TOMI Environmental Solutions, Inc. 10-Q

Item 1. Financial Statements. TOMI ENVIRONMENTAL SOLUTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS As of June 30, As of December 31, Current assets: 2026 2025 (Unaudited) Cash and cash equivalents $ 321,899 $ 87,775 Accounts receivable, net 1,890,105 689,153 Inventories, net (Note 3) 2,812,414 2,926,427 Vendor deposits (Note 4) 226,999 161,597 Prepaid expenses 229,338 322,114 Other current assets 49,113 - Total current assets 5,529,868 4,187,066 Property and equipment, net (Note 5) 513,176 614,311 Other assets: Intangible assets, net (Note 6) 1,349,262 1,351,164 Operating lease – right of use asset (Note 7) 280,026 322,089 Other assets 709,515 559,671 Total other assets 2,338,803 2,232,924 Total assets $ 8,381,847 $ 7,034,301 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,603,561 $ 1,480,189 Accrued expenses and other current liabilities (Note 12) 1,525,401 860,703 Deferred revenue 431,100 424,032 Sale of future receipts, net of discount of $ 0 and $ 113,191 at June 30, 2026 and December 31, 2025, respectively (Note 11) - 254,234 Current portion of long-term operating lease (Note 7) 151,421 143,672 Total current liabilities 3,711,483 3,162,830 Long-term liabilities: Long-term operating lease, net of current portion (Note 7) 292,906 370,591 Convertible notes payable, net of discount of $ 185,978 and $ 222,624 at June 30, 2026 and December 31, 2025, respectively (Note 8) 2,949,022 2,912,376 Total long-term liabilities 3,241,928 3,282,967 Total liabilities 6,953,411 6,445,797 Commitments and contingencies (Notes 7, 8, 10 and 11) - - Shareholders’ equity: Cumulative convertible Series A preferred stock; par value $ 0.01 per share, 1,000,000 shares authorized; 21,250 shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively (retroactively adjusted for the 1-for-3 reverse stock split - Note 9) $ 213 $ 213 Cumulative convertible Series B preferred stock; $ 1,000 stated value; 7.5 % cumulative dividend; 4,000 shares authorized; none issued and outstanding at June 30, 2026 and December 31, 2025, respectively - - Common stock; par value $ 0.01 per share, 250,000,000 shares authorized; 8,142,577 and 6,759,157 shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively (retroactively adjusted for the 1-for-3 reverse stock split - Note 9) 81,425 67,591 Additional paid-in capital 60,591,729 58,572,686 Accumulated deficit ( 59,244,931 ) ( 58,051,986 ) Total shareholders’ equity 1,428,436 588,504 Total liabilities and shareholders’ equity $ 8,381,847 $ 7,034,301 All share and per share amounts presented in these condensed consolidated financial statements have been retroactively adjusted to reflect the Company’s 1-for-3 reverse stock split, effective July 20, 2026 (see Note 9), unless otherwise indicated. The accompanying notes are an integral part of the condensed consolidated financial statements. 4 Table of Contents TOMI ENVIRONMENTAL SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the three months ended June 30, For the six months ended June 30, 2026 2025 2026 2025 Sales, net $ 2,246,909 $ 1,031,115 $ 3,901,136 $ 2,607,673 Cost of sales 861,603 353,991 1,684,054 978,804 Gross profit 1,385,306 677,124 2,217,082 1,628,869 Operating expenses: Professional fees $ 342,693 $ 183,874 $ 524,663 $ 403,190 Depreciation and amortization 50,080 69,238 102,948 137,780 Selling expenses 228,025 240,462 425,328 486,868 Research and development 38,052 84,106 94,872 128,686 Consulting fees 176,706 63,098 241,794 142,169 General and administrative 793,892 1,169,035 1,697,885 2,217,330 Total operating expenses 1,629,448 1,809,813 3,087,490 3,516,023 Loss from operations ( 244,142 ) ( 1,132,689 ) ( 870,408 ) ( 1,887,154 ) Other income (expense): Other income (Employee Retention Credit) - - - 534,912 Interest income 486 1,421 516 84,311 Interest expense ( 138,643 ) ( 106,248 ) ( 323,053 ) ( 225,178 ) Total other income (expense) ( 138,157 ) ( 104,827 ) ( 322,537 ) 394,045 Loss before income taxes ( 382,299 ) ( 1,237,516 ) ( 1,192,945 ) ( 1,493,109 ) Provision for income taxes (Note 13) - - - - Net loss $ ( 382,299 ) $ ( 1,237,516 ) $ ( 1,192,945 ) $ ( 1,493,109 ) Net loss per common share: Basic ($ 0.05 ) ($ 0.19 ) ($ 0.17 ) ($ 0.22 ) Diluted ($ 0.05 ) ($ 0.19 ) ($ 0.17 ) ($ 0.22 ) Basic weighted average common shares outstanding 7,596,869 6,682,504 7,204,206 6,677,149 Diluted weighted average common shares outstanding 7,596,869 6,682,504 7,204,206 6,677,149 All share and per share amounts presented in these condensed consolidated financial statements have been retroactively adjusted to reflect the Company’s 1-for-3 reverse stock split, effective July 20, 2026 (see Note 9), unless otherwise indicated. The accompanying notes are an integral part of the condensed consolidated financial statements. 5 Table of Contents TOMI ENVIRONMENTAL SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For the three and six months ended June 30, 2026 and 2025 (UNAUDITED) As Adjusted for 1-for-3 Reverse Stock Split Series A Preferred Common Stock Additional paid-in Accumulated Total shareholders' Three Months Ended June 30, 2026 Shares Amount Shares Amount capital deficit equity Balance at April 1, 2026 21,250 $ 213 6,898,984 $ 68,989 $ 58,793,980 $ ( 58,862,632 ) $ 550 Director compensation 10,000 100 16,400 - 16,500 Common stock issued pursuant to ELOC, net of issuance costs 1,233,593 12,336 1,781,349 - 1,793,685 Net (loss) for the three months ended June 30, 2026 ( 382,299 ) ( 382,299 ) Balance at June 30, 2026 21,250 $ 213 8,142,577 $ 81,425 $ 60,591,729 $ ( 59,244,931 ) $ 1,428,436 Series A Preferred Common Stock Additional paid-in Accumulated Total shareholders' Six Months Ended June 30, 2026 Shares Amount Shares Amount capital deficit equity Balance at January 1, 2026 21,250 $ 213 6,759,157 $ 67,591 $ 58,572,686 $ ( 58,051,986 ) $ 588,504 Director compensation 26,667 267 56,233 - $ 56,500 Equity compensation expense related to RSU's 11,111 111 33,167 - $ 33,278 Common stock issued pursuant to ELOC, net of issuance costs 1,345,642 13,456 1,929,643 - $ 1,943,099 Net (loss) for the six months ended June 30, 2026 ( 1,192,945 ) $ ( 1,192,945 ) Balance at June 30, 2026 21,250 $ 213 8,142,577 $ 81,425 $ 60,591,729 $ ( 59,244,931 ) $ 1,428,436 Series A Preferred Common Stock Additional paid-in Accumulated Total shareholders' Three Months Ended June 30, 2025 Shares Amount Shares Amount capital deficit equity Balance at April 1, 2025 21,250 $ 213 6,671,735 $ 66,717 $ 58,335,000 $ ( 54,558,584 ) $ 3,843,346 Director compensation 20,000 200 50,800 - 51,000 Net (loss) for the three months ended June 30, 2025 ( 1,237,516 ) ( 1,237,516 ) Balance at June 30, 2025 21,250 $ 213 6,691,735 $ 66,917 $ 58,385,800 $ ( 55,796,100 ) $ 2,656,830 Series A Preferred Common Stock Additional paid-in Accumulated Total shareholders' Six Months Ended June 30, 2025 Shares Amount Shares Amount capital deficit equity Balance at January 1, 2025 21,250 $ 213 6,671,735 $ 66,717 $ 58,335,000 $ ( 54,302,991 ) $ 4,098,939 Director compensation 20,000 200 50,800 - 51,000 Net (loss) for the six months ended June 30, 2025 ( 1,493,109 ) ( 1,493,109 ) Balance at June 30, 2025 21,250 $ 213 6,691,735 $ 66,917 $ 58,385,800 $ ( 55,796,100 ) $ 2,656,830 All share and per share amounts presented in these condensed consolidated financial statements have been retroactively adjusted to reflect the Company’s 1-for-3 reverse stock split, effective July 20, 2026 (see Note 9), unless otherwise indicated. The accompanying notes are an integral part of the condensed consolidated financial statements. 