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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Dec. 31, 2025
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of TOMI and its wholly owned subsidiary, TOMI Environmental Solutions, Inc., a Nevada corporation. All intercompany accounts and transactions have been eliminated in consolidation. Reclassification of Accounts Certain reclassifications have been made to prior-year comparative financial statements to conform to the current year presentation. These reclassifications had no material effect on previously reported results of operations or financial position. Use of Estimates The preparation of the 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 the 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 includes cash on hand, held at financial institutions and other liquid investments with original maturities of three months or less. At times, these deposits may be in excess of insured limits. At December 31, 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 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.
|  | 2025 |  |  | 2024 |
Gross accounts receivable |  | $ | 1,886,944 |  |  | $ | 4,338,115 |
Less: Allowance for credit losses |  |  | (1,149,947 | ) |  |  | (2,229,977 | )
Less: Allowance for sales returns |  |  | (47,844 | ) |  |  | (227,000 | )
Accounts receivable, net |  | $ | 689,153 |  |  | $ | 1,881,138 |
Movements on credit loss account are shown below:
|  | For the years ended December 31, |
|  | 2025 |  |  | 2024 |
Beginning reserve |  | $ | 2,229,977 |  |  | $ | 1,494,347 |
Credit loss expense |  |  | 267,309 |  |  |  | 1,050,543 |
Write-offs and adjustments |  |  | (1,347,339 | ) |  |  | (314,913 | )
Ending Reserve |  | $ | 1,149,947 |  |  | $ | 2,229,977 |
Long-term trade accounts receivable are principally amounts arising from the sale of goods and services with a contractual maturity date or realization period of greater than one year and are recognized as "Long-Term Accounts Receivable" on our Consolidated Balance Sheet. As of December 31, 2025 and 2024, we had no long-term Accounts Receivable. 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 $500,000 and $1,100,000 as of December 31, 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 lives of the respective leases or service lives of the improvements, whichever is shorter. Leases We recognize a right-of-use (“ROU”) asset and lease liability for all leases with terms of more than 12 months, in accordance with ASC 842. We utilize the short-term lease recognition exemption for all asset classes as part of our on-going accounting under ASC 842. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities. Recognition, measurement and presentation of expenses depend 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. Vendor Concentration The Company is dependent on a limited number of third-party suppliers for the manufacture of its SteraMist® line of equipment and for the supply of its BIT Solution. This dependence results in concentration of both purchasing activity and accounts payable balances among a small number of vendors. As of December 31, 2025, one vendor accounted for approximately 42% of total accounts payable, compared to approximately 60% as of December 31, 2024. This vendor is the Company's primary equipment manufacturer and the decrease in concentration reflects both lower outstanding payable balances and improved payment timing relative to the prior year. For the year ended December 31, 2025, two vendors collectively accounted for approximately 60% of total cost of sales, compared to approximately 67% for the year ended December 31, 2024. The modest decrease in concentration reflects the Company's ongoing efforts to diversify its supplier base, though the Company remains substantially dependent on these vendors for its primary product lines. Any disruption to these relationships could have a material adverse effect on the Company's ability to fulfill customer orders and on its results of operations. See Item 1A, Risk Factors, for further discussion of risks related to the Company's reliance on third-party manufacturers and suppliers. 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 December 31, 2025, and December 31, 2024, our warranty reserves were $10,905 and $30,000, respectively (See Note 14). Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. A significant area of judgment relates to the realization of deferred tax assets, including net operating loss carryforwards and other deductible temporary differences. The Company evaluates the realizability of its deferred tax assets based on available evidence, including historical operating results, projections of future taxable income, and the expected reversal of temporary differences. Based on the Company’s recent history of operating losses, management has concluded that it is more likely than not that its deferred tax assets will not be realized. Accordingly, the Company has recorded a full valuation allowance against its deferred tax assets. The valuation allowance will be maintained until sufficient positive evidence exists