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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2025

or

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

For the transition period from _____ to _____

Commission File Number: 000-09908

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

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

8430 Spires Way, Frederick, Maryland 21701
(Address of principal executive offices) (Zip Code)
(800) 525-1698
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common stock, par value $0.01 per share |  | TOMZ |  | Nasdaq Capital Market

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. 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). 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.

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

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 ☐ No ☒

As of August 12, 2025, the registrant had 20,075,205 shares of common stock issued and outstanding.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2025

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. |  | 28 |
Item 3 | Quantitative and Qualitative Disclosures About Market Risk. |  | 41 |
Item 4 | Controls and Procedures. |  | 41 |
PART II | OTHER INFORMATION |  |  |
Item 1 | Legal Proceedings. |  | 43 |
Item 1A | Risk Factors. |  | 43 |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds. |  | 43 |
Item 3 | Defaults Upon Senior Securities. |  | 43 |
Item 4 | Mine Safety Disclosures. |  | 43 |
Item 5 | Other Information. |  | 43 |
Item 6 | Exhibits. |  | 43 |
SIGNATURES |  | 44 |
EXHIBIT INDEX |  | 45 |

2
Table of Contents

FORWARD-LOOKING STATEMENTS

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.

Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. 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 previously filed with the Securities and Exchange Commission on April 14, 2025, as amended. 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.

3
Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements.

TOMI ENVIRONMENTAL SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

|  | June 30, 2025 |  |  | December 31, |
Current Assets: |  | (Unaudited) |  |  | 2024 |
Cash and Cash Equivalents |  | $ | 569,450 |  |  | $ | 664,879 |
Accounts Receivable - net |  |  | 1,054,071 |  |  |  | 1,881,138 |
Inventories - net (Note 3) |  |  | 3,267,460 |  |  |  | 3,578,202 |
Vendor Deposits (Note 4) |  |  | 257,509 |  |  |  | 35,895 |
Prepaid Expenses |  |  | 254,261 |  |  |  | 332,999 |
Total Current Assets |  |  | 5,402,751 |  |  |  | 6,493,113 |
Property and Equipment – net (Note 5) |  |  | 749,148 |  |  |  | 875,449 |
Other Assets: |  |  |  |  |  |  |  |
Intangible Assets – net (Note 6) |  |  | 1,301,021 |  |  |  | 1,250,574 |
Operating Lease - Right of Use Asset (Note – 7) |  |  | 361,790 |  |  |  | 399,254 |
Other Assets |  |  | 661,240 |  |  |  | 675,348 |
Total Other Assets |  |  | 2,324,051 |  |  |  | 2,325,176 |
Total Assets |  | $ | 8,475,950 |  |  | $ | 9,693,738 |
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities: |  |  |  |  |  |  |  |
Accounts Payable |  | $ | 1,001,121 |  |  | $ | 1,924,379 |
Accrued Expenses and Other Current Liabilities (Notes 13 and 14) |  |  | 736,480 |  |  |  | 455,675 |
Deferred Revenue |  |  | 719,235 |  |  |  | 211,724 |
Current Portion of Long-Term Operating Lease (Note 7) |  |  | 136,227 |  |  |  | 129,132 |
Total Current Liabilities |  |  | 2,593,063 |  |  |  | 2,720,910 |
Long-Term Liabilities: |  |  |  |  |  |  |  |
Long-Term Operating Lease, Net of Current Portion (Note 7) |  |  | 444,327 |  |  |  | 513,395 |
Convertible Notes Payable, net discount of $253,270 and $239,506 at June 30, 2025 and December 31, 2024, respectively (Note 9) |  |  | 2,781,730 |  |  |  | 2,360,494 |
Total Long-Term Liabilities |  |  | 3,226,057 |  |  |  | 2,873,889 |
Total Liabilities |  |  | 5,819,120 |  |  |  | 5,594,799 |
Commitments and Contingencies (Notes 7, 9 and 11) |  |  |  |  |  |  |  |
Shareholders’ Equity: |  |  |  |  |  |  |  |
Cumulative Convertible Series A Preferred Stock; par value $0.01 per share, 1,000,000 shares authorized; 63,750 shares issued and outstanding at June 30, 2025, and December 31, 2024, respectively |  |  | 638 |  |  |  | 638 |
Cumulative Convertible Series B Preferred Stock; $1,000 stated value; 7.5% Cumulative dividend; 4,000 shares authorized; none issued and outstanding at June 30, 2025, and December 31, 2024, respectively |  |  | - |  |  |  | - |
Common stock: par value $0.01 per share, 250,000,000 shares authorized; 20,075,205 and 20,015,205 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively |  |  | 200,752 |  |  |  | 200,152 |
Additional Paid-In Capital |  |  | 58,251,540 |  |  |  | 58,201,140 |
Accumulated Deficit |  |  | (55,796,100 | ) |  |  | (54,302,991 | )
Total Shareholders’ Equity |  |  | 2,656,830 |  |  |  | 4,098,939 |
Total Liabilities and Shareholders’ Equity |  | $ | 8,475,950 |  |  | $ | 9,693,738 |

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

4
Table of Contents

TOMI ENVIRONMENTAL SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

|  | For the three months ended |  |  | For the six months ended |
|  | June 30, |  |  | June 30, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Sales, net |  | $ | 1,031,115 |  |  | $ | 3,013,392 |  |  | $ | 2,607,673 |  |  | $ | 4,127,479 |
Cost of Sales |  |  | 353,991 |  |  |  | 1,158,876 |  |  |  | 978,804 |  |  |  | 1,602,295 |
Gross Profit |  |  | 677,124 |  |  |  | 1,854,516 |  |  |  | 1,628,869 |  |  |  | 2,525,184 |
Operating Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Professional Fees |  |  | 183,874 |  |  |  | 84,327 |  |  |  | 403,190 |  |  |  | 282,326 |
Depreciation and Amortization |  |  | 69,238 |  |  |  | 76,554 |  |  |  | 137,780 |  |  |  | 154,475 |
Selling Expenses |  |  | 240,462 |  |  |  | 366,265 |  |  |  | 486,868 |  |  |  | 655,334 |
Research and Development |  |  | 84,106 |  |  |  | 61,614 |  |  |  | 128,686 |  |  |  | 129,585 |
Consulting Fees |  |  | 63,098 |  |  |  | 23,095 |  |  |  | 165,864 |  |  |  | 136,730 |
General and Administrative |  |  | 1,169,035 |  |  |  | 1,120,849 |  |  |  | 2,193,635 |  |  |  | 2,271,398 |
Total Operating Expenses |  |  | 1,809,813 |  |  |  | 1,732,704 |  |  |  | 3,516,023 |  |  |  | 3,629,848 |
Income (loss) from Operations |  | $ | (1,132,689 | ) |  | $ | 121,812 |  |  | $ | (1,887,154 | ) |  | $ | (1,104,664 | )
Other Income (Expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other Income (Note 18) |  |  | - |  |  |  | - |  |  |  | 534,912 |  |  |  | - |
Interest Income |  |  | 1,421 |  |  |  | 1,845 |  |  |  | 84,311 |  |  |  | 11,751 |
Interest Expense |  |  | (106,248 | ) |  |  | (93,459 | ) |  |  | (225,178 | ) |  |  | (187,079 | )
Total Other Income (Expense) |  |  | (104,827 | ) |  |  | (91,614 | ) |  |  | 394,045 |  |  |  | (175,328 | )
Income (loss) before income taxes |  |  | (1,237,516 | ) |  |  | 30,198 |  |  |  | (1,493,109 | ) |  |  | (1,279,992 | )
Provision for Income Taxes (Note 15) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net Income (loss) |  | $ | (1,237,516 | ) |  | $ | 30,198 |  |  | $ | (1,493,109 | ) |  | $ | (1,279,992 | )
Net income (loss) Per Common Share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (0.06 | ) |  | $ | 0.00 |  |  | $ | (0.07 | ) |  | $ | (0.06 | )
Diluted |  | $ | (0.06 | ) |  | $ | 0.00 |  |  | $ | (0.07 | ) |  | $ | (0.06 | )
Basic Weighted Average Common Shares Outstanding |  |  | 20,047,512 |  |  |  | 19,984,875 |  |  |  | 20,031,447 |  |  |  | 19,968,495 |
Diluted Weighted Average Common Shares Outstanding |  |  | 20,047,512 |  |  |  | 22,133,562 |  |  |  | 20,031,447 |  |  |  | 19,968,495 |

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

5
Table of Contents

TOMI ENVIRONMENTAL SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

For the six months ended June 30, 2025
|  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  | Total |
|  | Series A Preferred |  |  | Common Stock |  |  | Paid |  |  | Accumulated |  |  | Shareholders’ |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  | in Capital |  |  | Deficit |  |  | Equity |
Balance at January 1, 2025 |  |  | 63,750 |  |  | $ | 638 |  |  |  | 20,015,205 |  |  | $ | 200,152 |  |  | $ | 58,201,140 |  |  | $ | (54,302,991 | ) |  | $ | 4,098,939 |
Common Stock Issued for Services Provided |  |  |  |  |  |  |  |  |  |  | 60,000 |  |  |  | 600 |  |  |  | 50,400 |  |  |  |  |  |  |  | 51,000 |
Net (Loss) for the six months ended June 30, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (1,493,109 | ) |  |  | (1,493,109 | )
Balance at June 30, 2025 |  |  | 63,750 |  |  | $ | 638 |  |  |  | 20,075,205 |  |  | $ | 200,752 |  |  | $ | 58,251,540 |  |  | $ | (55,796,100 | ) |  | $ | 2,656,830 |

For the six months ended June 30, 2024
|  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  | Total |
|  | Series A Preferred |  |  | Common Stock |  |  | Paid |  |  | Accumulated |  |  | Shareholders’ |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  | in Capital |  |  | Deficit |  |  | Equity |
Balance at January 1, 2024 |  |  | 63,750 |  |  | $ | 638 |  |  |  | 19,923,955 |  |  | $ | 199,240 |  |  | $ | 57,985,245 |  |  | $ | (49,826,229 | ) |  | $ | 8,358,894 |
Warrants and Options Exercised |  |  |  |  |  |  |  |  |  |  | 31,250 |  |  |  | 313 |  |  |  | 27,187 |  |  |  |  |  |  |  | 27,500 |
Common Stock Issued for Services Provided |  |  |  |  |  |  |  |  |  |  | 60,000 |  |  |  | 600 |  |  |  | 44,400 |  |  |  |  |  |  |  | 45,000 |
Equity Compensation |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 144,307 |  |  |  |  |  |  |  | 144,307 |
Net (Loss) for the six months ended June 30, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (1,279,992 | ) |  |  | (1,279,992 | )
Balance at June 30, 2024 |  |  | 63,750 |  |  | $ | 638 |  |  |  | 20,015,205 |  |  | $ | 200,153 |  |  | $ | 58,201,139 |  |  | $ | (51,106,221 | ) |  | $ | 7,295,709 |

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

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TOMI ENVIRONMENTAL SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

For the three months ended June 30, 2025
|  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  | Total |
|  | Series A Preferred |  |  | Common Stock |  |  | Paid |  |  | Accumulated |  |  | Shareholders’ |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  | in Capital |  |  | Deficit |  |  | Equity |
Balance at April 1, 2025 |  |  | 63,750 |  |  | $ | 638 |  |  |  | 20,015,205 |  |  | $ | 200,152 |  |  | $ | 58,201,140 |  |  | $ | (54,558,584 | ) |  | $ | 3,843,346 |
Common Stock Issued for Services Provided |  |  |  |  |  |  |  |  |  |  | 60,000 |  |  |  | 600 |  |  |  | 50,400 |  |  |  |  |  |  |  | 51,000 |
Net (Loss) for the three months ended June 30, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (1,237,516 | ) |  |  | (1,237,516 | )
Balance at June 30, 2025 |  |  | 63,750 |  |  | $ | 638 |  |  |  | 20,075,205 |  |  | $ | 200,752 |  |  | $ | 58,251,540 |  |  | $ | (55,796,100 | ) |  | $ | 2,656,830 |

