and Technology Directorate’s (S&T’s) Plum Island Animal Disease Center (PIADC), adhered to the strict regulatory guidelines of the U.S.

Select Agent Program and utilized methods aligned with EPA-approved testing standards.

SteraMist continues to conduct a variety of tests in the cannabis industry.

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

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

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

Sterile Grow, a partner we welcomed in November 2023 with a substantial purchase has proven that SteraMist has the ability to reduce microbial counts on cannabis flowers from 400cfu/g to non-detectable without affecting the level of THC.

Sterile Grow is currently collaborating with one of the most globally recognized cannabis companies, which boasts over a decade of experience in the industry.

This company is known for creating game-changing genetics and operates more than 70 retail locations across six countries, setting the standard within the cannabis sector.

Preliminary testing results indicating the use of SteraMist iHP have been extremely promising.

Additionally, Sterile Grow is seeking to partner with a leading distributor in controlled environment agriculture, whose mission is to provide growers, farmers, and cultivators with products that enhance quality, efficiency, consistency, and speed in the growth of various crops.

In the food industry and beyond, particularly through the relationships established with our service providers and the education platform SteraMist Pro Certified (SPC), TOMI has taken a proactive initiative in the fight against mycotoxins.

These harmful substances are produced by molds (fungi) and pose serious health risks, including acute poisoning, long-term effects such as immune deficiency and cancer, as well as damage to the kidneys, liver, and fetal development.

We have in our database a comprehensive paper detailing the efficacy of iHP in neutralizing mycotoxins, and we are committed to conducting further efficacy studies.

Addressing this significant issue is crucial, as we believe it is often underrepresented in discussions about public health and safety.

In 2025, we will continue to use research and testing to inform the marketplace of the effectiveness of our products.

One goal of TOMI is to make SteraMist a recommended best practice to minimize emergency responder exposures to synthetic opioids, including fentanyl and fentanyl analogs.

Finally, and although still very early in the fight against ethylene oxide, but our SIS and OEM partnerships developed in 2024 may assist in the replacement of the highly toxic EtO.

As we continue to seek acceptance for the additional 1% hydrogen peroxide label with the EPA for direct food application, we are also actively pursuing a separate label that incorporates the FMDV study, and another study conducted by DHS validating iHP against African Swine Fever.

Additionally, we are working on obtaining a distinct EPA label to support growth within the cannabis industry, where SteraMist has already demonstrated remarkable results.

While navigating the complexities of regulatory approvals in this industry can be challenging, we are committed to our mission of "innovating for a safer world."

Product Development:

SteraMist Engineering continues to make strides collaborating with key manufactures of cleanroom technology and equipment developing a turnkey seamless decontamination integration to chambers, cabinets, passthroughs, isolators, cage washers, heat sterilizers, hot cells and more.

In collaboration with certain partners, TOMI proudly introduced the SteraMist Integration System (SIS) product line tailored for enclosure decontamination.

The inaugural offering, the Stand-Alone model, previously recognized as the Select Plus, has swiftly gained traction in the market, particularly catering to the Biosafety Cabinet (BSC) segment.

This innovative solution offers customers seamless setup and versatility, making it an ideal choice for spaces necessitating a single-applicator decontamination fog.

We are actively engaged with numerous manufacturers to ensure the seamless integration of our SIS Manufacturer line.

This standardized solution will significantly expand our reach within the Life Sciences sector.

The SteraMist Hybrid, an integral component of the SteraMist Environment System, SteraMist Hybrid is designed with capabilities to communicate with a facility.

The system is strategically positioned in a centralized location of the facility through a docking station and features our newly designed permanently mounted stainless steel applicators.

TOMI successfully installed the first official SteraMist Hybrid at Xenith Pharmaceutical F/KA Indigo Pharmaceutical, Inc.’s existing research facility, which selected the SteraMist Hybrid because it met the client’s strict delivery timeline while adhering to the facility’s budget constraints.

The second installation of our Hybrid system occurred in 2024 with BeSpoke Pharmaceuticals.

Our recent participation in InterPhex 2025 has generated significant interest and discussion surrounding this product, highlighting its potential impact.

The same consultant who introduced Indigo brought BeSpoke Pharmaceuticals, a compounding pharmacy, to our attention.

These strategic partnerships underscore the effectiveness of our focused approach to business development.

By prioritizing existing relationships and leveraging referrals, we are generating tangible results with the expectation of accelerating revenue growth.

We believe that complementing this strategy with traditional lead generation methods, such as tradeshows, will further enhance our impact to the marketplace.

Now, our objective for 2025 is to replicate this successful approach across our other divisions.

By implementing the same strategic partnerships and leveraging existing relationships, we aim to drive growth and enhance our market presence in all areas of our business.

We have seen positive reception of its SteraMist Transport unit, an all-in-one dual voltage fogging product designed to treat a wide variety of vehicle sizes with an application time of only 20 minutes per 1,000 cubic feet.

The initial batch of this innovative product is currently in a soft launch phase and was sold for live practical assessment with an existing international customer and domestic distributor.

TOMI launched its fourth generation SteraMist Environment System.

The 24-volt model allows for universal outlet usage and convert even more of the hydrogen peroxide BIT Solution to hydroxyl radicals thus lowering H 2 O 2 PPM levels allowing for faster turnaround time.

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

This system is currently on the market and remains to be one of our most popular quoted product lines, has been implemented by customers, and is receiving praise for its further developments.

Our SteraMist® BIT™ solution product line is currently made up of a 32-ounce bottle for the SteraPak, a ten (10) liter, five (5) gallon, 55-gallon drum for our custom built-ins and our traditional one (1) gallon bottle.

This brings the BIT Solution product line to a total of five (5) options provided to our customers, which will benefit our razor/razor-blade business model, where our SteraMist delivery systems represent the razor, and our proprietary BIT Solution represents the razor blade.

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

Supply Chain:

We have orders for supplies and materials that are required in our equipment and are prepared to continue the manufacturing of all our products.

Further, TOMI has multiple suppliers, outsourced engineers, and software programmers to turn to for the manufacturing and installation of its SteraMist products to reduce the risks associated with the current supply chain environment.