6 Table of Contents TOMI ENVIRONMENTAL SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the six months ended June 30, 2026 2025 Cash flows from operating activities: Net loss $ ( 1,192,945 ) $ ( 1,493,109 ) Adjustments to reconcile net loss to net cash (used in) operating activities: Depreciation and amortization 102,948 137,780 Amortization of right of use asset 78,657 78,657 Amortization of deferred financing costs 36,646 34,294 Amortization of sale of future receipts 113,191 - Equity compensation expense related to RSU’s 33,277 - Director compensation 56,500 51,000 Credit loss expense (benefit) ( 144,474 ) 111,923 Inventory reserve - ( 111,892 ) Sales returns allowance 28,777 24,556 Changes in operating assets and liabilities: Decrease (increase) in: Accounts receivable ( 1,085,255 ) 787,863 Inventory 114,013 408,237 Vendor deposits ( 65,402 ) ( 221,614 ) Prepaid expenses 116,131 156,131 Other current assets ( 49,113 ) - Other assets ( 149,844 ) 14,108 Increase (decrease) in: Accounts payable 123,372 ( 884,675 ) Accrued expenses 664,698 254,705 Deferred revenue 7,068 272,303 Lease liability ( 86,933 ) ( 83,569 ) Net cash (used in) operating activities ( 1,298,688 ) ( 463,302 ) Cash flows from investing activities: Capitalized patent and trademark costs ( 14,180 ) ( 64,462 ) Purchase of property and equipment ( 5,327 ) ( 2,665 ) Net cash (used in) investing activities ( 19,507 ) ( 67,127 ) Cash flows from financing activities: Proceeds from ELOC, net of issuance costs 1,919,744 - Repayments of sale of future receipts ( 367,425 ) - Proceeds from issuance of convertible notes - 435,000 Net cash provided by financing activities 1,552,319 435,000 Increase (decrease) in cash and cash equivalents 234,124 ( 95,429 ) Cash and cash equivalents, beginning 87,775 664,879 Cash and cash equivalents, ending $ 321,899 $ 569,450 Supplemental cash flow information: Cash paid for interest $ 286,407 $ 201,295 Cash paid (refunded) for income taxes 1,000 - Non-cash investing and financing activities: Service equipment reclassified from inventory to fixed assets - $ 14,397 The accompanying notes are an integral part of the condensed consolidated financial statements. 7 Table of Contents TOMI ENVIRONMENTAL SOLUTIONS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS Overview TOMI Environmental Solutions, Inc. (“TOMI,” “we,” “our,” or the “Company”) is a global provider of disinfection and decontamination solutions, offering environmentally friendly products and services for indoor air and surface treatment. Our flagship product line, SteraMist uses our patented Binary Ionization Technology (“BIT”) to deliver a low-concentration (7.8%) hydrogen peroxide-based fog or mist that effectively treats all indoor environments and surface areas. Developed under a grant from the United States Defense Advanced Research Projects Agency (“DARPA”), SteraMist generates ionized Hydrogen Peroxide (“iHP”) through a high-voltage atmospheric cold plasma arc, converting hydrogen peroxide solution into submicron hydroxyl radical particles. This process achieves a 6-log (99.9999%) or greater kill rate against a broad spectrum of pathogens, leaving only oxygen and humidity as by-products. We maintain U.S. Environmental Protection Agency (“EPA”) registration for our BIT solution, along with applicable regulatory approvals in all 50 states, Washington D.C., Canada, and approximately 40 other countries. We serve four primary market divisions: Life Sciences, Hospital-Healthcare, Food Safety, and Commercial. Within such industries, our revenue is derived from equipment sales, BIT Solution consumables, corporate decontamination services, and Installation/Operational/Performance Qualification (IQ/OQ/PQ) services. Our mission: Innovating for a Safer World®. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The interim unaudited condensed consolidated financial statements included herein, presented in accordance with generally accepted accounting principles in the United States of America (GAAP), and stated in U.S. dollars, have been prepared by us, without an audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. These financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. These unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2025, and notes thereto which are included in the annual report on Form 10-K previously filed with the SEC on March 31, 2026, (the “Annual Report”). We follow the same accounting policies in the preparation of interim reports. The results of operations for the interim periods covered by this Form 10-Q may not necessarily be indicative of results of operations for the full fiscal year or any other interim period. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of TOMI and its wholly owned subsidiary, TOMI Environmental Solutions, Inc., a Nevada corporation. All intercompany accounts and transactions have been eliminated in consolidation. Reclassification of Accounts Certain reclassifications have been made to prior-year comparative financial statements to conform to the current year presentation. These reclassifications had no material effect on previously reported results of operations or financial position. Use of Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. 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. 8 Table of Contents Fair Value Measurements The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of input, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximated fair value because of the short maturity of these instruments. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, held at financial institutions and other liquid investments with original maturities of three months or less. At times, these deposits may be more than insured limits. At June 30, 2026, and December 31, 2025, there were no cash equivalents. Accounts Receivable Accounts receivable is 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 industry sector, 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 then reviewed on both an individual and collective (pool) basis during each reporting period based on ASC 326. June 30, December 31, 2026 2025 (Unaudited) Gross accounts receivable $ 2,977,690 $ 1,886,944 Less: Allowance for credit losses ( 1,010,964 ) ( 1,149,947 ) Less: Allowance for sales returns ( 76,621 ) ( 47,844 ) Accounts receivable, net $ 1,890,105 $ 689,153 Movements on credit loss accounts are shown below: June 30, December 31, 2026 2025 (Unaudited) Beginning reserve $ 1,149,947 $ 2,229,977 Credit loss expense (benefit) ( 144,474 ) 267,309 Recoveries and adjustments 5,491 ( 1,347,339 ) Ending reserve $ 1,010,964 $ 1,149,947 9 Table of Contents Inventories Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Inventories consist primarily of finished goods and raw materials. 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 inventories may not be usable or realized when comparing current inventory levels to anticipated demand for our product. Our reserve for obsolete inventory was $ 500,000 and $ 500,000 as of June 30, 2026, and December 31, 2025, respectively. Property and Equipment We account for property and equipment at cost less accumulated depreciation. We compute depreciation using the straight-line method over the estimated useful lives of the assets, generally three to five years. Depreciation commences for equipment, furniture and fixtures and vehicles, once placed in service for its intended use. Leasehold improvements are amortized using the straight-line method over the remaining lease term at the time the asset was placed into service or the service lives of the improvements, whichever is shorter. Leases We recognize a right-of-use (“ROU”) asset and lease liability for all leases with terms of more than 12 months, in accordance with ASC 842. We utilize the short-term lease recognition exemption for all asset classes as part of our on-going accounting under ASC 842. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities. Recognition, measurement and presentation of expenses depend upon classification as a finance or operating lease. As a lessee, we utilize the reasonably certain threshold criteria in determining which options we will exercise. Furthermore, our lease payments are based on index rates with minimum annual increases. These represent fixed payments and are captured in the future minimum lease payments calculation. In determining the discount rate to use in calculating the present value of lease payments, we used our incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments. We have also elected the practical expedient not to separate lease and non-lease components for all asset classes, meaning all consideration that is fixed, or in-substance fixed, will be captured as part of our lease components for balance sheet purposes. Furthermore, all variable payments included in lease agreements will be disclosed as variable lease expense when incurred. Generally, variable lease payments are based on usage and common area maintenance. These payments will be included as variable lease expense in the period in which they are incurred. Vendor Concentration The Company is dependent on a limited number of third-party suppliers for the manufacture of its SteraMist® line of equipment and for the supply of its BIT Solution. This dependence results in concentration of both purchasing activity and accounts payable balances among a small number of vendors. As of June 30, 2026, two vendors accounted for approximately 61 % of total accounts payable, compared to approximately 42 % for one vendor as of December 31, 2025. For the three and six months ended June 30, 2026, two vendors collectively accounted for approximately 77 % and 70 % of total cost of sales, respectively, compared to approximately 50 % and 49 % for the three and six months ended June 30, 2025, respectively. The increase in concentration reflects an increase in equipment sales during the current year period. The Company remains committed to diversifying its supplier base, though it is substantially dependent on these vendors for its primary product lines. Any disruption to these relationships could have a material adverse effect on the Company’s ability to fulfill customer orders and on its results of operations. Refer to Item 1A, Risk Factors, as disclosed in the Company’s Form 10-K, for further discussion of risks related to its reliance on third-party manufacturers and suppliers. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. A significant area of judgment relates to the realization of deferred tax assets, including net operating loss carryforwards and other deductible temporary differences. The Company evaluates the realizability of its deferred tax assets based on available evidence, including historical operating results, projections of future taxable income, and the expected reversal of temporary differences. 10 Table of Contents Based on the Company’s recent history of operating losses, management has concluded that it is more likely than not that its deferred tax assets will not be realized. Accordingly, the Company has recorded a full valuation allowance against its deferred tax assets. The valuation allowance will be maintained until sufficient positive evidence exists to support the realization of these assets. Additional information regarding the Company’s income taxes, including deferred tax assets and net operating loss carryforwards, is included in Note 13. Income Taxes to the consolidated financial statements. Net Loss Per Share Basic net loss per share is computed by dividing our net loss by the weighted average number of shares of common stock outstanding during the period presented. Diluted loss per share is based on the treasury stock method and includes the effect from potential issuance of shares of common stock, such as shares issuable pursuant to the exercise of options and warrants and conversions of preferred stock or debentures. The computation of diluted EPS is similar to the computation of basic EPS except that the numerator may have to adjust for any dividends and income or loss associated with potentially dilutive securities that are assumed to have resulted in the issuance of shares of common stock and the denominator may have to adjust to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued during the period to reflect the potential dilution that could occur from shares of common stock issuable through a contingent shares issuance arrangement, stock options, warrants, or convertible preferred stock. For purposes of determining diluted earnings per common share, the treasury stock method is used for stock options, and warrants, and the if-converted method is used for convertible preferred stock as prescribed in FASB ASC Topic 260. Because of the net loss for the three and six months ended June 30, 2026 and 2025, the impact of including these in our computation of diluted EPS was anti-dilutive. Potentially dilutive securities as of June 30, 2026 and 2025 consisted of the following, as adjusted for our recent stock split: June 30, 2026 June 30, 2025 Convertible debentures 836,000 809,334 Stock warrants 868,130 868,130 Stock options 241,680 256,264 Convertible Series A Preferred Stock 21,250 21,250 Restricted stock units - - Total 1,967,060 1,954,978 Warrants, options, RSU’s, preferred stock and shares associated with the conversion of debt to purchase approximately 1.97 million and 1.95 million shares of common stock were outstanding at June 30, 2026 and June 30, 2025, respectively, but were excluded from the computation of diluted net loss per share at June 30, 2026 and 2025 due to the anti-dilutive effect on net loss per share. For the three months ended June 30, (Unaudited) (Unaudited) 2026 2025 Net loss $ ( 382,299 ) $ ( 1,237,516 ) Net loss attributable to common shareholders $ ( 382,299 ) $ ( 1,237,516 ) Basic weighted average common shares outstanding 7,596,869 6,682,504 Diluted weighted average common shares outstanding 7,596,869 6,682,504 Net loss per common share: Basic $ ( 0.05 ) $ ( 0.19 ) Diluted $ ( 0.05 ) $ ( 0.19 ) 11 Table of Contents Revenue Recognition 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, we perform the following five steps: (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 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 and whether they are distinct from one another; (b) the transaction price; and (c) the standalone selling price for each performance obligation for purposes of transaction price allocation. Title and risk of loss generally pass to our customers upon shipment. 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 of our standard and customized equipment, BIT Solution and accessories, recognized upon transfer of control to the customer. Service and training revenue includes high-level decontamination engagements, equipment validation and customer training, recognized as the agreed-upon services are rendered. A portion of our revenue is derived from 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 can affect the timing of revenue recognition. We record estimated allowances for sales returns using a specific identification method based on subsequent return activity and historical averages. As of June 30, 2026 and December 31, 2025, we recorded allowances of $ 76,621 and $ 47,844 , respectively. Disaggregation of Revenue The following table presents our revenues disaggregated by revenue source (rounded to nearest thousand). Product and Service Revenue For the three months ended June 30, (Unaudited) (Unaudited) 2026 2025 Change Product $ 1,858,000 $ 653,000 $ 1,205,000 Service 389,000 378,000 11,000 Total $ 2,247,000 $ 1,031,000 $ 1,216,000 Revenue by Geographic Region For the three months ended June 30, (Unaudited) (Unaudited) 2026 2025 Change United States $ 1,908,000 $ 822,000 $ 1,086,000 International 339,000 209,000 130,000 Total $ 2,247,000 $ 1,031,000 $ 1,216,000 12 Table of Contents Product and Service Revenue For the six months ended June 30, (Unaudited) (Unaudited) 2026 2025 Change Product $ 3,168,000 $ 1,652,000 $ 1,516,000 Service 733,000 956,000 ( 223,000 ) Total $ 3,901,000 $ 2,608,000 $ 1,293,000 Revenue by Geographic Region For the six months ended June 30, (Unaudited) (Unaudited) 2026 2025 Change United States $ 3,155,000 $ 2,014,000 $ 1,141,000 International 746,000 594,000 152,000 Total $ 3,901,000 $ 2,608,000 $ 1,293,000 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. Contract Balances As of June 30, 2026, and December 31, 2025, 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 $ 431,100 and $ 424,032 , respectively. 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. June 30, December 31, 2026 2025 (Unaudited) Balance, beginning of period $ 424,032 $ 211,724 Deposits Received 882,170 1,991,611 Deposits applied to Revenue ( 947,379 ) ( 1,779,303 ) Deferred revenue adjustments, net 72,277 - Balance, end of period $ 431,100 $ 424,032 Equity Compensation Expense We account for equity compensation expense in accordance with FASB ASC 718, “Compensation—Stock Compensation.” Under the provisions of FASB ASC 718, equity compensation expense is estimated at the grant date based on the award’s fair value. The valuation methodology used to determine the fair value of options and warrants issued as compensation during the period is the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The expected term of the Company’s warrants has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” warrants. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its common stock, par value $0.01 (the “Common Stock”) and does not intend to pay dividends on its Common Stock in the foreseeable future. The Company has elected to account for forfeitures as they occur. 