For the three months ended June 30, 2024
|  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  | Total |
|  | Series A Preferred |  |  | Common Stock |  |  | Paid |  |  | Accumulated |  |  | Shareholders’ |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  | in Capital |  |  | Deficit |  |  | Equity |
Balance at April 1, 2024 |  |  | 63,750 |  |  | $ | 638 |  |  |  | 19,955,205 |  |  | $ | 199,553 |  |  | $ | 58,012,432 |  |  | $ | (51,136,419 | ) |  | $ | 7,076,204 |
Common Stock Issued for Services Provided |  |  |  |  |  |  |  |  |  |  | 60,000 |  |  |  | 600 |  |  |  | 44,400 |  |  |  |  |  |  |  | 45,000 |
Equity Compensation |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 144,307 |  |  |  |  |  |  |  | 144,307 |
Net Income for the three months ended June 30, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 30,198 |  |  |  | 30,198 |
Balance at June 30, 2024 |  |  | 63,750 |  |  | $ | 638 |  |  |  | 20,015,205 |  |  | $ | 200,153 |  |  | $ | 58,201,139 |  |  | $ | (51,106,221 | ) |  | $ | 7,295,709 |

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

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TOMI ENVIRONMENTAL SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

|  | For the six months ended June 30, |
|  | 2025 |  |  | 2024 |
Cash Flow From Operating Activities: |  |  |  |  |  |
Net (Loss) |  | $ | (1,493,109 | ) |  | $ | (1,279,992 | )
Adjustments to Reconcile Net (Loss) to Net Cash (Used) In Operating Activities: |  |  |  |  |  |  |  |
Depreciation and Amortization |  |  | 137,780 |  |  |  | 154,475 |
Amortization of Right of Use Asset |  |  | 78,657 |  |  |  | 78,657 |
Amortization of Deferred Financing Costs |  |  | 34,294 |  |  |  | 31,240 |
Equity Compensation Expense |  |  | - |  |  |  | 144,307 |
Value of Equity Issued for Services |  |  | 51,000 |  |  |  | 45,000 |
Credit Loss Expense |  |  | 111,923 |  |  |  | (223,371 | )
Inventory Reserve |  |  | (111,892 | ) |  |  | - |
Sales Returns Allowance |  |  | 24,556 |  |  |  | - |
Changes in Operating Assets and Liabilities: |  |  |  |  |  |  |  |
Decrease (Increase) in: |  |  |  |  |  |  |  |
Accounts Receivable |  |  | 787,863 |  |  |  | (1,010,563 | )
Inventory |  |  | 408,237 |  |  |  | 345,489 |
Prepaid Expenses |  |  | 156,131 |  |  |  | 81,103 |
Vendor Deposits |  |  | (221,614 | ) |  |  | (96,850 | )
Other Assets |  |  | 14,108 |  |  |  | (87,715 | )
Increase (Decrease) in: |  |  |  |  |  |  |  |
Accounts Payable |  |  | (884,675 | ) |  |  | 406,145 |
Accrued Expenses |  |  | 254,705 |  |  |  | (121,347 | )
Deferred Revenue |  |  | 272,303 |  |  |  | 57,192 |
Lease Liability |  |  | (83,569 | ) |  |  | (81,943 | )
Net Cash (Used) in Operating Activities |  |  | (463,302 | ) |  |  | (1,558,173 | )
Cash Flow From Investing Activities: |  |  |  |  |  |  |  |
Capitalized Patent and Trademark Costs |  |  | (64,462 | ) |  |  | - |
Purchase of Property and Equipment |  |  | (2,665 | ) |  |  | (99,276 | )
Net Cash (Used) in Investing Activities |  |  | (67,127 | ) |  |  | (99,276 | )
Cash Flow From Financing Activities: |  |  |  |  |  |  |  |
Proceeds from Issuance of Convertible Notes |  |  | 435,000 |  |  |  | - |
Proceeds from Exercise of Options |  |  | - |  |  |  | 27,500 |
Net Cash Provided By Financing Activities: |  |  | 435,000 |  |  |  | 27,500 |
Increase (Decrease) In Cash and Cash Equivalents |  |  | (95,429 | ) |  |  | (1,629,949 | )
Cash and Cash Equivalents - Beginning |  |  | 664,879 |  |  |  | 2,339,059 |
Cash and Cash Equivalents – Ending |  | $ | 569,450 |  |  | $ | 709,110 |
Supplemental Cash Flow Information: |  |  |  |  |  |  |  |
Cash Paid for Interest |  | $ | 201,295 |  |  | $ | 148,500 |
Non-Cash Investing and Financing Activities: |  |  |  |  |  |  |  |
Service equipment reclassified from inventory to fixed assets |  | $ | 14,397 |  |  | $ | - |

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

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TOMI ENVIRONMENTAL SOLUTIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS

TOMI Environmental Solutions, Inc., a Florida corporation (“TOMI”, the “Company”, “we”, “our” and “us”) is a global provider of disinfection and decontamination essentials through our premier Binary Ionization Technology® (BIT™) platform, under which we manufacture, license, service and sell our SteraMist® brand of products, including SteraMist® BIT™, a hydrogen peroxide-based mist and fog. Our solution and process are environmentally friendly as the only biproduct from our decontamination process is oxygen and water in the form of humidity. Our solution is organically listed in the United States and Canada as a sustainably green product with no or very little carbon footprint. Our business is organized into four divisions: Life Sciences, Hospital Healthcare, Food Safety and Commercial.

Invented under a defense grant in association with the Defense Advanced Research Projects Agency (“DARPA”) of the U.S. Department of Defense, BIT™ is registered with the U.S. Environmental Protection Agency (the “EPA”) and uses a low percentage hydrogen peroxide as its only active ingredient to produce a fog composed mostly of a hydroxyl radical (.OH ion), known as ionized Hydrogen Peroxide (iHP™). Represented by the SteraMist® brand of products, iHP™ produces a germ-killing aerosol that works like a visual non-caustic gas.

Our products are designed to service a broad spectrum of commercial structures, including, but not limited to, hospitals and medical facilities, bio-safety labs, pharmaceutical facilities, meat and produce processing facilities, food security including storage and transportation, universities and research facilities, vivarium labs, other service industries including cruise ships, office buildings, hotel and motel rooms, schools, restaurants, military barracks, police and fire departments, prisons, and athletic facilities. Our products are also used in single-family homes and multi-unit residences. Additionally, our products have been listed on the EPA’s List N as products that help combat COVID-19 and are actively being used for this purpose.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The interim unaudited condensed consolidated financial statements included herein, presented in accordance with generally accepted accounting principles utilized in the United States of America (“GAAP”), and stated in U.S. dollars, have been prepared by us, without an audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading.

These financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. These unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2024 and notes thereto which are included in the annual report on Form 10-K previously filed with the SEC on April 14, 2025, as amended (the “Annual Report”). We follow the same accounting policies in the preparation of interim reports. The results of operations for the interim periods covered by this Form 10-Q may not necessarily be indicative of results of operations for the full fiscal year or any other interim period.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of TOMI and its wholly owned subsidiary, TOMI Environmental Solutions, Inc., a Nevada corporation. All intercompany accounts and transactions have been eliminated in consolidation.

Reclassification of Accounts

Certain reclassifications have been made to prior-year comparative financial statements to conform to the current year presentation. These reclassifications had no material effect on previously reported results of operations or financial position.

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Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to allowance for credit losses, inventory, intangible assets, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of our assets and liabilities.

Fair Value Measurements

The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of 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:

| Level 1: | Quoted prices in active markets for identical assets or liabilities.
| Level 2: | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data for substantially the full term of the assets or liabilities.
| Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximated fair value because of the short maturity of these instruments.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, held at financial institutions and other liquid investments with original maturities of three months or less. At times, these deposits may be in excess of insured limits. At June 30, 2025, and December 31, 2024, there were no cash equivalents.

Accounts Receivable

Accounts receivables are stated at the amount management expects to collect from outstanding balances. The Company generally does not require collateral to support customer receivables. Management assesses the collectability of outstanding customer invoices and maintains an allowance resulting from the expected non-collection of customer receivables. In estimating this reserve, management considers factors such as industry sector, historical collection experience, customer creditworthiness, specific customer risk, and current and expected general economic conditions. For those customers to whom we extend credit, in accordance with the Current Expected Credit Loss (CECL) model, we make a risk-based evaluation at the point of sale which is further reviewed on both an individual and collective (pool) basis during each reporting period based on ASC 326. We are required to estimate and report expected credit losses over the entire life of a financial asset, considering historical data, current conditions, and future forecasts, even if the risk of loss is remote.

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We have implemented a policy of reserving credit losses based on our best estimate of the amount of potential credit losses in existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be at risk. Our allowance for credit losses was as follows:

|  | June 30, 2025 (Unaudited) |  |  | December 31, 2024 |
Allowance for credit losses |  | $ | 2,229,977 |  |  | $ | 1,494,347 |
Credit loss expense |  |  | 175,531 |  |  |  | 1,050,543 |
Adjustment for uncollectible accounts |  |  | (1,036,807 | ) |  |  | (314,913 | )
Allowance for credit losses |  | $ | 1,368,701 |  |  | $ | 2,229,977 |

Inventories

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Inventories consist primarily of finished goods and raw materials. We expense costs to maintain certification to cost of goods sold as incurred.

We review inventory on an ongoing basis, considering factors such as deterioration and obsolescence, and future customer demand. We record an allowance for estimated losses when the facts and circumstances indicate that particular inventories may not be usable or realized when comparing current inventory levels to anticipated demand for our product. Our reserve for obsolete inventory was $988,108 and $1,100,000 as of June 30, 2025, and December 31, 2024, respectively.

Property and Equipment

We account for property and equipment at cost less accumulated depreciation. We compute depreciation using the straight-line method over the estimated useful lives of the assets, generally three to five years. Depreciation 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 remaining lease term at the time the asset was placed into service or the service lives of the improvements, whichever is shorter.

Leases

We recognize a right-of-use (“ROU”) asset and lease liability for all leases with terms of more than 12 months, in accordance with ASC 842. We utilize the short-term lease recognition exemption for all asset classes as part of our on-going accounting under ASC 842. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities. Recognition, measurement and presentation of expenses depends on classification as a finance or operating lease.

As a lessee, we utilize the reasonably certain threshold criteria in determining which options we will exercise. Furthermore, our lease payments are based on index rates with minimum annual increases. These represent fixed payments and are captured in the future minimum lease payments calculation. In determining the discount rate to use in calculating the present value of lease payments, we used our incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

We have also elected the practical expedient to not separate lease and non-lease components for all asset classes, meaning all consideration that is fixed, or in-substance fixed, will be captured as part of our lease components for balance sheet purposes. Furthermore, all variable payments included in lease agreements will be disclosed as variable lease expense when incurred. Generally, variable lease payments are based on usage and common area maintenance. These payments will be included as variable lease expense in the period in which they are incurred.

Accounts Payable

As of June 30, 2025, one vendor accounted for approximately 49% of accounts payable. As of December 31, 2024, one vendor accounted for approximately 60% of accounts payable.

For the three and six months ended June 30, 2025, two vendors accounted for 50% and 49% of cost of sales, respectively. For the three and six months ended June 30, 2024, two vendors accounted for 82% and 73% of cost of sales, respectively.

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Accrued Warranties

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 from date of sale, which we extend to our customers upon sale of the product. We assume responsibility for product reliability and results. As of June 30, 2025, and December 31, 2024, our warranty reserve was $30,000 and $30,000, respectively. (See Note 14).

Income Taxes

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 FASB ASC Topic 740, Income Taxes guidance for income taxes. Net deferred tax assets have been fully reserved at June 30, 2025 and December 31, 2024.

Net Income (Loss) Per Share

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 effect from potential issuance of shares of common stock, such as shares issuable pursuant to the exercise of options and warrants and conversions of preferred stock or debentures. The computation of diluted EPS is similar to the computation of basic EPS except that the numerator may have to adjust for any dividends and income or loss associated with potentially dilutive securities that are assumed to have resulted in the issuance of shares of common stock and the denominator may have to adjust to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued during the period to reflect the potential dilution that could occur from shares of common stock issuable through a contingent shares issuance arrangement, stock options, warrants, or convertible preferred stock. For purposes of determining diluted earnings per common share, the treasury stock method is used for stock options, and warrants, and the if-converted method is used for convertible preferred stock and convertible debt as prescribed in FASB ASC Topic 260.