Financial Operations Overview

Our financial position as of December 31, 2024 and 2023, respectively, was as follows:

Total shareholders’ equity

Fiscal year 2025 was a year of meaningful commercial progress for TOMI Environmental Solutions, Inc.

Despite a revenue[DV1] decline driven primarily by the timing of large equipment purchases that occurred in the prior year, the Company advanced its strategic platform across multiple fronts:

launching new product lines, securing landmark customers, establishing OEM partnerships with global manufacturers, and entering new markets including aerospace, aquaculture, cell and gene therapy.

Our SteraMist® iHP™ technology is now protected by more than 30 utility and design patents through 2038 and is deployed in over 40 countries across our four divisions:

Life Sciences, Hospital-Healthcare, Food Safety, and Commercial.

In a significant expansion of our technology platform into the medical device sector, the heart monitoring device project is nearing completion and is scheduled for Factory Acceptance Testing ("FAT") in the near term.

This initiative — developed collaboratively with a strategic partner utilizing our SIS iHP product platform — reflects our ability to design and deploy iHP technology within highly regulated medical device environments and underscores our commitment to advancing healthcare through innovation.

Upon successful FAT completion, we intend to submit our iHP device for U.S.

market clearance through the 510(k) premarket notification pathway, a well-established regulatory route for medical devices of this classification.

We view this milestone as a meaningful step in positioning iHP as a platform technology across the broader medical device industry, and we look forward to progressing this opportunity alongside our core decontamination business.

The SteraMist Integration System ("SIS"), launched in the second half of 2024, achieved its first commercial installation in Q2 2025 at a leading CDMO and has since been adopted across pharmaceutical isolators, biosafety cabinets, and OEM-integrated enclosures,reflecting the growing adoption of iHP as the preferred decontamination solution in advanced life sciences manufacturing environments.

This momentum is underpinned by a powerful macro tailwind:

announced U.S.

onshoring investments in pharmaceutical manufacturing now exceed $370 billion in aggregate commitments from major drugmakers, driving sustained demand for validated decontamination systems that integrate seamlessly with new facility construction.

By year-end, we had 10 active integration projects with a combined pipeline valued at approximately $3 million.

In December 2025, we secured a signed purchase order of approximately $500,000 from a global biopharmaceutical leader for iHP integration into sterile manufacturing passthrough fill boxes, and a leading Cell and Gene Therapy manufacturer adopted SteraMist iHP as a commercial-scale pharmaceutical facility.

We note that the conversion of certain CES projects to recognized revenue has been subject to timing delays, as pharmaceutical facility construction and capital deployment decisions in the United States were affected during 2025 by uncertainty surrounding tariff policy and its downstream impact on equipment costs, materials procurement, and supply chain planning.

Management views this as a timing issue reflecting broader macroeconomic conditions rather than a change in underlying customer demand, and industry forecasters project that pharmaceutical manufacturing construction activity will recover and accelerate through 2026–2027 as policy clarity improves.

Our OEM partnership strategy gained significant momentum during 2025.

Partnerships with PBSC (formalized March 2025), ESCO, Steelco, Nuaire, and Getinge are embedding iHP directly into cleanroom enclosures, passthrough hatches, and biosafety cabinets at the point of manufacture, opening a scalable distribution channel that extends our reach without proportional increases in direct sales cost.

In the Commercial division, T.A.C.T.

franchises purchased $175,000 of SteraMist equipment and BIT Solution in Q4 2025, and our expanding relationships with franchise networks Steri-Clean (approximately 60 locations) are building a recurring BIT Solution revenue stream consistent with our razor-blade revenue model.

Regulatory developments during 2025 further validated and broadened our platform across multiple new verticals.

In September 2025, the FDA expanded the permitted use of hydrogen peroxide as a direct food additive, significantly extending the application of SteraMist iHP to food contact surfaces and ready-to-eat food processing, a market where we have demonstrated efficacy against foot-and-mouth disease virus, African Swine Fever, and mycotoxins.

In Q1, we deployed iHP at NASA's Johnson Space Center, marking our entry into aerospace, and in August we announced a new major customer in the eye health sector implementing iHP across two facilities.

SteraMist was recognized as the 2025 "Disinfection and Decontamination Products Company of the Year" by Medtech Outlook, affirming the competitive differentiation of our technology across an expanding range of industries and applications.

Notwithstanding this commercial progress, the Company recorded a net loss of approximately $3.7 million for fiscal year 2025, compared to $4.5 million in 2024.

Management continues to pursue additional financing through equity and convertible debt instruments, including the $20 million ELOC entered into with Hudson Global Ventures in November 2025, and remains focused on converting its strong commercial pipeline into recognized revenue in 2026.

The financial results of operations are discussed in detail in the sections that follow.

The following overview summarizes key factors affecting the Company’s financial performance for the year ended December 31, 2025 compared to the prior year and should be read in conjunction with the selected financial metrics presented below.

Financial Operations Overview (in thousands)

Cash and cash equivalents

Deferred Revenue

Accounts receivable – Current, net

Inventories, net

Prepaid expenses

Vendor Deposits

Other Receivables

Accounts receivable – Long Term, net

Current liabilities – Excluding Deferred Revenue

Long-term liabilities – Convertible Notes, net

Long-term liabilities – Other

Accounts receivable, net

Inventories, net (Note 3)

Working capital

During the year ended December 31, 2024, our debt and liquidity positions were affected by the following:

Net cash used in operations of approximately $1,440,000.

Net cash used in investing activities $262,000.

Results of Operations for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

For The Year Ended

Total shareholders’ equity

Total debt (convertible notes)

The following table summarizes selected financial metrics for the years ended December 31, 2025 and 2024 and provides a high-level overview of the Company’s operating performance.

Key financial metrics (in thousands, except per share data)

Operating expenses

Loss from operations

Basic and diluted loss per share

The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

The following table presents our results of operations for the years ended December 31, 2025, and 2024, together with the changes between the periods.

The discussion below addresses the significant factors contributing to the changes in our results of operations.

Results of operations (in thousands)

Cost of sales

Operating expenses:

Professional fees

Depreciation and amortization

Selling expenses

Research and development

Consulting fees

General and administrative

Total operating expenses

Loss from operations

Total Other Income (Expense)

Provision for (benefit from) Income Taxes

$ (4,477,000 )

$ (3,402,000 )

Basic Net (Loss) per share

Diluted Net (Loss) per share

During the years ended December 31, 2024 and 2023, we had net revenue of approximately $7,739,000 and $7,355,000, respectively, representing an increase in revenue of approximately $384,000 or 5%.