13 Table of Contents On July 7, 2017, our shareholders approved the Company’s Amended and Restated 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan authorized the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and performance units/shares. Giving effect to the Reverse Stock Split, approximately 666,667 shares (2,000,000 pre-split) of Common Stock were authorized for issuance under the 2016 Plan . Shares issued under the 2016 Plan could be authorized but unissued shares, treasury shares, or any combination thereof. Provisions in the 2016 Plan permitted the reuse or reissuance of shares of Common Stock underlying cancelled, expired or forfeited awards and stock appreciation rights settled in cash. Equity compensation awards were typically granted in consideration for the future performance of services to the Company. All recipients of awards under the 2016 Plan were required to enter into award agreements at the time of grant. On or around January 29, 2026, the 2016 Plan expired in accordance with its terms and has not yet been replaced by a successor equity incentive plan. Awards outstanding as of the expiration date remain subject to the terms of the 2016 Plan and the applicable award agreements; however, no new awards may be granted under the 2016 Plan following its expiration. The Company intends to submit a successor equity incentive plan for shareholder approval at its next annual meeting of shareholders. For awards of restricted stock units (“RSUs”), fair value is determined based on the closing market price of the Company’s Common Stock on the grant date. Compensation expense for RSUs is recognized on a straight-line basis over the requisite service period. During the six months ended June 30, 2026, the Company issued 16,667 shares of Common Stock under the 2016 Plan to members of its Board and 11,111 RSUs vested in favor of Mr. David Vanston, the Company’s former Chief Financial Officer (see Note 9). During the six months ended June 30, 2025, the Company issued 20,000 shares of Common Stock under the 2016 Plan to members of its Board. Concentrations of Credit Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. We maintain cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation limit of $ 250,000 at times during the year. 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 three and six months ended June 30, 2026 and 2025. Advertising and Promotional Expenses Advertising and promotional costs are expensed in the period they are incurred. For the three and six months ended June 30, 2026, advertising and promotional expenses included in selling expenses were approximately $ 29,000 and $ 52,000 , respectively. For the same periods in 2025, advertising and promotional expenses included in selling expenses were approximately $ 33,000 and $ 64,000 , respectively. Research and Development Expenses Research and development expenses are expensed in the period they are incurred. For the three and six months ended June 30, 2026, research and development expenses were approximately $ 38,000 and $ 95,000 , respectively. For the same periods in 2025, research and development expenses were approximately $ 84,000 and $ 129,000 , respectively. Business Segments Pursuant to the guidance in ASC 280, we currently have one reportable business segment due to the fact that we derive our revenue primarily from one product in which 1) The business activities are homogenous in nature, 2) The entire operation faces similar market conditions and risks, 3) There is a high degree of integration in its operations, 4) Internal evaluations of financial results are conducted on a consolidated basis. A breakdown of revenue is presented in “Revenue Recognition” in Note 2 above. See Note 15, Segment Reporting for more details. 14 Table of Contents Going Concern For the six months ended June 30, 2026 and 2025, our net loss was approximately $ 1,193,000 and $ 1,493,000 , respectively, and net cash (used in) operations was approximately $ 1,299,000 and $ 463,000 , respectively. As of June 30, 2026, we had approximately $ 322,000 in cash and cash equivalents, working capital of approximately $ 1,818,000 , total stockholders’ equity of $ 1,428,000 , and an accumulated deficit of $ 59.2 million. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. The consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business; no adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we not continue as a going concern. Management’s Plan to Address Going Concern Equity Line of Credit and Shelf Registration Statement In November 2025, we entered into a $ 20.0 million Equity Line of Credit (“ELOC”) with Hudson Global Ventures, LLC. Our Form S-3 shelf registration statement became effective on December 8, 2025, under which the Company is registered to offer and sell up to $ 50.0 million of securities from time to time. Under the ELOC, we may, at our sole discretion, direct Hudson Global Ventures to purchase between $ 25,000 and $ 2.0 million of our common stock per draw, subject to the terms of the facility. Through June 30, 2026, the Company had issued approximately 1.35 million shares under the ELOC and received aggregate net proceeds of approximately $ 1.92 million. As a result, approximately $ 18.1 million of contractual capacity remained available under the facility as of June 30, 2026, subject to market conditions, applicable ownership limitations, regulatory requirements, and the availability of registered shares. Further details are set out in Note 9 to these consolidated financial statements. Capital Markets Access Our effective Form S-3 shelf registration statement 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. Reverse Stock Split On July 20, 2026, subsequent to the period covered by this Report, the Company effected a 1-for-3 reverse stock split of its Common Stock and Series A Preferred Stock, primarily to regain compliance with Nasdaq Listing Rule 5550(a)(2), which requires a minimum closing bid price of $1.00 per share. Continued listing on The Nasdaq Capital Market is important to management’s plan to address the Company’s going concern conditions, as it supports the Company’s ability to access the capital markets, including through the ELOC and the Company’s effective Form S-3 shelf registration statement described above. The Reverse Stock Split did not generate cash proceeds and does not, by itself, resolve the Company’s operating losses or liquidity needs; there can be no assurance that the Reverse Stock Split will be sufficient to regain or maintain compliance with Nasdaq’s continued listing requirements. Further details of the Reverse Stock Split are set out in Note 9 to these consolidated financial statements. Pending Merger with Carbonium Core, Inc. On June 28, 2026, the Company entered into an Agreement and Plan of Merger with Carbonium Core, Inc. (“Carbonium”), pursuant to which Carbonium will become a wholly owned subsidiary of the Company . The Merger Agreement requires the Company and Carbonium to work together in good faith to arrange and complete a financing transaction resulting in gross proceeds to the Company of not less than $10,000,000 prior to Closing , completion of which is itself a condition to Closing. If consummated, management believes the Merger, together with the associated Financing Transaction, would materially improve the Company’s liquidity position and its ability to fund operations beyond the actions described above. However, the Merger is subject to numerous closing conditions, including completion of the Financing Transaction and required shareholder approvals, and there can be no assurance that the Merger will be completed on the anticipated timeline, on the terms currently contemplated, or at all. Accordingly, management’s plan to address the Company’s going concern conditions does not rely on the completion of the Merger or the Financing Transaction. 15 Table of Contents Convertible Note Management As of June 30, 2026, we had $ 3,135,000 in total convertible note principal outstanding, with a net carrying value of $ 2,949,000 after amortized debt issuance costs. 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. Further details of our convertible notes are set out in Note 8 to these consolidated financial statements. Pipeline Conversion to Revenue As of June 30, 2026, our integrated project pipeline for SteraMist Integrated Systems (“SIS”), Hybrid, and Custom Engineered Systems (“CES”) totaled approximately $ 4.3 million across 13 customers, compared to approximately $ 3.0 million in November 2025. During the quarter, we secured a $ 440,000 annual purchase order for recurring decontamination services with a leading global medical technology company, providing quarterly professional iHP decontamination services for critical cleanroom and laboratory environments. These opportunities represent potential future revenue and are not committed orders or guarantees of future performance. More broadly, the Company maintained a total sales pipeline of approximately $ 35 million, including approximately $ 8.6 million in advanced-stage opportunities, which management believes provides a meaningful source of future revenue growth. As of June 30, 2026, sales backlog totaled approximately $ 2.2 million and has subsequently increased to approximately $ 2.5 million, providing visibility into near-term revenue conversion from automated integrated systems, consumables, and recurring service revenue. Cost Management We reduced total operating expenses by $ 180,000 , or 10 %, and $ 428,000 , or 12 % during the three and six months ended June 30, 2026 compared to the same prior year period. 