Potentially dilutive securities as of June 30, 2025 consisted of 2,428,000 shares of common stock from convertible debentures, 2,604,388 shares of common stock issuable upon exercise of outstanding warrants, 768,792 shares of common stock issuable upon outstanding stock options and 63,750 shares of common stock issuable upon conversion of outstanding shares of Convertible Series A Preferred stock.

Potentially dilutive securities as of June 30, 2024 consisted of 2,080,000 shares of common stock from convertible debentures, 2,765,846 shares of common stock issuable upon exercise of outstanding warrants, 805,042 shares of common stock issuable upon vesting of stock options and exercise and 63,750 shares of common stock issuable upon conversion of outstanding shares of Convertible Series A Preferred Stock.

Options, warrants, preferred stock and shares associated with the conversion of debt to purchase approximately 5.9 million and 5.7 million shares of common stock were outstanding on June 30, 2025 and 2024, respectively but were excluded from the computation of diluted net loss per share at June 30, 2025 and 2024 due to the anti-dilutive effect on net loss per share.

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|  | For the three months ended |
|  | June 30, |
|  | (Unaudited) |
|  | 2025 |  |  | 2024 |
Net Income (Loss) |  | $ | (1,237,516 | ) |  | $ | 30,198 |
Adjustments for convertible debt - as converted: |  |  |  |  |  |  |  |
Interest on convertible debt net of effective tax rate (28%) |  |  | - |  |  |  | 67,290 |
Net income (loss) attributable to common shareholders |  | $ | (1,237,516 | ) |  | $ | 97,488 |
Weighted average number of shares of common stock outstanding: |  |  |  |  |  |  |  |
Basic |  |  | 20,047,512 |  |  |  | 19,984,875 |
Diluted |  |  | 20,047,512 |  |  |  | 22,133,562 |
Net income (loss) attributable to common shareholders per share: |  |  |  |  |  |  |  |
Basic |  | $ | (0.06 | ) |  | $ | 0.00 |
Diluted |  | $ | (0.06 | ) |  | $ | 0.00 |

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

|  | For the three months ended |
|  | June 30, |
|  | (Unaudited) |
|  | 2025 |  |  | 2024 |
Numerator: |  |  |  |  |  |
Net Income (Loss) |  | $ | (1,237,516 | ) |  | $ | 30,198 |
Denominator: |  |  |  |  |  |  |  |
Basic weighted-average shares |  |  | 20,047,512 |  |  |  | 19,984,875 |
Effect of dilutive securities |  |  |  |  |  |  |  |
Warrants |  |  | - |  |  |  | 4,566 |
Convertible Debt |  |  | - |  |  |  | 2,080,000 |
Options |  |  | - |  |  |  | 371 |
Preferred Stock |  |  | - |  |  |  | 63,750 |
Diluted Weighted Average Shares |  |  | 20,047,512 |  |  |  | 22,133,562 |
Net income (loss) attributable to common shareholders per share: |  |  |  |  |  |  |  |
Basic |  | $ | (0.06 | ) |  | $ | 0.00 |
Diluted |  | $ | (0.06 | ) |  | $ | 0.00 |

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The following table sets forth the number of potential shares of common stock that have been excluded from diluted net income (loss) per share because their effect was anti-dilutive:

|  | For the three months ended |
|  | June 30, |
|  | (Unaudited) |
|  | 2025 |  |  | 2024 |
Options |  |  | - |  |  |  | 798,000 |
Warrants |  |  | - |  |  |  | 2,734,596 |
|  |  | - |  |  |  | 3,532,596 |

Note: Warrants, options, convertible and preferred stock for the six months ended June 30, 2025 and 2024, are not included in the computation of diluted weighted average shares as such inclusion would be anti-dilutive.

Revenue Recognition

We recognize revenue in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (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 for each distinct performance obligation identified in step (ii) above; and c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above.

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 resale of our products by dealers and distributors. 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.

Disaggregation of Revenue

The following table presents our approximate revenue disaggregated by revenue source.

Product and Service Revenue

|  | For the three months ended June 30, (Unaudited) |
|  | 2025 |  |  | 2024 |
SteraMist Product |  | $ | 653,000 |  |  | $ | 2,728,000 |
Service and Training |  |  | 378,000 |  |  |  | 285,000 |
Total |  | $ | 1,031,000 |  |  | $ | 3,013,000 |

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Revenue by Geographic Region

|  | For the three months ended June 30, (Unaudited) |
|  | 2025 |  |  | 2024 |
United States |  | $ | 822,000 |  |  | $ | 2,621,000 |
International |  |  | 209,000 |  |  |  | 392,000 |
Total |  | $ | 1,031,000 |  |  | $ | 3,013,000 |

Product and Service Revenue

|  | For the six months ended June 30, (Unaudited) |
|  | 2025 |  |  | 2024 |
SteraMist Product |  | $ | 1,653,000 |  |  | $ | 3,471,000 |
Service and Training |  |  | 955,000 |  |  |  | 656,000 |
Total |  | $ | 2,608,000 |  |  | $ | 4,127,000 |

Revenue by Geographic Region

|  | For the six months ended June 30, (Unaudited) |
|  | 2025 |  |  | 2024 |
United States |  | $ | 2,014,000 |  |  | $ | 3,283,000 |
International |  |  | 594,000 |  |  |  | 844,000 |
Total |  | $ | 2,608,000 |  |  | $ | 4,127,000 |

Product revenue includes sales from our standard and customized equipment, solutions and accessories sold with our equipment. Revenue is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive in exchange for those products.

Service and training revenue include sales from our high-level decontamination and service engagements, validation of our equipment and technology and customer training. Service revenue is recognized as the agreed upon services are rendered to our customers in an amount that reflects the consideration we expect to receive in exchange for those services.

Estimated allowances for sales returns are recorded as sales are recognized. We use a specific identification method based on subsequent product return activity and historical average calculations to estimate the allowance for sales returns. Our allowance for sales returns as of June 30, 2025 and December 31, 2024, was $176,924 and $227,000, respectively.

Costs to Obtain a Contract with a Customer

We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling expenses.

Contract Balances

As of June 30, 2025, and December 31, 2024, we had contract balances and unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed in the amounts of $719,235 and $211,724, respectively.

Arrangements with Multiple Performance Obligations

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.

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Significant Judgments

Our contracts with customers for products and services often dictate the terms and conditions of when the control of the promised products or services is transferred to the customer and the amount of consideration to be received in exchange for the products and services. We also record an estimated allowance for anticipated product returns.

Equity Compensation Expense

We account for equity compensation expense in accordance with FASB ASC 718, “Compensation-Stock Compensation.” Under the provisions of FASB ASC 718, equity compensation expense is estimated at the grant date based on the award’s fair value.

The valuation methodology used to determine the fair value of options and warrants issued as compensation during the period is the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The expected term of the Company’s warrants has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” warrants. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its common stock, par value $0.01 (the “Common Stock”) and does not intend to pay dividends on its Common Stock in the foreseeable future.

On July 7, 2017, our shareholders approved the Company’s Amended and Restated 2016 Equity Incentive Plan (the amended “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 2,000,000 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, and awards under the 2016 Plan are expressly conditioned upon such agreements. During the six months ended June 30, 2025 and 2024, we issued 60,000 and 60,000 shares of Common Stock, respectively, to members of our Board out of the 2016 Plan.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. We maintain cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation limit of $250,000 at times during the year.

Long-Lived Assets Including Acquired Intangible Assets

We assess long-lived assets for potential impairments at the end of each year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating long-lived assets for impairment, we measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If our long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. We base the calculations of the estimated fair value of our long-lived assets on the income approach. For the income approach, we use an internally developed discounted cash flow model that includes, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. We had no long-lived asset impairment charges for the three and six months ended June 30, 2025 and 2024.

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Advertising and Promotional Expenses

Advertising and promotional costs are expensed in the period they are incurred. For the three and six months ended June 30, 2025, advertising and promotional expenses included in selling expenses were approximately $33,000 and $64,000, respectively. For the same periods in 2024, these expenses were approximately $65,000 and $157,000, respectively.

Research and Development Expenses

Research and development expenses are expensed in the period they are incurred. For the three and six months ended June 30, 2025, these expenses were approximately $84,000 and $129,000, respectively. For the same periods in 2024, research and development expenses were approximately $62,000 and $130,000, respectively.

Business Segments

We currently have one reportable business segment due to the fact that we derive our revenue primarily from one product in which 1) The business activities are homogenous in nature, 2) The entire operation faces similar market conditions and risks, 3) There is a high degree of integration in its operations, 4) Internal evaluations of financial results are conducted on a consolidated basis. A breakdown of revenue is presented in “Revenue Recognition” in Note 2 above. See Note 17, Segment Reporting for more details. We are required to apply the guidance in ASC 280 and identify significant segment expenses and other segment items for our single reportable segment.

Going Concern

For the six months ended June 30, 2025 and 2024, our net loss was approximately $1,493,000 and $1,280,000, respectively, and the cash used in operations was approximately $463,000 and $1,558,000, respectively. As of June 30, 2025, we had approximately $569,450 cash and cash equivalents and an accumulated deficit of $55.8 million. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. The Company’s consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business; no adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.

The Company intends to fund ongoing activities by utilizing its current cash on hand, the cash generated from operations, and by raising additional capital through equity or debt financings. There can be no assurance that the Company will be successful in raising that additional capital or that such capital, if available, will be on terms that are acceptable to us, as our ability to raise capital may be affected by various factors, including general market conditions, volatility of our stock price, investor interests and expectations, and our financial performance.

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Company will adopt ASU 2023-09 in its fourth quarter of 2025 using a prospective transition method.

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). In January 2025, ASU No. 2025-01 was issued to clarify the effective date for all public business entities. The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements. Early adoption is also permitted. This ASU will likely result in the required additional disclosures being included in our consolidated financial statements, once adopted. We are currently evaluating the provisions of this ASU.

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NOTE 3. INVENTORIES

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

|  | June 30, 2025 (Unaudited) |  |  | December 31, 2024 |
Finished Goods |  | $ | 4,026,000 |  |  | $ | 3,800,000 |
Raw Materials |  |  | 229,000 |  |  |  | 878,000 |
Inventory Reserve |  |  | (988,000 | ) |  |  | (1,100,000 | )
Total |  | $ | 3,267,000 |  |  | $ | 3,578,000 |

NOTE 4. VENDOR DEPOSITS

At June 30, 2025 and December 31, 2024, we maintained vendor deposits of $257,509 and $35,895, respectively, for open purchase orders for inventory.

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at:

|  | June 30, 2025 (Unaudited) |  |  | December 31, 2024 |
Furniture and fixtures |  | $ | 458,652 |  |  | $ | 458,652 |
Equipment |  |  | 2,316,200 |  |  |  | 2,301,803 |
Vehicles |  |  | 66,170 |  |  |  | 66,170 |
Computer and software |  |  | 318,999 |  |  |  | 316,334 |
Leasehold improvements |  |  | 393,381 |  |  |  | 393,381 |
Tenant Improvement Allowance |  |  | 405,000 |  |  |  | 405,000 |
Total cost of Property and Equipment |  |  | 3,958,402 |  |  |  | 3,941,340 |
Less: Accumulated Depreciation |  |  | 3,209,254 |  |  |  | 3,065,891 |
Property and Equipment, net |  | $ | 749,148 |  |  | $ | 875,449 |

For the three and six months ended June 30, 2025, depreciation was $62,022 and $123,766, respectively. For the three and six months ended June 30, 2024, depreciation was $71,677 and $144,720, respectively.

For the three and six months ended June 30, 2025 and 2024, amortization of tenant improvement allowance was $9,798 and $19,597, respectively and was recorded as lease expense and included within general and administrative expense on the consolidated statement of operations.

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NOTE 6. INTANGIBLE ASSETS

Intangible assets consist of patents and trademarks related to our Binary Ionization Technology. We amortize the patents over the estimated remaining lives of the related patents. Trademarks have an indefinite life. Amortization expenses were $7,216 and $14,014 for the three and six months ended June 30, 2025, respectively. Amortization expenses were $4,878 and $9,755 for the three and six months ended June 30, 2024, respectively.