to support the realization of these assets. Additional information regarding the Company’s income taxes, including deferred tax assets and net operating loss carryforwards, is included in Note 15– Income Taxes to the consolidated financial statements. Net Loss Per Share Basic net loss per share is computed by dividing our net loss by the weighted average number of shares of common stock outstanding during the period presented. Diluted loss per share is based on the treasury stock method and includes the effect from potential issuance of shares of common stock, such as shares issuable pursuant to the exercise of options and warrants and conversions of preferred stock or debentures. The computation of diluted EPS is similar to the computation of basic EPS except that the numerator may have to adjust for any dividends and income or loss associated with potentially dilutive securities that are assumed to have resulted in the issuance of shares of common stock and the denominator may have to adjust to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued during the period to reflect the potential dilution that could occur from shares of common stock issuable through a contingent shares issuance arrangement, stock options, warrants, or convertible preferred stock. For purposes of determining diluted earnings per common share, the treasury stock method is used for stock options, and warrants, and the if-converted method is used for convertible preferred stock as prescribed in FASB ASC Topic 260. Because of the net loss for the year ended December 31, 2025 and 2024, the impact of including these in our computation of diluted EPS was anti-dilutive. Potentially dilutive securities as of December 31, 2025 consisted of 2,508,000 shares of common stock from convertible debentures, 2,604,388 shares of common stock issuable upon exercise of outstanding warrants, 737,542 shares of common stock issuable upon outstanding options, 66,666 shares of common stock issuable upon vesting of restricted stock units and 63,750 shares of common stock issuable upon conversion of outstanding shares of Preferred A stock (“Convertible Series A Preferred Stock”). Potentially dilutive securities as of December 31, 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 outstanding options and 63,750 shares of common stock issuable upon conversion of outstanding shares of Preferred A stock (“Convertible Series A Preferred Stock”). Options, warrants, RSU’s, preferred stock and shares associated with the conversion of debt to purchase approximately 6.0 million and 5.7 million shares of common stock were outstanding at December 31, 2025 and 2024, respectively, but were excluded from the computation of diluted net loss per share at December 31, 2025 and 2024 due to the anti-dilutive effect on net loss per share.
|  | For the years ended December 31, |
|  | 2025 |  |  | 2024 |
Net loss |  | $ | (3,748,995 | ) |  | $ | (4,476,762 | )
Net loss attributable to common shareholders |  | $ | (3,748,995 | ) |  | $ | (4,476,762 | )
Basic weighted average common shares outstanding |  |  | 20,085,703 |  |  |  | 19,992,592 |
Diluted weighted average common shares outstanding |  |  | 20,085,703 |  |  |  | 19,992,592 |
The following provides a reconciliation of the shares used in calculating the per share amounts for the periods presented:
|  | For the years ended December 31, |
Numerator |  | 2025 |  |  | 2024 |
Net loss |  | $ | (3,748,995 | ) |  | $ | (4,476,762 | )
Denominator: |  |  |  |  |  |  |  |
Basic weighted average common shares outstanding |  |  | 20,085,703 |  |  |  | 19,992,592 |
Effect of dilutive securities |  |  |  |  |  |  |  |
Warrants |  |  | - |  |  |  | - |
Convertible Debt |  |  | - |  |  |  | - |
Options |  |  | - |  |  |  | - |
RSUs |  |  |  |  |  |  |  |
Preferred Stock |  |  | - |  |  |  | - |
Diluted weighted average common shares outstanding |  |  | 20,085,703 |  |  |  | 19,992,592 |
Net loss per common share: |  |  |  |  |  |  |  |
Basic |  | $ | (0.19 | ) |  | $ | (0.22 | )
Diluted |  | $ | (0.19 | ) |  | $ | (0.22 | )
Revenue Recognition We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as we satisfy the performance obligations. We must use judgment to determine: (a) the number of performance obligations and whether they are distinct from one another; (b) the transaction price; and (c) the standalone selling price for each performance obligation for purposes of transaction price allocation. Title and risk of loss generally pass to our customers upon shipment. Shipping and handling costs charged to customers are included in product revenues, and the associated expenses are treated as fulfillment costs included in cost of revenues. Revenues are reported net of sales taxes collected from customers. Product revenue includes sales of our standard and customized equipment, BIT Solution and accessories, recognized upon transfer of control to the customer. Service and training revenue includes high-level decontamination engagements, equipment validation and customer training, recognized as the agreed-upon services are rendered A portion of our revenue is derived from SIS