The higher revenue was attributable to increased demand for our mobile units and higher iHP service revenue.

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

Product and Service Revenue

For The Years Ended

SteraMist Product

Service and Training

SteraMist product-based revenues for the years ended December 31, 2024 and 2023, were $6,035,000 and $5,781,000, representing an increase of $254,000 when compared to the same prior year period.

The higher revenue was attributable to increased demand for our mobile and SIS units.

Our service-based revenue for the years ended December 31, 2024 and 2023, was $1,704,000 and $1,574,000, respectively, representing a year over year increase of $130,000.

The higher revenue was attributable to increased demand for our iHP services.

Revenue by Geographic Region

For The Years Ended

Other income (expense)

Revenue by type (in thousands)

Product revenue

Service revenue

Total revenue

Revenue decreased $2.1 million, or 27%, to $5.6 million for the year ended December 31, 2025 compared to $7.7 million in the prior year.

The decrease was primarily attributable to the timing of certain customer equipment purchases that occurred in the prior year period.

Service revenue remained relatively consistent, reflecting ongoing demand for the Company’s decontamination and service solutions.

The Company continues to engage with existing and new customers regarding installations and service engagements across its target markets.

Geographic revenue (in thousands)

United States

International

Our domestic revenue for the years ended December 31, 2024 and 2023, was $6,098,000 and $6,125,000, respectively, a decrease of $27,000 when compared to the same prior year period

Internationally, our revenue for the years ended December 31, 2024 and 2023, was approximately $1,641,000 and $1,230,000, respectively, representing an increase of $411,000.

Cost of Sales

For The Year Ended

Domestic revenue declined primarily due to lower equipment sales, while international revenue remained relatively stable year over year, including sales of our product into various countries, including Canada, the UK and Europe.

Cost of sales and gross profit (in thousands)

Cost of sales

Cost of sales was $4,182,000 and $3,065,000 for the years ended December 31, 2024 and 2023, respectively, an increase of $1,117,000, compared to the prior year.

The increase in cost of sales was primarily due to the adjustment to our inventory reserve of $1,005,000, which was increased to account for additional slow-moving items in our year-end inventory records compared to anticipated demand for certain units.

Our gross profit as a percentage of sales for the year ended December 31, 2024 was 46% compared to 58% in the same prior period, respectively.

Before consideration of the additional inventory reserve, our gross margins were consistent with the prior year.

Professional Fees

For The Year Ended

Gross margin improved to 54.6% in 2025 from 46.0% in 2024, despite a 27% decline in revenue.

The improvement was primarily driven by the Company recording an allowance for inventory reserve of approximately $1.1 million in 2024.

Further details of the reserve movement are set out in Note 3.

Excluding reserve movements, underlying gross margin was relatively stable year over year, with a modest decline reflecting reduced fixed cost absorption on lower overall sales volume.

Operating expenses (in thousands)

Professional fees

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

Professional fees were $597,000 and $576,000 for the years ended December 31, 2024 and 2023, respectively, representing an increase of approximately $21,000 in the current year period.

The increase is attributable to higher accounting and legal fees in the current year period.

Depreciation and amortization

For The Year Ended

Depreciation and Amortization

Depreciation and amortization was approximately $297,000 and $367,000 for the years ended December 31, 2024 and 2023, respectively, representing a decrease of $70,000, or 19%.

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

Selling expenses

For The Year Ended

Selling Expenses

Selling expenses for the year ended December 31, 2024 were approximately $1,128,000, as compared to $1,351,000 for the year ended December 31, 2023, representing a decrease of approximately $223,000, or 17%.

The decline in selling expenses is due to lower advertising costs and sales commission incurred in the current year period due to less sales generated by third party representatives.

Research and development

For The Year Ended

Research and Development

Research and development expenses for the year ended December 31, 2024 were approximately $291,000, as compared to $492,000 for the year ended December 31, 2023, representing a decrease of approximately $201,000, or 41%.

The decline in research and development expenses is due to a planned reduction in the budget and cost-cutting measures.

Consulting fees

For The Year Ended

Consulting Fees

Consulting fees were $226,000 and $283,000 for the years ended December 31, 2024 and 2023, respectively, representing a decrease of $57,000, or 20%.

The decrease in consulting fees is due to termination of select external consulting agreements, with remaining consultants agreeing to reduce their consultant fees, as part of our cost-reduction measures implemented June 2024.

General and Administrative Expense

For The Year Ended

General and administrative

General and administrative expense includes salaries and payroll taxes, rent, insurance expense, utilities, office expense, product registration costs and credit loss expense.

General and administrative expenses were $5,123,000 and $4,571,000 for the years ended December 31, 2024 and 2023, respectively, an increase of $552,000 in the current year period.

The increase in general and administrative expenses was attributable to a charge incurred in connection with the increase to our reserve for expected credit losses in the amount of $959,000, offset by a decrease in executive compensation and reduced overhead related to the closing of a satellite office space.

Other Income and Expense

For The Year Ended

Interest Income

Interest Expense

Other Income (Expense)

Interest income was approximately $17,000 and $12,000 for the years ended December 31, 2024 and 2023, respectively.

Interest expense was $389,000 and $65,000 for the years ended December 31, 2024 and 2023, respectively.

The increase in interest expense is primarily attributable to the convertible notes which were outstanding for a full year in 2024 compared to the last fiscal quarter for 2023.

Provision for Income Taxes

For The Years Ended

Provision for Income Tax Expense (Benefit)

Provision for income tax was $0 for the years ended December 31, 2024 and 2023.

Total operating expenses

Total operating expenses decreased $0.7 million, or 10%, to $6.9 million in 2025 from $7.7 million in the prior year.

Selling expenses decreased $353,000 (31%) to $775,000, driven by lower sales commissions, and less spend advertising and trade shows, consistent with the 34% decline in product sales volume during the year.

General and administrative expenses decreased $588,000 (11%) to $4.5 million, primarily due to a significant reduction in credit loss expense to $267,000 in 2025 from $1.1 million in 2024, reflecting improved collections and accounts receivable management.

