SEC Info - TOMI Environmental Solutions, Inc.

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		Alternative Formats (Word, et al.) Cautionary Note Regarding Forward-Looking Statements Controls and Procedures Defaults Upon Senior Securities Exhibit Index Exhibits Financial Information Financial Statements Item 1 Item 1A Item 2 Item 3 Item 4 Item 5 Item 6 Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Mine Safety Disclosures Other Information Part I Part Ii Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signatures Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Table of Contents
"	Cautionary Note Regarding Forward-Looking Statements
"	Part I
"	Financial Information
"	Item 1
"	Financial Statements
"	Item 2
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 3
"	Quantitative and Qualitative Disclosures About Market Risk
"	Item 4
"	Controls and Procedures
"	Part Ii
"	Other Information
"	Legal Proceedings
"	Item 1A
"	Risk Factors
"	Unregistered Sales of Equity Securities and Use of Proceeds
"	Defaults Upon Senior Securities
"	Mine Safety Disclosures
"	Item 5
"	Item 6
"	Exhibits
"	Signatures
"	Exhibit Index

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i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

i ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i ☐ No ☒

This Quarterly Report on Form 10-Q, or this Form 10-Q, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and we intend that such forward looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Form 10-Q, except for historical information, may be deemed forward-looking statements. You can generally identify forward-looking statements as statements containing the words “will,” “would,” “believe,” “expect,” “estimate,” “anticipate,” “intend,” “assume,” “can,” “could,” “plan,” “predict,” “should” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, trends in our businesses, or other characterizations of future events or circumstances are forward-looking statements.

The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to predict accurately and many of which are beyond our control. As such, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed under the section “Risk Factors” in our most recent Annual Report on Form 10-K. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information. Except as required by law, we undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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

(1) Share amounts with respect to the common stock and Convertible Series A Preferred Stock have been retroactively restated to reflect the reverse split thereof, which was effected as of the close of business on September 10, 2020. Refer to Note 10—Equity for further information.

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

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

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.

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.

As of June 30, 2021, and December 31, 2020 we did not have any unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

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

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.

The components of lease expense are as follows and are included within general and administrative expense on our condensed consolidated statement of operations:

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

As of June 30, 2021, the maturities of our operating lease liability are as follows:

In January 2020, we issued i 50,000 shares of fully vested common stock valued at $ i 48,000 to members of our Board (see Note 12).

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

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

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

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

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

In January 2020 we issued two options to purchase an aggregate of i 31,250 shares of common stock to our Chief Operating Officer at an exercise price of $0.80 and $0.96 per share pursuant to her employment agreement with us. The options were valued at a total of $ i 23,595 and have a term of 5 years. We utilized the Black-Scholes method to fair value the options received by the COO with the following assumptions: volatility, i 135%; expected dividend yield, i 0%; risk free interest rate, i 1.64%; and a life of i 5 years. The grant date fair value of each share of common stock underlying the options was $0.72 and $ i 0.80. The value of the stock option was included in accrued expenses at December 31, 2019.

Options outstanding and exercisable by price range as of June 30, 2021 were as follows:

In January 2020 we issued a warrant to purchase i 156,250 shares of common stock to our Chief Executive Officer at an exercise price of $ i 1.20 per share pursuant to an employment agreement. The warrant was valued at $ i 164,201 and has a term of 5 years. We utilized the Black-Scholes model to fair value the warrant received by our Chief Executive Officer with the following assumptions: volatility, i 136%; expected dividend yield, i 0%; risk free interest rate, i 1.64%; and a life of i 5 years. The grant date fair value of each share of common stock underlying the warrant was $ i 1.04.

In January 2020 we issued a warrant to purchase i 5,208 shares of common stock to an employee at an exercise price of $ i 0.96 per share. The warrant was valued at $ i 3,594 and has a term of 5 years. We utilized the Black-Scholes model to fair value the warrant received by the employee with the following assumptions: volatility, i 135%; expected dividend yield, i 0%; risk free interest rate, i 1.58%; and a life of i 5 years. The grant date fair value of each share of common stock underlying the warrant was $ i 0.72. The value of the warrants was expensed in the fourth quarter of 2019 and included in accrued expenses at December 31, 2019.

In February 2020 we issued a warrant to purchase i 18,750 shares of common stock to an employee at an exercise price of $ i 1.20 per share. The warrant was valued at $ i 18,571 and has a term of 3 years. We utilized the Black-Scholes model to fair value the warrant received by the employee with the following assumptions: volatility, i 155%; expected dividend yield, i 0%; risk free interest rate, i 1.64%; and a life of i 3 years. The grant date fair value of each share of common stock underlying the warrant was $ i 0.96.

In April 2020 we issued a warrant to purchase i 12,500 shares of common stock to the CEO at an exercise price of $ i 4.00 per share pursuant to an employment agreement. The warrant was valued at $ i 49,693 and has a term of 10 years. We utilized the Black-Scholes model to fair value the warrant received by the CEO with the following assumptions: volatility, i 173%; expected dividend yield, i 0%; risk free interest rate, i 0.68%; and a life of i 10 years. The grant date fair value of each share of common stock underlying the warrant was $ i 4.00.

In April 2020 we issued a warrant to purchase i 6,250 shares of common stock to the COO at an exercise price of $ i 4.00 per share pursuant to an employment agreement. The warrant was valued at $ i 24,846 and has a term of 10 years. We utilized the Black-Scholes model to fair value the warrant received by the COO with the following assumptions: volatility, i 173%; expected dividend yield, i 0%; risk free interest rate, i 0.68%; and a life of i 10 years. The grant date fair value of each share of common stock underlying the warrant was $ i 4.00.

In April 2020 we issued a warrant to purchase 6,250 shares of common stock to the CFO at an exercise price of $ i 4.00 per share pursuant to an employment agreement. The warrant was valued at $ i 24,846 and has a term of 10 years. We utilized the Black-Scholes model to fair value the warrant received by the CFO with the following assumptions: volatility, i 173%; expected dividend yield, i 0%; risk free interest rate, i 0.68%; and a life of i 10 years. The grant date fair value of each share of common stock underlying the warrant was $ i 4.00.

In April 2020 we issued a warrant to purchase i 3,750 shares of common stock to a consultant at an exercise price of $ i 4.00 per share. The warrant was valued at $ i 14,908 and has a term of 10 years. We utilized the Black-Scholes model to fair value the warrant received by the consultant with the following assumptions: volatility, i 173%; expected dividend yield, i 0%; risk free interest rate, i 0.68%; and a life of i 10 years. The grant date fair value of each share of common stock underlying the warrant was $ i 4.00.

On February 11, 2021, we agreed to amend (the “Warrant Amendment”) the warrant to purchase i 125,000 shares of TOMI common stock, par value $ i 0.01 (the “Common Stock”), issued by TOMI to Dr. Halden S. Shane, TOMI’s Chief Executive Officer and a director on TOMI’s board of directors, on February 11, 2014 (the “Warrant”), to provide TOMI an option to repurchase the Warrant from Dr. Shane at a negotiated price. i In connection with the Warrant Amendment, TOMI repurchased the warrant from Dr. Shane (the “Repurchase”) for an aggregate cash consideration of $314,500, representing a 15% discount of the net exercise cash value of the Warrant, which was calculated using the closing price of the Common Stock on the Nasdaq on February 11, 2021 of $5.36, less the exercise price of the warrants in the amount of $2.40. On the same date, the Warrant Amendment and the Repurchase was considered, approved and adopted by a disinterested majority of TOMI’s board of directors. The $ i 314,500 charge in connection with the warrant amendment has been included in General and Administrative expenses for the six months ended June 30, 2021.