Definite life intangible assets consist of the following:

|  | June 30, 2025 |  |  | December 31, |
|  | (Unaudited) |  |  | 2024 |
Intellectual Property and Patents |  | $ | 3,383,532 |  |  | $ | 3,350,031 |
Less: Accumulated Amortization |  |  | 2,944,336 |  |  |  | 2,930,321 |
Patents, net |  | $ | 439,196 |  |  | $ | 419,710 |

Indefinite life intangible assets consist of the following:

Trademarks |  |  | 861,825 |  |  |  | 830,864 |
Total Intangible Assets, net |  | $ | 1,301,021 |  |  | $ | 1,250,574 |

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

Year Ended: |  |  |
July 1 - December 31, 2025 |  | $ | 14,000 |
December 31, 2026 |  |  | 28,000 |
December 31, 2027 |  |  | 28,000 |
December 31, 2028 |  |  | 28,000 |
December 31, 2029 |  |  | 28,000 |
Thereafter |  |  | 313,000 |
Total |  | $ | 439,000 |

NOTE 7. LEASES

In April 2018, we entered into a 10-year lease agreement for a new 9,000-square-foot facility that contains office, warehouse, lab and research and development space in Frederick, Maryland. The lease agreement commenced in December 2018 when the property was ready for occupancy. The agreement provided for annual rent of $143,460, an escalation clause that increases the rent 3% year over year, a landlord tenant improvement allowance of $405,000 and additional landlord work as discussed in the lease agreement. We took occupancy of the property on December 17, 2018, and the lease was amended in June 2019 to provide for a 4-month rent holiday and a commencement date of April 1, 2019. A 7% discount rate was determined using our incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

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The balances for our operating lease where we are the lessee are presented as follows within our condensed consolidated balance sheet:

|  | June 30, 2025 |  |  | December 31, |
Operating leases: |  | (Unaudited) |  |  | 2024 |
Assets: |  |  |  |  |  |
Operating lease right-of-use asset |  | $ | 361,790 |  |  | $ | 399,254 |
Liabilities: |  |  |  |  |  |  |  |
Current Portion of Long-Term Operating Lease |  | $ | 136,227 |  |  | $ | 129,132 |
Long-Term Operating Lease, net of current portion |  |  | 444,327 |  |  |  | 513,395 |
Total Right of Use Liability |  | $ | 580,554 |  |  | $ | 642,527 |

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

|  | For the three months ended |  |  | For the six months ended |
|  | June 30, (Unaudited) |  |  | June 30, (Unaudited) |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Operating Lease Expense |  | $ | 39,329 |  |  | $ | 39,329 |  |  | $ | 78,657 |  |  | $ | 78,657 |

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

|  | June 30, 2025 |  |  | December 31, |
|  | (Unaudited) |  |  | 2024 |
Weighted-average remaining lease term: |  |  |  |  |  |
Operating leases |  | 3.50 years |  |  | 4.00 years |
Discount rate: |  |  |  |  |  |
Operating leases |  |  | 7.00 | % |  |  | 7.00 | %

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

|  | For the three months ended |  |  | For the six months ended |
|  | June 30, (Unaudited) |  |  | June 30, (Unaudited) |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Cash Paid for amounts included in |  |  |  |  |  |  |  |  |  |  |  |
the measurement of lease liabilities |  | $ | 41,993 |  |  | $ | 41,577 |  |  | $ | 83,571 |  |  | $ | 81,944 |

As of June 30, 2025, the maturities of our operating lease liability are as follows:

|  | Operating |
Year Ended: |  | Lease |
July 1 - December 31, 2025 |  | $ | 85,649 |
December 31, 2026 |  |  | 175,153 |
December 31, 2027 |  |  | 180,408 |
December 31, 2028 |  |  | 185,820 |
December 31, 2029 |  |  | 34,841 |
Total Minimum Lease Payments |  |  | 661,871 |
Less: Interest |  |  | 81,317 |
Imputed value of lease obligations |  |  | 580,554 |
Less: Current portion |  |  | 136,227 |
Long-term portion of lease obligations |  | $ | 444,327 |

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NOTE 8. CLOUD COMPUTING SERVICE CONTRACT

In May 2020, we entered into a cloud computing service contract with a vendor. The contract provides for annual payments in the amount of $30,409 and has a term of 5 years. The annual contract payments are capitalized as a prepaid expense and amortized over a twelve-month period.

We have incurred implementation costs of $66,857 in connection with the cloud computing service contract which have been capitalized in prepaid expenses and other assets as of June 30, 2025 and December 31, 2024. In accordance with ASU No. 2018-15, such implementation costs are being amortized over the remaining contract terms beginning January 1, 2021, which was when the cloud-based service contract was placed in service. Amortization expense for the three and six months ended June 30, 2025 were $3,671 and $7,436, respectively. Amortization expense for the three and six months ended June 30, 2024 were $3,766 and $7,531, respectively.

NOTE 9. CONVERTIBLE DEBT

In October and November 2023, we entered into a Securities Purchase Agreement (the “SPA”) with certain accredited investors (collectively, the “Investors”) pursuant to which we agreed to sell and issue to the Investors in a private placement transaction (the “Private Placement”) in one or more closings up to an aggregate principal amount of $5,000,000 of Convertible Notes (the “Notes”). In October and November 2023, we sold and issued an aggregate of $2,600,000 of Notes that are convertible into 2,080,000 shares of common stock at a conversion price of $1.25 per share.

The Notes mature and are due on the fifth anniversary of the issuance date in October and November of 2028. The Notes bear simple interest at a rate of 12% per annum, payable in equal monthly installments. The Notes are convertible into shares of our Common Stock, at the option of the holder, at an initial conversion price of $1.25 per share, which shall not exceed $1.55 per share. In addition, we can require Investors to convert the Notes at the then current conversion price at any time after 90 days from the issue date if the Common Stock has a closing bid price of $1.55 per share or higher on any twenty (20) days within a thirty (30) day period of consecutive trading days, or if a “fundamental change” occurs (as defined in the Securities Purchase Agreement). The Notes are unsecured and senior to other indebtedness subject to certain exceptions. Interest expense related to these Notes is recorded on a straight-line basis for the three and six months ended June 30, 2025 and 2024 which totaled $78,000 and $156,000, respectively.

During the six months ended June 30, 2025, we entered into Securities Purchase Agreements (the “SPA”) with certain accredited investors (collectively, the “Investors”) pursuant to which we agreed to sell and issue to the Investors in a private placement transaction (the “Private Placement”) in one or more closings up to an aggregate principal amount of $3,000,000 (the “Notes”). Pursuant to the SPA and as of June 30, 2025, we sold and issued convertible promissory notes (the “Notes”) to purchase an aggregate of 348,000 shares of common stock at the conversion price of $1.25 per share in exchange for aggregate gross proceeds of $435,000.

The Notes mature and are due on the fifth anniversary of the issuance date in 2030. The Notes bear simple interest at a rate of 12% per annum, payable in equal monthly installments. The Notes are convertible into shares of our Common Stock, at the option of the holder, at a conversion price of $1.25 per share, which shall not exceed $1.55 per share. In addition, we can require Investors to convert the Notes at the then current conversion price at any time after 90 days from the issue date if the Common Stock has a closing bid price of $1.55 per share or higher on any twenty (20) days within a thirty (30) day period of consecutive trading days, or if a “fundamental change” occurs (as defined in the Securities Purchase Agreement). The Notes are unsecured and senior to other indebtedness subject to certain exceptions. Interest expense related to these Notes for the three and six months ended June 30, 2025 was $10,225 and $13,075, respectively.

Amortization of deferred financing costs were $18,023 and $34,294 for the three and six months ended June 30, 2025, respectively which has been included with interest expense on the statement of operations. Amortization of deferred financing costs were $15,620 and $31,240 for the three and six months ended June 30, 2024, respectively which has been included with interest expense on the statement of operations. Additions to deferred financing costs totaled $48,058 during the six months ended June 30, 2025 and are being amortized on a straight-line basis over the life of the notes.

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Convertible notes consist of the following at:

|  | June 30, 2025 |  |  | December 31, |
|  | (Unaudited) |  |  | 2024 |
Convertible Notes |  | $ | 3,035,000 |  |  | $ | 2,600,000 |
Less: Debt issuance costs |  |  | (360,456 | ) |  |  | (312,398 | )
Accumulated amortization |  |  | 107,186 |  |  |  | 72,892 |
Convertible Notes, net |  | $ | 2,781,730 |  |  | $ | 2,360,494 |

NOTE 10. SHAREHOLDERS’ EQUITY

Our Board of Directors (the “Board”) may, without further action by our shareholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of preferred stock in series and at the time of issuance, determine the rights, preferences and limitations of each series. The holders of such preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding up by us before any payment is made to the holders of our Common Stock. Furthermore, the Board could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our Common Stock.

Convertible Series A Preferred Stock

Our authorized Convertible Series A Preferred Stock, $0.01 par value, consists of 1,000,000 shares. At June 30, 2025 and December 31, 2024, there were 63,750 shares issued and outstanding. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock.

Convertible Series B Preferred Stock

Our authorized Convertible Series B Preferred Stock, $1,000 stated value, 7.5% cumulative dividend, consists of 4,000 shares. At June 30, 2025 and December 31, 2024, there were no shares issued and outstanding. Each share of Convertible Series B Preferred Stock may be converted (at the holder’s election) into two hundred shares of our Common Stock.

Common Stock

In May 2024, we issued 60,000 shares of Common Stock valued at approximately $45,000 to members of our Board pursuant to our equity plan (see Note 12).

In May 2025, we issued 60,000 shares of Common Stock valued at approximately $51,000 to members of our Board pursuant to our equity plan (see Note 12).

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Stock Options

In May 2024, we issued options to purchase 225,000 shares of Common Stock to Officers at an exercise price of $0.75 per share pursuant to an employment agreement. The options were valued at $144,308 and have a contractual term of 10 years. We utilized the Black-Scholes model to fair value the options received by Officers with the following assumptions: volatility, 125%; expected dividend yield, 0%; risk free interest rate, 4.35%; and a contractual term of 10 years. The grant date fair value of each share of Common Stock underlying the options was $0.64.

The following table summarizes stock options outstanding as of June 30, 2025 and December 31, 2024:

|  | June 30, 2025 (Unaudited) |  |  | December 31, 2024 |
|  | Number of Options |  |  | Weighted Average Exercise Price |  |  | Number of Options |  |  | Weighted Average Exercise Price |
Outstanding, beginning of period |  |  | 805,042 |  |  | $ | 1.23 |  |  |  | 617,542 |  |  | $ | 1.38 |
Granted |  |  | - |  |  |  | - |  |  |  | 225,000 |  |  |  | 0.75 |
Exercised |  |  | - |  |  |  | - |  |  |  | (31,250 | ) |  |  | 0.88 |
Expired |  |  | (36,250 | ) |  |  | (1.04 | ) |  |  | (6,250 | ) |  |  | 0.80 |
Outstanding, end of period |  |  | 768,792 |  |  | $ | 1.24 |  |  |  | 805,042 |  |  | $ | 1.23 |

Options outstanding and exercisable by price range as of June 30, 2025 were as follows:

Outstanding Options |  |  |  | Average Weighted |  |  | Exercisable Options |
|  |  |  |  |  |  | Remaining |  |  |  |  |  | Weighted |
|  |  |  |  |  |  | Contractual |  |  |  |  |  | Average |
Range |  |  | Number |  |  |  | Life in Years |  |  | Number |  |  | Exercise Price |
$ | 0.71 |  |  |  | 7,042 |  |  |  | 2.56 |  |  |  | 7,042 |  |  | $ | 0.71 |
$ | 0.75 |  |  |  | 225,000 |  |  |  | 8.88 |  |  |  | 225,000 |  |  | $ | 0.75 |
$ | 0.80 |  |  |  | 2,500 |  |  |  | 2.57 |  |  |  | 2,500 |  |  | $ | 0.80 |
$ | 0.85 |  |  |  | 210,000 |  |  |  | 7.58 |  |  |  | 210,000 |  |  | $ | 0.85 |
$ | 1.12 |  |  |  | 270,000 |  |  |  | 6.56 |  |  |  | 270,000 |  |  | $ | 1.12 |
$ | 1.93 |  |  |  | 10,500 |  |  |  | 1.46 |  |  |  | 10,500 |  |  | $ | 1.93 |
$ | 4.40 |  |  |  | 12,500 |  |  |  | 0.59 |  |  |  | 12,500 |  |  | $ | 4.40 |
$ | 7.06 |  |  |  | 31,250 |  |  |  | 0.25 |  |  |  | 31,250 |  |  | $ | 7.06 |
|  |  |  |  | 768,792 |  |  |  | 7.06 |  |  |  | 768,792 |  |  | $ | 1.24 |