and CES, which may involve multiple performance obligations including equipment supply, installation, validation and ongoing service. For these arrangements, management exercises judgment in identifying distinct performance obligations, allocating the transaction price based on relative standalone selling prices, and determining the point at which control transfers to the customer, and allocating the transaction price based on relative standalone selling prices, when applicable. Delays in project completion or customer acceptance can affect the timing of revenue recognition. We record estimated allowances for sales returns using a specific identification method based on subsequent return activity and historical averages. For the years ended December 31, 2025 and 2024, we recorded allowances of $47,844 and $227,000, respectively. Disaggregation of Revenue The following table presents our revenues disaggregated by revenue source (rounded to nearest thousand). Product and Service Revenue
|  | For the years ended December 31, |  |  |  |
|  | 2025 |  |  | 2024 |  |  | Change |
Product |  | $ | 3,965,000 |  |  | $ | 6,035,000 |  |  | $ | (2,070,000 | )
Service |  |  | 1,671,000 |  |  |  | 1,704,000 |  |  |  | (33,000 | )
Total |  | $ | 5,636,000 |  |  | $ | 7,739,000 |  |  | $ | (2,103,000 | )
Revenue by Geographic Region
|  | For the years ended December 31, |  |  |  |
|  | 2025 |  |  | 2024 |  |  | Change |
United States |  | $ | 4,011,000 |  |  | $ | 6,098,000 |  |  | $ | (2,087,000 | )
International |  |  | 1,625,000 |  |  |  | 1,641,000 |  |  |  | (16,000 | )
Total |  | $ | 5,636,000 |  |  | $ | 7,739,000 |  |  | $ | (2,103,000 | )
Costs to Obtain a Contract with a Customer We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. We generally expense sales commissions when incurred because the amortization period would have been one year or less. Contract Balances As of December 31, 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 $424,032 and $211,724 respectively.
|  | As of December 31, |
|  | 2025 |  |  | 2024 |
Balance, beginning of year |  | $ | 211,724 |  |  | $ | - |
Deposits Received |  |  | 1,991,611 |  |  |  | 1,225,734 |
Deposits applied to Revenue |  |  | (1,779,303 | ) |  |  | (1,014,010 | )
Balance, end of year |  | $ | 424,032 |  |  | $ | 211,724 |
Equity Compensation Expense We account for equity compensation expense in accordance with FASB ASC 718, “Compensation—Stock Compensation.” Under the provisions of FASB ASC 718, equity compensation expense is estimated at the grant date based on the award’s fair value. The valuation methodology used to determine the fair value of options and warrants issued as compensation during the period is the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The expected term of the Company’s warrants has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” warrants. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its common stock, par value $0.01 (the “Common Stock”) and does not intend to pay dividends on its Common Stock in the foreseeable future. The expected forfeiture rate is estimated based on management’s best assessment. On July 7, 2017, our shareholders approved the Company’s Amended and Restated 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan authorizes the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and performance units/shares. 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. For awards of restricted stock units ("RSUs"), the fair value is determined based on the closing market price of our Common Stock on the grant date. Compensation expense for RSUs is recognized on a straight-line basis over the requisite service (vesting) period. During the year ended December 31, 2025, we granted 100,000 RSUs to Mr. David Vanston, our Chief Financial Officer, under the 2016 Equity Incentive Plan, with a grant date fair value of $0.9983 per unit. The RSUs vest in three equal installments: 33,334 shares vested immediately upon the grant date of October 6, 2025; 33,333 shares vest on May 30, 2026; and 33,333 shares vest on May 30, 2027. As of December 31, 2025, unrecognized stock-based compensation expense related to unvested RSUs was approximately $66,553, which will be recognized over the remaining vesting period through May 30, 2027. Subsequent to December 31, 2025, we issued 33,334 shares of our Common Stock to Mr. Vanston representing the first vesting installment (see Note 10). For the years ended December 31, 2025 and 2024, we issued 60,000 and 60,000 shares of common stock and granted 100,000 RSUs, respectively, out of the 2016 Plan (See Note 10). 