TOMI Environmental Solutions, Inc. - Annual Report: 2020 (Form 10-K)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2020
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)
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FLORIDA
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59-1947988
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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8430 Spires Way
Frederick, Maryland
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21701
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (800)
525-1698
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
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Common Stock, $0.01
par
value per share
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(Title of class)
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Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Yes
☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes
☐ No ☒
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 and posted on its corporate Web site, if
any, 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 and post such
files). Yes ☒
No ☐
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or 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:
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Large Accelerated
Filer ☐
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Accelerated
Filer ☐
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Non-Accelerated
Filer ☐
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Smaller Reporting
Company ☒
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Emerging Growth
Company ☐
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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 Act). Yes
☐ No ☒
As
of June 30, 2020, the last business day of the registrant’s
most recently completed second fiscal quarter, the aggregate market
value of the common stock held by non-affiliates of the registrant
was approximately $104,219,332, based upon the closing price of the
registrant’s common stock as reported on the OTCQB
Marketplace on such date.
As of March
29, 2021,
the registrant had 16,811,513 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TOMI ENVIRONMENTAL SOLUTIONS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
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PART I
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PART II
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PART III
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PART IV
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54
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55
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F-1
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FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended (the “Securities Act”), and Section
21E of the Securities Exchange Act of 1934, as amended (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 Annual
Report on Form 10-K, except for historical information, may be
deemed to be forward-looking statements. You can generally identify
forward-looking statements as statements containing the words
“will,” “would,” “believe,”
“expect,” “estimate,”
“anticipate,” “intend,”
“assume,” “can,” “could,”
“plan,” “predict,” “should” or
the negative or other variations thereof or comparable terminology
are intended to identify forward-looking statements. In addition,
any statements that refer to projections of our future financial
performance, trends in our businesses, or other characterizations
of future events or circumstances are forward-looking
statements.
The
forward-looking statements included herein are based on current
expectations of our management based on available information and
involve a number of risks and uncertainties, all of which are
difficult or impossible to predict accurately and many of which are
beyond our control. As such, our actual results could differ
materially and adversely from those expressed in any
forward-looking statements as a result of various factors, some of
which are listed under the section “Risk Factors,”
Item 1A of this Annual Report on Form 10-K. Readers should
carefully review these risks, as well as the additional risks
described in other documents we file from time to time with the
Securities and Exchange Commission. In light of the significant
risks and uncertainties inherent in the forward-looking information
included herein, the inclusion of such information should not be
regarded as a representation by us or any other person that such
results will be achieved, and readers are cautioned not to place
undue reliance on such forward-looking information. Except as
required by law, we undertake no obligation to revise the
forward-looking statements contained herein to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
PART I
Item 1.
BUSINESS
Overview
TOMI Environmental Solutions, Inc.
(“TOMI”, “we” and “our”) is a
global bacteria decontamination and infectious disease control
company, providing environmental solutions for indoor surface
decontamination through the manufacturing, sales, service and
licensing of our SteraMist®
brand of products, including
SteraMist®
BIT™,
a low percentage (7.8%) hydrogen peroxide-based fog or mist that
uses Binary Ionization Technology (BIT™).
SteraMist®
is a patented technology that produces
ionized Hydrogen Peroxide (iHP™)
using cold plasma science created under a grant by
the United
States Defense Advanced Research Projects Agency
(DARPA). Our EPA registered
BIT™
Solution is composed of a low
concentration of hydrogen peroxide converted to
iHP™
after passing the trade secret blended
solution, including its sole active ingredient of 7.8% hydrogen
peroxide, through an atmospheric cold plasma arc. The newly formed
iHP™
fog and mist consists of submicron to
3-micron radical particles that are carried throughout the
treatment area in a fog or mist moving with the same velocity and
characteristics of a gas. This allows the ionized hydrogen peroxide
fog or mist to affect all surfaces and air space throughout the
targeted treatment area, over, above and beyond the ability of
manual cleaning processes. iHP™
damages pathogenic organisms through
the oxidation of proteins, carbohydrates, and
lipids. SteraMist®
no-touch disinfection and or
decontamination treat areas mechanically, causing cellular
disruptions and/or dysfunctions resulting in a 6-log (99.9999%) and
greater kill or inactivation of all pathogens in the treatment
area.
Under the Federal Insecticide, Fungicide, and
Rodenticide Act (“FIFRA”), we were required to
register with the EPA and certain state regulatory authorities as a
seller of disinfectants. In June 2015, SteraMist®
BIT™
was registered with the EPA as a
hospital-healthcare disinfectant and general broad-spectrum surface
disinfectant for use as a misting/fogging agent.
SteraMist®
BIT™
now holds EPA registrations (#
90150-2) for mold control, and air and surface remediation (#
90150-1). In February 2016, we expanded our label with the EPA to
include Clostridium difficile spores and MRSA, as well as the
influenza virus h1n1, which
we believe has better positioned us to
penetrate all industries including the biodefense and healthcare
industry. In August 2017, our EPA label was further expanded to
include efficacy against Salmonella and Norovirus. As of January
27, 2017, our technology is one of 53 of the EPA’s
“Registered Antimicrobial Products Effective against
Clostridium difficile Spores”, as published on the EPA’s K
List. Further, in December 2017, SteraMist®
was included in the EPA’s list G
(Norovirus), L (Ebola) and M (Avian Flu). In March 2020, our EPA
label was further amended to include Emerging Viral Pathogens
claims, thus meeting the criteria against Enveloped viruses and
Large Non-enveloped viruses and included on List N (Emerging Viral
Pathogens including SARS-CoV-2).
1
SteraMist®
Binary Ionization Technology®
allows a facility to have a mechanical method of cleaning using a
Hospital-HealthCare disinfectant which is an EPA registered tool
and solution to replace flawed manual cleaning technology, upgrade
existing protocols, and limit liability in a facility when it comes
to resistant infectious pathogens. SteraMist®
BIT™
is the first EPA registered solution
and system combination on the market. We maintain this
registration in 50 states, Canada, and approximately thirty-five
(35) other countries.
Our Technology
BIT™
was developed in response to
Amerithrax, the weaponized anthrax spore attacks that occurred in
Washington, D.C. shortly after the September 11, 2001 U.S.
terrorist attacks. BIT™
is a patented process that aerosolizes
and activates a low concentration hydrogen peroxide solution,
producing a fine aqueous mist (0.3-3 um in diameter) that contains
a high concentration of Reactive Oxidative Species
(“ROS”), mostly hydroxyl radicals (“OH”).
ROS cause damage to pathogenic and resistant organisms, such as
bacteria, bacteria spores, viruses, mold spores, other fungi and
yeast, via oxidation of proteins carbohydrates, lipids and
rendering the building blocks of nature’s amino acids, DNA
and RNA inactive - leading to cellular death, disruption and/or
dysfunction.
Testing detailed by the Defense Advanced Research
Projects Agency (DARPA) of the U.S. Department of Defense
demonstrated these hydroxyl radicals aggressively break the double
bonds and other bonds in bacterial spores, biological and chemical
warfare agents and neutralize their threat while producing nontoxic
by-products. The unique alteration of the chemistry of our solution
occurs after our EPA-registered solution passes through an
atmospheric cold plasma arc, which causes the breaking of the
double bond of a hydrogen peroxide molecule, the net result -
our
.OH hydroxyl radical. This
hydroxyl radical is known as iHP™.
This patented process allows these hydroxyl radicals to exist in
high concentrations without rapidly recombining and losing their
reactivity, while seeking to attach with any and all surfaces
within the proximity of TOMI’s
mist.
The sole active ingredient of
BIT™
is a low percentage (7.8%) Hydrogen
Peroxide and is represented by the TOMI™
SteraMist®
brand of products. Our technology
produces a germ-killing aerosol that moves throughout a space like
a gas. Our technology is able to efficiently and effectively kill
pathogenic and resistant organisms in the air and on the surfaces
without damaging delicate equipment or computers, and the only
by-product is oxygen and water in the form of
humidity.
Each and every SteraMist®
product utilizes the innovative and
easy-to-use power of Binary Ionization Technology which is
designed to be easily incorporated
into any industry’s current cleaning procedures. No wipe, no
rinse, no residue, non-corrosive, high level efficacy, quick
turnaround time, superior material compatibility (spray direct on
sensitive equipment), and a submicron particle allows the mist/fog
to reach every area being treated regardless of what is in the
space.
SteraMist®
is being used throughout the world and
has been demonstrated to reduce certain problem organisms, such as
bacterial spores, Vancomycin-resistant Enterococcus
(“VRE”), Clostridium difficile, Middle East Respiratory Syndrome
(“MERS”), Ebola (“Ebola”) and SARS CoV-2
the virus that causes COVID. In U.S. hospitals where
SteraMist®
is being used for terminal cleaning,
evidence has demonstrated a reduction of Clostridium
difficile
spore rates.
SteraMist®
has reduced outbreaks of nosocomial
MDRO’s (Klebsiella pneumoniae,
AB, pseudomonas aeruginosa) at large hospital to small clinics and has
contributed to the control of MERS, Ebola and COVID throughout the
world.
Although
a technology developed to combat the hardest to kill pathogens and
neutralize the most difficult chemical agents, TOMI’s
customer base fought at the front lines of combating the current
pandemic of Coronavirus or SARS CoV-2 in 2020.
Our technology passed a sanctioned test showing
six-log reduction against Geobacillus stearothermophilus.