Professional fees increased $146,000 (24%) and consulting fees increased $92,000 (41%), reflecting higher legal and advisory costs associated with public company compliance, Nasdaq deficiency proceedings, and strategic initiatives during the year.

Research and development and depreciation and amortization were essentially flat year over year.

Liquidity and Capital Resources

As of December 31, 2024, we had cash and cash equivalents of approximately $665,000 and working capital of $3,772,000.

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

We have historically funded our operations through funds generated through operations and debt and equity financings.

The sale of additional equity securities could result in dilution to our stockholders.

The incurrence of indebtedness would result in increased debt service obligations and may include operating and financial covenants that would restrict our operations.

We cannot be certain that any financing will be available in the amounts we need or on terms acceptable to us, if at all.

For the year ended December 31, 2024 and 2023, we incurred losses from operations of ($4,105,000) and ($3,349,000), respectively.

Cash used in operations for the year ended December 31, 2024 and 2023, was ($1,440,000) and ($3,599,000), respectively.

Liquidity metrics (in thousands)

Cash and cash equivalents

Accounts receivable, net

Inventories, net (Note 3)

Working capital

Total shareholders’ equity

Total debt - convertible notes

Accumulated deficit

As of December 31, 2025, we had cash and cash equivalents of $88,000 and working capital of $1.0 million, compared to cash of $665,000 and working capital of $3.8 million at December 31, 2024.

For the year ended December 31, 2025, we incurred a net loss of $3.7 million and used $1.2 million of cash in operating activities.

Our accumulated deficit as of December 31, 2025 is $58.1 million.

These conditions raise substantial doubt about our ability to continue as a going concern within the next twelve months after the date these financial statements are issued.

The consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty.

See Note 2 to our consolidated financial statements for further discussion of the going concern assessment.

The $2.7 million decline in working capital from $3.8 million to $1.0 million reflects the net loss incurred during the year and the Company's ongoing capital requirements.

On the asset side, accounts receivable decreased $1.2 million on lower revenue, cash decreased $577,000, and inventories declined $652,000 following write-offs and demand-adjusted purchasing.

On the liability side, accrued expenses increased $405,000, a $254,000 current obligation arose from the Agile Capital sale of future receipts facility entered into during the year, and deferred revenue increased $212,000 reflecting our deposit policy on customer orders.

These increases in current liabilities were partially offset by a $444,000 reduction in accounts payable.

Management’s Plan to Address Going Concern

Management has evaluated the conditions that give rise to substantial doubt about our ability to continue as a going concern and has developed the following plan to address those conditions.

Each element of this plan is subject to execution risk and there can be no assurance that it will be successfully implemented.

Shelf Registration Statement and Equity Line of Credit

Our $20 million ELOC with Hudson Global Ventures, LLC became fully operational upon the effectiveness of our Form S-3 registration statement on December 8, 2025, under which the Company is registered up to $50,000,000 of securities for offer and sale from time to time.

We may, at our sole discretion, draw down between $25,000 and $2,000,000 per draw, subject to applicable exchange caps.

In February 2026, we made our first draw generating gross proceeds of $94,130.

Management believes this facility provides meaningful near-term liquidity, with capacity to provide up to approximately $4 million in the short term, subject to market conditions.

Further details are provided in Note 10 to our consolidated financial statements.

Capital Markets Access

Our effective Form S-3 shelf registration statement (File No.

333-291563) provides a registered platform to raise up to $50,000,000 of securities from time to time.

We have engaged Bancroft Capital as an investment banking advisor to explore additional financing opportunities, including equity and equity-linked transactions with existing and new investors.

Convertible Note Management

We are evaluating options to reduce our outstanding convertible note obligations, including potential conversion into equity or repayment using proceeds from the Hudson Global equity line, either of which would reduce total debt and improve stockholders' equity.

Details of our convertible notes are set out in Note 9 to our consolidated financial statements.

Pipeline Conversion to Revenue

As of December 31, 2025, we had ten active SIS and CES integration projects with a combined contract value of approximately $3 million, including a $500,000 signed purchase order from a global biopharmaceutical leader received in December 2025.

Our broader commercial sales pipeline of management-tracked opportunities exceeded $18 million at year-end, with quoted opportunities of approximately $11 million in progress.

These figures represent potential future revenue and are not committed orders or guarantees of future performance.

Conversion of this pipeline is a primary driver of our 2026 liquidity plan.

Certain CES project conversions were delayed during 2025 by the tariff-driven slowdown in U.S.

pharmaceutical facility capital decisions, which management views as a temporary, externally driven timing issue rather than a change in underlying demand.

Sales Backlog and Revenue Visibility

Our sales backlog grew during 2025 to approximately $1.8 million, reflecting improved visibility into near-term revenue conversion and continued contribution from our recurring consumables and service revenue base.

Cost Management

We reduced total operating expenses by $731,000, or 10%, in 2025.

We continue to actively manage controllable costs while preserving the technical and commercial capacity required to execute on our pipeline.

Customer Deposit Policy

Our customer deposit policy, implemented during 2025, requires deposits on equipment orders ahead of fulfilment.

This policy reduces working capital exposure and is expected to generate incremental operating cash flow benefits in 2026 as it becomes fully embedded across our order intake process.

While management believes the actions described above provide a reasonable basis to address the going concern conditions, there can be no assurance that we will successfully execute this plan, that our pipeline will convert to revenue on the anticipated timeline, or that additional capital will be available on terms acceptable to us.

If we are unable to execute this plan, we may be required to delay, reduce, or eliminate certain operations, which could materially adversely affect our business, financial condition, and results of operations.

Debt and Contractual Obligations

Our outstanding debt as of December 31, 2025 consists of:

(i) $2,600,000 in principal of 12% convertible notes issued under our November 2023 Securities Purchase Agreement, maturing November 2028;

and (ii) $535,000 in principal of 12% convertible notes issued under our 2025 Securities Purchase Agreement, maturing in 2030.

All notes are convertible into common stock at $1.25 per share (not to exceed $1.55 per share), are unsecured, and are senior to other indebtedness subject to certain exceptions.

Total note principal outstanding is $3,135,000, with a net carrying value of $2,912,000 after amortized debt issuance costs.