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Stock Warrants

The following table summarizes the outstanding common stock warrants as of June 30, 2025 and December 31, 2024:

|  | June 30, 2025 (Unaudited) |  |  | December 31, 2024 |
|  | Number of Warrants |  |  | Weighted Average Exercise Price |  |  | Number of Warrants |  |  | Weighted Average Exercise Price |
Outstanding, beginning of period |  |  | 2,765,846 |  |  | $ | 2.26 |  |  |  | 2,772,096 |  |  | $ | 2.25 |
Granted |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Exercised |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Expired |  |  | (161,458 | ) |  |  | (1.19 | ) |  |  | (6,250 | ) |  |  | (1.12 | )
Outstanding, end of period |  |  | 2,604,388 |  |  | $ | 2.32 |  |  |  | 2,765,846 |  |  | $ | 2.26 |

Warrants outstanding and exercisable by price range as of June 30, 2025 were as follows:

Outstanding Warrants |  |  | Average Weighted |  |  | Exercisable Warrants |
Exercise Price |  |  | Number |  |  | Remaining Contractual Life in Years |  |  | Number |  |  | Weighted Average Exercise Price |
$ | 0.64 |  |  |  | 31,250 |  |  |  | 8.39 |  |  |  | 31,250 |  |  | $ | 0.64 |
$ | 0.80 |  |  |  | 125,000 |  |  |  | 8.58 |  |  |  | 125,000 |  |  | $ | 0.80 |
$ | 0.96 |  |  |  | 437,500 |  |  |  | 7.48 |  |  |  | 437,500 |  |  | $ | 0.96 |
$ | 1.68 |  |  |  | 1,434,721 |  |  |  | 1.25 |  |  |  | 1,434,721 |  |  | $ | 1.68 |
$ | 2.18 |  |  |  | 172,167 |  |  |  | 1.25 |  |  |  | 172,167 |  |  | $ | 2.18 |
$ | 4.00 |  |  |  | 28,750 |  |  |  | 4.82 |  |  |  | 28,750 |  |  | $ | 4.00 |
$ | 6.95 |  |  |  | 375,000 |  |  |  | 5.26 |  |  |  | 375,000 |  |  | $ | 6.95 |
|  |  |  |  | 2,604,388 |  |  |  | 3.35 |  |  |  | 2,604,388 |  |  | $ | 2.32 |

There were no unvested warrants outstanding as of June 30, 2025.

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NOTE 11. COMMITMENTS AND CONTINGENCIES

Legal Contingencies

We may become a party to litigation in the normal course of business. In the opinion of management, there are no legal matters involving us that would have a material adverse effect upon our financial condition, results of operations or cash flows. In addition, from time to time, we may have to file claims against parties that infringe on our intellectual property.

Product Liability

As of June 30, 2025 and December 31, 2024, there were no claims against us for product liability.

NOTE 12. CONTRACTS AND AGREEMENTS

Employment Agreement

On May 30, 2025, the Board of Directors of the Company appointed Mr. David Vanston as the Company’s Chief Financial Officer, effective immediately. The appointment was made following the expiration of Mr. Nick Jennings’s offer letter to serve as the Interim Chief Financial Officer of the Company, as previously disclosed by the Company.

In connection with his appointment, the Company entered into an offer letter with Mr. Vanston providing for an annual base salary of $230,000 and eligibility to receive an annual discretionary bonus of up to 40% of his base salary. Mr. Vanston is also entitled to receive an initial grant of 100,000 restricted stock units and an additional grant of 100,000 restricted stock units following one year of employment, each subject to a three-year vesting schedule.

Director Compensation

The annual fee to non-employee members of our Board is $48,000, to be paid in cash on a quarterly basis, with the exception of the audit committee chairperson, whose annual fee is $54,600, also to be paid in cash on a quarterly basis. Non-employee Director compensation also includes the annual issuance of our Common Stock.

NOTE 13. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

|  | June 30, 2025 (Unaudited) |  |  | December 31, 2024 |
Commissions |  | $ | 194,629 |  |  | $ | 187,151 |
Payroll and related costs |  |  | 404,556 |  |  |  | 125,773 |
Director fees |  |  | 37,650 |  |  |  | 37,650 |
Sales Tax Payable |  |  | 2,530 |  |  |  | 3,864 |
Accrued warranty (Note 14) |  |  | 30,000 |  |  |  | 30,000 |
Other accrued expenses and current liabilities |  |  | 67,115 |  |  |  | 71,237 |
Total |  | $ | 736,480 |  |  | $ | 455,675 |

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NOTE 14. ACCRUED WARRANTY

Our manufacturers assume the warranty against product defects from date of sale, which we extend to our customers upon sale of the product. We assume responsibility for product reliability and results. The warranty is generally limited to a refund of the original purchase price of the product or a replacement part. We estimate warranty costs based on historical warranty claim experience.

The following table presents warranty reserve activities at:

|  | June 30, 2025 (Unaudited) |  |  | December 31, 2024 |
Beginning accrued warranty costs |  | $ | 30,000 |  |  | $ | 30,000 |
Provision for warranty expense |  |  | 13,660 |  |  |  | 9,707 |
Settlement of warranty claims |  |  | (13,660 | ) |  |  | (9,707 | )
Ending accrued warranty costs |  | $ | 30,000 |  |  | $ | 30,000 |

NOTE 15. INCOME TAXES

For the three and six months ended June 30, 2025 and 2024, our provision for income tax was $0. Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized in accordance with FASB ASC Topic 740, Income Taxes. As of June 30, 2025 and December 31, 2024, we recorded a valuation allowance of $9,097,000 and $8,678,000, respectively for the portion of the deferred tax assets that we do not expect to be realized. Management believes that based on the available information, it is more likely than not that the remaining U.S. deferred tax assets will not be realized, such that a 100% valuation allowance is required against U.S. deferred tax assets.

NOTE 16. CUSTOMER CONCENTRATION

The Company had certain customers whose accounts receivable balances individually represented 10% or more of the Company’s accounts receivable, or whose sales for the three and six months represented 10% or more of the Company’s revenue.

One customer accounted for 10% of net revenue for the three months ended June 30, 2025. Two customers accounted for 54% of net revenue for the three months ended June 30, 2024.

There were no customers who accounted for 10% or more of net revenue for the six months ended June 30, 2025. Two customers accounted for 41% of net revenue for the six months ended June 30, 2024.

As of June 30, 2025, one customer accounted for 21% of our gross accounts receivable. As of December 31, 2024, two customers accounted for 25% of our gross accounts receivable.

NOTE 17. SEGMENT REPORTING

Our Chief Executive Officer, as the CODM, organizes our Company, manages resource allocations and measures performance among one operating and reportable segment due to the fact that we derive our revenue primarily from one product (equipment and service revenue based on our patented BIT technology). A breakdown of revenue is presented in “Revenue Recognition” in Note 2 above. We evaluated the aggregation criteria in ASC 280-10-50-11 which states that aggregation can be considered if segments are similar in certain areas, including the nature of products and services, production processes, type of class of customer, and future economic performance.

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Our CODM is regularly provided with more detailed expense information than what is included on our consolidated income statement. The CODM considers monthly budgets and cash flow projections, gross margins for each project, and our consolidated net income as reported on the income statement when allocating resources and assessing our performance. We are required to apply the guidance in ASC 280 and identify significant segment expenses and other segment items for our single reportable segment.

NOTE 18. EMPLOYEE RETENTION CREDITS

During the six months ended June 30, 2025, the Company recorded refunds as a result of Employee Retention Credits (ERC), which are refundable tax credits against certain employment taxes initially made available under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act). In accordance with the Company’s accounting policy, the ERC payments have been recognized as Other Income as the Company determined that all relevant criteria for recognition had been met. The ERC represents a one-time benefit and does not constitute recurring operational revenue.

For the six months ended June 30, 2025, we recorded $534,912 in employee retention credits and $81,887 related interest within other income and interest income, respectively, in our consolidated statement of operations. This consists of refund claims filed on amended Forms 941-X for the second, third and fourth quarters of 2020, and the first two quarters of 2021. As of March 31, 2025, we accrued for $394,581 and $60,429 in employee retention credits and related interest, respectively, which were received in April 2025.

NOTE 19. SUBSEQUENT EVENTS

On July 1, 2025, we received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“NASDAQ”) confirming that we regained compliance with NASDAQ’s minimum bid price continuing listing requirement as set forth in Listing Rule 5550(a)(2) and that the matter was now closed.

In July 2025, pursuant to the SPA, we sold and issued a convertible promissory note to purchase 80,000 shares of common stock at an exercise price of $1.25 per share in exchange for gross proceeds of $100,000 (See Note 9 related to our convertible debt).

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (this “MD&A”) 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. 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 involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Forward-looking statements are not guaranteeing future performance and the TOMI Environmental Solutions, Inc. (the “Company,” “TOMI,” “we,” and “our”) 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, 2024, filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 14, 2025, as amended (the “Annual Report”) 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 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 MD&A should be read in conjunction with the Annual Report filed with the SEC and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.

Quarterly Highlights

Business and Financial Update

Our total recognized and deferred revenue for the three months ended June 30, 2025 amounted to $1,750,350, consisting of approximately $1,031,000 in recognized revenue in the quarter and deferred revenue of approximately $719,235 at the end of June 2025.

Recognized revenue for the three months ended June 30, 2025, was $1,031,000, down 66% from $3,013,000 in the three months ended June 30, 2024. This was primarily driven by customers deferring capital expenditure projects due to the uncertain economic environment with the impact of announced and implemented tariffs on their supply chain and long term planning. This was not a factor in the second quarter of 2024, which had higher sales in mobile equipment of approximately $1.0 million and our Custom Engineered Systems or CES of approximately $0.5 million.

Service-based revenue for the three months ended June 30, 2025 and 2024, was $378,000 and $285,000 respectively, representing an increase of $93,000 or 33%. Service-based revenue for the six months ended June 30, 2025 and 2024, was $955,000 and $656,000 respectively, representing an increase of $299,000 or 46%. The increase in service revenue was due to increased demand from current and new life sciences customers, expansion of services in additional industries being served by our products, and more stringent regulated procedures, resulting in quotes up 35% year over year, leading to expectations of continuing higher growth in the second half of the year.

As of June 30, 2025, our sales order backlog totaled approximately $1.4 million. As of August 7, 2025, the combined total of recognized revenue, deferred revenue, and sales order backlog was approximately $4.6 million, with active projects on schedule for delivery in 2025. In addition, we are negotiating approximately $2 million in new custom and integrated contracts, with bids expected to close prior to year-end.

Our iHP Corporate Service division, primarily utilized by our Life Science pharma customers, is a seasonal business dependent on customer shutdowns. This year, we are experiencing higher levels of demand for our Service Revenue. Our pipeline and the number of quotes for Service have increased approximately 35% year on year in both the Life Science division and now additionally in the Food Safety divisions have kicked in with increased demands, which will continue to underpin our future revenue growth.

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Our gross profit as a percentage of sales for the three months ended June 30, 2025 and 2024, was 66% and 62%, respectively. The improved gross profit margins were attributable to our product mix in sales including higher sales of solution and service offerings in the three months ended June 30, 2025 compared to the same period last year.

During the second quarter of 2025, our operating expenses increased by $77,000, or 4%, compared to the second quarter of 2024. The increase was primarily due to higher professional fees offset by reduced selling expenses when compared to the same prior year period.

With the successful completion of each project, our iHP technology is rapidly gaining popularity as the preferred decontamination solution for pharmaceutical and biotech companies. Further, as we continue to install our technology to these projects, the product line evolves into a comprehensive turnkey solution.

In March 2025, we announced a significant contract to install a SteraMist iHP Custom Engineered System (CES) at a leading university in Rhode Island, valued at approximately $450,000. This new client was secured through our distributor, ARES Distribution, and underscores TOMI’s competitive advantage, having successfully outperformed key hydrogen peroxide competitors.

We also announced in March the deployment of our SteraMist iHP technology at the NASA Johnson Space Center, marking the Company’s expansion into the aerospace sector. The deployment marked a significant advancement for SteraMist iHP technology, showcasing its potential for broader applications within the aerospace sector and beyond. This strategic partnership aligns with the Company’s ongoing SteraMistX campaign, which focuses on aerospace, military, and exploration fields utilizing iHP decontamination to elevate biosecurity biosafety standards. We are currently collaborating with the space center on a potential publication for a case study.