Geobacillus stearothermophilus
is the laboratory testing gold
standard and is commonly used as a challenge organism for
sterilization validation studies and periodic check of
sterilization cycles. BIT™
has also been shown to effectively
decontaminate weaponized biological agents, including weaponized
anthrax, chemical agents such as VX (an extremely toxic
organophosphate) and sulfur mustard (otherwise known as mustard
gas) when applied using properly developed international
protocols.
All our SteraMist® products
are fully validated to comply with good manufacturing practice
standards, have received Conformité Européene
(“CE”) marks in the European Economic
Area (“EEA”) and
are approved by Underwriters Laboratory (“UL”). Our
solution is manufactured at an EPA-registered solution blender and
our product performance is supported by good laboratory practice
efficacy data for Staphylococcus aureus, Pseudomonas aeruginosa, Salmonella, Norovirus, SARS CoV-2, mold spores,
MRSA, h1n1, Geobacillus stearothermophilus
and Clostridium difficile spores.
2
Our Products and Services
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SteraMist®
Surface
Unit
Our SteraMist®
Surface Unit is a fully portable,
handheld, point and spray disinfection/decontamination system
intended to provide quick turnover of any affected space. The
single applicator unit enables disinfection of all surfaces,
including high touch, sensitive equipment and electronics. An
application time of only five seconds per square foot with no wet
contact time allows for safe re-entering of the space within
minutes after application.
Our SteraMist®
Surface Unit is lightweight, easy to
transport and capable of achieving reliable
disinfection/decontamination results, as it is easily incorporated
into existing cleaning procedures and protocols. The
SteraMist®
Surface Unit does not require heating,
ventilation or air conditioning systems to be shut down. Further,
its touchless application (no wipe, no rinse) reduces risk of
cross-contamination between treated surfaces.
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SteraMist®
Environment
System
Our SteraMist®
Environment System is a transportable,
remotely controlled system that provides complete room
disinfection/decontamination of a sealed space up to 103.8
m3
(3,663 ft3)
in just under 45 minutes (application and dwell time).
Individually, each remote applicator can be used to treat a space
of approximately 34.6 m3
(1,221 ft3).
Injection times are based on individual room size and number of
applicators. Multiple systems can be used simultaneously to
accommodate larger or multiple spaces with fast application and
minimal down time. Our hybrid technology applicators can be used in
both manual and/or fogging modes.
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The
SteraMist®
Total
Disinfection Cart
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SteraMist®
Select
Surface Unit
Our Select Unit was designed to meet the needs of
our customers who have smaller enclosures in need of
decontamination. This unit is lightweight and easy to transport
with the added ability to function between a lower flow operation
and standard operation, such as the SteraMist®
Surface Unit. The user can adjust air
flow, adjust pump fluid flow, set the programmable timer for
automatic runs, modify spray/dwell times and number of cycles, and
is equipped with start and stop buttons. It is ideal for the
decontamination of Laminar flow cabinets, Biosafety cabinets,
Isolators and other small and medium size laboratory and research
equipment.
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Stainless Steel 90 Degree Applicator
TOMI’s
standard applicator was converted to a 90 degree and manufactured
using 316 stainless steel, the ideal applicator to accompany the
Select Surface Unit, affording many 90-degree build-in
opportunities. This applicator is purchased with a flange for ease
of installation either permanently or
semi-permanently.
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iHP™
Plasma
Decontamination Chamber
Our patented cold plasma technology can be
integrated with a chamber or cage washer by leading manufacturers.
Current examples are Lynx, BetterBuilt and Allentown. Our custom
generator/chamber is built into a stainless-steel single door panel
and is permanently mounted next to the chamber or washer, while a
SteraMist®
Applicator or 90 Degree Applicator is
permanently or semi-permanently mounted in the enclosure. This
SteraMist®
product line includes but is not
limited to an internally mounted air compressor, regulator for air
pressure adjustment, E-stop button, lever power switch, data
logging functions, and multiple dry contract outputs determined by
the needs of the customer.
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SteraMist®
Custom
Engineered System (CES)
The SteraMist®
permanent installation is perfect for
any room that requires routine automated disinfection
decontamination. The CES is an automated system that is plumbed
utilizing the facilities’ existing HVAC system. This involves
permanently installing SteraMist®
applicators within the designated
space to achieve maximum results. The generator and Programmable
Logic Control (“PLC)” are housed in a National
Electrical Manufacturers Association (“NEMA)” enclosure in a central remote
location. The entire system can be developed for multiple rooms and
various specifications, controlled remotely through the NEMA
interface. The status of the decontamination cycle is monitored
with indicators and can be integrated into a Supervisory Control
and Data Acquisition (“SCADA)” monitoring board. The
system is now available with a scale to measure the use of BIT
Solution for a customer’s ease of reordering our consumable
and comes in a variety of drum sizes. In addition, this product
includes a new upgrade of 90-degree rotating applicators providing
even faster equal dispersion of the iHP™
fog.
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iHP™
Corporate
Service Decontamination
TOMI
offers full room, equipment, facility, and emergency disinfection
and decontamination services. Our goal is to give our customers
quality control by reducing bioburden and eliminate the potential
for costly microbial contamination in the Life Sciences and Food
Safety industries. Single and routine services are provided to TOMI
customers to coincide with maintenance, mandatory facility
shutdowns, or to control a specific threat.
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Industries & Market Segments
All
the above product offerings help our customers create a healthier
world by providing them a significant opportunity to help reduce
the spread of Community Associated Infections
(“CAI’s”) and Healthcare-Acquired Infections
(“HAI’s”) and the most lethal of pathogens
including our recent SARS CoV-2 pandemic and future
pandemics.
SteraMist®
and TOMI’s related service
platforms are currently being used in a broad spectrum of
industries and has the ability to fit into any cleaning protocol.
We have categorized these industries into five (5) divisions:
Hospital-HealthCare, Life Sciences, TOMI Service Network (TSN),
Food Safety, and our Commercial division.
Hospital-HealthCare.
Our SteraMist®
Surface Unit and
SteraMist®
Total Disinfection Cart are solutions
to aid our Hospital-HealthCare customers in providing the quality
of care and safety they provide to their patients by disinfecting
patient and operating rooms, pharmacies, ambulances, and emergency
environments in a hospital or healthcare facility. Our team of
technicians and representatives train, maintain, and troubleshoot
capital equipment throughout the world for our Hospital-HealthCare
customers.
We continue to penetrate the hospital-healthcare
market segment, and under the United States Patient Protection and
Affordable Care Act’s (also known as the Affordable Care Act
or ACA) Hospital Readmissions Reduction Program, hospitals that
have high rates of infections and HAIs are facing significant
financial penalties. Our SteraMist®
BIT™
technology has proven to reduce the
transference spread of infections leading to an overall reduction
in the number of patients being infected as a result of the
historic poor manual cleaning of these patient rooms, infectious
disease rooms and operatory suites, with a corresponding return on
investment to the hospital of up to 20-to-1 in the first
year.
Life
Sciences. Our
SteraMist®
line of products is a decontamination
solution to use sites in this industry, specifically pharmaceutical
(compounding and manufacturing), vivariums, research universities,
BSLs (biological safety labs) 1, 2, 3 and 4 level, BSC’s
(biological safety chambers), isolators, cage washers, and
cleanrooms. With proper implementation of
SteraMist®,
all facilities can reduce the risk of infectious as well as
potentially infectious agents and/or materials, which facilities
such as these handle on a routine basis.
There are many requirements and restrictions on
the type of decontamination agents our Life Sciences customers may
use to prevent these risks and remediate adverse incidents. In
light of these regulations, our rapid deployment of our effective
iHP™
aerosolized mist is the solution to
lower risks, reduce damage to expensive laboratory equipment and
furniture, eliminate other labor intense procedures, and perform
decontamination clean-up in these spaces quickly, less caustically,
requiring no wipe and with no residue. By using iHP technology
these most important facilities are able to perform more
experiments a year due to the effective quick treatment that iHP
offers.
Our team of technicians and representatives train,
maintain, and troubleshoot capital equipment globally for our Life
Sciences customers. Further, our iHP™
Corporate Service decontamination team
provides routine and emergency treatment. TOMI’s
iHP™
service team also does commissioning
and decommissioning of facilities equipment or full complete space
decontamination for new and existing customers.
The TOMI
Service Network. The TSN, has
allowed us to enhance our corporate service division by creating a
multi-nation-wide network composed of existing, full-service
specialists. Since the launch of TSN, we have added two hundred
(200) service partner companies across the United States and
Canada. These are professional first responders that specialize
within the mold remediation, hurricane and tornado response and
other mitigation fields, biohazard specialists including forensic
restoration specialists.
5
These professional servicing specialists (TSN partners) focus their
businesses in the commercial and residential space. Our team of
customer experience managers and our training department maintains
and troubleshoots capital equipment for these individuals with the
goal of implementing servicing procedures and protocols throughout
the United States and Canada for our TSN network partners. Members
are provided access to 24/7 support in marketing their iHP service
divisions and landing webpage connected to
tomimist.com.
Food Safety
Industry. SteraMist®
aerosolizing cold plasma technology is
an effective decontaminant in the food safety industry. According
to the CDC, 80 million people per year in the United States
contract, and 5,000 people die from, food poisoning or other
food-related illnesses. Current food safety cleaning techniques
involve time intensive processes, which can reduce food
manufacturers’ profit. Our iHP™
degrades into only harmless water
(humidity) and oxygen. We have applied for approval from the United
States Food and Drug Administration (the “FDA”) and the
United States Department of Agriculture (the “USDA”),
when approved we anticipate that our solution can be applied
directly to all foods. Currently we use
SteraMist®
on food packing, processing and
storage equipment as SteraMist®
is safe for use on electronics and
kitchenware, along with high touch surfaces where most pathogens
are found (such as phones, computers and kitchen
appliances). We believe that SteraMist®
could be useful for decontamination at
all phases of food production, from the
farm, slaughterhouse, packaging and canning facilities,
food storage locations to the transportation of food and to the
restaurants and grocery stores.