Warrants outstanding and exercisable by price range as of June 30, 2021 were as follows:

On October 1, 2020, we entered into an employment agreement with Elissa J. Shane, effective October 1, 2020. Pursuant to her employment agreement, Ms. Shane will receive an annual base salary of at least $ i 270,000, subject to annual review and discretionary increase by the Compensation Committee of the Board. Ms. Shane is eligible to receive an annual cash bonus and other annual incentive compensation. The agreement originally provided for a grant of i 93,750 warrants. Additionally, in connection with the execution of her employment agreement, on October 1, 2020, we issued Ms. Shane a warrant to purchase i 93,750 shares of Common Stock at an exercise price of $6.17 per share. These provisions were subsequently amended to provide for the issuance to Ms. Shane of i 31,250 options from the 2016 Equity Plan at the closing price of $ i 7.06 on the date of grant in lieu of the warrant grant and the i 93,750 warrants were cancelled. Ms. Shane acknowledged that the i 31,250 options were in full consideration of the amount she was entitled to under the agreement. Her employment agreement also provides that we will reimburse Ms. Shane for reasonable and necessary business and entertainment expenses that she incurs in performing her duties. During the term of her employment, Ms. Shane will also be entitled to up to four weeks of paid vacation time annually, which will accrue up to six weeks, and to participate in our benefit plans and programs, including but not limited to all group health, life, disability and retirement plans. Ms. Shane is also entitled to the sum of $1,000 per month as a vehicle allowance. The initial term of her employment agreement is three years, which may be automatically extended for successive one-year terms, unless either party provides the other with 120 days’ prior written notice of its intent to terminate the agreement.

In the event Ms. Shane is terminated as COO as a result of a change in control, Ms. Shane will be entitled to a lump sum payment of one and a half years’ salary at the time of such termination.

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

For the six months ended June 30, 2020, we issued an aggregate of i 50,000 shares of common stock that were valued at $ i 48,000 to members of our Board.

For the six months ended June 30, 2021, we issued an aggregate of i 50,000 shares of common stock that were valued at $ i 228,000 to members of our Board.

In June 2020 we entered into a manufacturing agreement with Planet Innovation Products, Pty Ltd (“PI”). The agreement does not provide for any minimum purchase commitments and is for a term of three years. The agreement also provides for a warranty against product defects.

In May 2020 we entered into an agreement for a cloud computing service contract. The contract provides for annual payments in the amount of $30,409 and has a term of 5 years. Approximate minimum future payments under the contract are as follows:

TOMI Service Network (“TSN”) is a national service network composed of existing full-service restoration industry specialists that have entered initially into licensing agreements with us to become Primary Service Providers (“PSPs”). The licensing agreements originally granted protected territories to PSPs to perform services using our SteraMist^® platform of products and also provide for potential job referrals to PSPs whereby we are entitled to referral fees. Additionally, the agreement provides for commissions due to PSPs for equipment and solution sales they facilitate to other service providers in their respective territories. As part of these agreements, we are obligated to provide to the PSPs various training, ongoing support and facilitate a referral network call center. As of June 30, 2021, we have 201 network companies in TSN. The nature and terms of our TSN agreements may represent multiple deliverable arrangements. Each of the deliverables in these arrangements typically represent a separate unit of accounting. There is no exclusivity in our TSN network.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This section and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. For example, statements in this Form 10-Q regarding the potential future impact of the COVID-19 pandemic on the Company’s business and results of operations are forward-looking statements. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guaranteeing future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) under the heading “Risk Factors.” The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Unless otherwise stated, all information presented herein is based on the Company’s fiscal calendar, and references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in December and the associated quarters, months and periods of those fiscal years. Each of the terms the “Company” and “TOMI” as used herein refers collectively to TOMI Environmental Solutions, Inc. unless otherwise stated.

The following discussion should be read in conjunction with the 2020 Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.

As we exited 2020 and began 2021, the Company refocused its core customers, product development and market penetration. As a result of the global COVID-19 pandemic, we experienced an increase of demand for our products and introduction to a new set of customers, which was beneficial to the Company as it brought awareness to all of our product offerings and opened the door to a new customer base. These customers, mainly in our TOMI Service Network (TSN) and Commercial division, were initially looking for products that would aid in their ability to keep their businesses open as companies provided essential services. As the customer base expanded, we worked with them to evaluate our current products as well as exploring new product offerings to meet our customer needs. Our customers have requested a more mobile and lighter weight product and Tomi has introducing the SteraPak. The TOMI Research & Development department has done a tremendous job the past few quarters on the development, testing, and validation of multiple new products. In addition to the SteraPak, TOMI will be releasing the SteraMist Select Plus and the SteraMist Transport CES (Custom Engineered System).

As the quarantines continued and more businesses were closed, the Company saw a slowdown in demand for products from our customers. This slowdown continued throughout Q2 2021, primarily because certain customers in the Hospital-HealthCare, TOMI Service Network, and Commercial divisions, have deemphasized the need for disinfection equipment such as SteraMist as compared to the same time last year following the initial surge of the COVID-19 pandemic. As the COVID vaccine are distributed, some of our customers are evaluating the necessity of deep cleaning and in some cases no longer consider it a priority and are evaluating the on-going decontamination and disinfecting processes. Nonetheless, TOMI and its current customers who have been using SteraMist believe that disinfection products will be critical in post-COVID environment, and we continue to educate our current and potential customer base on the capabilities of our products.

As stated, our existing life sciences customers closed early last year due to COVID and remained closed into 2021. Starting early 2021, the Life Sciences customers and potential opportunities quickly resumed. TOMI is working with the appropriate departments to get approvals for existing purchase orders for Environment Systems throughout existing and new Life Sciences clients with purchase orders in the six-figure range.

As many industrial companies are reducing R&D and capital expenditures spending due to the economic impact of the pandemic, we are moving ahead with many new products in development. In 2021, we intend to increase capital expenditures (CapEx) and operating expenditures (OpEx) including development of new products, services and process technologies to sharpen our competitive advantage. In addition, we intend to expand our commercial service location to meet the expanding needs of our customers.

The second half of 2020 showed us that our customers prefer a lower cost disinfection device like electrostatic sprayers (ESS), even if it provides the end-user with less efficacy and the potential of causing damage to its personal property and delicate equipment which were dangerous and causing explosions with many resulting in fires. To respond to our customer demands of a lower cost and more versatile product, we developed a Backpack (SteraPak) solution that includes our award winning 6-log and above kill technology and speed without the damage to space and materials. We expect our SteraPak to be competitively priced and open SteraMist to the largest cleaning market in the world-members of ISSA (International Sanitary Supply Association) and its divisions IEHA (Integrated Environment and Health Assessment) and EMEA (Europe, Middle East & Africa). These organizations have historically been price conscious and were resistant early on to our SteraMist pricing of our professional decontamination equipment (SteraMist Surface and Environment Unit). We plan to introduce our new innovative SteraPak globally in the third quarter 2021.

Other new products that have been incorporated into our product line include the Select Plus, which is a hybrid product consisting of the Company’s current Surface Select and Environment systems. The unit will allow for enhanced flexibility by using a single applicator to decontaminate full-room to small-space volume while maintaining the size of the current Surface Select unit with more robust process controls. The Transport CES has been designed for the transportation market, specifically ambulances. The Transport CES is a simple timer based fogging system that can be installed semi-permanently or permanently and used for any transport and/or cargo vehicle. It will be an easy-to-use turn-key integration system. The implementation of this product and our patented non-corrosive iHP technology should replace the number one competitor in this marketplace, which uses an extremely harsh chemical.

Many of our customers are waiting for the release and demonstration of these new products, especially the SteraPak. All SteraMist systems will remain important to the marketplace as they are designed for specific needs and budgets. The Select Surface Unit perform most of the functionality that the Plus offers and is priced at a lower cost, although Select Plus will provide additional options that are appealing to certain customers, such as laboratory and pharmaceutical. The SteraPak is a more cost-effective product and designed for small areas, crawl spaces, and quick disinfection. In contrast, the Surface Unit is able to provide longer and more sustained disinfection covering larger areas during one treatment. There are many new and existing clients that are interested in the SteraPak due to the cost and mobility.

These new products and service introductions can significantly impact net sales, cost of sales and operating expenses. The timing of product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new inventory following a product launch, and channel inventory of an older product often declines as the launch of a newer product approaches. Net sales can also be affected when consumers and distributors anticipate a product introduction domestically and internationally.

Despite lower revenues for the quarter, the Company, its new product launches, and each division remain resilient.