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 implement 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. Recent Accounting Pronouncements Recently issued accounting pronouncements not yet adopted In November 2024, 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. 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. 16 Table of Contents 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). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Company adopted ASU 2023-09, applied on a prospective basis as of January 1, 2025, because the ASU affects disclosures only, adoption did not affect our consolidated financial statements. On July 4, 2025, the U.S. H.R.1, an act to provide for reconciliation pursuant to title II of H. Con. Res. 14. (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. In July 2025, FASB issued ASU No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments in this update provide 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. This update is effective for annual periods beginning after December 15, 2025, including interim periods within those fiscal years. Adoption of this ASU can be applied prospectively for reporting periods after its effective date. We adopted ASU 2025-05 in the first quarter of 2026 on a prospective basis and did not elect the practical expedient. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements or on the allowance for credit losses as of June 30, 2026. NOTE 3. INVENTORIES Inventories consist of the following: June 30, December 31, 2026 2025 (Unaudited) Finished goods $ 2,336,582 $ 2,672,800 Raw materials & work-in-process 975,832 753,627 Inventory reserve ( 500,000 ) ( 500,000 ) Total $ 2,812,414 $ 2,926,427 The movements of inventory reserve were as follows: June 30, December 31, 2026 2025 (Unaudited) Beginning reserve $ 500,000 $ 1,100,000 Additions (provisions) - - Write-offs / disposals - ( 600,000 ) Ending reserve $ 500,000 $ 500,000 17 Table of Contents The Company maintains an inventory reserve for excess, slow-moving, and obsolete inventory based on historical usage, forecasted demand, inventory aging, and product life cycle considerations. As of June 30, 2026 and December 31, 2025, our recorded reserve for obsolete inventory was $ 500,000 and $ 500,000 , respectively. The reserve reflects historical accounting treatment and estimation methodologies established in prior fiscal periods under ASC 330 and SEC Staff Accounting Bulletin (SAB) Topic 5.BB. Under SAB Topic 5.BB, an inventory write-down establishes a new cost basis that cannot subsequently be written back up, regardless of subsequent operational improvements or changes in forward demand expectations. While the recorded allowance of $ 500,000 is maintained on the Condensed Consolidated Balance Sheet to satisfy GAAP accounting requirements regarding prior cost-basis adjustments, management continuously evaluates the underlying economic exposure of its inventory population. The Company will derecognize the associated carrying reserves as underlying inventory units are sold, consumed, or otherwise disposed of in the ordinary course of business. If actual demand for our products differs materially from our forecasts, or if future changes in our product offerings render existing inventory obsolete, additional write-downs may be required. NOTE 4. VENDOR DEPOSITS At June 30, 2026, and December 31, 2025, we maintained vendor deposits of $ 226,999 and $ 161,597 , respectively, for open purchase orders for inventory. NOTE 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following at: June 30, December 31, 2026 2025 (Unaudited) Furniture and fixtures $ 463,980 $ 458,652 Equipment 2,316,200 2,316,200 Vehicles 66,170 66,170 Computer and software 321,499 321,499 Leasehold improvements 393,381 393,381 Tenant improvement allowance 405,000 405,000 Total Property and Equipment $ 3,966,230 $ 3,960,902 Less: Accumulated Depreciation 3,453,054 3,346,591 Property and equipment, net $ 513,176 $ 614,311 For the three and six months ended June 30, 2026, depreciation was $ 42,039 and $ 86,866 , respectively. For the three and six months ended June 30, 2025, depreciation was $ 62,022 and $ 123,766 , respectively. For the three and six months ended June 30, 2026, and 2025, amortization of tenant improvement allowance was $ 9,798 and $ 19,597 , respectively in both periods and was recorded as lease expense and included within general and administrative expense on the consolidated statement of operations. 18 NOTE 6. INTANGIBLE ASSETS Intangible assets consist of patents and trademarks related to our Binary Ionization Technology. We amortize the patents over the estimated remaining lives of the related patents. The trademarks have an indefinite life. Amortization expense was $ 8,041 and $ 16,082 for the three and six months ended June 30, 2026, respectively. Amortization expense was $ 7,216 and $ 14,014 for the three and six months ended June 30, 2025, respectively. June 30, December 31, Definite life intangible assets consist of the following: 2026 2025 (Unaudited) Intellectual property and patents $ 3,463,662 $ 3,449,482 Less: accumulated amortization 2,976,226 2,960,143 Patents, net $ 487,436 $ 489,339 Indefinite life intangible assets consist of the following: Trademarks 861,825 861,825 Total intangible assets, net $ 1,349,261 $ 1,351,164 Approximate future amortization is as follows (rounded to nearest thousand): Year Ended: July 1 - December 31, 2026 $ 16,000 December 31, 2027 32,000 December 31, 2028 32,000 December 31, 2029 32,000 December 31, 2030 32,000 Thereafter 343,000 Total $ 487,000 NOTE 7. LEASES In April 2018, we entered into a 10 -year lease agreement for a new 9,000 -square-foot facility that contains office, warehouse, lab and research and development space in Frederick, Maryland. The lease agreement commenced in December 2018 when the property was ready for occupancy. The agreement provided for annual rent of $ 143,460 , an escalation clause that increases the rent 3 % year over year, a landlord tenant improvement allowance of $ 405,000 and additional landlord work as discussed in the lease agreement. We took occupancy of the property on December 17, 2018, and the lease was amended in June 2019 to provide for a 4-month rent holiday and a commencement date of April 1, 2019. A 7 % discount rate was determined using our incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The balances for our operating lease where we are the lessee are presented as follows within our condensed consolidated balance sheet: As of As of June 30, December 31, Operating leases: 2026 2025 (Unaudited) Assets: Operating lease right-of-use asset $ 280,026 $ 322,089 Liabilities: Current portion of long-term operating lease $ 151,421 $ 143,672 Long-term operating lease, net of current portion 292,906 370,591 Total right of use liability $ 444,327 $ 514,263 The components of lease expense are as follows and are included within general and administrative expense on our condensed consolidated statement of operations. For the three months ended For the six months ended June 30, June 30, (Unaudited) (Unaudited) Operating lease expense $ 39,329 $ 39,329 $ 78,657 $ 78,657 19 Table of Contents Supplemental cash flow information related to leases where we are the lessee is as follows: For the three months ended For the six months ended June 30, June 30, (Unaudited) (Unaudited) Cash paid for amounts included in 2026 2025 2026 2025 the measurement of lease liabilities $ 44,109 $ 41,993 $ 86,934 $ 83,571 Other information related to leases where we are the lessee is as follows: As of As of June 30, December 31, 2026 2025 (Unaudited) Weighted-average remaining lease term: Operating leases 2.75 3.25 Discount rate: Operating leases 7 % 7 % As of June 30, 2026, the maturities of our operating lease liability are as follows: Operating Year ended: Lease July 1 - December 31, 2026 $ 88,219 December 31, 2027 180,407 December 31, 2028 185,820 December 31, 2029 34,841 Total minimum lease payments 489,287 Less: interest 44,960 Imputed value of lease obligations 444,327 Less: current portion 151,421 Long-term portion of lease obligations $ 292,906 NOTE 8. CONVERTIBLE DEBT As of June 30, 2026, the Company has two series of convertible promissory notes outstanding under separate Securities Purchase Agreements entered into in 2023 and 2025, respectively. The aggregate outstanding principal of both series is $ 3,135,000 , carried as a long-term liability on the Consolidated Balance Sheet. Each series is described separately below. All per share and conversion prices have been adjusted for the Reverse Stock Split (See Note 9 ). 