Commercial.
TOMI commercial division addresses the
viral pathogens threat to everyday operations. We bring powerful
disinfection and decontamination to a wide array of industries with
computability in endless use sites, from large-scale land, sea, and
air transportation to county and state emergency facilities to
retail and educational facilities. Our commercial customers have
the goal to keep employees and first responders healthy while
maintaining operations.
Homeland defense and border protection is a
subspecialty of our commercial division.
Countries around the world, including
the United States, need to protect their borders and cities against
a potential terrorist attack. Our SteraMist®
line of products will give
governmental bodies an added tool in their arsenal to mitigate the
risk of a weaponized biological and chemical attack. In addition,
SteraMist®
could assist in mitigating the spread
of emerging pandemic viruses, including strains of Ebola, MERS,
MLAV (filovirus), and influenza virus subtypes like h1n1, h5n1,
h7n9 and h10n8. Our SteraMist®
line of products may assist border
patrol agents in controlling the spread of infectious disease
introduced by foreign individuals by decontaminating interview
rooms, containment rooms, holding cells and quarantine areas after
a potential infected carrier’s condition either improves or
the carrier dies.
INFORMATION WITH RESPECT TO OUR BUSINESS IN GENERAL
Manufacturing
We outsource the manufacturing and blending of our
SteraMist®
line of equipment and
BIT™
Solution. Our
SteraMist®
equipment is manufactured by two (2)
ISO9001 registered companies with facilities in Pennsylvania, New
York, New Jersey, and Australia.
Our
solution is blended by an EPA approved blender; our blend includes
one (1) active ingredient, 7.8% Hydrogen Peroxide.
TOMI maintains sole source distribution of all the
SteraMist®
product lines, including our
BIT™
Solution. Neither our manufacturer or
chemical blender may make modifications to the manufacturing or
blending of our products without our request or consent in written
format. TOMI maintains all creative control throughout the design
and manufacturing process, which includes research &
development through final product fabrication.
Intellectual Property
Our
success depends in part upon our ability to obtain and maintain
proprietary protection for our products and technologies. We
protect our technology and products by, among other means,
obtaining United States and foreign patents. There can be no
assurance, however, that any patent will provide adequate
protection for the technology, system, product, service or process
it covers. In addition, the process of obtaining and protecting
patents can be long and expensive. We also rely upon trade secrets,
technical know-how, and continuing technological innovation to
develop and maintain our competitive position.
6
As part of our intellectual property protection
strategy, we have registered our BIT™
solution with the Environmental
Protection Agency (“EPA”), all fifty (50) states in the
United States, and multiple countries worldwide. We have received
Conformité Européene (“CE”) marks in the
European Economic Area (“EEA”) and are approved by
Underwriters Laboratory (“UL”).
Our
portfolio includes more than twenty (20) Utility
Patent applications worldwide for both method and
system claims on SteraMist® BIT™,
either published or undergoing prosecution. Most
recently, in November 2020, we were granted utility
patents in Australia and Israel for our
SteraMist® BIT™ technology. In
the recent past, we have obtained two related United States utility
patents giving us protection of our technology until the year 2038,
and we are pursuing further claims to additional capabilities in
on-going United States and worldwide patent applications. In
May 2020, we filed a PCT application for further additional
applications of SteraMist® BIT™ which
were determined to be novel and inventive by the international
search authority.
Further
in 2020, we submitted utility patents in multiple
countries which are all in the national stage for review under
the patent prosecution highway for claims found novel and inventive
by the international search authority. Once these are received, we
will hold international acceptance for the inherited patents and
our newly received patents. During 2020, we were 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
thirty-two (32) separate design patents for our: Decontamination
Chamber(s), Decontamination Applicator, Decontamination Cart,
Applicator, and Surface Mounted Applicator 90-Degree Device.
These patents are published around the world, including but not
limited to United States, China, Hong Kong, Europe, United Kingdom,
Singapore, Taiwan, Vietnam, Canada, South Korea, and
Japan.
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 March 1,
2021, we held a total of one hundred seventy-eight
(178) trademarks (word and logo) registered or pending across
the globe. TOMI registers marks in seven (7) classes of
specification of goods and services: Class 1 for Chemicals for
Treating Hazardous Waste, Class 5 for Disinfectants, All-Purpose
for Hard Surfaces and for Treating Mold, Class 7 for Handheld Power
Operated Spraying Machines, Class 11 for Sterilizers for Medical
Use and Air Purification, Class 35 for Business Consultation and
Management Services, Class 37 for General Disinfecting Services,
and Class 40 for Chemical Decontamination and Manufacturing
Services.
Marketing and Distribution
Through
our brand awareness, marketing, social media presence and sales,
our business growth objective is to be the global leader in
disinfection and decontamination products sales, services, and
manufacturing. We intend to continue to expand and support research
and development on other decontamination and remediation solutions
and to form more business alliances with strategic
partners.
We
continue to perform decontamination services within cleanrooms,
bio-safety labs, tissue and blood labs, pharmaceutical labs,
vivariums and research universities and we continue to secure
additional license agreements with major remediation, construction,
forensic clean-up and bio-safety servicing companies. Both of these
strategies assist in the brand awareness and use of our suite of
products.
In the late first quarter of 2020, due to the
COVID outbreak, the customer base of TOMI
SteraMist®
products expanded quickly. As a result
of successfully training and implementing the SteraMist brand of
products and protocols into our customer base, we benefited from
referrals, testimonials, and an increase in media
presence.
We sell our products domestically through our
internal sales force, as well as independent sales and
manufacturing representatives. Internationally, our products are
sold through exclusive and non-exclusive sales representatives and
distributors. In late 2020 and during the first quarter 2021, TOMI
has onboarded three new vice presidents of sales for the promoting,
demonstrating, and selling of its SteraMist®
products in three of our sales
verticals, commercial, life sciences and food safety. Each of these
hires are expected to expand their divisions both with new
customers and expanding the direct inside sales
teams.
7
Competition
The
decontamination and environmental infectious disease control
industry is extremely competitive and highly regulated. Competition
is intense in all five (5) of our divisions and includes many large
and small competitors.
Our
competitors include companies that market other hydrogen
peroxide-based products, such as Steris Corporation
(“Steris”), Bioquell, Inc. (“Bioquell”)
currently owned by Ecolab, Inc. (“Ecolab”) and The
Clorox Company (“Clorox”), various ultraviolet
companies and quad ammonia-chemical companies. During 2020 due to
the COVID outbreak, new competitors that manufacture and sell
Electrostatic Sprayers and biostatic protectants, specifically to
the Commercial industry, entered the market.
We believe our SteraMist®
suite of products have a competitive
advantage to our competitor’s products in that they are
quicker and less caustic, provides a six log kill to a wide variety
of pathogens and leave no
residue or unpleasant odor. However, some of these competitors may
have longer operating histories, greater name recognition, larger
installed customer bases and substantially greater financial and
marketing resources than us.
We
believe that the principal factors affecting competition in our
markets include name recognition and the ability to receive
referrals based on client confidence in the service. There are no
significant barriers of entry that could keep potential competitors
from opening similar facilities. Our ability to compete
successfully in the industry will depend, in large part, upon our
ability to market and sell our indoor decontamination and
infectious disease control products and services. There can be no
assurance that we will be able to compete successfully in this
industry, or that future competition will not have a material
adverse effect on our business, operating results and financial
condition.
We
believe that our growth in these industries as a leading global
disinfection/decontamination company depends on our abilities to
discover, develop, market, and innovate, disruptive cost-effective
products and services.
Competitive Advantages
We believe the SteraMist®
technology has many advantages over
its competition. Our technology can turn over a space to an
end-user far faster than its competition. Our technology requires
limited preparation to an area compared to our competitors and does
not rely on fans or any outside force to move throughout a space.
Our “.OH”
is the smallest submicron 0.3-3-micron particle that receives a
charge and can move around an area like a gas, going above, below,
and beyond the hardest to reach areas.
Another
key and critical advantage is the technology’s superior
material compatibility. The hydroxyl radical allowing to kill on
contact and leave no dangerous byproducts in the areas being
treated. It is important the world is educated and aware of
the harsh chemicals that exist on the market, and used with
Electrostatic Sprayers, as they will not ensure proper efficacy on
the surface being treated as even if the chemical is EPA
registered, it may not be compatible with the sprayer. For
example, the sprayer may not be spraying enough of the chemical to
kill the virus or the bacteria, in addition to a lot of these harsh
chemicals and sprayers are destroying materials and equipment over
time, ending to be a much more costly product.
It
is our position there is no other product on the market like
SteraMist. A technology that can treat almost 4,000 cubic feet in
45 minutes with a contact time of only 15 minutes or spray surfaces
5 seconds per square foot with no wet time. A technology
with all the competitive advantages required in disinfection, where
other disinfectants will have a select few. No wipe, no
rinse, no residue, non-corrosive, high level efficacy (developed by
DARPA for Anthrax spores), quick turnaround time, superior material
compatibility (spray direct on sensitive equipment), and our
submicron particles which moves like a gas allows the mist/fog to
reach every area being treated regardless of what is in the
space.