In March 2025, we announced an OEM partnership with Pharma Biotech System Components LLC/Pharma Biotech System Components Ltd (PBSC), a premier manufacturer specializing in high containment, material decontamination, and cleanroom solutions. This collaboration enhances TOMI’s SteraMist Integrated System (SIS) product launched in the second half of last year. Through this OEM agreement, TOMI will now offer pass-through hatches and chambers integrated with iHP, specifically designed for optimized decontamination cycles. Our first chamber collaboration is set to be delivered in the fourth quarter of 2025.

We are also witnessing an increase in opportunities from our distributors. Ares Distribution on the East Coast of the United States, Avantor Sciences in the U.S., and agriculture sectors are acquiring new clients that could significantly impact the industry. Additionally, our long-term, well-established international partners in Germany, the Netherlands, and Italy have strong pipelines in place pending our final EU and UK registration approvals.

In evaluating sales related performance, management analyzes our revenue recognized for GAAP purposes which is presented in our quarterly and annual statement of operations as well as our sales orders we receive from customers during those same accounting periods. We define a “sales order” as a document we generate for our internal use in processing a customer order. Our sales orders essentially translate the format of the customer purchase orders we receive from our customers into the format used by us. We also evaluate our “customer sales backlog” which is defined as pending sales orders where revenue has not yet been recognized. Management believes analyzing the sales order and backlog metrics are useful in measuring our overall sales and business development performance as it gauges the overall volume of sales and business development activities. We also disclosed expected amount of potential sales under contract in current negotiation with customers, and such amount may be subject to risks and uncertainties as negotiation may not result in any order or enforceable contract.

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Business Highlights and Recent Events

We believe that we possess the best technologies in the world in the disinfection and decontamination space. The COVID-19 pandemic along with the needs of the pharmaceutical and vivarium space has provided us with the opportunity and experience to implement a clear strategy to develop and manufacture additional products to add to our portfolio. In addition, we continue to move our BIT technology as a standard in disinfection and decontamination globally. This should lead to increased market share, profitability, and capability strength, as is now evidenced by increasing demand for our services from the Food industries

Our products are an environmentally friendly solution, and our processes address the concern of sustainability. Customers are requesting and discussing the positive results of our product and the environmentally friendly results compared to the caustic and environmentally damaging results of many other disinfectants.

SteraMist has established a successful track record in fighting pandemics and outbreaks and implementing SteraMist for emergency preparedness is vital. The COVID-19 pandemic took the world by surprise, and history has shown that other pandemics and viruses are likely to follow. Using a proven and trusted disinfectant for emergency outbreaks and daily for preventative maintenance, such as SteraMist, can alleviate the threat of infections from spreading and could stop a possible outbreak.

Many industries within our four key divisions (Life Sciences. Hospital Healthcare, Food Safety and Commercial), prioritize ease of use and automation, seeking repeatable, validated, and thoroughly tested disinfection and decontamination solutions. TOMI dedicated significant resources to developing a variety of options tailored to meet diverse budgetary requirements in response to this market demand. Among our offerings, the Custom Engineered System (CES) remains a favored choice, bolstered by a strong pipeline. For customers with budget-friendly alternatives, our Hybrid solutions and the newly introduced SteraMist Integrated System (SIS) have become preferred alternatives. As of the date of this report, our open opportunities for these three product offerings total approximately $15 million, of which $7 million are designated as high-priority. High-priority opportunities are those with which we are actively engaged through ongoing discussions on specifications, submitted formal proposals, or pursuits via established contractor relationships.

2025 Events:

On January 10, 2025, we announced that we are supporting partners and clients preparing for emerging public health threats as concerns grow over Respiratory Syncytial Virus (RSV), Human Metapneumovirus (HMPV), and the highly pathogenic Avian Influenza (H5N1). TOMI is leveraging its SteraMist technology to provide innovative infection prevention strategies essential to safeguard the health of government agencies, commercial clients, and school districts nationwide.

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

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

On February 27, 2025, we announced we achieved compliance, recognition and validation by a third vendor management and compliance management platform, Avetta, reflecting the Company’s commitment to health, safety, and environmental (HSE) excellence for its customers. In April of 2024, we received the Gold Safety Award from Highwire. Affiliations with Avetta, Highwire, and ISNetworld platforms opens new avenues for TOMI to engage with a broader network of industry leaders and stakeholders. The collaboration fosters a culture of continuous improvement, enabling TOMI to enhance its service and integration offerings and stay ahead of evolving industry standards.

On March 6, 2025, we announced that Dr. Halden Shane, Chairman of the Board and Chief Executive Officer of TOMI, will be participating in the Q1 Investor Summit Event, which was held virtually on March 11, 2025.

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

On March 21, 2025, we announced the expansion into Aquaculture with new partner, Algafeed.

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

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

On June 12, 2025, we announced that SteraMist was honored with the prestigious 2025 “Disinfection and Decontamination Products Company of the Year” award.

On June 16, 2025, we announced the advancement of our new product line, the SteraMist Integration System with the Standalone or SIS-SA making its debut as the first system installed with a leading CDMO.

On June 23, 2025, we announced the demonstration of SteraMist efficacy in combating honeybee colony collapse.

Intellectual Property

Our portfolio includes more than 25 Utility or Design Patents worldwide which expire at various dates through the year 2038 for both method and system claims on SteraMist® BIT™, as well as design of devices. We continue to pursue further claims to additional capabilities in on-going United States and worldwide patent applications. We have obtained five related United States utility patents, giving us protection of our technology until the year 2038. We have most recently obtained patent protection for our backpack decontamination units and mobile carts in the United States. We recently filed for further patent protection in the United States for our applicator technology. We have also recently obtained protection for our decontamination technology methods in Singapore, and we will be extending our scope of protection from Singapore into Cambodia and Laos in the near future. We have also recently obtained further protections for our technology using an ionized hydrogen peroxide mist in Korea. We have obtained utility patents for our technologies in diverse countries such as Brazil, Japan, Korea, Israel, Australia, Taiwan, Canada, Mexico, Singapore, New Zealand, Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovenia, Sweden and in the UK, and continue to pursue protections all over the world, including China and Europe.

We have submitted utility patent applications in multiple jurisdictions and countries, including Europe, China, Brazil, Korea and Australia for further additional applications of SteraMist BIT, and a related application has already been determined novel and inventive in Taiwan, Korea, Japan, Israel, New Zealand, Australia, Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovenia, Sweden and in the UK and Singapore. We have recently filed new patent pending applications on novel uses and enhancements of our technology in the United States, including enhanced mechanisms for our applications, as well as new forms of deployment for our technology. We have been awarded a design patent on 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 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 the United States, China, Hong Kong, Europe, United Kingdom, Singapore, Taiwan, Vietnam, Canada, South Korea, and Japan. We are also pursuing IP protection for further applications of our SteraMist BIT in diverse fields in multiple jurisdictions, such as food decontamination in the US and, in installed systems for the application of iHP for the protection of buildings post outbreak or after a biological attack in the US, China, Europe and Japan. With worldwide attention on the etiology of SARs CoV2 coming from a lab leak, attention on the prevention and control of a leak or mishap should be on the mind of all the biological labs managers around the world. The fact that iHP and our BIT platform can be incorporated in new or existing buildings to create an “immune building” should assist in further lab applications of SteraMist in the biosecurity industry in the future. Our current patents with claims to systems already serve to provide protection for our technology in this area and our on-going pending applications will further enhance the scope of our intellectual property. Initial positive search reports for our filed improvement applicator designs in cell biology may be followed by national stage applications in many countries, such as Australia, Korea, Europe and China.

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 today, we have over two hundred trademarks or trademark applications, (word and/or logo) registered or pending across the globe. TOMI registers marks in eight 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, Class 40 for Chemical Decontamination and Manufacturing Services, and Class 41 for Providing Education Training and information related to biological and bacterial decontamination services. Recently, we have expanded our trademark protection into India.

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Financial Operations Overview

Our financial position as of June 30, 2025 and December 31, 2024, respectively, was as follows:

|  | June 30, 2025 |  |  | December 31, |
|  | (Unaudited) |  |  | 2024 |
Total shareholders’ equity |  | $ | 2,657,000 |  |  | $ | 4,099,000 |
Cash and Cash Equivalents |  | $ | 569,000 |  |  | $ | 665,000 |
Deferred Revenue |  | $ | 719,000 |  |  | $ | 212,000 |
Accounts Receivable, net |  | $ | 1,054,000 |  |  | $ | 1,881,000 |
Inventories, net |  | $ | 3,267,000 |  |  | $ | 3,578,000 |
Prepaid Expenses |  | $ | 254,000 |  |  | $ | 333,000 |
Vendor Deposits |  | $ | 258,000 |  |  | $ | 36,000 |
Current Liabilities - Excluding Deferred Revenue |  | $ | 1,874,000 |  |  | $ | 2,509,000 |
Long-term Liabilities - Convertible Notes, net |  | $ | 2,782,000 |  |  | $ | 2,361,000 |
Long-term Liabilities - Other |  | $ | 444,000 |  |  | $ | 513,000 |
Working Capital |  | $ | 2,810,000 |  |  | $ | 3,772,000 |

During the six months ended June 30, 2025, our debt and liquidity positions were affected by the following:

| - | Net cash used in operations of approximately $463,000.
| - | Net cash used in investing activities of approximately $67,000.
| - | Net cash provided from financing activities of approximately $435,000.

Results of Operations for the Three and Six Months Ended June 30, 2025 Compared to the Three and Six Months Ended June 30, 2024:

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
Revenue, Net |  | $ | 1,031,000 |  |  | $ | 3,013,000 |  |  | $ | (1,982,000 | ) |  | $ | 2,608,000 |  |  | $ | 4,127,000 |  |  | $ | (1,519,000 | )
Gross Profit |  |  | 677,000 |  |  |  | 1,855,000 |  |  |  | (1,178,000 | ) |  |  | 1,629,000 |  |  |  | 2,525,000 |  |  |  | (896,000 | )
Total Operating Expenses |  |  | 1,810,000 |  |  |  | 1,733,000 |  |  |  | 77,000 |  |  |  | 3,516,000 |  |  |  | 3,630,000 |  |  |  | (114,000 | )
Income (Loss) from Operations |  |  | (1,133,000 | ) |  |  | 122,000 |  |  |  | (1,255,000 | ) |  |  | (1,887,000 | ) |  |  | (1,105,000 | ) |  |  | (782,000 | )
Total Other Income (Expense) |  |  | (105,000 | ) |  |  | (92,000 | ) |  |  | (13,000 | ) |  |  | 394,000 |  |  |  | (175,000 | ) |  |  | 569,000 |
Provision for (benefit from) Income Taxes |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net Income (Loss) |  | $ | (1,238,000 | ) |  | $ | 30,000 |  |  |  | (1,268,000 | ) |  | $ | (1,493,000 | ) |  | $ | (1,280,000 | ) |  | $ | (213,000 | )
Basic Net Income (Loss) per share |  | $ | (0.06 | ) |  | $ | 0.00 |  |  | $ | (0.06 | ) |  | $ | (0.07 | ) |  | $ | (0.06 | ) |  | $ | (0.01 | )
Diluted Net Income (Loss) per share |  | $ | (0.06 | ) |  | $ | 0.00 |  |  | $ | (0.06 | ) |  | $ | (0.07 | ) |  | $ | (0.06 | ) |  | $ | (0.01 | )

Revenue

Total revenue for the three months ended June 30, 2025 and 2024, was $1,031,000 and $3,013,000, respectively, representing a decrease of $1,982,000 or 66% compared to the same prior year period. Revenues for the six months ended June 30, 2025 and 2024, were $2,608,000 and $4,127,000, representing a decrease of $1,519,000 or 37% when compared to the same prior year period. The decrease in sales was attributable to delayed capital investment by customers due to economic uncertainty caused by announced and impending tariffs impacting their supply chain.