Annual cash interest on the outstanding principal at 12% is approximately $376,000.

Full terms are disclosed in Note 9 to our consolidated financial statements.

In addition to our convertible notes, we have a $367,425 balance under our sale of future receipts agreement with Agile Capital Funding, subject to weekly repayments of $15,975.

Our operating lease for our Frederick, Maryland headquarters requires annual rent of approximately $169,000 through April 2029.

We have no off-balance-sheet financing arrangements, unconsolidated variable interest entities, or material guarantees.

A breakdown of our statement of cash flows for the year ended December 31, 2025 and 2024 is provided below:

For the Year Ended December 31,

Cash flows for the year (in thousands)

Net cash used in operating activities

$ (1,440,000 )

$ (3,599,000 )

Net cash used in investing activities

Net cash provided by financing activities

Net decrease in cash

Operating Activities

Cash used in operating activities for the years ended December 31, 2024 and 2023 was $1,440,000 and $3,599,000, respectively.

The decrease was attributable to a higher current year loss offset by non-cash adjustments to credit loss expense and inventory reserve, as well as increases to Accounts Payable and Deferred Revenue.

In order to achieve positive cash flow from operations, we continue to closely monitor our cash flow position and implement targeted cost reductions in accordance with our budget.

Net cash used in operating activities was $1,197,000 for the year ended December 31, 2025, an improvement of $243,000, or 17%, from $1,440,000 in 2024.

The improvement was primarily driven by a $904,000 reduction in accounts receivable on lower revenue and an $800,000 decrease in inventory, reflecting our revised deposit policy on customer orders and disciplined inventory management implemented during the year.

These inflows were partially offset by a $271,000 decrease in accounts payable.

Non-cash charges consisted primarily of depreciation and amortization of $271,000, credit loss expense of $267,000, and equity-based compensation of $198,000, which also served to contain cash consumption relative to the reported net loss of $3.7 million.

Investing Activities

Cash used in investing activities for the years ended December 31, 2024 and 2023 was $262,000 and $217,000, respectively.

The increase was primarily attributable to additional patents granted and property and equipment purchased in the current year period.

Net cash used in investing activities was $136,000 for the year ended December 31,2025, compared to $262,000 in 2024, reduction of $126,000.

The improvement was driven primarily by the deferral of non-essential capital expenditures, with property and equipment additions of $5,000 in 2025 versus $108,000 in 2024.

Patent and trademark capitalization was $130,000 essentially flat with $154,000 in 2024.

Financing Activities

Cash provided by financing activities for the years ended December 31, 2024 and 2023 was $27,500 and $2,288,000 respectively.

The cash provided by financing activities decreased as a result of the proceeds from the convertible notes issued in October and November of 2023.

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

ramp up and expansion of our internal sales force and manufacturer’s representatives;

length of our sales cycle;

global and regional response to the outbreak of infectious diseases;

expansion into new territories and markets;

timing of orders from distributors.

We could incur operating losses and an increase of costs related to the continuation of product and technology development, sales expense as we continue to grow our sales teams, inventory as we continue to ensure we have products needed and geographic presence, tooling capital expenditures as we ramp up and streamline our production and administrative activities including compliance with the Sarbanes-Oxley Act of 2002 Section 404.

Management has taken and will endeavor to continue to take a number of actions in order to improve our results of operations and the related cash flows generated from operations in order to strengthen our financial position, including the following items:

expanding our label with the EPA to further our product registration internationally;

continued expansion of our internal sales force and manufacturer representatives in an effort to drive global revenue in all verticals;

continue research and development and add new products to our “Stera” product line;

source alternative lower-cost suppliers;

expansion of international distributors;

continued growth in all of our verticals.

During 2023 and 2024, we experienced increased demand for our CES where we collect deposits upon the execution of the contract.

The deposits we receive fund the production for the CES and improve our overall liquidity through the duration of the project.

We believe our sales for our CES will continue to grow and improve our financial results from a liquidity perspective as well as improve our operating margins due to the higher recurring solution sales we see for our CES system.

For the years ended December 31, 2024 and 2023, our net loss was approximately $4,477,000 and $3,403,000, respectively, and the cash used in operations was approximately $1,440,000 and $3,599,000, respectively.

As of December 31, 2024, we had approximately $665,000 of cash and cash equivalents and an accumulated deficit of $54.3 million.

These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements in this Form 10-K are issued.

While we cannot predict our liquidity position beyond the next twelve months, we are expecting our business opportunities and customer base to continue to expand and grow, which may provide us with additional liquidity to fund our operations.

We continue to consider and pursue various financing transactions such as equity and debt offerings, and we expect to raise additional capital through the sale of convertible debt securities as described in more detail below.

However, there can be no assurance that we will be successful in raising that additional capital or that such capital, if available, will be on terms that are acceptable to the Company, as our ability to raise capital may be affected by various factors, including general market conditions, volatility of our stock price, investor interests and expectations, and our financial performance.

On November 7, 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 (the “Notes”).

As of November 7, 2023, we issued and sold an aggregate of $2,600,000 of Notes pursuant to the SPA before deducting the placement agent’s fees and other estimated offering expenses.

The initial closing of the Private Placement occurred on November 7, 2023.

The Notes are due on the fifth anniversary of the issuance date of the Notes and 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 an initial 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 days within a thirty day period of consecutive trading days, or if a “fundamental change” occurs (as defined in the SPA).

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

In March and April of 2025, we entered into securities purchase agreements (the “ 2025 SPA”) with certain accredited investors (collectively, the “Investors”) pursuant to which the Company sold an aggregate of $385,000 of convertible promissory notes to Investors (the “Note”) in private placement transactions.

The 2025 SPA allows us to offer and sell in multiple closings up to an aggregate principal amount of $3,000,000 of Notes.

The Notes are due on the fifth anniversary of their issuance and bear interest at a rate of 12% per annum, payable in equal monthly installments.

The Notes are convertible at any time into shares of the Company’s common stock, at the option of the holder at a conversion price of $1.25 per share, as adjusted, which shall not exceed $1.55 per share.

In addition, the Company 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 the Nasdaq Capital Market for any twenty (20) days within a thirty (30) day period of consecutive trading days, or if a “fundamental change” occurs (as defined in the SPA).