In summary, SteraMist®
offers the following competitive
advantages:
●
Provides a 99.9999% or six-log kill and above kill
(i.e., the statistical destruction of all microorganisms and their
spores) on all challenged pathogens, on multiple surfaces
including Bacillus atrophaeus
spores, Bacillus subtilis
spores and Geobacillus
stearothermophilus, the spore
that is considered a gold standard for validation of sterilization
versus household/industrial cleaners that offer a 99.9%
(sanitizing) or three-log kill to 99.99% (disinfection) or four-log
kill.
●
Easy
to use.
●
Does
not require mixing of materials.
●
No
Touch.
●
No
Wipe, No Rinse.
●
Does
not include silver ions or peracetic acid.
●
Leaves
no residue.
●
Not
affected by humidity or temperature.
●
Non-corrosive.
●
Does
not damage medical or electronic equipment.
●
By-products
converts to water (humidity) and oxygen.
8
Research & Development
We
are generating and supporting research on improving, extending and
applying our patents in the field of mechanical cleaning and
decontamination. Research and development expenses for the years
ended December 31, 2020 and 2019, were approximately $455,000 and
$341,000, respectively.
Government Regulation
Our
business is subject to various degrees of governmental regulation
in the countries in which we operate. In the United States, the
EPA, the FDA and other governmental authorities regulate the
development, manufacture, sale, and distribution of our products
and services. Our international operations also are subject to a
significant amount of government regulation, including
country-specific rules and regulations and U.S. regulations
applicable to our international operations. Government regulations
include detailed inspection of, and controls over, research and
development, product approvals and manufacturing, marketing and
promotion, sampling, distribution, record-keeping, storage, and
disposal practices. We believe that we are currently compliant in
all material respects with applicable regulatory requirements. To
date, every registration for our technology we have applied for has
been accepted.
Employees
As
of March 1, 2021, we have twenty-nine (29) full-time executive,
operational and administrative employees working within the United
States. Most of our sales are conducted by global exclusive
distribution agreements or domestically by our internal sales team
or independent manufacturing representatives.
Item 1A.
RISK FACTORS.
Our business routinely
encounters and attempts to address risks, some of which will cause
our future results to differ, sometimes materially, from those
originally anticipated. Below, we have described our present view
of certain important risks. The risk factors set forth below are
not the only risks that we may face or that could adversely affect
us. If any of the risks discussed in this Annual Report on Form
10-K actually occur, our business, financial condition and results
of operations could be materially adversely affected. If this were
to occur, the trading price of our securities could decline
significantly. In assessing these risks,
investors should also refer to the other information contained or
incorporated by reference in our other filings with the
SEC.
Risk Related to Our Company and Business
Prior to 2020, we have historically experienced losses from our
operations, may not be able to sustain profitability and may need
to seek additional financing to sustain our
operations.
We
generated net income of approximately $4.4 million for the year
ended December 31, 2020, incurred a net loss of $2.3 million for
the year ended December 31, 2019 and had an accumulated deficit of
$39.1 million as of December 31, 2020. We have been increasing our
headcount and expenses to support our continued product development
and planned growth, and if demand for our products declines and we
are unable to sustain our recent increases in our net income, we
may not be able to sustain profitability.
Even
if we do sustain or increase profitability on a quarterly or annual
basis, we may still need to seek additional financing to facilitate
our continued growth. To finance our product development and grow
our business, we may seek funds through borrowings or through
private or public equity or debt offerings. We may be unable to
raise funds on commercially reasonable terms or at all. In
addition, the sale of additional equity or convertible debt
securities could result in additional dilution to our shareholders.
If we borrow additional funds or issue debt securities, these
securities could have rights superior to holders of our common
stock and could contain covenants that will restrict our
operations. If we do not obtain additional resources or achieve and
sustain profitability, our ability to capitalize on business
opportunities will be limited, the growth of our business will be
harmed, our business may fail, and investors may lose all of their
investment.
9
A pandemic, epidemic or outbreak of an infectious disease in the
United States or worldwide, including the outbreak of the novel
strain of coronavirus disease, COVID-19, could adversely affect our
business.
If
a pandemic, epidemic or outbreak of an infectious disease occurs in
the United States or worldwide, our business may be adversely
affected. In December 2019, a novel strain of coronavirus,
SARS-CoV-2, was identified in Wuhan, China. Since then, the
SARS-CoV-2 virus, and the resulting disease, COVID-19, has spread
to most countries, and has caused the worldwide COVID-19 Pandemic.
While the demand for our products generated from the COVID-19
Pandemic has positively impacted our financial position, it has
negatively impacted our operational condition in two divisions by
forcing us to implement various policies for the safety of our
employees, including “work from home” policies and
office social distancing policies, which may lead to lower
productivity of our employees and a decrease in the innovation and
advancement of our products. Beyond our own policies, numerous
state and local jurisdictions have previously imposed, and others
in the future may impose, “shelter-in-place” orders,
quarantines, executive orders and similar government orders and
restrictions for their residents to control the spread of COVID-19,
which negatively affects our operations and potentially the demand
for our products and services. However, these
“shelter-in-place” measures and challenges will likely
continue for the duration of the pandemic, which is uncertain, and
may continue to negatively impact our operations.
Significant
outbreaks of contagious diseases such as COVID-19, and other
adverse public health developments, could have a material impact on
our inventory position or inventory costs due to its impact of our
third-party suppliers. Further, our efforts to maintain an adequate
stock of all our product components may not be sufficient to avoid
a disruption to our production capacity due to the current COVID-19
Pandemic or similar events that may occur in the
future.
Other
disruptions or potential disruptions include restrictions on the
ability of our sales representatives and other personnel to travel
and access customers for training and case support; disruptions in
our production schedule and ability to manufacture and assemble
products; delays in actions of regulatory bodies; diversion of or
limitations on employee resources that would otherwise be focused
on the operations of our business, including because of sickness of
employees or their families or the desire of employees to avoid
contact with groups of people; business adjustments or disruptions
of certain third parties, including suppliers; increase in bad
debts due to an adverse impact of the pandemic on our
clients’ cash flows and resulting decrease in collectability
of our account receivables; and additional government requirements
or other incremental mitigation efforts that may further impact our
or our suppliers’ capacity to manufacture our
products.
While
the potential economic impact brought by, and the duration of any
pandemic, epidemic or outbreak of an infectious disease, including
COVID-19, may be difficult to assess or predict, the widespread
COVID-19 Pandemic could cause disruption of global financial
markets, reducing our ability to access capital, which could in the
future negatively affect our liquidity. In addition, a recession or
market correction resulting from the spread of an infectious
disease, including COVID-19, could materially affect our business
for the same reasons.
Our recent increase in our net income was largely caused by a spike
in demand for sanitation products and services created by the
COVID-19 Pandemic and may not be sustainable.
The
COVID-19 Pandemic has increased the global demand for sanitizing
products and services which help prevent the proliferation of
COVID-19. Our products and services are among those that have seen
an increase in demand due to the COVID-19 Pandemic, causing us to
realize an increase in revenues and making us profitable for the
first time. If these new customers as a result of COVID-19 do not
continue to use our products after the COVID-19 Pandemic has
subsided, our sales may be negatively impacted.
Continued rapid growth may strain our internal resources, which
would hamper our ability to manage our growth effectively, create
operating efficiencies or sustain profitability.
We
are experiencing a rapid growth in the demand for our products and
services in connection with the COVID-19 Pandemic which may strain
our financial and operational resources that were established to
meet a lower level of demand. Due to our rapid growth, we may not
be able to effectively manage the expansion of our operations or
recruit and train additional qualified personnel at the pace needed
to meet the demand for our products and services. Further, the
expansion of our operations may lead to significant costs and may
divert our management and business development resources. Any
inability to manage our growth could delay the execution of our
development and strategic objectives or disrupt our operations. Any
operational disruptions may take the form of a decrease in the
quality of customer service, reporting problems and delays in
meeting important deadlines, all of which could result in a loss of
market share and other problems that could adversely affect our
reputation and financial performance.
10
Our
SteraMist®
family of products
currently accounts for the majority of our revenue, and our success
is almost completely dependent on the success of our
SteraMist®
brand.
Our SteraMist®
family of products is currently our
primary product offering, and we are completely dependent on its
success. Successfully commercializing products such as ours is a
complex and uncertain process. Our commercialization efforts will
depend on the efforts of our management and sales team, our
third-party manufacturers and suppliers and general economic
conditions, among other factors, including the
following:
●
the
effectiveness of our marketing and sales efforts in the United
States and internationally;
●
our
third-party manufacturers and suppliers’ ability to
manufacture and supply the components of our
SteraMist®
products in a timely manner, in
accordance with our specifications, and in compliance with
applicable regulatory requirements, and to remain in good standing
with regulatory agencies;
●
the availability, perceived advantages, relative
cost, relative safety, and relative efficacy of alternative and
competing disinfection products;
●
our ability to obtain, maintain, and enforce our
intellectual property rights in and to our
SteraMist®
products;
●
the emergence of competing technologies and other
adverse market developments, and our need to enhance our
SteraMist®
products and/or develop new products
to maintain market share in response to such competing technologies
or market developments;
●
our ability to raise additional capital on
acceptable terms, or at all, if needed to support the
commercialization of our SteraMist®
products; and
●
our ability to achieve and maintain compliance
with all regulatory requirements applicable to our
SteraMist®
products.
We
have hired and trained additional sales professionals to account
for the increased demand for our products. Despite this growth in
sales personnel, we expect that our additional sales force will
require lead time in the field to grow their network of accounts
and achieve the productivity levels we expect them to reach in any
individual territory. Furthermore, the use of our products will
often require or benefit from direct support from us. If our sales
representatives do not achieve the productivity levels, we expect
them to reach, our revenue will not grow at the rate we expect, and
our financial performance will suffer.