2023 Notes During October and November 2023, we entered into a Securities Purchase Agreement (the “2023 SPA”) with certain accredited investors (collectively, the “Investors”) pursuant to which we agreed to sell and issue to the Investors in a private placement transaction (the “Private Placement”) in one or more closings up to an aggregate principal amount of $5,000,000 of Convertible Notes (the “2023 Notes”). As of June 30, 2026, we had issued and sold an aggregate principal amount of $ 2,600,000 of 2023 Notes to certain Investors pursuant to the 2023 SPA, convertible into an aggregate of 693,334 shares of Common Stock at a conversion price of $ 3.75 per share. The 2023 Notes mature and are due on the fifth anniversary of the issuance date in October and November of 2028. The 2023 Notes bear simple interest at a rate of 12% per annum, payable in equal monthly installments. The 2023 Notes are convertible into shares of our Common Stock at the option of the holder at a fixed conversion price of $3.75 per share. In addition, we may require the Investors to convert the 2023 Notes at the $3.75 per share conversion price at any time after 90 days from the issue date if the Common Stock has a closing bid price of $4.65 per share or higher on any twenty (20) trading days within a thirty (30) day consecutive trading period, or if a “fundamental change” occurs (as defined in the 2023 SPA). For the avoidance of doubt, $4.65 is the stock price threshold that triggers the Company’s mandatory conversion right and is not itself a conversion price; the notes always convert at $3.75 per share . The 2023 Notes are unsecured and senior to other indebtedness, subject to certain exceptions. 20 Table of Contents 2025 Notes During 2025, we entered into Securities Purchase Agreements (the “2025 SPA”) with certain accredited investors pursuant to which we agreed to sell and issue, in one or more closings, up to an aggregate principal amount of $ 3,000,000 of Convertible Notes (the “2025 Notes”). Pursuant to the 2025 SPA, and as adjusted for the Company’s 1-for-3 reverse stock split effective July 20, 2026, the Company had issued an aggregate principal amount of $ 535,000 of 2025 Notes as of June 30, 2026, initially convertible into an aggregate of 142,667 shares of Common Stock at a conversion price of $ 3.75 per share. Approximately $ 2,465,000 remained available for issuance under the 2025 SPA as of June 30, 2026, subject to its terms and conditions. The 2025 Notes mature and are due on the fifth anniversary of the respective issuance dates in 2030. The 2025 Notes bear simple interest at a rate of 12% per annum, payable in equal monthly installments. The 2025 Notes are convertible into shares of our Common Stock at the option of the holder at a fixed conversion price of $3.75 per share. In addition, we may require the Investors to convert the 2025 Notes at the $3.75 per share conversion price at any time after 90 days from the issue date if the Common Stock has a closing bid price of $4.65 per share or higher on any twenty (20) trading days within a thirty (30) day consecutive trading period, or if a “fundamental change” occurs (as defined in the 2025 SPA). For the avoidance of doubt, $4.65 is the stock price threshold that triggers the Company’s mandatory conversion right and is not itself a conversion price; the notes always convert at $3.75 per share . The 2025 Notes are unsecured and senior to other indebtedness, subject to certain exceptions. Interest expense on the 2023 Notes was $ 78,000 and $ 156,000 for each of the three and six months ended June 30, 2026 and 2025. Interest expense on the 2025 Notes was $ 16,050 and $ 32,100 for the three and six months ended June 30, 2026, respectively. Interest expense on the 2025 Notes was $ 10,225 and $ 13,075 for the three and six months ended June 30, 2025, respectively (reflecting partial-year accrual from the respective issuance dates). Total interest expense on convertible notes for the three and six months ended June 30, 2026 was $ 94,050 and $ 188,100 , respectively. Total interest expense on convertible notes for the three and six months ended June 30, 2025 was $ 88,225 and $ 169,075 , respectively. Registration Rights In connection with each of the 2023 SPA and the 2025 SPA, we entered into registration rights agreements with the respective Investors pursuant to which we agreed to register for resale the shares of Common Stock issuable upon conversion of the respective Notes. As of June 30, 2026, we have not filed a resale registration statement covering these shares. We are evaluating the timing and method of fulfilling our registration obligations under each agreement. Failure to satisfy our registration obligations within the timeframes specified in the respective registration rights agreements could result in the payment of liquidated damages or other penalties to the Investors, the amount of which we are unable to estimate at this time. Debt Issuance Costs and Interest Amortization of deferred financing costs was $ 18,323 and $ 36,646 for the three and six months ended June 30, 2026, respectively (compared to $ 18,023 and $ 34,294 in the prior year), which have been included with interest expense on the statement of operations and is being amortized on a straight-line basis over the life of the notes. Annual cash interest payable on the aggregate outstanding principal of $ 3,135,000 at 12 % per annum is approximately $ 376,200 , payable in equal monthly installments. 21 Table of Contents Convertible notes consist of the following at: June 30, December 31, 2026 2025 (Unaudited) 2023 Notes $ 2,600,000 $ 2,600,000 2025 Notes 535,000 535,000 Total convertible notes $ 3,135,000 $ 3,135,000 Less: Debt issuance costs ( 366,456 ) ( 366,456 ) Accumulated amortization 180,478 143,832 Debt issuance costs, net ( 185,978 ) ( 222,624 ) Convertible notes, net $ 2,949,022 $ 2,912,376 NOTE 9. SHAREHOLDERS’ EQUITY Our Board of Directors (the “Board”) may, without further action by our shareholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of preferred stock in series and at the time of issuance, determine the rights, preferences and limitations of each series. The holders of such preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding up by us before any payment is made to the holders of our common stock. Furthermore, the Board could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock. Reverse Stock Split Terms of the Split On July 20, 2026, the Company effected a 1-for-3 reverse stock split of its Common Stock and Series A Preferred Stock (the “Reverse Stock Split”), pursuant to authority granted by shareholders on June 4, 2026 and a ratio approved by the Board of Directors on May 19, 2026. Articles of Amendment effecting the Reverse Stock Split were filed with the Florida Secretary of State on July 17, 2026, effective July 20, 2026. Every three shares of Voting Stock outstanding immediately prior to the effective time were automatically converted into one share. The Reverse Stock Split did not change par value or the total number of authorized shares of Common Stock or Preferred Stock. No fractional shares were issued; fractional shares were instead rounded up to the nearest whole share at the individual shareholder account level, which may cause the aggregate post-Split share count to differ immaterially from the amount produced by applying the 1-for-3 ratio on an aggregate basis. New CUSIP and Impact on Outstanding Options and Warrants Our Common Stock continues to trade on The Nasdaq Capital Market under the symbol “TOMZ,” under a new CUSIP number, 890023302. The Reverse Stock Split also effected a proportionate reduction in the number of shares of Common Stock issuable upon exercise of our outstanding options and warrants, with a corresponding adjustment to each instrument’s exercise price. Retroactive Restatement All share and per share amounts (including shares outstanding, weighted average shares, and earnings per share) presented in the accompanying condensed consolidated financial statements have been retroactively restated for all periods presented, in accordance with ASC 260, Earnings Per Share , and ASC 855, Subsequent Events . As of June 30, 2026, prior to giving effect to the Reverse Stock Split, the Company had 24,427,465 shares of Common Stock outstanding; on a retroactively adjusted post-split basis, this amount is presented herein as 8,142,577 shares. This retroactive treatment has also been applied to the presentation of Common Stock, Preferred Stock, and Additional Paid-in Capital as of June 30, 2026 and December 31, 2025, with the par value of the retired shares reclassified to Additional Paid-in Capital as if the Reverse Stock Split had occurred at the beginning of the earliest period presented. The Reverse Stock Split was legally effected on July 20, 2026; accordingly, the corresponding ledger reclassification entry will be recorded in the Company’s accounting records in the third quarter of 2026. 