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Product and Service Revenue

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
SteraMist Product |  | $ | 653,000 |  |  | $ | 2,728,000 |  |  | $ | (2,075,000 | ) |  | $ | 1,653,000 |  |  | $ | 3,471,000 |  |  | $ | (1,818,000 | )
Service and Training |  |  | 378,000 |  |  |  | 285,000 |  |  |  | 93,000 |  |  |  | 955,000 |  |  |  | 656,000 |  |  |  | 299,000 |
Total |  | $ | 1,031,000 |  |  | $ | 3,013,000 |  |  | $ | (1,982,000 | ) |  | $ | 2,608,000 |  |  | $ | 4,127,000 |  |  | $ | (1,519,000 | )

SteraMist Product-based revenues for the three months ended June 30, 2025 and 2024, were $653,000 and $2,728,000, representing a decrease of $2,075,000 or 76% when compared to the same prior year period. For the six months ended June 30, 2025 and 2024, our product-based revenue was $1,653,000 and $3,471,000, respectively, representing a decrease of $1,818,000, or 52% compared to the same prior year period. The lower product revenue was attributable to delayed capital investment by customers, as a result of impending tariffs causing economic uncertainty in their supply chain.

Our service-based revenue for the three months ended June 30, 2025 and 2024, was $378,000 and $285,000, respectively, representing an increase of $93,000 or 33%. For the six months ended June 30, 2025 and 2024, our service-based revenue was $955,000 and $656,000, representing an increase of $299,000 or 46% when compared to the same prior period in 2024. The increase in service revenue was due to increased demand from customers.

Revenue by Geographic Region

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
United States |  | $ | 822,000 |  |  | $ | 2,621,000 |  |  | $ | (1,799,000 | ) |  | $ | 2,014,000 |  |  | $ | 3,283,000 |  |  | $ | (1,269,000 | )
International |  |  | 209,000 |  |  |  | 392,000 |  |  |  | (183,000 | ) |  |  | 594,000 |  |  |  | 844,000 |  |  |  | (250,000 | )
Total |  | $ | 1,031,000 |  |  | $ | 3,013,000 |  |  | $ | (1,982,000 | ) |  | $ | 2,608,000 |  |  | $ | 4,127,000 |  |  | $ | (1,519,000 | )

Our domestic revenue for the three months ended June 30, 2025 and 2024 was $822,000 and $2,621,000, respectively, a decrease of $1,799,000 or 69%, when compared to the same prior year period. For the six months ended June 30, 2025 and 2024, our domestic revenue was $2,014,000 and $3,283,000, representing a decrease of $1,269,000 or 39% when compared to the same prior period in 2024. The lower product revenue was attributable to delayed capital investment by customers, as a result of impending tariffs causing economic uncertainty.

Internationally, our revenue for the three months ended June 30, 2025 and 2024, was $209,000 and $392,000, respectively, representing a decrease of $183,000 or 47% when compared to the same prior year period. For the six months ended June 30, 2025 and 2024, our international revenue was $594,000 and $844,000, representing a decrease of $250,000 or 30% when compared to the same prior period in 2024. The lower product revenue was attributable to delayed capital investment by customers, as a result of impending tariffs causing economic uncertainty.

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Cost of Sales & Gross Profit

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
Cost of Sales |  | $ | 354,000 |  |  | $ | 1,159,000 |  |  | $ | (805,000 | ) |  | $ | 979,000 |  |  | $ | 1,602,000 |  |  | $ | (623,000 | )

Cost of sales was $354,000 and $1,159,000 for the three months ended June 30, 2025 and 2024, respectively, a decrease of $805,000 or 69%, compared to the prior year. Our gross profit as a percentage of sales was 66% compared to 62% in the same prior period, respectively.

Cost of sales was $979,000 and $1,602,000 for the six months ended June 30, 2025 and 2024, respectively, a decrease of $623,000, or 39%, compared to the prior year. Our gross profit as a percentage of sales was 62% compared to 61% in the same prior period, respectively.

The higher gross profit is attributable to the product mix in sales and growth in our SteraMist BIT Solution revenues in the current period.

Professional Fees

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
Professional Fees |  | $ | 184,000 |  |  | $ | 84,000 |  |  | $ | 100,000 |  |  | $ | 403,000 |  |  | $ | 282,000 |  |  | $ | 121,000 |

Professional fees were $184,000 and $84,000 for the three months ended June 30, 2025 and 2024, respectively, an increase of approximately $100,000 in the current year period. Professional fees were $403,000 and $282,000 for the six months ended June 30, 2025 and 2024, respectively, an increase of approximately $121,000 in the current year period. The increase is due to higher filing fees associated with our employee retention tax refunds, additional audit fees with regard to our annual 10K filing, and legal/recruitment fees incurred for the hiring of our new CFO.

Depreciation and Amortization

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
Depreciation and Amortization |  | $ | 69,000 |  |  | $ | 77,000 |  |  | $ | (8,000 | ) |  | $ | 138,000 |  |  | $ | 154,000 |  |  | $ | (16,000 | )

Depreciation and amortization were $69,000 and $77,000 for the three months ended June 30, 2025 and 2024, respectively, representing a decrease of $8,000 or 10%. Depreciation and amortization were $138,000 and $154,000 for the six months ended June 30, 2025 and 2024, respectively, representing a decrease of $16,000, or 10%. The decrease in depreciation expense is due to a lower amount of fixed assets being depreciated in the current year period when compared to the same prior year periods.

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Selling Expenses

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
Selling Expenses |  | $ | 240,000 |  |  | $ | 366,000 |  |  | $ | (126,000 | ) |  | $ | 487,000 |  |  | $ | 655,000 |  |  | $ | (168,000 | )

Selling expenses for the three months ended June 30, 2025 were $240,000, as compared to $366,000 for the quarter ended June 30, 2024, representing a decrease of approximately $126,000 or 34%. Selling expenses for the six months ended June 30, 2025 were $487,000, as compared to $655,000 for the six months ended June 30, 2024, representing a decrease of approximately $168,000 or 26%. The decline in selling expenses is due to a reduced marketing spend in the current year period.

Research and Development

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
Research and Development |  | $ | 84,000 |  |  | $ | 62,000 |  |  | $ | 22,000 |  |  | $ | 129,000 |  |  | $ | 130,000 |  |  | $ | (1,000 | )

Research and development expenses for the three months ended June 30, 2025 were $84,000, as compared to $62,000 for the three months ended June 30, 2024, representing an increase of approximately $22,000 or 35%. The increase in research and development expenses is due to additional costs incurred to maintain the Company’s patent and trademark portfolio in the current year period.

Research and development expenses for the six months ended June 30, 2025 were $129,000, as compared to $130,000 for the six months ended June 30, 2024, representing a decrease of approximately $1,000 or 1%.

Consulting Fees

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
Consulting Fees |  | $ | 63,000 |  |  | $ | 23,000 |  |  | $ | 40,000 |  |  | $ | 166,000 |  |  | $ | 137,000 |  |  | $ | 29,000 |

Consulting fees were $63,000 and $23,000 for the three months ended June 30, 2025 and 2024, respectively, representing an increase of $40,000, in the current period. Consulting fees were $166,000 and $137,000 for the six months ended June 30, 2025 and 2024, respectively, representing an increase of $29,000, or 21%, in the current period. The increase in consulting fees is due to the hiring of additional consultants in the current year period.

General and Administrative Expense

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
General and Administrative |  | $ | 1,169,000 |  |  | $ | 1,121,000 |  |  | $ | 48,000 |  |  | $ | 2,194,000 |  |  | $ | 2,271,000 |  |  | $ | (77,000 | )

General and administrative expenses were $1,169,000 and $1,121,000 for the three months ended June 30, 2025 and 2024, respectively, an increase of $48,000 or 4% in the current period. The increase was primarily attributable to an increase in credit loss expense offset by a decrease in various G&A accounts and equity compensation due to cost-cutting initiatives which were implemented during the current year.

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General and administrative expenses were $2,194,000 and $2,271,000 for the six months ended June 30, 2025 and 2024, respectively, a decrease of $77,000, or 3% in the current period. The decrease was primarily attributable to a decrease in salaries, various G&A accounts, and equity compensation offset by an increase in credit loss expense.

Other Income and Expense

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
Other Income |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 535,000 |  |  | $ | - |  |  | $ | 535,000 |
Interest Income |  |  | 1,000 |  |  |  | 2,000 |  |  |  | (1,000 | ) |  |  | 84,000 |  |  |  | 12,000 |  |  |  | 72,000 |
Interest Expense |  |  | (106,000 | ) |  |  | (93,000 | ) |  |  | (13,000 | ) |  |  | (225,000 | ) |  |  | (187,000 | ) |  |  | (38,000 | )
Other Income (Expense) |  | $ | (105,000 | ) |  | $ | (91,000 | ) |  | $ | (14,000 | ) |  | $ | 394,000 |  |  | $ | (175,000 | ) |  | $ | 569,000 |

Other income was approximately $535,000 and $0 for the six months ended June 30, 2025, and 2024. Other income consisted of employee retention tax credits received in the current year period.

Interest income was approximately $1,000 and $2,000 for the three months ended June 30, 2025, and 2024, respectively. Interest income was approximately $84,000 and $12,000 for the six months ended June 30, 2025, and 2024. The increase for the six months was due to interest income in connection with the employee retention tax credits received in the current year period.

Interest expense was $106,000 and $93,000 for the three months ended June 30, 2025, and 2024, respectively. Interest expense was $225,000 and $187,000 for the six months ended June 30, 2025, and 2024, respectively. The increase in interest expense was due to the issuance of additional convertible notes in the current year periods.

Provision for Income Taxes

|  | For the three months |  |  |  |  |  | For the six months |  |  |  |
|  | ended |  |  |  |  |  | ended |  |  |  |
|  | June 30, |  |  | Change |  |  | June 30, |  |  | Change |
|  | 2025 |  |  | 2024 |  |  | $ |  |  | 2025 |  |  | 2024 |  |  | $ |
Provision for Income Tax Expense (Benefit) |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |

Provision for income tax was $0 for the three and six months ended June 30, 2025 and 2024.

Liquidity and Capital Resources

As of June 30, 2025, we had cash and cash equivalents of approximately $569,000 and working capital of $2,810,000. Our principal capital requirements are to fund operations, invest in research and development and capital equipment, and the continued costs of compliance with public company reporting requirements. We have historically funded our operations through funds generated through operations and debt and equity financing. 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, 2025 and 2024, we incurred losses from operations of ($1,887,000) and ($1,105,000), respectively. Cash used in operations for the six months ended June 30, 2025 and 2024 was ($463,000) and ($1,558,000), respectively.

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A breakdown of our statement of cash flows for the six months ended June 30, 2025 and 2024 is provided below:

|  | For the six months ended June 30, |
|  | 2025 |  |  | 2024 |
Net Cash (Used) in Operating Activities |  | $ | (463,000 | ) |  | $ | (1,558,000 | )
Net Cash (Used) in Investing Activities |  | $ | (67,000 | ) |  | $ | (99,000 | )
Cash Flow Provided By Financing Activities: |  | $ | 435,000 |  |  | $ | 28,000 |

Operating Activities

Cash used in operations for the six months ended June 30, 2025 and 2024 was $463,000 and $1,558,000, respectively. The decrease was primarily attributable to management action on working capital with a focus on accounts receivable and inventory.

Investing Activities

Cash used in investing activities for the six months ended June 30, 2025 and 2024 was $67,000 and $99,000, respectively. The decrease was attributable to patent and trademark costs incurred in the current year period compared to property and equipment purchased in the prior year period.

Financing Activities

Cash provided by financing activities for the six months ended June 30, 2025 and 2024 was $435,000 and $28,000, respectively. The increase is attributable to the proceeds from the issuance of convertible notes in the current year period.

Liquidity

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

| · | ramp up and expansion of our internal sales force and manufacturer’s representatives;
| · | length of our sales cycle;
| · | global and regional response to the outbreak of infectious diseases;
| · | expansion into new territories and markets; and
| · | timing of orders from distributors.

We continue to implement measures to improve financial results and cash flows, including optimizing our product mix, expanding recurring solution sales, and managing overhead. Management expects these actions to support our liquidity needs through 2025.