We have no long-term customer contracts, and our sales history or
backlog cannot be relied upon as an indicator of our future
sales.
We
do not have long-term contracts with any of our customers, and our
sales history or backlog cannot be relied upon as a future
indicator of our revenues. Our contracts and purchase commitments
with customers may be canceled under certain circumstances. As a
result, we are exposed to competitive price pressures on every
order, and our agreements with customers do not provide assurance
of future sales. Our customers are not required to make minimum
purchases and may cease purchasing our products at any time without
penalty. As such, our unfilled orders and previously completed
sales should not be relied on as a measure of anticipated demand or
future revenue.
Our agreements with restoration industry specialists are not
exclusive, which may allow for our competitors to sell their
products and services to such specialists.
Our
agreements with restoration industry specialists under our TOMI
Service Network program, which allows certain restoration
specialists to use and sell our products, are not exclusive. This
lack of exclusivity allows our competitors to sell products to the
same restoration specialists which could reduce our sales if our
competitors’ products are used in lieu of our products.
Additionally, the use of our and our competitors’ products by
a restoration specialist may create market confusion between our
products and the products of our competitors, which may adversely
affect our brand reputation and business.
Our success depends upon broad market acceptance of our technology
that has not yet been achieved.
Our BIT technology as a Hospital-Healthcare
disinfectant is relatively new, having received full Hospital
registration for Clostridium difficile spores from the EPA in mid-2017. Our sales are
dependent upon broad market acceptance of our technology that
replaces long-standing failing manual cleaning techniques such as
quaternary ammonium compounds and bleach for disinfection, with our
no-touch mechanical process. The failure to obtain broad market
acceptance inevitably leads to substantially increased lead times
for sales until our prospective customers, particularly in the
Hospital-Healthcare market, are accustomed to the use of newer
mechanical technology. The inability to timely meet our sales goals
could adversely affect our financial condition and results of
operations.
11
We are subject to a variety of risks associated with doing business
internationally.
We maintain, and have grown over the last year, significant
international operations, including operations in the U.S., Canada,
Mexico, Europe, Asia Pacific and Latin America. As a result, we are
subject to a number of risks and complications associated with
international manufacturing, sales, services, and other operations.
These include: risks associated with currency exchange rate
fluctuations; requirements or preferences for domestic products or
solutions, which could reduce demand for our products; difficulties
in enforcing agreements and collecting receivables through some
foreign legal systems; unexpected legal or regulatory changes;
enhanced credit risks in certain countries and emerging market
regions; significant variations in tax rates among the countries in
which we do business, and tax withholding obligations in respect of
our earnings; exchange controls or other trade restrictions
including, the impact of the COVID-19 Pandemic on our supply chain
and the industries in which we operate; customs clearance and
shipping delays; general economic and political conditions in
countries where we operate or where end users of our products are
situated, including the potential implications of the COVID-19
Pandemic; natural disasters, political and economic instability,
including wars, terrorism and political unrest, outbreak of
disease, travel, social distancing and quarantine policies,
boycotts, curtailment of trade, and other business restrictions
affecting our ability to manufacture or sell our products;
difficulties associated with managing a large organization spread
throughout various countries; difficulties in enforcing
intellectual property rights or weaker intellectual property right
protections in some countries; and difficulties associated with
compliance with a variety of laws and regulations governing
international trade.
If our procedures to ensure compliance with export control laws are
ineffective, our business could be harmed.
Our sales to foreign entities are subject to far reaching and
complex export control laws and regulations in the United States
and elsewhere. Violations of those laws and regulations could have
material negative consequences for us including large fines,
criminal sanctions, prohibitions on participating in certain
transactions and government contracts, sanctions on other companies
if they continue to do business with us and adverse
publicity.
Failure to comply with the U.S. Foreign Corrupt Practices Act
(“FCPA”), and similar laws associated with our
activities outside of the United States could subject us to
penalties and other adverse consequences.
Failure to comply with the FCPA, and similar laws associated with
our activities outside of the United States could subject us to
penalties and other adverse consequences. We face significant risks
if we fail to comply with the FCPA and other anti-corruption laws
that prohibit improper payments or offers of payment to foreign
governments and political parties for the purpose of obtaining or
retaining business. In many foreign countries, particularly in
countries with developing economies, it may be a local custom that
businesses operating in such countries engage in business practices
that are prohibited by the FCPA or other applicable laws and
regulations. Any violation of the FCPA or other applicable
anti-corruption laws could result in severe criminal or civil
sanctions and, in the case of the FCPA, suspension or debarment
from U.S. government contracting, which could have a material and
adverse effect on our reputation, businesses, financial conditions,
operating results and cash flows.
Our operations are subject to environmental laws and regulations
that may increase costs of operations and impact or limit our
business plans.
We are subject to
environmental laws and regulations affecting many aspects of our
present and potential future operations, including a wide variety
of EPA labeling and other state regulatory agency requirements. For
example, under the Federal Insecticide, Fungicide, and Rodenticide
Act, we are required to register with the EPA and certain state
regulatory authorities as a seller of disinfectants, and we are
subject to EPA labeling requirements for each use that
SteraMist®
is intended
to address. Compliance with these laws and regulations may result
in increased costs and delays as a result of administrative
proceedings and certain reporting obligations. Public officials and
entities may seek injunctive relief or other remedies to enforce
applicable environmental laws and regulations. If we are found to
not have complied with these laws and are unable to sell out
products, our business and financial results will be negatively
impacted.
12
Our reliance upon third-party contractors, suppliers and
manufacturers for the manufacture of our products increases the
risk that we will not have sufficient quantities of our products or
such quantities at an acceptable cost and reduces our control over
the manufacturing process.
We rely upon third parties to supply us with our
products. We outsource the manufacturing of our
SteraMist®
line of equipment to two manufacturing
companies and use contract manufacturers to build our BIT-based
systems, as we do not maintain our own manufacturing facilities. If
we fail to maintain relationships with our current suppliers, we
may not be able to effectively commercialize and market our
products, due to risks including increased product costs, limited
inventory that is not capable of meeting demand and the possible
misappropriation of our proprietary information, such as our trade
secrets and know-how. Further, as we maintain a limited number of
manufacturers for our SteraMist®
line of equipment and blenders for our
SteraMist®
solutions, alternative production
facilities may not be available in the event of a disruption, or if
alternative production facilities are available, the number of
third-party suppliers with the necessary manufacturing and
regulatory expertise to produce our products at their current
quality level is limited, and it could be expensive and take a
significant amount of time to arrange for and qualify alternative
suppliers, which could have a material adverse effect on our
business.
Because
of our reliance upon third parties to supply us with our products,
we do not have control over the manufacturing process of our
third-party suppliers and are dependent on such third-party
suppliers for compliance with the regulations applicable to our
products. Third-party suppliers may not be able, or fail, to comply
with applicable regulatory requirements which could result in
sanctions being imposed on us, including fines, injunctions, civil
penalties, delays, suspension or withdrawal of approvals, seizures
or recalls, operating restrictions and criminal prosecutions, any
of which could significantly and adversely harm our business and
results of operations.
Our results of operations could be materially harmed if we are
unable to accurately forecast customer demand for our products and
manage our inventory.
To
ensure adequate inventory supply, we must forecast inventory needs
and place orders with suppliers based on our estimates of future
demand for our products and services. Our limited historical
experience in foreign markets and recent increase in demand in the
United States may lead us to inadequately forecast such inventory
needs. Further, our ability to accurately forecast demand for our
products could be negatively affected by many factors, including
our failure to adequately manage our expansion efforts, product
introductions by competitors, an increase or decrease in customer
demand for products of our competitors, our failure to accurately
forecast customer acceptance of new product enhancements,
unanticipated changes in general market conditions or regulatory
matters, and weakening of economic conditions or consumer
confidence in future economic conditions.
Inventory
levels in excess of customer demand may result in inventory
write-downs or write-offs, which would cause our gross margin to be
adversely affected and could impair the strength of our brand.
Similarly, a portion of our inventory could become obsolete or
expire, which could have a material and adverse effect on our
earnings and cash flows due to the resulting costs associated with
inventory impairment charges and costs required to replace obsolete
inventory. Any of these occurrences could negatively impact our
financial performance.
Conversely,
if we underestimate customer demand, we may not be able to deliver
sufficient products to meet our customers’ requirements,
which could result in damage to our reputation and customer
relationships. In addition, if we experience a significant increase
in demand, additional supplies of raw materials or additional
manufacturing capacity may not be available when required on terms
that are acceptable to us, or at all, and suppliers or our
third-party manufacturers may not be able to allocate sufficient
resources to meet our increased requirements, which could have an
adverse effect on our ability to meet customer demand for our
products and our results of operations.
Our success depends on our ability to adequately protect our
intellectual property.
Our
commercial success depends, in part, on our ability to obtain,
maintain, defend, file new or enforce our existing patents,
trademarks, trade secrets and other intellectual property rights
covering our technologies and products throughout the world. We
may, however, be unable to adequately preserve such rights due to a
number of reasons, including the following:
●
our
rights could be invalidated, circumvented, challenged, breached or
infringed upon;
●
we
may not have sufficient resources to adequately prosecute or
protect our intellectual property rights;
●
upon
expiration of our patents, certain of our key technology may become
widely available; or
●
third
parties may be able to develop or obtain patents for similar or
competing technology.