TOMI Environmental Solutions, Inc. (“TOMI”, “we” and “our”) is a global bacteria decontamination and infectious disease control company, providing environmental solutions for indoor surface decontamination through the manufacturing, sales, service and licensing of our SteraMist^® brand of products, including SteraMist^® BIT^™, a low percentage (7.8%) hydrogen peroxide-based fog or mist that uses Binary Ionization Technology (BIT^™).

Our SteraMist^® is a patented technology that produces ionized Hydrogen Peroxide (iHP^™) using cold plasma science created under a grant by the United States Defense Advanced Research Projects Agency (DARPA). Our EPA registered BIT^™ Solution is composed of a low concentration of hydrogen peroxide converted to iHP^™ after passing the trade secret blended solution including its sole active ingredient of 7.8% hydrogen peroxide through an atmospheric cold plasma arc. The newly formed iHP^™ fog and mist consists of submicron’s to 3-micron radical particles that are carried throughout the treatment area in a fog or mist moving with the same velocity and characteristics of a gas. This allows the ionized hydrogen peroxide fog or mist to affect all surfaces and air space throughout the targeted treatment area, over, above and beyond the ability of a manual cleaning processes. iHP^™ damages pathogenic organisms through the oxidation of proteins, carbohydrates, and lipids. SteraMist^® no-touch disinfection and or decontamination treat areas mechanically, causing cellular disruptions and/or dysfunctions resulting in a 6-log (99.9999%) and greater kill or inactivation of all pathogens in the treatment area.

Under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), we are required to register with the EPA and certain state regulatory authorities as a seller of disinfectants. In June 2015, SteraMist^® BIT^™ was registered with the EPA as a hospital-healthcare disinfectant and general broad-spectrum surface disinfectant for use as a misting/fogging agent. SteraMist^® BIT^™now holds EPA registrations (# 90150-2) for mold control, and air and surface remediation (# 90150-1). In February 2016, we expanded our label with the EPA to include Clostridium difficile Spores and MRSA, as well as the influenza (Avian) virus h1n1, which we believe has better positioned us to penetrate all industries including the biodefense and healthcare industry. In August 2017, our EPA label was further expanded to include efficacy against Salmonella and Norovirus. As of January 27, 2017, our technology is one of 53 of the EPA’s “Registered Antimicrobial Products Effective against Clostridium difficile Spores”, as published on the EPA’s K List. Further, in December 2017, SteraMist^® was included in the EPA’s list G (Norovirus), L (Ebola) and M (Avian Flu). In March 2020, our EPA label was further amended to include Emerging Viral Pathogens claims, thus meeting the criteria against Enveloped viruses and Large Non-enveloped viruses and included on List N (Emerging Viral Pathogens including SARS-CoV-2).

SteraMist^® BIT^™ brings to the world a mechanical and automated method of cleaning using a game-changing technology and EPA registered Hospital-HealthCare disinfectant providing an upgrade to existing disinfecting and cleaning protocols while limiting liability in a facility when it comes to resistant infectious pathogens. We maintain this registration in all fifty (50) states, Canada, and approximately thirty-five (35) other countries.

Our SteraMist^® products are designed to address a wide spectrum of industries using iHP^™. Our operations consist of five main divisions based on our current target industries: Hospital-HealthCare, Life Sciences, TOMI Service Network (TSN), Food Safety and Commercial.

We continue to offer our customers a wide range of innovative mobile products designed to be easily incorporated into their existing disinfection and decontamination procedures and protocols. Our newly soon to be released SteraPak, among other product lines will allow us to progress further into market share, specifically for our Hospital-HealthCare, Life Sciences, TSN, and Commercial divisions. Additionally, we offer integrated facility equipment installations known as Custom Engineered Systems (CES), routine & emergency iHP Corporate Service, essential training packages, validations and qualifications, and onsite performance maintenance requests.

Each of these are structured to address the unique disinfection and decontamination needs of our customers worldwide regardless of industry requiring or requesting SteraMist^® disinfection decontamination.

The SteraMist^® line of products, specifically the SteraMist^® Surface Unit and SteraMist^® Total Disinfection Cart, are our main solutions to aid our Hospital-HealthCare customers in providing high quality of safety to their patients and personnel by disinfecting operating rooms, pharmacies, ambulances, and emergency environments throughout a healthcare facility. TOMI’s latest product, the SteraPak, further assists healthcare communities with an easy-to-use, cordless disinfection solution, creating a more mobile solution.

Our team of technicians and representatives train, maintain, and service capital equipment throughout the world for our Hospital-HealthCare customers. As our Training and Implementation department expands, we expect continued growth and purchases in our Hospital-HealthCare division. TOMI provides protocol development and implementation of SteraMist^® as it is critical in the healthcare setting. During 2020 the use of our SteraMist^® in such campuses increased due to our comprehensive training for their day and night shift maintenance and housekeeping departments. By late 2021, we anticipate annual comparison case studies from many of these facilities who were onboarded in 2020, which may show lower transmission infection rates in COVID, Clostridium difficile Spores and overall, HAI cases.

UCLA recently completed a successful collection of critical data for the Shield Study. The Shield Study is a multi-year study comparing SteraMist with manual clean. The Study was conducted by multiple well-established hospitals. Initial findings have been positive regarding ease of use, overall efficacy, and quick turnaround time of patient rooms. TOMI looks forward to announcing the full results as soon as they are available to make public.

The SteraMist^®Environment System, Custom Engineered Systems (CES), the SteraMist^® Select Surface Unit (Plus), SteraBox, 90 Degree Applicator and our iHP^™ Corporate Service Division, are designed to be tailored to provide a complete solution to address the regulatory inspections of disinfecting/decontaminating and Installation Qualification (IQ)-Operational Qualification (OQ)–Performance Qualification (PQ) validation processes within the life sciences industry.

The pandemic halted capital equipment and service sales in our Life Sciences division and its verticals. As operations reconvene for these verticals, we are already seeing an increased demand from this division. Long term, ongoing projects and validations resumed, along with proposals and interest for our CES permanent decontamination room. As these are longer lead-time sales that can take months to design, build and implement., we expect installations to have impact to our results in late 2021 and into 2022.

Further, post COVID pandemic has brought some attention to the SteraMist product line, as our CES in Pfizer Missouri was recently showcased in a New York Times article as they featured their COVID vaccine processes. In addition, our iHP Corporate Service team treated one of four fill lines in a North Carolina pharmaceutical company that manufactures one of the COVID vaccines, with the remaining three lines set to be decontaminated in the future with SteraMist.

The TOMI Service Network, or TSN, is an expansive network consisting of professionals throughout North America who are exclusively licensed and trained to use the SteraMist^®products. With the purchase of SteraMist and joining TSN, TOMI trains and services a wide array of professional remediation companies in the use of SteraMist^® throughout the TSN division. TSN allows for increased accessibility and brand awareness of iHP^® services to facilities in need of local routine and emergency disinfection and decontamination.

The TOMI Service Network (TSN) division experienced greater impact from the COVID-19 pandemic quarter over quarter than any other division. We believe that cleaning protocols have changed permanently due to the COVID-19 pandemic, and our network is expected to play a significant role in facilitating and maintaining these protocols throughout the United States and Canada. The urgency for emergency disinfection services may have declined, but the education and support of such services that TOMI personnel provide to our members creates an advantage by maintaining strong business relationships while they service thousands of SteraMist customers, and the world returns to the new normal.

We also expect our SteraPak release to be an important factor for this market that will increase the new member onboarding number quarter over quarter moving forward. With the much-anticipated release of the SteraPak, the TSN should grow quarter over quarter.

Food Safety presents significant potential as an opportunity for substantial growth with continued product research and compliance testing. With the food safety industry in North America coming under closer scrutiny with the implementation and enforcement of new and established guidelines. This concentration has previously been approved by the USDA and FDA for direct food and crop application and will allow SteraMist^® to expand use sites beyond food processing machinery, restaurants, and food contact areas. This will assist compliance with the newly established Food Safety Modernization Act guidelines set in place by the FDA, as well as the Safe Food for Canadians Act and Safe Food for Canadians Regulations in Canada.

TOMI continues to work with premium companies in testing and validating SteraMist^® technology in the Food Safety and seed industries. In 2021, we have made progress in enhancing brand awareness by promoting and marketing this division. We are receiving an increase in inquiries within the Food Safety division directly from these efforts.