22 Table of Contents Common & Preferred Stock Convertible Series A Preferred Stock Our authorized Convertible Series A Preferred Stock, $ 0.01 par value, consists of 1,000,000 shares. As of June 30, 2026 and December 31, 2025, there were 21,250 shares issued and outstanding. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock. Convertible Series B Preferred Stock Our authorized Convertible Series B Preferred Stock, $ 1,000 stated value, 7.5% cumulative dividend, consists of 4,000 shares. As of June 30, 2026 and December 31, 2025, there were no shares issued and outstanding, respectively. Each share of Convertible Series B Preferred Stock may be converted (at the holder’s election) into two hundred shares of our common stock. Common Stock During January 2026, we issued 16,667 shares of Common Stock valued at approximately $ 40,000 to members of our Board - 10,000 shares related to the first quarter of 2026 and 6,667 shares which were accrued during the fourth quarter of 2025 (See Note 11 – Director Compensation). During April 2026, we issued 10,000 shares of Common Stock valued at approximately $ 16,500 to members of our Board (See Note 11 – Director Compensation) Note 9 (continued). Equity Purchase Agreement — Hudson Global Ventures, LLC Terms of Agreement On November 5, 2025, the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Hudson Global Ventures, LLC (“Hudson Global”), pursuant to which the Company has the right, but not the obligation, to sell to Hudson Global up to $ 20,000,000 of shares of Common Stock over a 24-month Commitment Period. The terms and conditions of the Purchase Agreement, including pricing, the Exchange Cap, and the Commitment Shares, are described in Note 10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. The shares were issued pursuant to the Form S-3 registration statement (File No. 333-291563) and the prospectus supplement dated December 11, 2025. The Company intends to use the proceeds for working capital and general corporate purposes. Exchange Cap Waiver ELOC Purchase Agreement – Exchange Cap Waiver On June 4, 2026, in accordance with Section 607.0704 of the Florida Business Corporation Act, shareholders holding a majority of the Company’s outstanding voting power approved, by written consent, the issuance of shares of Common Stock to Hudson under the ELOC in excess of 4,043,018 shares (the “Exchange Cap”), representing 19.99% of the Company’s outstanding Common Stock as of the date the ELOC Purchase Agreement was executed. This approval permits the Company to direct sales of Purchase Shares to Hudson Global under the $20,000,000 ELOC Purchase Agreement in excess of the Exchange Cap in compliance with Nasdaq Listing Rule 5635(d). Pursuant to Rule 14c-2 of the Exchange Act, this corporate action became effective on June 25, 2026, twenty calendar days after the Company’s Information Statement on Schedule 14C was first mailed to shareholders of record on June 5, 2026. During the six months ended June 30, 2026, pursuant to the ELOC, we issued an aggregate of 1,345,642 shares of Common Stock, generating aggregate gross proceeds of $2,105,381 and aggregate net proceeds of $ 1,943,099 (net of $ 162,282 in offering and issuance costs). Share and per-share amounts have been retroactively adjusted to reflect the Company’s 1-for-3 reverse stock split effective July 20, 2026. Shares issued under the ELOC are presented on a post-reverse-split basis. The Exchange Cap of 4,043,018 shares reflects the pre-reverse-split shareholder approval obtained on June 4, 2026. Gross and net proceeds were unaffected by the reverse stock split. Gross proceeds under the ELOC totaled $ 2,105,381 ($1,943,099 net of transaction costs). The Put dated 3/31/2026 was identified as having been processed in error and subsequently corrected, resulting in a $ 23,355 receivable from Hudson Global Ventures, LLC included within other current assets as of June 30, 2026. Excluding this $23,355 receivable, net cash proceeds received during the six months ended June 30, 2026 were $ 1,919,744 . 23 Table of Contents Note 9 (continued). Option & Warrant tables & RSU’s Stock Options The following table summarizes stock options outstanding as of June 30, 2026: For the six months ended June 30, 2026 (Unaudited) Number of Options Weighted Average Exercise Price Outstanding, beginning of period 245,847 $ 2.97 Granted - - Exercised - - Expired ( 4,167 ) 13.20 Outstanding, end of period 241,680 $ 2.80 Options outstanding and exercisable by price range as of June 30, 2026 were as follows: Average Weighted Outstanding Options Remaining Exercisable Options Contractual Weighted Average Range Number Life in Years Number Exercise Price $ 2.13 2,347 1.56 2,347 $ 2.13 $ 2.25 75,000 7.88 75,000 $ 2.25 $ 2.40 833 1.57 833 $ 2.40 $ 2.55 70,000 6.58 70,000 $ 2.55 $ 3.36 90,000 5.56 90,000 $ 3.36 $ 5.79 3,500 0.46 3,500 $ 5.79 241,680 6.45 241,680 $ 2.80 24 Table of Contents RSU Forfeiture — Former Chief Financial Officer On May 11, 2026, the Company’s former Chief Financial Officer, David Vanston, passed away. As of the date of his death, Mr. Vanston held 22,222 shares (as adjusted for the Reverse Stock Split) of unvested RSUs granted under the 2016 Plan, which were subject to his continued service with the Company. In accordance with the terms of the award and the 2016 Plan, the unvested RSUs are now null and void. Compensation expense had been recognized only on the vested portion of the award; accordingly, the forfeiture did not require any adjustment to previously recognized stock-based compensation expense. Mr. Niroshan Srirathan was appointed Interim Chief Financial Officer effective May 16, 2026. Stock Warrants The following table summarizes the outstanding common stock warrants as of June 30, 2026: For the six months ended June 30, 2026 (Unaudited) Number of Warrants Weighted Average Exercise Price Outstanding, beginning of period 868,130 $ 6.96 Granted - - Exercised - - Expired - - Outstanding, end of period 868,130 $ 6.96 Warrants outstanding and exercisable by price range as of June 30, 2026 were as follows: Outstanding Warrants Average Weighted Remaining Exercisable Warrants Exercise Price Number Contractual Life in Years Number Weighted Average Exercise Price $ 1.92 10,417 7.39 10,417 $ 1.92 $ 2.40 41,667 7.58 41,667 $ 2.40 $ 2.88 145,833 6.48 145,833 $ 2.88 $ 5.04 478,240 0.25 478,240 $ 5.04 $ 6.54 57,389 0.25 57,389 $ 6.54 $ 12.00 9,584 3.82 9,584 $ 12.00 $ 20.85 125,000 4.26 125,000 $ 20.85 868,130 2.35 868,130 $ 6.96 There were no unvested warrants outstanding as of June 30, 2026. 