13
Although
we devote resources to the establishment and protection of our
patents and trademarks, the actions we have taken or will take in
the future may not be adequate to prevent violation of our patents,
trademarks and proprietary rights by others or prevent others from
seeking to block sales of our products as an alleged violation of
their patents, trademarks and proprietary rights. In the future,
litigation may be necessary to enforce our trademarks or
proprietary rights and we may be forced to defend ourselves against
claimed infringement or the rights of others. Any such litigation
could result in adverse determinations that could have a material
adverse effect on our business, financial condition or results of
operations.
In
addition, we rely in part upon unpatented trade secrets, unpatented
know-how, and continuing technological innovation which may not
yet, or may never be, patented, to develop and maintain our
competitive position, which we seek to protect, in part, by
confidentiality agreements with our employees and consultants. We
also have agreements with our employees and consultants that
obligate them to assign their inventions to us. It is possible that
technology relevant to our business will be independently developed
by a person that is not a party to such an agreement. In addition,
if the employees and consultants who are parties to these
agreements breach or violate the terms of these agreements, we may
not have adequate remedies for any such breach or violation, and we
could lose our trade secrets through such breaches or violations.
To the extent that our commercial partners, collaborators,
employees and consultants use intellectual property owned by others
in their work for us, disputes may arise as to the rights in
related or resulting know-how and inventions. Further, our trade
secrets could otherwise become known or be independently discovered
by our competitors, which would harm our business.
We may be unable to enforce our intellectual property rights
throughout the world.
As
part of our growth strategy, we are seeking to expand our
operations internationally. The laws of some foreign countries do
not protect intellectual property rights to the same extent as the
laws of the United States. Companies have encountered significant
problems in protecting and defending intellectual property rights
in certain foreign jurisdictions. To the extent that we have
obtained or are able to obtain patents, trademarks or other
intellectual property rights in any foreign jurisdictions, it may
be difficult to stop the infringement of our patents, trademarks or
the misappropriation of other intellectual property rights. For
example, some foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties. In
addition, some countries limit the availability of certain types of
patent rights and enforceability of patents against third parties,
including government agencies or government contractors. In these
countries, patents may provide only limited benefit or no
benefit.
Proceedings
to enforce our patent rights in foreign jurisdictions could result
in substantial costs and divert our efforts and attention from
other aspects of our business. Accordingly, efforts to protect our
intellectual property rights in such countries may be inadequate.
In addition, future changes in the law and legal decisions by
courts in the United States and foreign countries may affect our
ability to obtain adequate protection for our technology and
products and the enforcement of intellectual property.
We face significant competition in our industry, some of which have
longer operating histories, more established products or greater
resources than we do, which may prevent us from achieving increased
market penetration and improved operating results.
The
decontamination and environmental infectious disease control
industry is extremely competitive. The competition includes
remediators and disinfection/decontamination companies such as
Steris, Bioquell (Eco-lab) and Clorox, various ultraviolet
companies and quad ammonia-chemical companies. These competitors
may have longer operating histories, greater name recognition,
larger installed customer bases, a greater ability to provide
similar products and services at a lower cost and substantially
greater financial and marketing resources than us to develop new
products and commercialize existing products. We believe that the
principal factors affecting competition in our markets include name
recognition, customer familiarity with products, effective
marketing, competitive pricing strategies and the ability to
receive referrals based on client confidence in the service. There
are no significant barriers of entry that could keep potential
competitors from opening similar facilities. Our ability to compete
successfully in the industry will depend, in large part, upon our
ability to market and sell our indoor decontamination and
infectious disease control products and services. We may not be
able to compete successfully in the remediation industry. Further,
if one or more competitors successfully develops a decontamination
product that is more effective, better tolerated, results in a
better customer experience, is easier to use or otherwise more
attractive than our products, our ability to continue to
commercialize our products could be significantly and adversely
affected due to a lack of ability to compete, which would have a
material adverse effect on our business, financial condition and
results of operations.
14
If the quality of our products do not meet the expectations of our
customers, then our brand and reputation or our business could be
adversely affected.
In
the course of conducting our business, we must adequately address
quality issues that may arise with our products, including defects
in third-party components and inventory. We may not be able to
eliminate or mitigate occurrences of these issues and associated
liabilities. In addition, even in the absence of quality issues, we
may be subject to claims and liability if the performance of
products do not meet the expectations of our customers. If the
quality of our products does not meet the expectations of
customers, then our brand and reputation, and our ability to
receive referral customer business, could be adversely
affected.
Our long-term growth depends, in part, on our ability to enhance
and develop new products, and if we fail to do so we may be unable
to compete effectively.
It is important to our business and our long-term growth that we
continue to enhance and develop new products. We intend to continue
to invest in research and development activities focused on
improvements and enhancements to our existing intellectual property
and product offerings. Our development goals include the
development and commercialization of a variety of sanitizing
robotic devices and backpack units. Despite our reasonable efforts,
it may not be possible for us to innovate in a way to keep us
competitive with other companies due to financial and time
constraints which will negatively impact our
business.
The introduction of new products is often accompanied by design and
production delays, as well as significant cost, which could prevent
us from introducing new products to the market in a timely and
cost-effective manner.
The
development and initial production and enhancement of the
decontamination systems we produce is often accompanied by design
and production delays and related costs. If we are unable to
introduce new products on our anticipated timeframe or financial
cost, our business, financial condition and results of operations
may suffer due to failing to remain competitive in our
market.
We have a limited management team size which may reduce our ability
to effectively manage our business operations as it
grows.
We
have a limited management team size, even though we keep hiring and
redefining job descriptions. This limited management team may
reduce our ability to effectively manage our business as it grows.
As we expand, we expect to increase the size of our management
team. However, our management team may not be able to adequately
manage our business, and any failure to do so could lead to a
general negative impact to our business.
We are dependent on our key personnel, the loss of whom could
adversely affect our operations, and if we fail to attract and
retain the talent required for our business, we could be materially
harmed.
Our
success is substantially dependent on the performance of our
executive officers, including our Chairman and Chief Executive
Officer, Dr. Halden S. Shane, the loss of whom would have a
material adverse effect on our business.
We
depend to a significant degree on our ability to attract, retain
and motivate quality personnel. We further note that competition
for highly skilled personnel is often intense. We may not be
successful in attracting, integrating or retaining qualified
personnel to fulfill our current or future needs, the failure of
which would have a material adverse effect on our
business.
Our operations, and those of our suppliers, are subject to a
variety of business continuity hazards and risks, any of which
could interrupt production or operations or otherwise adversely
affect our performance and results.
We
are subject to business continuity hazards and other risks,
including natural disasters, utility and other mechanical failures,
labor difficulties, inability to obtain necessary licenses, permits
or registrations, disruption of communications, data security and
preservation, disruption of supply or distribution, safety
regulation and labor difficulties. The occurrence of any of these
or other events might disrupt or shut down operations, or otherwise
adversely impact the production or profitability of a particular
facility, or our operations as a whole. We may also be subject to
certain liability claims in the event of an injury or loss of life,
or damage to property and equipment, resulting from such events.
Although we maintain property and casualty insurance, as well as
other forms of insurance that we believe are customary for our
industries, our insurance policies include limits and, as such, our
coverage may be insufficient to protect against all potential
hazards and risks incident to our business. Should any such hazards
or risks occur, or should our insurance coverage be inadequate or
unavailable, our business, prospects, financial condition and
results of operations might be adversely affected.
15
Our products are subject to potential product liability claims
which, if successful, could have a material adverse effect on our
business, financial condition and results of
operations.
We
are exposed to significant risks for product liability claims if
death, personal injury or property damage results from the use of
our products. While we currently maintain insurance against product
liability claims, we may experience material product liability
losses in the future. Our insurance coverage may not continue to be
available on terms that we accept, if at all, and our insurance
coverage also may not adequately cover liabilities that we incur. A
successful claim against us that exceeds our insurance coverage
level or that is not covered by insurance, or any product recall,
could have a material adverse effect on our business, financial
condition and results of operations. In addition, product liability
and other claims can divert the attention of management and other
personnel for significant periods of time, regardless of the
ultimate outcome. Further, claims of this nature may cause our
customers to lose confidence in our products and us. As a result,
an unsuccessful defense of a product liability or other claim could
have a material adverse effect on our financial condition, results
of operations and cash flows.
The misuse of our products may harm our reputation in the
marketplace, result in injuries that lead to product liability
suits or result in costly investigations, fines or sanctions by
regulatory bodies if we are deemed to have engaged in the promotion
of these uses, any of which could be costly to our
business.
Customers,
technicians, or service providers could use our products in a
manner that is inconsistent with the products’ intended use.
We train our marketing personnel and sales representatives to not
promote our products for uses outside of the intended use, however,
we cannot otherwise prevent all instances of misuse. Further, the
marketing and sales representatives that we have hired to help meet
the demand for our products may not have received proper training
or have the working knowledge needed to adequately advise our
customers how to safely use our products. Misuse of our products
may cause an increased risk of injury to customers, which could
harm our reputation in the marketplace, as well as lead to
potential product liability lawsuits.
We may seek to grow our business through acquisitions of
complementary products or technologies, and the failure to manage
acquisitions, or the failure to integrate them with our existing
business, could harm our business, financial condition and
operating results.
From
time to time, we may consider opportunities to acquire other
companies, products or technologies that may enhance our product
platform or technology, expand the breadth of our markets or
customer base, or advance our business strategies. Potential
acquisitions involve numerous risks, including: problems
assimilating the acquired products or technologies; issues
maintaining uniform standards, procedures, controls and policies;
unanticipated costs associated with acquisitions; diversion of
management’s attention from our existing business; risks
associated with entering new markets in which we have limited or no
experience; increased legal and accounting costs relating to the
acquisitions or compliance with regulatory matters; and
unanticipated or undisclosed liabilities of any
target.