With the global population explosion, we anticipate an increase in the demand for a mechanical way to disinfect our food supply. Every day there are news articles around the world pertaining to the contamination of food supply. The many published articles that the USDA in cooperation with TOMI have demonstrated that our technology offers a consistent alternative to the decade’s old chemical disinfection process. SteraMist will deliver more consistent and quicker results in all areas of our food supply- From Farm to Market, Processing to packaging and Storage to delivery. We plan on pursuing all these avenues. One of the most exciting is the elimination of fungus, virus, and bacteria contamination from seeds pre-packaging.

Our Commercial division includes but is not limited to use sites such as aviation, airports, police and fire, prisons, manufacturing companies, automobile, military, cruise ships, shipping ports, preschool education, primary and secondary schools, colleges including dormitories, all modes of public and private transportation, regulatory consulting agencies, retail, housing and recreation, and of course emergency preparedness for counties and cities to use SteraMist^® throughout their community.

In the second quarter of 2021, interest in SteraMist disinfection within the commercial division continued to remain high. We expect SteraPak to be a popular product for this division because customers are looking for a more cost-effective solution compared to the current disinfectants on the market. As quick and mobile disinfection solution is preferred in this industry, we believe that SteraPak can generate substantial customer interest and create sales opportunities.

As part of our marketing and sales strategy for our product portfolio, we are utilizing professionals that work in the digital selling space such as B2B & B2C verticals. We believe this strategy will provide us with greater global exposure and quicker sales cycle in all our verticals.

Globally, we have added approximately sixteen (16) new customers for the three months ended June 30, 2021. In the short term, we expect to see healthy demand for the SteraMist^® products and services. While the initial outbreak of COVID-19 pandemic caused a surge in demand for the SteraMist^® and subsequently declined as the pandemic is under control, we expect that customer demand for our products and services will continue at a more stabilized level, and we are building a team to address the post COVID-19 pandemic market opportunities.

We experienced a decline in our revenue for the three and six months ended June 30, 2021 when compared to the same period last year primarily because of an unsustainable spike due to increased demand caused by the onset of the COVID-19 pandemic in the first half of 2020. We were positioned well to respond to the pandemic related spike in demand due to our inventory levels and increased production capacity which led to substantial revenue growth in the first and second quarter of 2020.

However, during of the second half of 2020 and early 2021, many of our established vertical clients were closed or required to reduce or suspend their business operations. The markets that were negatively affected were our life sciences clients that were nonessential, University and privately owned vivarium labs, and many nonessential pharmaceutical research companies globally. In addition, the healthcare industry has shifted virtually all of its focus and resources in response to the pandemic and therefore reduced substantially their elective surgical and clinical related services, resulting in limited non-essential onsite personnel.

These trends made it more difficult for us to demo our equipment and execute our sales and marketing strategies. In addition, our customers have limited budgets for newer technologies. We anticipate that the availability of significant federal funds to our customers for pandemic preparedness should assist them in purchasing our products.

We expect increased revenues in the second half of 2021 due to the marked interest in our new products, specifically our backpack solution ("SteraPak") across all verticals, especially hospital healthcare to replace the failed electrostatic sprayers at a similar price point, and from our service network members who have indicated interest in a portable SteraMist unit to add to their arsenal. Further, there has been an uptick in demand from our established life science customers for custom engineered systems with a portion of that revenue expected to be recognized in late 2021.

We believe that we possess the best technologies in the world in the disinfection and decontamination space. This pandemic has provided us with the confidence to develop a clear strategy to manufacture what may be our best product portfolio to date. In addition, we continue to move our BIT technology closer to becoming the standard in disinfection and decontamination globally. This should lead to a greater market share, increased profitability, and capability strength.

Dangerous pathogens still exist “Disease X” and will exist long after we recover from this pandemic. While the United States and most of the world is currently recovering from the SARS CoV-2 coronavirus outbreak, there are many pathogens which are respiratory in nature that are still a looming threat, these cases are occurring globally to this day. SteraMist can mitigate and reduce the impact of the next pandemic as it has already proven during the outbreaks of Ebola, MERS and recently with SARS CoV-2 pandemic. The need for a speedy comprehensive mechanical disinfectant like SteraMist cannot be stressed enough and should be included as the new norm of cleaning. With all the unknown viruses and their variants in the world, preparedness is the most important measure to ensure your family and business survives.

On May 18, 2021, Dr. Halden Shane presented at 16^th annual Needham virtual technology and media conference while continuing to pursue and enhance SteraMist media presence across many platforms.

In May 2021, we provided an update on our partnership with AV8R Solutions, a SteraMist service provider and manufacturing representative with focus on aviation industry.

In June 2021, we announced the implementation of SteraMist technology in the fourth Catalent facility, and a planned expansion into a fifth location.

In June 2021, we joined the Russell Microcap Index at the conclusion of the 2021 Russell indexes annual reconstitution, effective June 28, 2021.

In June 2021, we received an order which secured a project to install an iHP Custom Engineered System (CES) in a pharmaceutical facility in Western Europe

In August 2021, we announced the launch of the SteraPak. We are currently taking deposits from customers for the product and expects to begin filling backlog orders in the third quarter of 2021. The Company expects to sell the SteraPak product through all divisions including Hospital-Healthcare, Life Sciences, TOMI Service Network (TSN), Food Safety, and Commercial.

As conferences and tradeshows are reopening in the second half of 2021 for companies to exhibit live, TOMI will be attending multiple shows across the country. It is critical for TOMI to perform live demonstrations to showcase the difference between our SteraMist iHP technology and our competitors. TOMI looks forward to making a large impact with live demonstrations of SteraMist disinfection technology throughout our multiple divisions.

Due to the pandemic, there have been significant delays by U.S. regulatory agencies in approving new submissions, including TOMI's new 1% registration focusing on direct food and agricultural applications. The 1% label has been delayed by EPA due to the reallocation of staff resources responding to an influx of product submissions to deal with COVID-19 (TOMI successfully added Emerging Pathogen claims and was added to EPA list in March 2020.), significantly delaying all other PRIA actions, well documented delays caused by staffing vacancies, and the continuing prohibition of in person meetings.

We continue to work with our German aircraft partner and Boeing in a third-party test required for the aviation industry. We will incur no costs for this work as both testing partners are clients. We anticipate the testing will be completed in the third quarter of 2021.

TOMI has engaged HYGCEN Germany GmbH to perform a quantitative test of germ carriers for airborne room disinfection and testing of the effectiveness of a method for disinfecting room air to meet the new EU norm (standard) EN 17272. Certification that Binary Ionization Technology meets the new standard will continue to position iHP as the premier decontamination/disinfection technology available on the market today.

We continue to work with the Virginia State University Agricultural Research Station and its partner, Arkema on a food safety pilot study based on novel, nonthermal, and environmentally friendly technology to control foodborne pathogens on industrial hemp seed and strawberry as representative model foods. The study will investigate the efficacy of aerosolized hydrogen peroxide in inactivating foodborne pathogens – determining the optimum treatment conditions on microbial and physical quality of the two model products. We anticipate the pilot to be completed by the third quarter of 2021.

We are currently working with University of Virginia on two separate studies. First, we are working on a study on SteraMist’s efficacy against SARS-CoV-2, and we have observed preliminary successful results and are waiting for the final published paper. Second, we are working on a study against Adenovirus using the handheld SteraMist Surface Unit and testing spray and contact time variables, and we are waiting for the results. We anticipate the testing will be completed by the third quarter of 2021.

TOMI has partnered with the Department of Chemistry and Biochemistry of Texas Tech University to conduct a wide range of studies on spray pattern, deposition, and hydrogen peroxide content in order to compare our 1% label to other similar products on the market.

TOMI's long term relationship with USDA Agricultural Research Service continues to achieve results. In March 2021, an article entitled "Hydrogen peroxide residue on tomato, apple, cantaloupe, and Romaine lettuce after treatments with cold plasma-activated hydrogen peroxide” was accepted for publication in the Journal of Food Microbiology. TOMI has also begun discussions with another ARS facility to evaluate the benefits of iHP on blueberries to prevent rot and reduce post-harvest losses.