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 years ended December 31, 2025 and 2024. Advertising and Promotional Expenses We expense advertising costs in the period in which they are incurred. Advertising and promotional expenses included in selling expenses for the years ended December 31, 2025 and 2024 were approximately $114,000 and $221,000, respectively. Research and Development Expenses We expense research and development expenses in the period in which they are incurred. For the years ended December 31, 2025 and 2024, research and development expenses were approximately $290,000 and $291,000, 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 years ended December 31, 2025 and 2024, our net loss was approximately $3,749,000 and $4,477,000, respectively, and the cash used in operations was approximately $1,197,000 and $1,440,000, respectively. As of December 31, 2025, we had approximately $88,000 in cash and cash equivalents, working capital of approximately $1.0 million, total stockholders' equity of $588,504, and an accumulated deficit of $58.1 million. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. The consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business; no adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we not continue as a going concern. Management's Plan to Address Going Concern Equity Line of Credit and Shelf Registration Statement In November 2025, we entered into a $20 million Equity Line of Credit ("ELOC") with Hudson Global Ventures, LLC. Our Form S-3 shelf registration statement became effective on December 8, 2025, under which the Company is registered to offer and sell up to $50,000,000 of securities from time to time. Under the ELOC, we may, at our sole discretion, draw down between $25,000 and $2,000,000 per draw, subject to applicable exchange caps. Subsequent to December 31, 2025, we made our first draw under the ELOC on February 25, 2026, issuing 180,000 shares of Common Stock at $0.5229 per share for gross proceeds of $94,130. Management believes this facility provides meaningful near-term liquidity, with capacity to provide up to approximately $4 million in the short term, subject to market conditions. Further details are set out in Note 10 to these consolidated financial statements. Capital Markets Access Our effective Form S-3 shelf registration statement provides a registered platform to raise up to $50,000,000 of securities from time to time. We have engaged Bancroft Capital as an investment banking advisor to explore additional financing opportunities, including equity and equity-linked transactions with existing and new investors. Convertible Note Management As of December 31, 2025, we had $3,135,000 in total convertible note principal outstanding, with a net carrying value of $2,912,000 after amortized debt issuance costs. We are evaluating options to reduce our outstanding convertible note obligations, including potential conversion into equity or repayment using proceeds from the Hudson Global equity line, either of which would reduce total debt and improve stockholders' equity. Further details of our convertible notes are set out in Note 9 to these consolidated financial statements. Pipeline Conversion to Revenue As of December 31, 2025, we had ten active SIS and CES integration projects with a combined contract value of approximately $3 million, including a $500,000 signed purchase order from a global biopharmaceutical leader received in December 2025. Our broader commercial sales pipeline of management-tracked opportunities exceeded $18 million at year-end, with quoted opportunities of approximately $11 million in progress. These figures represent potential future revenue and are not committed orders or guarantees of future performance. Conversion of this pipeline is a primary driver of our 2026 liquidity plan. Our sales backlog grew during 2025 to approximately $1.8 million, reflecting improved visibility into near-term revenue conversion and continued contribution from our recurring consumables and service revenue base. Cost Management We reduced total operating expenses by $731,000, or 10%, in 2025. We continue to actively manage controllable costs while preserving the technical and commercial capacity required to execute on our pipeline. Customer Deposit Policy Our customer deposit policy, implemented during 2025, requires deposits on equipment orders ahead of fulfilment. This policy reduces working capital exposure and is expected to generate incremental operating cash flow benefits in 2026 as it becomes fully embedded across our order intake process. While management believes the actions described above provide a reasonable basis to address the going concern conditions, there can be no assurance that we will successfully execute this plan, that our pipeline will convert to revenue on the anticipated timeline, or that additional capital will be available on terms acceptable to us. If we are unable to execute this plan, we may be required to delay, reduce, or eliminate certain operations, which could materially adversely affect our business, financial condition, and results of operations. Nasdaq Listing Deficiencies On November 17, 2025, we received a deficiency letter from the Listing Qualifications Department (the "Staff") of the Nasdaq Stock Market ("Nasdaq") notifying us that, for the preceding 30 consecutive business days, the closing bid price for our common stock, par value $0.01 per share (the "Common Stock"), was below the minimum $1.00 per share requirement for continued inclusion on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the "Bid Price Requirement"). In accordance