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

For the six months ended June 30, 2025 and 2024, our net loss was approximately $1,493,000 and $1,280,000, respectively, and the cash used in operations was approximately $463,000 and $1,558,000, respectively. As of June 30, 2025, we had approximately $569,000 of cash and cash equivalents and an accumulated deficit of $55.8 million. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements in this Form 10-Q are issued. While we cannot predict our liquidity position beyond the next twelve months, we are expecting our business opportunities and customer base to continue to expand and grow, which may provide us with additional liquidity to fund our operations. We continue to consider and pursue various financing transactions such as equity and debt offerings, and we expect to raise additional capital through the sale of convertible debt securities as described in more detail below. However, there can be no assurance that we will be successful in raising that additional capital or that such capital, if available, will be on terms that are acceptable to the Company, as our ability to raise capital may be affected by various factors, including general market conditions, volatility of our stock price, investor interests and expectations, and our financial performance.

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On November 7, 2023, we entered into a Securities Purchase Agreement (the “SPA”) with certain accredited investors (collectively, the “Investors”) pursuant to which we agreed to sell and issue to the Investors in a private placement transaction (the “Private Placement”) in one or more closings up to an aggregate principal amount of $5,000,000 (the “Notes”). As of November 7, 2023, we issued and sold an aggregate of $2,600,000 of Notes pursuant to the SPA before deducting the placement agent’s fees and other estimated offering expenses. The initial closing of the Private Placement occurred on November 7, 2023. The Notes are due on the fifth anniversary of the issuance date of the Notes and bear simple interest at a rate of 12% per annum, payable in equal monthly installments. The Notes are convertible into shares of our Common Stock, at the option of the holder, at an initial conversion price of $1.25 per share, which shall not exceed $1.55 per share. In addition, we can require Investors to convert the Notes at the then current conversion price at any time after 90 days from the issue date if the Common Stock has a closing bid price of $1.55 per share or higher on any twenty days within a thirty day period of consecutive trading days, or if a “fundamental change” occurs (as defined in the SPA). The Notes are unsecured and senior to other indebtedness subject to certain exceptions.

During the six months ended June 30, 2025, we entered into securities purchase agreements (the “2025 SPA”) (the “2025 SPA”) with certain accredited investors (collectively, the “Investors”) pursuant to which we sold an aggregate of $435,000 of convertible promissory notes to Investors (the “Note”) in private placement transactions. The 2025 SPA allows us to offer and sell in multiple closings up to an aggregate principal amount of $3,000,000 of Notes. The Notes are due on the fifth anniversary of their issuance and bear interest at a rate of 12% per annum, payable in equal monthly installments. The Notes are convertible at any time into shares of the Company’s common stock, at the option of the holder at a conversion price of $1.25 per share, as adjusted, which shall not exceed $1.55 per share. In addition, the Company can require Investors to convert the Notes at the then current conversion price at any time after 90 days from the issue date if the Common Stock has a closing bid price of $1.55 per share or higher on the Nasdaq Capital Market for any twenty (20) days within a thirty (30) day period of consecutive trading days, or if a “fundamental change” occurs (as defined in the SPA). The Notes are unsecured and senior to other indebtedness of the Company subject to certain exceptions. The offer and sale of the Notes pursuant to the 2025 SPA is not registered under the Securities Act of 1933, as amended (the “Securities Act”), as it is exempt from registration pursuant to Section 4(a)(2) thereof and Rule 506(b) promulgated thereunder. We also entered into registration rights agreements with the Investors pursuant to which we agreed to register the resales of shares of common stock issuable upon conversion of the Notes.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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 estimates as those that are, in management’s view, most important to the portrayal of our financial condition and results of operations and the most demanding of our judgment. We consider the following estimates to be critical to an understanding of our consolidated financial statements and the uncertainties associated with the complex judgments made by us that could impact our results of operations, financial position and cash flows.

Revenue Recognition

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

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We must use judgment to determine: a) the number of performance obligations based on the determination under step (ii) above and whether those performance obligations are distinct from other performance obligations in the contract; b) the transaction price under step (iii) above for each distinct performance obligation identified in step (ii) above; and c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above.

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 resale of our products by dealers and distributors. 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.

Product revenue includes sales from our standard and customized equipment, solutions and accessories sold with our equipment. Revenue is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive in exchange for those products.

Service and training revenue include sales from our high-level decontamination and service engagements, validation of our equipment and technology and customer training. Service revenue is recognized as the agreed upon services are rendered to our customers in an amount that reflects the consideration we expect to receive in exchange for those services.

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

Costs to Obtain a Contract with a Customer

We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling expenses.

Contract Balances

As of June 30, 2025, and December 31, 2024 we had contract balances and unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed in the amounts of $719,235 and $211,724, respectively.

Arrangements with Multiple Performance Obligations

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.

Significant Judgments

Our contracts with customers for products and services often dictate the terms and conditions of when the control of the promised products or services is transferred to the customer and the amount of consideration to be received in exchange for the products and services. We also record an estimated allowance for anticipated product returns.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to allowance for credit losses, inventory, intangible assets, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of our assets and liabilities.

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Accounts Receivable

Accounts receivables are stated at the amount management expects to collect from outstanding balances. The Company generally does not require collateral to support customer receivables. Management assesses the collectability of outstanding customer invoices and maintains an allowance resulting from the expected non-collection of customer receivables. In estimating this reserve, management considers factors such as historical collection experience, customer creditworthiness, specific customer risk, and current and expected general economic conditions For those customers to whom we extend credit, in accordance with the Current Expected Credit Loss (CECL) model, we make a risk-based evaluation at the point of sale which is further reviewed on both an individual and collective (pool) basis during each reporting period based on ASC 326. We are required to estimate and report expected credit losses over the entire life of a financial asset, considering historical data, current conditions, and future forecasts, even if the risk of loss is remote.

We have implemented a policy of reserving credit losses based on our best estimate of the amount of potential credit losses in existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be at risk.

Inventories

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Inventories consist primarily of finished goods. We expense costs to maintain certification to cost of goods sold as incurred.

We review inventory on an ongoing basis, considering factors such as deterioration and obsolescence, and future customer demand. We record an allowance for estimated losses when the facts and circumstances indicate that particular inventories may not be usable or realized when comparing our current inventory levels to anticipated demand for our product

Long-Lived Assets Including Acquired Intangible Assets

We assess long-lived assets for potential impairments at the end of each year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating long-lived assets for impairment, we measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If our long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. We base the calculations of the estimated fair value of our long-lived assets on the income approach. For the income approach, we use an internally developed discounted cash flow model that includes, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. We had no long-lived asset impairment charges for the three and six months ended June 30, 2025 and 2024.

Recently issued accounting pronouncements not yet adopted

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Company will adopt ASU 2023-09 in its fourth quarter of 2025 using a prospective transition method.

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). In January 2025, ASU No. 2025-01 was issued to clarify the effective date for all public business entities. The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements. Early adoption is also permitted. This ASU will likely result in the required additional disclosures being included in our consolidated financial statements once adopted. We are currently evaluating the provisions of this ASU.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management 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 Annual Report on Form 10-K. Our disclosure controls and procedures are intended to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of June 30, 2025, our disclosure controls and procedures were not effective at the reasonable assurance level because we have identified a material weakness in our internal control over financial reporting as discussed below, and such material weakness has not been remediated as of June 30, 2025. Our management has concluded that the financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. In addition, the design of disclosure controls and procedures 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. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has concluded that, as of June 30, 2025, we did not maintain effective controls over the preparation, review, presentation and disclosure of our financial statements. Specifically, we noted the following:

| · | There are limited resources within the finance and accounting departments with sufficient knowledge and experience in applying U.S. GAAP, including but not limited to developing appropriate accounting estimates, reserves, and allowances in a timely manner and to maintain proper segregation of duties; and,
| · | Policies and procedures with respect to the review, supervision and monitoring of our accounting and SEC reporting functions were either not designed and in place or not operating effectively; and,

These control deficiencies, if not remediated, could result in a misstatement to the annual or interim consolidated financial statements which would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that these control deficiencies constitute material weaknesses.

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Remediation Plans

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

| o | We plan to expand the resources within the finance and accounting departments with personnel who possess sufficient knowledge and experience in applying U.S. GAAP, including but not limited to developing appropriate accounting estimates, reserves, and allowances in a timely manner and to maintain proper segregation of duties. In this regard, in May 2025, the Board appointed a new Chief Financial Officer with substantial experience and skills in financial accounting matters;
| o | We will design and implement additional policies and procedures with respect to the review, supervision and monitoring of our accounting and SEC reporting functions to improve the effectiveness of our internal controls and to ensure the timely reporting with the SEC in accordance with GAAP.
| o | We will continue to recruit and train personnel with appropriate internal controls, accounting knowledge and experience commensurate with our accounting and reporting requirements, in addition to engaging and utilizing third party consultants and specialists. Our management also continues to reallocate and align roles and responsibilities within the accounting team to optimize and leverage the skills and experience of various personnel.

We believe the measures described above will remediate the control deficiencies we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our financial reporting controls and procedures.

Changes in Internal Control Over Financial Reporting

During the three months ended June 30, 2025 and except as disclosed above regarding the material weaknesses and related remediation plans, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

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.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

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 the results of our 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.

Item 1A. Risk Factors.

You should carefully consider the information described in the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 2024, as filed with the SEC on April 14, 2025, as amended. There have been no material changes to the risk factors we previously disclosed in our filings with the SEC, including the Annual Report. 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.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.

In June and July 2025, we entered into Securities Purchase Agreements (the “SPA”) with certain accredited investors (collectively, the “Investors”) pursuant to which we agreed to sell and issue to the Investors in a private placement transaction (the “Private Placement”) in one or more closings up to an aggregate principal amount of $3,000,000 of convertible promissory notes, referred to here as the Notes. Pursuant to the SPA and as of June 30, 2025, we sold and issued the Notes to purchase an aggregate of 348,000 shares of common stock at an exercise price of $1.25 per share in exchange for aggregate gross proceeds of $435,000. The securities were issued in private placements in reliance on Section 4(a)(2), and/or Rule 506 of Regulation D of the Securities Act, and since the foregoing issuances did not involve a public offering, the recipient took the securities for investment and not resale, we took appropriate measures to restrict transfer, and the recipient was (a) an “accredited investor”; and/or (b) had access to similar documentation and information as would be required in a Registration Statement under the Securities Act.

The Notes mature and are due on the fifth anniversary of the issuance date in 2030. The Notes bear simple interest at a rate of 12% per annum, payable in equal monthly installments. The Notes are convertible into shares of our Common Stock, at the option of the holder, at a conversion price of $1.25 per share, which shall not exceed $1.55 per share. In addition, we can require Investors to convert the Notes at the then current conversion price at any time after 90 days from the issue date if the Common Stock has a closing bid price of $1.55 per share or higher on any twenty (20) days within a thirty (30) day period of consecutive trading days, or if a “fundamental change” occurs (as defined in the Securities Purchase Agreement). The Notes are unsecured and senior to other indebtedness subject to certain exceptions.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

10b5-1 Arrangements

To the best of the Company’s knowledge during the fiscal quarter ended June 30, 2025, no director or officer (as defined in Rule 16a-1(f) of the Securities Exchange Act) of the Company adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements.

Item 6. Exhibits.

The documents listed in the Exhibit Index of this Form 10-Q are incorporated herein by reference.

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SIGNATURES

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.

| TOMI ENVIRONMENTAL SOLUTIONS, INC.
Date: August 14, 2025 | By: | /s/ HALDEN S. SHANE |
|  | Halden S. Shane |
|  | Chief Executive Officer |
|  | (Principal Executive Officer) |
Date: August 14, 2025 | By: | /s/ DAVID VANSTON |
|  | David Vanston |
|  | Chief Financial Officer |
|  | (Principal Financial Officer and |
|  | Principal Accounting Officer) |

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EXHIBIT INDEX

Exhibit Number |  | Description of Exhibit |  | Form |  | File No. |  | Date |  | Exhibit |  | Filed Herewith
31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  |  |  | X
31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  |  |  | X
32.1# |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |  |  |  |  |  |  |  |  | X
32.2# |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |  |  |  |  |  |  |  |  | X
101.INS |  | XBRL Instance Document |  |  |  |  |  |  |  |  |  | X
101.SCH |  | XBRL Taxonomy Extension Schema |  |  |  |  |  |  |  |  |  | X
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase |  |  |  |  |  |  |  |  |  | X
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase |  |  |  |  |  |  |  |  |  | X
101.LAB |  | XBRL Taxonomy Extension Label Linkbase |  |  |  |  |  |  |  |  |  | X

# 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.

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