As previously reported for a couple years, we have participated in a large multi-year federal funded study, known as the “SHIELD study”, that compares hospital manual cleaning to a SteraMist^® mechanical cleaning. Preliminary results collected by the current hospitals in the study is showing a decrease in the transference of pathogens resulting in HAIs and Clostridium difficile infections in the rooms that used SteraMist^® for their terminal clean, as compared to the rooms that have been manually cleaned. We are eager to report that enough data has been collected to complete the study in 2021, and we expect that data to be provided to the examiners with a published paper to soon follow.

Our portfolio includes more than twenty (20) Utility Patent applications worldwide for both method and system claims on SteraMist® BIT™, either published or undergoing prosecution. Most recently, In July 2021, we were granted allowance for our utility patent in South Korea covering our SteraMist® BIT™ technology; and we also received our second allowance of a utility patent application in Israel for a system applying our technology. Furthermore, in Taiwan, we received allowance for our utility application covering a method of controlling the aerosol particle size used in our SteraMist® BIT™ technology; this is a new dimension of patent protection, which we are pursuing in Europe, China, Brazil, Australia, and many other countries. In addition, in June 2021, our Canadian patent was issued covering our decontamination technology. In the recent past, we have obtained two related US utility patents giving us protection of our technology until the year 2038, and we are pursuing further claims to additional capabilities in on-going US and worldwide patent applications.

We continue to prosecute utility patent applications in multiple countries which are all in the national stage for review under the patent prosecution highway for claims found novel and inventive by the international search authority. Once these are allowed, we will hold international patent rights for the inherited patents and our newly issued patents. We also have design patent protection for our surface-mounted applicator device in the United States, China, Japan, Taiwan, and Korea. We have filed and have been granted or have pending acceptance on thirty-two (32) separate design patents for our: Decontamination Chamber(s), Decontamination Applicator, Decontamination Cart, Applicator, and Surface Mounted Applicator 90-Degree Device. These patents are published around the world, including but not limited to United States, China, Hong Kong, Europe, United Kingdom, Singapore, Taiwan, Vietnam, Canada, South Korea, and Japan. We are engaged in the process of filing further design and utility patent applications both in the United States and internationally. In July 2021, our design patent for our decontamination cart was issued in the United States.

Our products are sold around the world under various brand names and trademarks. We consider our brand names and trademarks to be valuable in the marketing of our products. As of July 23, 2021, we held a total of over two hundred trademarks (word and logo) registered or pending across the globe. TOMI registers marks in seven (7) classes of specification of goods and services: Class 1 for Chemicals for Treating Hazardous Waste, Class 5 for Disinfectants, All-Purpose for Hard Surfaces and for Treating Mold, Class 7 for Handheld Power Operated Spraying Machines, Class 11 for Sterilizers for Medical Use and Air Purification, Class 35 for Business Consultation and Management Services, Class 37 for General Disinfecting Services, and Class 40 for Chemical Decontamination and Manufacturing Services.

During the six months ended June 30, 2021, our debt and liquidity positions were affected by the following:

Results of Operations for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020

Total revenue for the three months ended June 30, 2021 and 2020, was $1,466,000 and $10,028,000, respectively, representing a decrease of $8,562,000, or 85% compared to the same prior year period. For the six months ended June 30, 2021 and 2020, our total revenue was $3,539,000 and $17,082,000, respectively, representing a decrease of $13,543,000, or 79% compared to the same prior year period.

We experienced a decline in our revenue for the three and six months ended June 30, 2021 as compared to the same prior year periods primarily due to the significant increase of demand caused by the onset of COVID-19 pandemic in the first half of 2020. We were positioned well to respond to the pandemic related spike in demand due to our inventory levels and increased production capacity, which led to substantial revenue growth in the first and second quarter of 2020. However, during the second half of 2020 and early 2021, many of our established vertical clients were closed or required to reduce operation due to the impact of COVID-19 pandemic on their businesses. The markets that were negatively affected included our life sciences clients that were nonessential, University and privately owned vivarium labs, and many nonessential pharmaceutical research companies globally. In addition, the healthcare industry has shifted virtually all of its focus and resources in response to the pandemic and therefore substantially reduced elective surgical and clinical related services, resulting in limited non-essential onsite personnel. These trends made it more difficult for us to demo our equipment and execute our sales and marketing strategies.

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. Further, as the COVID-19 pandemic subsides, we expect that the demand for our products and services will continue as we are building a team to address the post COVID-19 pandemic market opportunities.

SteraMist product-based revenues for the three months ended June 30, 2021 and 2020, were $1,026,000 and $9,235,000, representing a decrease of ($8,209,000) or (89%) when compared to the same prior year period. Product based revenues for the six months ended June 30, 2021 and 2020, were $2,673,000 and $15,880,000, representing a decrease of ($13,207,000) or (83%) when compared to the same prior year period.

Our service-based revenue for the three months ended June 30, 2021 and 2020, was $440,000 and $793,000, respectively, representing a year over year decrease of (45%). For the six months ended June 30, 2021 and 2020, our service-based revenue was $866,000 and $1,202,000, representing a decrease of ($336,000) or (28%) when compared to the same prior period in 2020.

Our domestic revenue for the three months ended June 30, 2021 and 2020 was $1,184,000 and $8,392,000, respectively, a decrease of ($7,208,000), or (86%) when compared to the same prior year period. For the six months ended June 30, 2021 and 2020, our domestic revenues were $2,989,000 and $11,961,000, representing a decrease of ($8,972,000) or (75%.)

Internationally, our revenue for the three months ended June 30, 2021 and 2020, was approximately $282,000 and $1,636,000, respectively, representing a decrease of ($1,354,000) or (83%) when compared to the second quarter of 2020. For the six months ended June 30, 2021 and 2020, our international revenues were $550,000 and $5,121,000, representing a decrease of ($4,571,000) or (89%.)

Cost of sales was $524,000 and $4,464,000 for the three months ended June 30, 2021 and 2020, respectively, a decrease of $3,940,000, or 88%, compared to the prior year. The primary reason for the decline in cost of sales is attributable to lower revenue in the current quarter. Our gross profit as a percentage of sales for the three months ended June 30, 2021 was 64.3% compared to 55.5% in the same prior period, respectively. The higher gross profit is attributable to the product mix in sales.

Cost of sales was $1,362,000 and $7,029,000 for the six months ended June 30, 2021 and 2020, respectively, a decrease of $5,667,000, or 81%, compared to the prior year. The primary reason for the decline in cost of sales is attributable to lower revenue in the current quarter. Our gross profit as a percentage of sales for the six months ended June 30, 2021 was 61.5% compared to 58.9% in the same prior period, respectively. The higher gross profit is attributable to the product mix in sales. As revenues continue to grow and we are able to negotiate more favorable pricing from our vendors, we anticipate that our cost per unit could decrease.

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

Professional fees were $107,000 and $55,000 for the three months ended June 30, 2021 and 2020, respectively, an increase of approximately $52,000, or 95%, in the current year period. The increase is attributable to additional professional fees in connection with the maintenance of our intellectual property.

Professional fees were $280,000 and $191,000 for the six months ended June 30, 2021 and 2020, respectively, an increase of approximately $89,000, or 47%, in the current year period. The increase is attributable to additional professional fees in connection with the maintenance of our intellectual property.

Depreciation and amortization were approximately $72,000 and $172,000 for the three months ended June 30, 2021 and 2020, respectively, representing a decrease of $100,000, or 58%. The decline is due to intangible assets that became fully amortized in 2020 which has led to a lower amortization expense in the current year period.

Depreciation and amortization were approximately $156,000 and $344,000 for the six months ended June 30, 2021 and 2020, respectively, representing a decrease of $188,000, or 55%. The decline is due to intangible assets that became fully amortized in 2020 which has led to a lower amortization expense in the current year period.

Selling expenses for the three months ended June 30, 2021 were approximately $335,000, as compared to $389,000 for the quarter ended June 30, 2020, representing a decrease of approximately $54,000 or 14%. The decline is selling expense is due to the reduced revenue and lower sales commissions.