25 Table of Contents NOTE 10. COMMITMENTS AND CONTINGENCIES Legal Contingencies We may become a party to litigation in the normal course of business. In the opinion of management, there are no legal matters involving us that would have a material adverse effect upon our financial condition, results of operations or cash flows. In addition, from time to time, we may have to file claims against parties that infringe on our intellectual property. Product Liability As of June 30, 2026, and December 31, 2025, there were no claims against us for product liability. NOTE 11. CONTRACTS AND AGREEMENTS Director Compensation During the six months ended June 30, 2026, director agreements for non-employee members of our Board consisted of an annual cash fee of $ 20,000 ($ 5,000 per quarter) and issuance of 13,334 shares per annum of Common Stock (3,334 shares per quarter). During the six months ended June 30, 2025, our previous director agreements for non-employee members of our Board consisted of an annual cash fee of $ 48,000 ($ 12,000 per quarter), with the exception of the audit committee chairperson, whose annual cash fee was $ 54,600 ($ 13,650 per quarter). Non-employee Director compensation also included an annual issuance of 6,667 shares of Common Stock. Agreement for the Purchase and Sale of Future Receipts Effective November 18, 2025, we entered into an agreement with Agile Capital Funding, LLC (“Agile”) pursuant to which we sold to Agile 15% of the proceeds of each future sale made by us (the “Future Receipts”) until Agile received an aggregate of $ 447,300 (the “Purchased Amount”). As consideration for the Purchased Amount, Agile paid us a purchase price of $ 315,000 , less an origination fee of $ 15,000 , for net proceeds of $ 300,000 . Although the agreement was structured as a sale of future receipts, we determined that the arrangement has the economic characteristics of a borrowing and have accordingly accounted for it as debt under ASC 470-10-25. The $ 132,300 excess of the Purchased Amount over the gross proceeds received was recorded as a debt discount presented as a direct reduction of the carrying value of the liability on the Consolidated Balance Sheet and was amortized as interest expense over the expected repayment period on a pro rata basis of monthly receipts. Weekly payments of $ 15,975 , commencing December 3, 2025, were debited from our bank account and reconciled monthly against 15% of actual Future Receipts for the period. The agreement was secured by a security interest in all of our present and future accounts receivable, evidenced by a UCC-1 financing statement, supported by a corporate guaranty of performance. The agreement contained a covenant prohibiting us from entering into any additional financing arrangements relating to our future receipts or accepting any cash advance from any other funding source while any balance remains outstanding. The agreement provided for prepayment in whole at our option at specified payoff amounts, with credit applied for payments already made. As of June 30, 2026, the gross remaining balance under the agreement was $ 0 , compared to $ 367,425 as of December 31, 2025, reflecting full repayment during the current period. During the six months ended June 30, 2026, we recognized $ 113,191 of interest expense related to this arrangement, which is included in our Consolidated Statements of Operations. 26 Table of Contents NOTE 12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following at: As of As of June 30, December 31, 2026 2025 (Unaudited) Commissions $ 154,560 $ 174,783 Payroll and related costs (1) 779,914 533,817 Sales tax payable 2,143 1,653 Accrued purchases 472,545 - Other accrued expenses and other current liabilities 116,239 150,450 $ 1,525,401 $ 860,703 (1) Included within payroll and related costs is the accrual of earned but unpaid compensation to certain executive officers. As a cash conservation measure, certain members of executive management have not been paid their earned compensation in cash during the year. These obligations are fully accrued in accordance with ASC 710 and remain payable in accordance with the terms of the applicable employment arrangements. The Company intends to satisfy these obligations as operating cash flow permits. For further information regarding the compensation arrangements with the Company’s named executive officers, including the portion of salary earned but not paid in cash during fiscal 2025, see the Summary Compensation Table and related footnotes in Part III, Item 11 of the Company’s Form 10-K, as filed on March 31, 2026. NOTE 13. INCOME TAXES For the three and six months ended June 30, 2026, and 2025, our provision for income tax was $ 0 . Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized in accordance with FASB ASC Topic 740, Income Taxes. As of June 30, 2026, and December 31, 2025, we recorded federal and state valuation allowances of $ 10,053,000 and $ 9,719,000 , respectively, which represents an increase of $ 334,000 for the portion of deferred tax assets that we do not expect to be realized. Management believes that based on the available information, it is more likely than not that the remaining U.S. deferred tax assets will not be realized, such that a 100 % valuation allowance is required against U.S. deferred tax assets. As described in Note 2, Summary of Significant Accounting Policies , the Company previously adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, for the fiscal year ended December 31, 2025 applied on a prospective basis as of January 1, 2025. For full disclosures regarding our Net Operating Loss carryforwards and rate reconciliations, please refer to our Annual Report on Form 10-K, as filed on March 31, 2026. NOTE 14. CUSTOMER CONCENTRATION The Company monitors customer concentration by identifying customers whose accounts receivable balances individually represent 10 % or more of accounts receivable at the balance sheet date, and customers whose revenue for the fiscal year individually represents 10 % or more of total revenue. The following sets forth the Company’s significant customer concentrations for the periods presented. Accounts Receivable Concentration As of June 30, 2026, two customers accounted for approximately 29 % of the Company’s gross accounts receivable. As of December 31, 2025, two customers accounted for approximately 40 % of the Company’s gross accounts receivable. Revenue Concentration For the three months ended June 30, 2026, two customers accounted for approximately 33 % of the Company’s revenue. For the three months ended June 30, 2025, one customer accounted for approximately 10 % of the Company’s revenue. For the six months ended June 30, 2026, one customer accounted for approximately 11 % of the Company’s revenue. There were no customers who accounted for 10 % or more of net revenue for the six months ended June 30, 2025. The increase in the concentration percentage was mainly due to a distributor that was onboarded during the first half of 2026 and additional CES-related projects undertaken this period. The Company does not have any long-term purchase commitments with any of its significant customers, and there can be no assurance that these customers will continue to purchase the Company’s products and services at historical levels or at all. The loss of, or a significant reduction in purchases by, any one of these customers could have a material adverse effect on the Company’s revenue and results of operations. See Item 1A, Risk Factors, from our recently filed Form 10-K for further discussion of risks related to customer concentration and the absence of long-term customer contracts . 27 Table of Contents NOTE 15. SEGMENT REPORTING The Company operates and is managed as a single operating and reportable segment pursuant to ASC 280. Our Chief Executive Officer is the chief operating decision maker (“CODM”) and is responsible for allocating resources and assessing performance across the organization. The Company derives its revenue primarily from the sale of equipment and services based on its proprietary BIT technology, both domestically and internationally. A disaggregation of revenue is presented in Note 2, Summary of Significant Accounting Policies, under Revenue Recognition. There have been no changes to the Company’s segment structure during the three and six months ended June 30, 2026. For further information, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 31, 2026. NOTE 16. SUBSEQUENT EVENTS Reverse Stock Split On July 20, 2026, the Company effected a the Reverse Stock Split, pursuant to authority granted by shareholders on June 4, 2026, and the Board of Directors on May 19, 2026, with the 1-for-3 ratio approved by management pursuant to such authority. Articles of Amendment to amend the Company’s Restated Articles of Incorporation effecting the Reverse Stock Split were filed with the Florida Secretary of State on July 17, 2026, effective July 20, 2026. Reference Note 9 – Shareholders’ Equity for more details. Amendment to Convertible Promissory Notes On August 12, 2026, the Company entered into an Omnibus Amendment to Convertible Promissory Notes (the “Amendment”) with the holders of the 2023 Notes. The Amendment amended the fixed conversion price of the 2023 Notes from $ 3.75 to $ 1.50 per share, subject to adjustment in accordance with the terms of the 2023 Notes and as adjusted for the Reverse Stock Split. Except as expressly amended by the Amendment, the terms and provisions of the 2023 Notes remain in full force and effect. 28 Table of Contents