with Nasdaq rules, we have been provided an initial period of 180 calendar days, or until May 18, 2026 (the "Compliance Date"), to regain compliance with the Bid Price Requirement. As of the date of this filing, approximately seven weeks remain in the 180-day compliance period. We are actively monitoring our stock price and evaluating available options to regain compliance, including a potential reverse stock split, subject to shareholder approval. There is no guarantee that we will be able to regain compliance with the Bid Price Requirement by the Compliance Date, and failure to do so may subject us to delisting proceedings by Nasdaq. Additionally, as of December 31, 2025, our total stockholders' equity of $588,504 is below the $2,500,000 minimum required under Nasdaq Listing Rule 5550(b)(1). On November 21, 2025, we received a deficiency letter from the Listing Qualifications Department (the "Staff") of the Nasdaq Stock Market notifying us that, based on our Form 10-Q for the period ended September 30, 2025, which reported stockholders' equity of $2,206,482, we no longer comply with the minimum stockholders' equity requirement for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(1), and that we do not meet the alternatives of market value of listed securities or net income from continuing operations. We submitted a compliance plan within the required 45-day period and Nasdaq has accepted our plan, granting us an extension of up to 180 calendar days from November 21, 2025, or until May 20, 2026, to evidence compliance. Both deficiencies are subject to concurrent review by Nasdaq. There is no guarantee that we will be able to regain compliance with either requirement within the applicable timeframes, and failure to do so may subject us to delisting proceedings by Nasdaq. Recent Accounting Pronouncements Recently issued accounting pronouncements not yet adopted In November 2024, FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). In January 2025, ASU No. 2025-01 was issued to clarify the effective date for all public business entities. The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements. Early adoption is also permitted. This ASU will likely result in the required additional disclosures being included in our consolidated financial statements, once adopted. We are currently evaluating the provisions of this ASU. In July 2025, FASB issued ASU No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments in this update provide a practical expedient permitting an entity to assume that conditions at the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current classified accounts receivable and contract assets. This update is effective for annual periods beginning after December 15, 2025, including interim periods within those fiscal years. Adoption of this ASU can be applied prospectively for reporting periods after its effective date. Early adoption is permitted. We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements. In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The ASU clarifies interim disclosure requirements and the applicability of Topic 270. The objective of the amendments is to provide further clarity about the current interim disclosure requirements. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Adoption of this ASU can be applied either a prospective or a retrospective approach. Early adoption is permitted. We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements. In December 2025, the FASB issued ASU No. 2025-12, Codification Improvements. The ASU addresses thirty-three items, representing the changes to the Codification that (1) clarify, (2) correct errors, or (3) make minor improvements. Generally, the amendments in this Update are not intended to result in significant changes for most entities. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2026. The adoption method of this ASU may vary, on an issue-by-issue basis. Early adoption is permitted. We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements. Recently adopted accounting pronouncements In December 2023, FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Company adopted ASU 2023-09 in the fourth quarter of 2025 using a prospective transition method. On July 4, 2025, the U.S. H.R.1, an act to provide for reconciliation pursuant to title II of H. Con. Res. 14. (the “OBBBA”) was enacted. The OBBBA introduces multiple tax law and other legislative changes, including modifications to income tax provisions such as domestic research and development expenses, capital expenditures, and U.S. taxation of international earnings; the repeal or acceleration of the sunset of certain tax credits under the 2022 Inflation Reduction Act and elimination of certain penalties for violations of certain regulatory credit programs. We have recognized the effects of the OBBBA provisions in our financial results to the extent they are applicable to the year ended December 31, 2025. We will continue to evaluate the impact of these provisions on our 2026 and subsequent consolidated financial statements.

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