Selling expenses for the six months ended June 30, 2021 were approximately $810,000, as compared to $767,000 for the six months ended June 30, 2020, representing an increase of approximately $43,000 or 6%. The increase in selling expense is attributable to a higher employee headcount and the related increase in payroll. We continue to invest and allocate resources into our sales, marketing and advertising initiatives and have increased efforts in the current year in order to further develop our brand recognition and grow our base of customers.

Research and development expenses for the three months ended June 30, 2021 were approximately $206,000, as compared to $141,000 for the quarter ended June 30, 2020, representing an increase of approximately $65,000, or 46%.

Research and development expenses for the six months ended June 30, 2021 were approximately $401,000, as compared to $201,000 for the six months ended June 30, 2020, representing an increase of approximately $200,000, or 100%.

The increase in research and development expenses is attributable to new product development and increased testing.

Equity compensation expense was $0 and $114,000 for the three months ended June 30, 2021 and 2020, respectively, representing a decrease of $114,000.

Equity compensation expense was $0 and $297,000 for the six months ended June 30, 2021 and 2020, respectively, representing a decrease of $297,000.

The decrease in equity compensation expense relates to the timing of warrants and options issued to executives and consultants in 2020.

Consulting fees were $96,000 and $70,000 for the three months ended June 30, 2021 and 2020, respectively, representing an increase of $26,000, or 37%, in the current quarter period.

Consulting fees were $202,000 and $151,000 for the six months ended June 30, 2021 and 2020, respectively, representing an increase of $51,000, or 34%, in the current period.

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

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

General and administrative expense was $1,319,000 and $967,000 for the three months ended June 30, 2021 and 2020, respectively, an increase of $352,000, or 36%, in the current period.

General and administrative expense was $3,032,000 and $1,785,000 for the six months ended June 30, 2021 and 2020, respectively, an increase of $1,247,000, or 70%, in the current period.

The increase in general and administrative expense is primarily attributable to a higher employee headcount and higher wages.

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

Interest income was approximately $0 and $1,000 for the three months ended June 30, 2021 and 2020, respectively.

Interest income was approximately $1,000 and $2,000 for the six months ended June 30, 2021 and 2020, respectively.

Interest expense was $0 and $1,000 for the three months ended June 30, 2021 and 2020, respectively.

Interest expense was $1,000 and $41,000 for the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021, we had cash and cash equivalents of $2,488,000 and working capital of $8,826,000. Our principal capital requirements are to fund operations, invest in research and development and capital equipment, and the continued costs of public company reporting requirements. 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 six months ended June 30, 2021, we incurred a loss from operations of ($2,704,000) and for the six months ended June 30, 2020, we generated income from operations of $6,316,000. Cash used in operations for the six months ended June 30, 2021, was ($2,512,000). Cash provided from operations was $5,385,000 for the six months ended June 30, 2020.

A breakdown of our statement of cash flows for the six months ended June 30, 2021 and 2020 is provided below:

Cash used in operating activities for the six months ended June 30, 2021 was ($2,512,000), compared to cash provided by operations for the three months ended June 30, 2020 of $5,385,000. Our cash provided by operations declined in the current year period as a result of lower revenue and an increase in net loss.

Cash used in investing activities for the six months ended June 30, 2021 and 2020 was $198,000 and $46,000, respectively. The increase is attributable to fixed assets purchased in the year and capitalized patent and trademark costs.

Cash provided by financing activities for the six months ended June 30, 2021 and 2020 was $0 and $32,000 respectively. The cash provided by financing activities in the prior year period was due to proceeds from the exercise of warrants and options in the amount of $121,000 and proceeds from a loan payable of $411,000 offset by the repayment of the principal balance of the convertible note of $500,000.

We could incur operating losses and an increase of costs related to the continuation of product and technology development, and sales expense as we continue to grow our sales teams 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:

We expect that the cash we generate from our core operations will generally be sufficient to cover our future capital expenditures and to pay down our near-term debt obligations, although we may choose to seek alternative financing sources.

We believe that our existing balance of cash and cash equivalents and amounts expected to be provided by operations will provide us with sufficient financial resources to meet our cash requirements for operations, working capital and capital expenditures over the next twelve months.

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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. The estimation process requires assumptions to be made about future events and conditions, and as such, is inherently subjective and uncertain. Actual results could differ materially from our estimates.

The SEC defines critical accounting policies as those that are, in management’s view, most important to the portrayal of our financial condition and results of operations and most demanding of our judgment. We consider the following policies to be critical to an understanding of our condensed 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.

We recognize revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). We recognize revenue 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; (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.

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; 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.

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. Revenues are reported net of sales taxes collected from Customers.

The preparation of condensed 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 condensed 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 accounts receivable, inventory, fair values of financial instruments, 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.

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 inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. All these items were determined to be Level 1 fair value measurements.

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.

For purposes of the statement of cash flows, cash and cash equivalents includes cash on hand, held at financial institutions and other liquid investments with original maturities of three months or less. At times, these deposits may be in excess of insured limits.

Our accounts receivable are typically from credit worthy customers or, for certain international customers, are supported by pre-payments. For those customers to whom we extend credit, we perform periodic evaluations of them and maintain allowances for potential credit losses as deemed necessary. We have a policy of reserving for doubtful accounts based on our best estimate of the amount of potential credit losses in existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Inventories are valued at the lower of cost or market using the first-in, first-out (FIFO) method. Inventories consist primarily of finished goods.

We review inventory on an ongoing basis, considering factors such as deterioration and obsolescence. We record an allowance for estimated losses when the facts and circumstances indicate that particular inventories may not be usable.

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 for equipment, furniture and fixtures and vehicles commences once placed in service for its intended use. Leasehold improvements are amortized using the straight-line method over the lives of the respective leases or service lives of the improvements, whichever is shorter.

In February 2016, the FASB issued ASU No. 2016-02 (ASC 842), Leases, to require lessees to recognize all leases, with certain exceptions, on the balance sheet, while recognition on the statement of operations will remain similar to current lease accounting. Subsequently, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, ASU No. 2018-11, Targeted Improvements, ASU No. 2018-20, Narrow-Scope Improvements for Lessors, and ASU 2019-01, Codification Improvements, to clarify and amend the guidance in ASU No. 2016-02. ASC 842 eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. This standard is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We adopted ASC 842 as of January 1, 2019 using the modified retrospective basis with a cumulative effect adjustment as of that date. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to carry forward the historical determination of contracts as leases, lease classification and not reassess initial direct costs for historical lease arrangements. Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of the new standard to all comparative periods presented.

Operating lease assets are included within operating lease right-of-use assets, and the corresponding operating lease liabilities are recorded as current portion of long-term operating lease, and within long-term liabilities as long-term operating lease, net of current portion on our condensed consolidated balance sheet as of June 30, 2021 and December 31, 2020.

We have elected not to present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

In accordance with ASC 985-20 regarding the development of software to be sold, leased, or marketed we expense such costs as they are incurred until technological feasibility has been established, at and after which time those costs are capitalized until the product is available for general release to customers. The periodic expense for the amortization of capitalized software development costs will be included in cost of sales.

Accrued warranties represent the estimated costs, if any, that will be incurred during the warranty period of our products. We estimate the expected costs to be incurred during the warranty period and record the expense to the consolidated statement of operations at the date of sale. Our manufacturers assume the warranty against product defects which we extend to our customers upon sale of the product. We assume responsibility for product reliability and results.

Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits that are, on a more likely than not basis, not expected to be realized in accordance with Accounting Standards Codification (ASC) guidance for income taxes.

Basic net income or (loss) per share is computed by dividing our net income or (loss) by the weighted average number of shares of common stock outstanding during the period presented. Diluted income or (loss) per share is based on the treasury stock method and includes the effect from potential issuance of shares of common stock, such as shares issuable pursuant to the exercise of options and warrants and conversions of preferred stock or debentures.

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 and is recognized as expense over the requisite service period.