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

The offer and sale of the Notes pursuant to the 2025 SPA is not registered under the Securities Act of 1933, as amended (the “Securities Act”), as it is exempt from registration pursuant to Section 4(a)(2) thereof and Rule 506(b) promulgated thereunder.

We also entered into registration agreements with the Investors pursuant to which we agreed to register the resales of shares of common stock issuable upon conversion of the Notes.

Net cash provided by financing activities was $755,000 in 2025 compared to $28,000 in 2024.

The improvement reflects two capital raises completed during the year:

$535,000 raised through the issuance of 12% convertible promissory notes under the 2025 Securities Purchase Agreement (SPA), and $300,000 received through a sale of future receipts agreement with Agile Capital Funding, LLC, partially offset by $80,000 in repayments on that facility, an increase of $727,000.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

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We consider the following estimates to be critical to an understanding of our consolidated financial statements and the uncertainties associated with the complex judgments made by us that could impact our results of operations, financial position and cash flows.

Going Concern Assessment

The assessment of our ability to continue as a going concern is the most significant judgment reflected in our financial statements for the year ended December 31, 2025.

Under ASC 205-40, management is required to evaluate whether there is substantial doubt about the Company's ability to continue as a going concern within one year after the date the financial statements are issued.

This evaluation requires management to consider all available information about the future, including the Company's projected cash flows, planned capital raising activities, anticipated operating improvements, and the probability and timing of successfully executing those plans.

For the year ended December 31, 2025, we recorded a net loss of approximately $3.7 million and used approximately $1.2 million of cash in operations.

As of December 31, 2025, we had approximately $88,000 of cash and cash equivalents and an accumulated deficit of approximately $58.1 million.

Based on these conditions, management concluded that substantial doubt exists about our ability to continue as a going concern within one year after the issuance of these financial statements.

Management's conclusion is based on projected cash flows that assume successful execution of our capital raising plans, including continued drawdowns under our convertible note facilities and the potential utilization of the $20 million Equity ELOC with Hudson Global Ventures, LLC entered into in November 2025, as well as anticipated revenue growth from our active commercial pipeline.

If our assumptions regarding capital availability, revenue timing or operating costs prove incorrect, the Company's liquidity position could deteriorate more rapidly than projected, and there can be no assurance that the going concern doubt will be resolved within the anticipated timeframe.

See Note 2 to the consolidated financial statements for further discussion.

Revenue Recognition

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

We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.

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.

To determine revenue recognition for contracts with customers we perform the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligation(s) in the contract;

(i) identify the contract with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligation(s) in the contract;

and (v) recognize revenue when (or as) we satisfy the performance obligation(s).

At contract inception, we assess the goods or services promised within each contract, assess whether each promised good or service is distinct and identify those that are performance obligations.

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when or as we satisfy the performance obligations.

We must use judgment to determine:

(a) the number of performance obligations based on the determination under step (ii) above and whether those performance obligations are distinct from other performance obligations in the contract;

b) the transaction price under step (iii) above for each distinct performance obligation identified in step (ii) above;

and c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above.

(b) the transaction price under step (iii) above;

and (c) the stand-alone selling price for each performance obligation for the allocation of transaction price under step (iv) above.

Title and risk of loss generally pass to our customers upon shipment.

Our customers include end users as well as dealers and distributors who market and sell our products.

Our revenue is not contingent upon resale by the dealer or distributor, and we have no further obligations related to bringing about resale.

Shipping and handling costs charged to customers are included in Product Revenues.

The associated expenses are treated as fulfillment costs and are included in Cost of Revenues.

Shipping and handling costs charged to customers are included in product revenues, and the associated expenses are treated as fulfillment costs included in cost of revenues.

Revenues are reported net of sales taxes collected from customers.

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

Revenue is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive in exchange for those products.

Service and training revenue include sales from our high-level decontamination and service engagements, validation of our equipment and technology and customer training.

Service revenue is recognized as the agreed upon services are rendered to our customers in an amount that reflects the consideration we expect to receive in exchange for those services.

Estimated allowances for sales returns are recorded as sales are recognized.

We use a specific identification method based on subsequent product return activity and historical average calculations to estimate the allowance for sales returns.

Costs to Obtain a Contract with a Customer

We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less.

We generally expense sales commissions when incurred because the amortization period would have been one year or less.

These costs are recorded within selling expenses.

Contract Balances

As of December 31, 2024, and December 31, 2023 we had contract balances and unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed in the amounts of $211,724 and $0, respectively.

Product revenue includes sales from our standard and customized equipment, BIT Solution and accessories.

Revenue is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive.

Service and training revenue includes sales from our high-level decontamination and service engagements, equipment validation and customer training, and is recognized as the agreed-upon services are rendered.

A growing portion of our revenue is derived from our SIS and CES, which may involve multiple performance obligations including equipment supply, installation, validation and ongoing service.

For these arrangements, management exercises significant judgment in identifying and allocating the transaction price among the distinct performance obligations and in determining the point at which control transfers to the customer.

Delays in project completion or customer acceptance for these arrangements can affect the timing of revenue recognition and contribute to variability in our quarterly results.

We also record estimated allowances for sales returns, determined by using a specific identification method based on subsequent return activity and historical averages.

For the years ended December 31, 2025 and 2024, we recorded an allowance of $47,844 and $227,000, respectively.

As of December 31, 2025 and December 31, 2024, deferred revenue totaled approximately $424,000 and $212,000, respectively, representing contracted amounts for which performance obligations had not yet been satisfied.

The increase in deferred revenue reflects growth in our SIS and CES project pipeline and the timing of project milestones.

Changes in assumptions regarding the timing of project completion or customer acceptance could affect the amount and timing of revenue recognized in future periods.

Arrangements with Multiple Performance Obligations

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

This is particularly the case for our SIS and CES, which may involve equipment supply, installation, validation services and ongoing maintenance components.

Where a contract contains multiple performance obligations, we allocate the total transaction price to each distinct performance obligation based on its relative stand-alone selling price, estimated using observable market prices where available or using a cost-plus-margin approach where direct market evidence is not available.

Significant Judgments

Our contracts with customers for products and services often dictate the terms and conditions of when the control of the promised products or services is transferred to the customer and the amount of consideration to be received in exchange for the products and services.