We
have no current commitments with respect to any acquisition. We do
not know if we will be able to identify acquisitions, we deem
suitable, whether we will be able to successfully complete any such
acquisitions on favorable terms or at all, or whether we will be
able to successfully integrate any acquired products or
technologies. Our potential inability to integrate any acquired
products or technologies effectively may adversely affect our
business, operating results and financial condition.
Our employees, consultants, and other commercial partners may
engage in misconduct or other improper activities, including
non-compliance with regulatory standards and
requirements.
We
are exposed to the risk that our employees, consultants, and other
commercial partners and business associates may engage in
fraudulent or illegal activity. Misconduct by these parties could
include intentional, reckless or negligent conduct or other
unauthorized activities that violate the regulations of the EPA and
non-U.S. regulators, including those laws requiring the reporting
of true, complete and accurate information to such regulators,
manufacturing standards, healthcare fraud and abuse laws and
regulations in the United States and internationally or laws that
require the true, complete and accurate reporting of financial
information or data. Whether or not we are successful in defending
against any legal actions or investigations in connection with any
misconduct attributed to us, we could incur substantial costs,
including legal fees and reputational harm, and divert the
attention of management in defending ourselves against any of these
claims or investigations.
16
The requirements of being a public company may strain our
resources, divert management’s attention and affect our
ability to attract and retain executive management and qualified
board members.
We
have and likely will continue to incur significant legal,
accounting and other expenses as a public company subject to the
reporting requirements of the Securities Exchange Act of 1934, the
Sarbanes-Oxley Act of 2002 (“SOX”), the
Dodd–Frank Wall Street Reform and Consumer Protection Act and
other applicable rules and regulations. Our management and other
personnel devote a substantial amount of time to these compliance
initiatives. Moreover, these rules and regulations have increased
our legal and financial compliance costs and will make some
activities more time-consuming and costly. For example, applicable
rules and regulations could make it more difficult for us to
attract and retain qualified persons to serve on our board of
directors ( the “Board), or as executive
officers.
In
addition, SOX requires, among other things, that we maintain
effective internal control over financial reporting and disclosure
controls and procedures. Our testing, or the potential subsequent
testing by our independent registered public accounting firm in
future periods, may reveal deficiencies in our internal control
over financial reporting that are deemed to be material weaknesses.
Our compliance with Section 404 of SOX may require that we incur
substantial expense and expend significant management time on
compliance-related issues. Moreover, if our independent registered
public accounting firm identifies deficiencies in our internal
control over financial reporting that are deemed to be material
weaknesses, the market price of our stock could decline, and we
could be subject to sanctions or investigations by regulatory
authorities, which would require additional financial and
management resources.
When
we are no longer a “smaller reporting company,” we will
be subject to additional reporting requirements as a public
company. We expect that we will incur increased legal, accounting
and other costs as we continue to improve existing, and implement
new, operational and financial systems, procedures and controls to
prepare for and comply with these additional
requirements.
As
a result of disclosure of information, our business and financial
condition are more visible, which we believe may result in
threatened or actual litigation, including by competitors and other
third parties. If such claims are successful, our business and
operating results could be adversely affected. Even if the claims
do not result in litigation or are resolved in our favor, these
claims, and the time and resources necessary to resolve them, could
divert the resources of our management and adversely affect our
business and operating results.
Risk Related to Our Securities
Our stock price is volatile and there is a limited market for our
shares.
The
stock markets generally have experienced, and will probably
continue to experience, extreme price and volume fluctuations that
have affected the market price of the shares of many small-cap
companies. These fluctuations have often been unrelated to the
operating results of such companies and in recent times have been
exasperated by investors’ concerns stemming from the COVID-19
Pandemic. Factors that may affect the volatility of our stock price
include the following:
●
anticipated
or actual fluctuations in our quarterly or annual operating
results;
●
our
success, or lack of success, in developing and marketing our
products and services;
●
changes
in general economic, political and market conditions in or any of
the regions in which we conduct our business, including as a result
of the current COVID-19 outbreak and related governmental
responses;
●
our
ability to raise the required capital to fund our
business;
●
changes
in financial estimates by us or of securities or industry
analysts;
●
the
issuance of new or updated research reports by securities or
industry analysts
●
the
announcement of new products, services, or technological
innovations by us or our competitors;
●
changes
in our executive leadership;
●
regulatory
developments in our industry affecting us, our customers or our
competitors;
●
competition;
●
actual
or purported “short squeeze” trading activity;
and
●
the
sale or attempted sale of a large amount of common
stock.
17
We do not intend to pay dividends for the foreseeable
future.
We
have not paid dividends on our common stock since inception. The
continued operation and expansion of our business will require
substantial funding. Accordingly, we currently intend to retain
earnings, if any, for use in the business and we do not anticipate
that we will pay any cash dividends on shares of our common stock
for the foreseeable future. Any determination to pay dividends in
the future will be at the discretion of our Board and will depend
upon results of operations, financial condition, contractual
restrictions, restrictions imposed by applicable law and other
factors our Board deems relevant. Investors seeking cash dividends
should not purchase our common stock. Accordingly, realization of a
gain on your investment will depend on the appreciation of the
price of our common stock, which may never occur.
We have a substantial number of options, warrants and convertible
preferred stock outstanding, which could give rise to additional
issuances of our common stock and potential dilution of ownership
to existing shareholders.
As
of December 31, 2020, we had outstanding options, warrants and
convertible preferred stock to purchase approximately an aggregate
of 2.2 million shares of our common stock at exercise prices
ranging from $0.80 to $8.40 per share. Of these, approximately
132,500 represent shares underlying options with exercise prices
ranging from $0.80 to $7.06 per share, approximately 2.0 million
represent shares underlying warrants at exercise prices ranging
from $0.64 to $8.40 per share and approximately 63,750 represent
shares underlying our shares of convertible $0.01 preferred A
stock. To the extent any holders of options, warrants or
convertible preferred stock exercise the same, the issuance of
shares of our common stock upon such exercise will result in
dilution of ownership to existing shareholders.
If securities or industry analysts do not publish research or
publish inaccurate or unfavorable research about our business, our
stock price and trading volume could decline.
The
trading market for our common stock will rely in part on the
research and reports that securities or industry analysts publish
about us and our business. If one or more of the analysts who cover
us downgrades our common stock or issues other unfavorable
commentary or research the price of our common stock may decline.
If one or more analysts ceases coverage of our company or fails to
publish reports on us regularly, demand for our stock could
decrease, which in turn could cause the trading price or trading
volume of our common stock to decline and could result in the loss
of all or part of your investment in us.
Substantial future sales of our common stock, or the perception in
the public markets that these sales may occur, may depress our
stock price.
Our
common stock is traded on the NASDAQ Capital Market
(“Nasdaq”) and, despite certain increases of trading
volume from time to time, there have been periods when our common
stock could be considered thinly traded, meaning that the number of
persons interested in purchasing our common stock at or near bid
prices at any given time may be relatively small. Equity or
equity-related financing transactions that result in a large amount
of newly issued shares that become readily tradable, or sales of
significant numbers of shares by current shareholders, have placed,
and in the future could place, downward pressure on the trading
price of our stock. In addition, during times of lower trading
volume, a shareholder who desires to sell a large number of shares
of common stock may need to sell the shares in increments over time
to mitigate any adverse impact of the sales on the market price of
our stock.
If
our shareholders sell, or the market perceives that our
shareholders intend to sell, substantial amounts of our common
stock in the public market, the market price of our common stock
could fall. Sales of a substantial number of shares of our common
stock may make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we
deem reasonable or appropriate. In the event that the price of our
stock falls, we may become involved in securities class action
litigation that could divert management’s attention and harm
our business.
In
the future, we may also issue our securities if we need to raise
additional capital or in connection with acquisitions. The number
of shares of our common stock issued in connection with a financing
or acquisition could constitute a material portion of our
then-outstanding shares of our common stock.
We have recently listed on the Nasdaq and may not be able to
maintain compliance with NASDAQ’s standards to maintain
listing on the exchange, which could limit shareholders’
ability to trade our common stock.
As
a listed company on the Nasdaq, we are required to meet certain
financial, public float, bid price and liquidity standards on an
ongoing basis in order to continue the listing of our common stock.
If we fail to meet these continued listing requirements, our common
stock may be subject to delisting, which could materially impact
the liquidity of our common stock making it more challenging to buy
and sell shares of our common stock.
18
We are a “smaller reporting company” under the U.S.
federal securities laws, and the reduced reporting requirements
applicable to smaller reporting companies could make our common
stock less attractive to investors.
We
are a “smaller reporting company” under U.S. federal
securities laws. For as long as we continue to be a smaller
reporting company, we may take advantage of exemptions from various
reporting requirements that are applicable to other public
companies that are not smaller reporting companies. Investors may
not find our common stock attractive because we may rely on these
exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our
common stock and our stock price may be more volatile.
Our anti-takeover provisions could prevent or delay a change in
control of our company, even if such change in control would be
beneficial to our shareholders.
Provisions
of our articles of incorporation, as amended, and amended bylaws as
well as provisions of Florida law could discourage, delay or
prevent a merger, acquisition or other change in control of our
company, even if such change in control would be beneficial to our
shareholders. These include: maintaining authorized but unissued
shares of our capital stock that could be issued by our Board to
increase the number of outstanding shares and thwart a takeover
attempt; no provision for the use of cumulative voting for the
election of directors; maintaining a staggered board, limiting the
speed at which our shareholders may replace our entire Board, and
limiting the ability of our shareholders to call special
meetings.