On July 7, 2017, our shareholders approved the 2016 Equity Incentive Plan, or the 2016 Plan. The 2016 Plan authorizes the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and performance units/shares. Up to 625,000 shares of common stock are authorized for issuance under the 2016 Plan. Shares issued under the 2016 Plan may be either authorized but unissued shares, treasury shares, or any combination thereof. Provisions in the 2016 Plan permit the reuse or reissuance by the 2016 Plan of shares of common stock for numerous reasons, including, but not limited to, shares of common stock underlying canceled, expired, or forfeited awards of stock-based compensation and stock appreciation rights paid out in the form of cash. Equity compensation expense will typically be awarded in consideration for the future performance of services to us. All recipients of awards under the 2016 Plan are required to enter into award agreements with us at the time of the award; awards under the 2016 Plan are expressly conditioned upon such agreements.

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

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.

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, 2021 and 2020.

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective on a prospective or retrospective basis beginning on January 1, 2020, with early adoption permitted. We elected to adopt this guidance early, in 2020 on a prospective basis. The guidance did not have a material impact on our Consolidated Financial Statements.

See Note 2 to the Condensed Consolidated Financial Statements contained in Item 1 above.

We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.

The Company periodically provides certain information for investors on its corporate website, www.tomimist.com, and its investor relations page of its website, www.investor.tomimist.com. This includes press releases and other information about financial performance, information on corporate governance and details related to the Company’s annual meeting of shareholders. The information contained on the websites and referenced in this Form 10-Q is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references only.

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) under the Exchange Act during the period covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations, financial position or cash flows. Regardless of the outcome, any litigation could have an adverse impact on us due to defense and settlement costs, diversion of management resources and other factors.

You should carefully consider the information described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on March 30, 2021. There have been no material changes to the risk factors we previously disclosed in our filings with the SEC, including the Form 10-K. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

# This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, or the Exchange Act.

i Florida		i 59-1947988
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

i 8430 Spires Way, i Frederick, i Maryland i 21701
(Address of principal executive offices) (Zip Code)

( i 800) i 525-1698
(Registrant’s telephone number, including area code)

	June 30, 2021 (Unaudited)			December 31, 2020

ASSETS
Current Assets:
Cash and Cash Equivalents	$	i 2,488,413		$	i 5,198,842
Accounts Receivable - net		i 2,980,292			i 3,716,701
Other Receivables		i -			i 198,951
Inventories (Note 3)		i 5,175,979			i 3,781,515
Vendor Deposits (Note 4)		i 24,224			i 388,712
Prepaid Expenses		i 388,271			i 421,305
Total Current Assets		i 11,057,179			i 13,706,027

Property and Equipment – net (Note 5)		i 1,280,092			i 1,298,103

Other Assets:
Intangible Assets – net (Note 6)		i 831,768			i 722,916
Operating Lease - Right of Use Asset (Note - 7)		i 608,111			i 631,527
Capitalized Software Development Costs - net (Note 8)		i 31,426			i 52,377
Other Assets		i 472,173			i 358,935
Total Other Assets		i 1,943,478			i 1,765,755
Total Assets	$	i 14,280,749		$	i 16,769,885

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:
Accounts Payable	$	i 1,534,172		$	i 1,501,469
Accrued Expenses and Other Current Liabilities (Note 13)		i 568,502			i 501,849
Customer Deposits		i 41,827			i 118,880
Current Portion of Long-Term Operating Lease		i 86,391			i 81,223
Total Current Liabilities		i 2,230,892			i 2,203,421

Long-Term Liabilities:
Loan Payable (Note 15)		i -			i 410,700
Long-Term Operating Lease, Net of Current Portion (Note 7)		i 908,677			i 953,190
Total Long-Term Liabilities		i 908,677			i 1,363,890
Total Liabilities		i 3,139,569			i 3,567,311

Commitments and Contingencies		-			-

Shareholders’ Equity:
Cumulative Convertible Series A Preferred Stock;
par value $ i 0.01 per share, i 1,000,000 shares authorized; i 63,750 shares issued
and outstanding at June 30, 2021 and December 31, 2020		i 638			i 638
Cumulative Convertible Series B Preferred Stock; $1,000 stated value;
7.5% Cumulative dividend; i 4,000 shares authorized; none issued
and outstanding at June 30, 2021 and December 31, 2020		i -			i -
Common stock; par value $ i 0.01 per share, i 250,000,000 shares authorized;
i 16,811,513 and i 16,761,513 shares issued and outstanding
at June 30, 2021 and December 31, 2020, respectively.		i 168,115			i 167,615
Additional Paid-In Capital		i 52,369,899			i 52,142,399
Accumulated Deficit		( i 41,397,471	)		( i 39,108,078	)
Total Shareholders’ Equity		i 11,141,180			i 13,202,574
Total Liabilities and Shareholders’ Equity	$	i 14,280,749		$	i 16,769,885

	For the Six Months Ended June 30,
	2021			2020
Cash Flow From Operating Activities:
Net Income (Loss)	$	( i 2,289,394	)	$	i 6,276,178
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by (Used) In Operating Activities:
Depreciation and Amortization		i 155,861			i 344,207
Amortization of Right of Use Asset		i 78,657			i 78,657
Amortization of Software Costs		i 20,950			i 20,950
Equity Compensation Expense		i -			i 297,065
Value of Equity Issued for Services		i 228,000			i 48,000
Reserve for Bad Debt		i 360,000			i 55,000
Inventory Reserve		i -			( i 100,000	)
Gain Upon Debt Extinguishment		( i 414,583	)		i -
Changes in Operating Assets and Liabilities:
Decrease (Increase) in:
Accounts Receivable		i 376,409			( i 3,151,403	)
Inventory		( i 1,394,464	)		( i 307,829	)
Prepaid Expenses		i 33,034			( i 70,318	)
Vendor Deposits		i 364,488			( i 427,547	)
Other Receivables		i 198,951			i -
Other Assets		( i 181,128	)		( i 188,396	)
Increase (Decrease) in:
Accounts Payable		i 32,702			i 2,299,610
Accrued Expenses		i 70,538			i 318,406
Accrued Interest		i -			( i 66,667	)
Customer Deposits		( i 77,053	)		i 32,040
Lease Liability		( i 74,990	)		( i 72,806	)

Net Cash Provided (Used) in Operating Activities		( i 2,512,020	)		i 5,385,149

Cash Flow From Investing Activities:
Capitalized Patent and Trademark Costs		( i 45,807	)		i -
Purchase of Property and Equipment		( i 152,602	)		( i 46,012	)
Net Cash (Used) in Investing Activities		( i 198,408	)		( i 46,012	)

	For the Six Months Ended June 30,
	2021			2020
Cash Flow From Financing Activities:
Proceeds from Exercise of Warrants and Options		i -			i 121,000
Proceeds from Loan Payable		i -			i 410,700
Repayment of Principal Balance on Convertible Note		i -			( i 500,000	)
Net Cash Provided By Financing Activities:		i -			i 31,700
Increase (Decrease) In Cash and Cash Equivalents		( i 2,710,429	)		i 5,370,837
Cash and Cash Equivalents - Beginning		i 5,198,842			i 897,223
Cash and Cash Equivalents – Ending	$	i 2,488,413		$	i 6,268,060

Supplemental Cash Flow Information:
Cash Paid For Interest	$	i -		$	i 107,356
Cash Paid for Income Taxes	$	i 75,000		$	i 800
Non-Cash Investing and Financing Activities:
Accrued Equity Compensation	$	i -		$	i 27,189
Conversion of Note Payable into Common Stock	$	i -		$	i 4,500,000
Equipment, net Transferred to Inventory	$	i -		$	i 36,256
Patent and trademark costs reclassified from Other Assets	$	i 67,890		$	i -

TOMI Environmental Solutions, Inc. – ‘10-Q’ for 6/30/21

On: Monday, 8/16/21, at 4:16pm ET · For: 6/30/21 · Accession #: 1654954-21-9081 · File #: 1-39574

Previous ‘10-Q’: ‘10-Q’ on 5/17/21 for 3/31/21 · Next: ‘10-Q’ on 11/15/21 for 9/30/21 · Latest: ‘10-Q’ on 11/14/23 for 9/30/23 · 1 Reference: By: TOMI Environmental Solutions, Inc. – ‘424B5’ on 9/28/21

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

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Dates Referenced Herein and Documents Incorporated by Reference

1 Subsequent Filing that References this Filing

i TOMI ENVIRONMENTAL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)