We also record an estimated allowance for anticipated product returns.

Our contracts with customers for products and services often dictate the terms and conditions of when control of the promised products or services is transferred to the customer and the amount of consideration to be received in exchange for those products and services.

For standard equipment and BIT Solution sales, control transfers and revenue is recognized at the point of shipment, which is when title and risk of loss pass to the customer.

For service and training arrangements, revenue is recognized as services are rendered.

For SIS and CES arrangements involving installation and validation milestones, management exercises judgment in determining the point at which control transfers, which may be upon completion of installation, customer acceptance, or satisfaction of specific contractual milestones.

The timing of these measures can affect the period in which revenue is recognized and contribute to variability in our quarterly results.

We also record an estimated allowance for anticipated product returns, determined using a specific identification method based on subsequent return activity and historical average calculations.

Use of Estimates

The preparation of 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.

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

Actual results could differ materially from these estimates.

On an ongoing basis, we evaluate our estimates, including those related to allowance for credit losses, inventory, intangible assets, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of our assets and liabilities.

On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses, inventory obsolescence reserves, allowances for sales returns, the fair value of stock-based awards, the realizability of deferred tax assets, the useful lives of intangible assets and property and equipment, and contingent liabilities.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances.

The Company generally does not require collateral to support customer receivables.

Management assesses the collectability of outstanding customer invoices, and maintains an allowance resulting from the expected non-collection of customer receivables.

In estimating this reserve, management considers factors such as historical collection experience, customer creditworthiness, specific customer risk, and current and expected general economic conditions For those customers to whom we extend credit, in accordance with the Current Expected Credit Loss (CECL) model, we make a risk-based evaluation at the point of sale which is further reviewed on both an individual and collective (pool) basis during each reporting period based on ASC 326.

These accounting standards represent a significant departure from previous GAAP.

We are now required to estimate and report expected credit losses over the entire life of a financial asset, considering historical data, current conditions, and future forecasts, even if the risk of loss is remote.

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 at risk.

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

We do not generally require collateral to support customer receivables.

In accordance with ASC 326, Current Expected Credit Losses, we estimate and record expected credit losses over the entire life of our accounts receivable, considering historical collection experience, customer creditworthiness, specific customer risk, current economic conditions and reasonable and supportable forecasts of future conditions.

We make a risk-based evaluation of collectability at the point of sale, which is further reviewed on both an individual and collective basis during each reporting period.

As of December 31, 2025, net accounts receivable totaled $689,153 compared to approximately $1,881,000 as of December 31, 2024.

The decrease reflects collections on prior-period balances as well as lower revenue levels in the current year.

Management exercises judgment in determining the appropriate allowance for credit losses, and changes in the creditworthiness of our customers, deterioration in economic conditions, or the loss of a significant customer relationship could result in allowance adjustments that materially affect our results of operations in a given period.

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

Inventories consist primarily of finished goods.

We expense costs to maintain certification to cost of goods sold as incurred.

We review inventory on an ongoing basis, considering factors such as deterioration and obsolescence, and future customer demand.

We record an allowance for estimated losses when the facts and circumstances indicate that particular inventories may not be usable or realized when comparing our current inventory levels to anticipated demand for our product

We review inventory on an ongoing basis, considering factors such as deterioration, obsolescence, and anticipated future customer demand, and we record an allowance for estimated losses when facts and circumstances indicate that particular inventory items may not be usable or saleable.

The determination of the appropriate reserve requires management to exercise judgment regarding expected future demand, the useful life of specific inventory items, and the potential for product design changes or regulatory developments that could render existing inventory obsolete.

As of December 31, 2025, our reserve for obsolete inventory was $500,000, compared to $1.1 million as of December 31, 2024.

The decrease in the reserve reflects inventory disposals and adjustments to our demand estimates during the year.

Inventories, net of reserves, totaled approximately $2.9 million as of December 31, 2025, compared to approximately $3.6 million as of December 31, 2024.

If actual demand for our products differs materially from our forecasts, or if changes in our product offerings render existing inventory obsolete, additional write-downs may be required.

Long-Lived Assets Including Acquired Intangible Assets

We assess long-lived assets for potential impairments at the end of each year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset.

In evaluating long-lived assets for impairment, we measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate.

If our long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.

We base the calculations of the estimated fair value of our long-lived assets on the income approach.

For the income approach, we use an internally developed discounted cash flow model that includes, among others, the following assumptions:

projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends;

expected future investments to grow new units;

and estimated discount rates.

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

We had no long-lived asset impairment charges for the years ended December 31, 2024 and 2023.

We assess long-lived assets, including property and equipment and acquired intangible assets, for potential impairment at the end of each fiscal year or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability is measured by comparing the carrying amount of the asset to the estimated future undiscounted cash flows expected to be generated by the asset.

If an asset is considered impaired, the impairment charge recognized equals the amount by which the carrying value exceeds the asset's estimated fair value, which we determine using an income approach based on an internally developed discounted cash flow model.

Key assumptions in this model include projected revenues and operating expenses, long-term growth rates, and estimated discount rates.

These assumptions are based on our historical experience, industry data, and management's expectations about future business conditions.

We noted no long-lived asset impairment charges for the years ended December 31, 2025 and 2024.

Management's impairment analysis considered the going concern conditions described above and concluded that projected undiscounted cash flows, based on our current operating plan and capital raising assumptions, continue to support the carrying values of our long-lived assets.

Changes in our revenue outlook, discount rates or other key assumptions could result in impairment charges in future periods.

Convertible Notes and Debt Discount

As of December 31, 2025, we had outstanding convertible notes with an aggregate principal balance of approximately $3.1 million, net of amortized debt discount and issuance costs of approximately $222,000, resulting in a carrying value of approximately $2.9 million.

Our convertible notes were issued under two separate securities purchase agreements — the 2023 SPA, under which $2.6 million of notes were issued, and the 2025 SPA, under which up to $3.0 million of additional notes may be issued, of which $535,000 had been issued as of December 31, 2025.

The notes bear interest at 12% per annum, are convertible at the option of the holder at $1.25 per share and mature on the fifth anniversary of their respective issuance dates.