Large accelerated filer	☐	Accelerated filer	☐
i Non-accelerated filer	☒	Smaller reporting company	i ☒
		Emerging growth company	☐

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2021

TABLE OF CONTENTS

		Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		3

PART I	FINANCIAL INFORMATION

Item 1	Financial Statements.	4

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	30

Item 3	Quantitative and Qualitative Disclosures About Market Risk.	48

Item 4	Controls and Procedures.	48

PART II	OTHER INFORMATION

Item 1	Legal Proceedings.	49

Item 1A	Risk Factors.	49

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds.	49

Item 3	Defaults Upon Senior Securities.	49

Item 4	Mine Safety Disclosures.	49

Item 5	Other Information.	49

Item 6	Exhibits.	49

SIGNATURES		50

EXHIBIT INDEX		51

	For the Three Months Ended June 30, (Unaudited)
	2021			2020
Net Income (Loss)	$	( i 778,454	)	$	i 3,656,916
Adjustments for convertible debt - as converted
Interest on convertible debt		i -			i -
Net income (loss) attributable to common shareholders	$	( i 778,454	)	$	i 3,656,916
Weighted average number of shares of common stock outstanding:
Basic		i 16,811,513			i 16,692,675
Diluted		i 16,811,513			i 18,569,760
Net income (loss) attributable to common shareholders per share:
Basic	$	(0.05	)	$	0.22
Diluted	$	(0.05	)	$	0.20

	For the Six Months Ended June 30, (Unaudited)
	2021			2020
Net Income (Loss)	$	( i 2,289,394	)	$	i 6,276,178
Adjustments for convertible debt - as converted
Interest on convertible debt		i -			i 40,689
Net income (loss) attributable to common shareholders	$	( i 2,289,394	)	$	i 6,316,867
Weighted average number of shares of common stock outstanding:
Basic		16,784,737			16,271,514
Diluted		16,784,737			i 18,148,598
Net income (loss) attributable to common shareholders per share:
Basic	$	(0.14	)	$	0.39
Diluted	$	(0.14	)	$	0.35

	June 30, 2021 (Unaudited)		December 31, 2020

Finished goods	$	i 4,753,759	$	i 3,404,025
Raw Materials		i 422,220		i 377,490
	$	i 5,175,979	$	i 3,781,515

	June 30, 2021 (Unaudited)		December 31, 2020

Furniture and fixtures	$	i 357,236	$	i 357,236
Equipment		i 1,614,751		i 1,580,743
Vehicles		i 60,703		i 60,703
Computer and software		i 214,860		i 203,704
Leasehold improvements		i 386,120		i 386,120
Tenant Improvement Allowance		i 405,000		i 405,000
Capitalized Costs in Progress – Tooling and Molds		i 107,439		i -
		i 3,146,109		i 2,993,507
Less: Accumulated depreciation		i 1,866,017		i 1,695,404
	$	i 1,280,092	$	i 1,298,103

	June 30, 2021 (Unaudited)		December 31, 2020

Intellectual Property and Patents	$	i 3,054,259	$	i 3,000,012
Less: Accumulated Amortization		i 2,861,836		i 2,856,991
Patents, net	$	i 192,423	$	i 143,021

Year Ended:		Amount

July 1 – December 31, 2021	$	i 6,000
December 31, 2022		i 13,000
December 31, 2023		i 13,000
December 31, 2024		i 13,000
December 31, 2025		i 13,000
Thereafter		i 134,000
	$	192,000

Operating leases:	June 30, 2021 (Unaudited)		December 31, 2020
Assets:
Operating lease right-of-use asset	$	i 608,111	$	i 631,527
Liabilities:
Current Portion of Long-Term Operating Lease	$	i 86,391	$	i 81,223
Long-Term Operating Lease, Net of Current Portion		i 908,677		i 953,190
	$	i 995,067	$	i 1,034,413

	June 30, 2021 (Unaudited)			December 31, 2020
Weighted-average remaining lease term:
Operating leases	i 7.75 years			i 8.25 years

Discount rate:
Operating leases		i 7.00	%		i 7.00	%

Year Ended:	Operating Lease
July 1 – December 31, 2021	$	i 76,098
December 31, 2022		i 155,621
December 31, 2023		i 160,290
December 31, 2024		i 165,098
December 31, 2025		i 170,051
Thereafter		i 575,131
Total minimum lease payments		i 1,302,290
Less: Interest		i 307,223
Present value of lease obligations		i 995,067
Less: Current portion		i 86,391
Long-term portion of lease obligations	$	i 908,677

	June 30, 2021 (Unaudited)			December 31, 2020

Capitalized Software Development Costs	$	i 125,704		$	i 125,704
Less: Accumulated Amortization		( i 94,278	)		( i 73,327	)
	$	i 31,426		$	i 52,377

Year Ended:	Amount
July 1 - December 31, 2021	$	i -
December 31, 2022		i 30,000
December 31, 2023		i 30,000
December 31, 2024		i 30,000
December 31, 2025		i -
	$	i 90,000

	June 30, 2021 (Unaudited)			December 31, 2020

Commissions	$	i 132,183		$	i 151,709
Payroll and related costs		i 237,233			i 84,000
Director fees		i 41,250			i 41,250
Sales Tax Payable		( i 3,436	)		i 9,784
Income Taxes Payable (Note 16)		i 2,000			i 77,000
Accrued warranty (Note 14)		i 68,000			i 68,000
Other accrued expenses		i 91,272			i 70,106
Total	$	i 568,502		$	i 501,849

	June 30, 2021 (Unaudited)			December 31, 2020

Beginning accrued warranty costs	$	68,000		$	i 30,000
Provision for warranty expense		i 3,762			i 101,041
Settlement of warranty claims		( i 3,762	)		( i 63,041	)
Ending accrued warranty costs	$	i 68,000		$	i 68,000

	June 30, 2021 Unaudited		December 31, 2020

Total shareholders’ equity	$	11,141,000	$	13,203,000
Cash and cash equivalents	$	2,488,000	$	5,199,000
Accounts receivable, net	$	2,980,000	$	3,717,000
Inventories	$	5,176,000	$	3,782,000
Prepaid expenses	$	388,000	$	421,000
Vendor Deposits	$	24,000	$	389,000
Other Receivables	$	-	$	199,000
Current liabilities	$	2,231,000	$	2,203,000
Long-term liabilities	$	909,000	$	1,364,000
Working Capital	$	8,826,000	$	11,503,000

	·	Net cash used in operations of approximately $2,512,000.
	·	Net cash used in investing activities $198,000.
	·	Gain upon debt extinguishment of $415,000

	For the three months ended June 30,					Change						For the six months ended June 30,						Change
	2021			2020		$			%			2021			2020			$			%
Revenue, Net	$	1,466,000		$	10,028,000	$	(8,562,000	)		-85	%	$	3,539,000		$	17,082,000		$	(13,543,000	)		-79	%
Gross Profit		942,000			5,565,000		(4,623,000	)		-83	%		2,177,000			10,053,000			(7,876,000	)		-78	%
Total Operating Expenses⁽¹⁾		2,135,000			1,908,000		227,000			12	%		4,881,000			3,737,000			1,144,000			31	%
Income (Loss) from Operations		(1,193,000	)		3,657,000		(4,850,000	)	NM				(2,704,000	)		6,316,000			(9,020,000	)	NM
Total Other Income (Expense)		415,000			-		415,000		NM				414,000			(40,000	)		454,000		NM
Net Income (Loss)	$	(778,000	)	$	3,657,000	$	(4,435,000	)	NM			$	(2,289,000	)	$	6,276,000		$	(8,566,000	)	NM
Basic Net Income (Loss) per share	$	(0.05	)	$	0.22	$	(0.27	)	NM			$	(0.14	)	$	0.39		$	(0.53	)	NM
Diluted Net Income (Loss) per share	$	(0.05	)	$	0.20	$	(0.25		NM			$	(0.14	)	$	0.35		$	(0.49	)	NM

(1)	Includes $0 and $114,000 in non-cash equity compensation expense for the three months ended June 30, 2021 and 2020, respectively. Includes $0 and $297,000 in non-cash equity compensation expense for the six months ended June 30, 2021 and 2020, respectively.
(2)	NM – Not Meaningful