The conversion features embedded in the 2023 Notes and 2025 Notes are considered clearly and closely related to the host debt instruments and do not require bifurcation under ASC 815.

No modifications to the terms of the existing notes occurred during the years ended December 31, 2025 and 2024.

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718, Compensation — Stock Compensation.

Stock-based awards, including stock options, restricted stock units and shares issued for services, are measured at their estimated fair value on the grant date and recognized as expense over the requisite service period.

For stock options and warrant awards, fair value is determined using the Black-Scholes option pricing model, which requires management to make assumptions regarding the expected volatility of our common stock, the expected term of the award, the risk-free interest rate and expected dividend yield.

We assume a dividend yield of zero, as we have not paid and do not intend to pay cash dividends on our common stock.

Expected volatility is based on the historical volatility of our common stock over a period commensurate with the expected term of the award.

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the grant date for the applicable expected term.

During the year ended December 31, 2025, we recognized approximately $198,000 of stock-based compensation expense, including shares issued to directors and shares issued for services rendered.

Changes in the assumptions used in the Black-Scholes model, or modifications to existing awards, could result in materially different fair value estimates and compensation expense amounts.

Income Taxes and Valuation Allowance

We account for income taxes in accordance with ASC 740, Income Taxes, using the asset and liability method.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, as well as for net operating loss and tax credit carryforwards.

Deferred tax assets are reduced by a valuation allowance to the extent that management concludes it is more likely than not that some or all of the deferred tax assets will not be realized.

We recorded no income tax expense or benefit for the years ended December 31, 2025 and 2024 due to our net operating losses and the maintenance of a full valuation allowance against our net deferred tax assets.

As of December 31, 2025, our total valuation allowance was approximately $9,719,000, an increase of approximately $1,027,000 from $8,692,000 as of December 31, 2024, primarily reflecting additional deferred tax assets arising from current-year losses.

As of December 31, 2025, we had available federal net operating loss carryforwards of approximately $28,310,000 and state net operating loss carryforwards of approximately $25,784,000.

Net operating losses generated after December 31, 2017 carry forward indefinitely;

those generated prior to 2018 expire at various dates through 2037.

NOL’s generated after 2017 carry forward indefinitely but are limited to offset 80% of taxable income in any given year.

The judgment to maintain a full valuation allowance is the most significant estimate within our income tax accounting.

This judgment is based on our cumulative history of operating losses, our going concern conditions, and the uncertainty surrounding the timing and amount of future taxable income sufficient to realize these assets.

We reassess this conclusion at each reporting date.

If our operating results improve materially and we conclude it is more likely than not that a portion of our deferred tax assets will be realized, we would reduce the valuation allowance accordingly, which could result in a material income tax benefit in the period of that determination.

We adopted ASU 2023-09, Improvements to Income Tax Disclosures, in the fourth quarter of 2025 on a prospective basis;

the required disaggregated rate reconciliation and taxes paid disclosures are included in Note 15 to the consolidated financial statements.

Recently issued accounting pronouncements not yet adopted

In November 2024, the FASB issued ASU No.

2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40), subsequently clarified by ASU No.

2025-01 issued in January 2025.

This ASU requires disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation and amortization, within relevant income statement captions, and also requires disclosure of total selling expenses and their definition.

The ASU is effective for annual periods beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027.

Early adoption is permitted.

We are currently evaluating the provisions of this ASU, which will likely result in additional required disclosures once adopted.

In July 2025, the FASB issued ASU No.

2025-05, Financial Instruments Credit Losses (Topic 326):

Measurement of Credit Losses for Accounts Receivable and Contract Assets.

This ASU provides a practical expedient permitting an entity to assume that conditions at the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current-classified accounts receivable and contract assets.

The ASU is effective for annual periods beginning after December 15, 2025, including interim periods within those fiscal years, with early adoption permitted.

We are currently evaluating the provisions of this ASU and do not expect it to have a material impact on our consolidated financial statements.

In December 2025, the FASB issued ASU No.

2025-11, Interim Reporting (Topic 270):

Narrow-Scope Improvements.

The ASU clarifies interim disclosure requirements and the applicability of Topic 270.

The objective of the amendments is to provide further clarity about the current interim disclosure requirements.

The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027.

Adoption of this ASU can be applied either a prospective or a retrospective approach.

Early adoption is permitted.

We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements.

In December 2025, the FASB issued ASU No.

2025-12, Codification Improvements.

The ASU addresses thirty-three items, representing the changes to the Codification that (1) clarify, (2) correct errors, or (3) make minor improvements.

Generally, the amendments in this Update are not intended to result in significant changes for most entities.

The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2026.

The adoption method of this ASU may vary, on an issue-by-issue basis.

Early adoption is permitted.

We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements.

Recently adopted accounting pronouncements

In December 2023, FASB issued ASU No.

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

2 unchanged sentences

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.

In November 2024, the FASB issued ASU No.

2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40).

In January 2025, ASU No.

2025-01 was issued to clarify the effective date for all public business entities.

The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions.

This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses.

The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements.

Early adoption is also permitted.

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

We are currently evaluating the provisions of this ASU.

Recently adopted accounting pronouncements

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 was adopted retrospectively on December 31, 2024 and resulted in us including the additional required disclosures.

Refer to Note 17, Segment Reporting about the areas for the inclusion of the new required disclosures.

The Company adopted ASU 2023-09 in the fourth quarter of 2025 using a prospective transition method.

On July 4, 2025, the U.S.

H.R.1, an act to provide for reconciliation pursuant to title II of H.

(the “OBBBA”) was enacted.

The OBBBA introduces multiple tax law and other legislative changes, including modifications to income tax provisions such as domestic research and development expenses, capital expenditures, and U.S.

taxation of international earnings;

the repeal or acceleration of the sunset of certain tax credits under the 2022 Inflation Reduction Act and elimination of certain penalties for violations of certain regulatory credit programs.

We have recognized the effects of the OBBBA provisions in our financial results to the extent they are applicable to the year ended December 31, 2025.

We will continue to evaluate the impact of these provisions on our 2026 and subsequent consolidated financial statements.

Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this item are included in Part IV, Item 15 of this Annual Report on Form 10-K, beginning on page F-1, and are incorporated by reference herein.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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What changed 10-K

Item 7. Management’s Discussion and Analysis