In
addition, Florida Business Corporation Act, or FBCA, §
607.0902 generally provides that shares acquired in excess of
certain specified thresholds, without first obtaining the approval
of our Board, will not possess any voting rights unless such voting
rights are approved by a majority of our disinterested
shareholders. Additionally, FBCA § 607.0901 requires that,
subject to certain exceptions, any affiliated transaction with a
shareholder that owns more than 15% of the voting shares of the
corporation, referred to as an “interested
shareholder,” receive the approval of either the
corporation’s disinterested directors or a supermajority vote
of disinterested shareholders, or, absent either such approval,
that a statutory “fair price” be paid to the
shareholders in the transaction. The shareholder vote requirement
is in addition to any shareholder vote required under any other
section of the FBCA or our articles of incorporation, as
amended.
The concentration of our common stock ownership with our executive
officers, directors and affiliates will limit your ability to
influence corporate matters.
Our
executive officers, directors and owners of 5% or more of our
outstanding common stock and their respective affiliates
beneficially owned, in the aggregate approximately 26.7% of our
outstanding common stock as of March 5, 2021. This percentage
includes outstanding shares of common stock, convertible preferred
stock, warrant and stock options that are vested and exercisable as
of that date. These shareholders will therefore have significant
influence over management and affairs and over all matters
requiring shareholder approval, including the election of directors
and significant corporate transactions, such as a merger or other
sale of our company or our assets, for the foreseeable future. This
concentrated control will limit our shareholders’ ability to
influence corporate matters and, as a result, we may take actions
that our shareholders do not view as beneficial. This ownership
could negatively affect the value of our common stock.
Item 1B.
UNRESOLVED STAFF COMMENTS
Not
applicable.
Item 2.
PROPERTIES
Our U.S. headquarters, a 9,000 square foot office
space, is located at 8430 Spires Way, Frederick, MD
21701. The innovative facility includes a warehouse,
training room, quality control room, qualification laboratory, with
its own drive-in custom iHP ™SteraMist®
Complete Room System. The new
warehouse is significantly larger than our previous headquarters,
allowing TOMI to store its new product lines and stock a greater
variety of inventory - quickly delivering a customer purchase. The
training room is integrated with the newest technology to be able
to present SteraMist®
virtually around the world. As the
company keeps up with the demand for SteraMist®,
there is a dedicated quality control room to allow our service
engineers to work on machines for quick and efficient service to
our customers. The lease for our U.S. headquarters has a 10-year
term and provides for annual rent of approximately
$147,000.
19
We
lease a 300 square foot office and conference space located at 9454
Wilshire Blvd., Penthouse, Beverly Hills, CA 90212. We lease this
space for $29,000 annually on a month-to-month tenancy in a
professional office building. The property is used for meetings,
sales demonstrations and various other business
functions.
Item 3.
LEGAL PROCEEDINGS
We
currently are not a party to any legal proceedings, the adverse
outcome of which, in management’s opinion, individually or in
the aggregate, would have a material adverse effect on our results
of operations, financial position or cash flows.
Item 4.
MINE SAFETY DISCLOSURES
Not
applicable.
20
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information
Our
common stock is currently quoted on Nasdaq under the symbol
“TOMZ.”
Shareholders
As
of March 29, 2021, there were 227 record holders of our common
stock; however, we believe we have approximately 6,000
stockholders, including those held in street name. On March 29,
2021, the last reported sale price of our common stock on the
Nasdaq was $4.15 per share.
Dividends
We
have not paid and do not currently intend to pay cash dividends on
our common stock in the foreseeable future. Our policy is to retain
all earnings, if any, to provide funds for operation and expansion
of our business. The declaration of dividends, if any, will be
subject to the discretion of our Board, which may consider such
factors as our results of operations, financial condition, capital
needs and acquisition strategy, among others.
Recent Sales of Unregistered Securities
None.
Item 6.
SELECTED FINANCIAL DATA
Not
Required.
Item 7.
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis
of our financial condition and results of operations relates to the
years ended December 31, 2020
and 2019. This discussion and analysis should be read in
conjunction with our financial statements and the notes to those
financial statements that are included elsewhere in this
report.
Overview
TOMI Environmental Solutions, Inc.
(“TOMI”, “we” and “our”) is a
global bacteria decontamination and infectious disease control
company, providing environmental solutions for indoor surface
decontamination through the manufacturing, sales, service and
licensing of our SteraMist®
brand of products, including
SteraMist®
BIT™,
a low percentage (7.8%) hydrogen peroxide-based fog or mist that
uses Binary Ionization Technology (BIT™).
Our SteraMist®
is a patented technology that produces
ionized Hydrogen Peroxide (iHP™)
using cold plasma science created under a grant by
the United
States Defense Advanced Research Projects Agency
(DARPA). Our EPA registered
BIT™
Solution is composed of a low
concentration of hydrogen peroxide converted to
iHP™
after passing the trade secret blended
solution including its sole active ingredient of 7.8% hydrogen
peroxide through an atmospheric cold plasma arc. The newly formed
iHP™
fog and mist consists of
submicron’s to 3-micron radical particles that are carried
throughout the treatment area in a fog or mist moving with the same
velocity and characteristics of a gas. This allows the ionized
hydrogen peroxide fog or mist to affect all surfaces and air space
throughout the targeted treatment area, over, above and beyond the
ability of a manual cleaning processes. iHP™
damages pathogenic organisms through
the oxidation of proteins, carbohydrates, and
lipids. SteraMist®
no-touch disinfection and or
decontamination treat areas mechanically, causing cellular
disruptions and/or dysfunctions resulting in a 6-log (99.9999%) and
greater kill or inactivation of all pathogens in the treatment
area.
21
Under the Federal Insecticide, Fungicide, and
Rodenticide Act (“FIFRA”), we are required to register
with the EPA and certain state regulatory authorities as a seller
of disinfectants. In June 2015, SteraMist®
BIT™
was registered with the EPA as a
hospital-healthcare disinfectant and general broad-spectrum surface
disinfectant for use as a misting/fogging agent.
SteraMist®
BIT™
now holds EPA registrations (#
90150-2) for mold control, and air and surface remediation (#
90150-1). In February 2016, we expanded our label with the EPA to
include Clostridium difficile Spores and MRSA, as well as the influenza (Avian) virus
h1n1, which we believe has better positioned us to penetrate all
industries including the biodefense and healthcare industry. In
August 2017, our EPA label was further expanded to include efficacy
against Salmonella and Norovirus. As of January 27, 2017, our
technology is one of 53 of the EPA’s “Registered
Antimicrobial Products Effective against Clostridium
difficile
Spores”, as published on the
EPA’s K List. Further, in December 2017,
SteraMist®
was included in the EPA’s list G
(Norovirus), L (Ebola) and M (Avian Flu). In March 2020, our EPA
label was further amended to include Emerging Viral Pathogens
claims, thus meeting the criteria against Enveloped viruses and
Large Non-enveloped viruses and included on List N (Emerging Viral
Pathogens including SARS-CoV-2).
SteraMist®
BIT™
allows a facility to have a mechanical
method of cleaning using a Hospital-HealthCare disinfectant which
is an EPA registered tool and solution to replace flawed manual
cleaning technology, upgrade existing protocols, and limit
liability in a facility when it comes to resistant infectious
pathogens. SteraMist®
BIT™
is the first EPA registered solution
and system combination on the market. We maintain this
registration in 50 states, Canada, and approximately thirty-five
(35) other countries.
Markets
Our SteraMist®
products are designed to address a
wide spectrum of industries using iHP™.
Our operations consist of five main divisions based on our current
target industries: Hospital-Healthcare, Life Sciences, TOMI Service
Network, Food Safety and Commercial.
We continue to offer our customers a wide range of
innovative mobile products designed to be easily incorporated into
their existing disinfection and decontamination procedures and
protocols. Additionally, we offer integrated facility equipment
installations known as Custom Engineered Systems, routine &
emergency iHP™
Corporate Service, essential training
packages, validations and qualifications, and onsite performance
maintenance requests.
Each of these are structured to address the unique
disinfection and decontamination needs of our customers worldwide
regardless of the type of facility requiring or requesting
SteraMist®
disinfection
decontamination.
Divisions
Hospital-Healthcare
Our Hospital-HealthCare customer list continues to
grow with the closing of every quarter. Our
SteraMist®
Total Disinfection Cart, an all-in-one
cart that houses our handheld point-and-spray
SteraMist®
Surface Unit and accompanying
supplies, continues to assist medical staff with emergency response
and turnaround for new and established protocols. The
SteraMist®
Total Disinfection Cart, recently
modified for further ease and mobility, allows customers within the
hospital-healthcare industry to address concerns of the
cross-contamination of dangerous bacteria and viral pathogens in
which some can lead to HAIs stemming from existing and emerging
pathogens, as well as multiple drug resistant organisms
(MDRO’s). SteraMist®
technology allows a manual cleaning
protocol lasting 90 minutes to be reduced to 55 minutes, including
the changing of bed linens, as confirmed by the Shield Study at
UCLA. This mobile consolidation solution has resulted in remarkable
results for facilities utilizing our
technology.
As our Training and Implementation department
expands TOMI expects continued expansion in its Hospital-HealthCare
division. The protocol development and onboarding for
implementation in this division is critical. We have experienced in
2020, the expansion of SteraMist®
use in such campuses by employing
comprehensive training for their day and night shift maintenance
and housekeeping departments. By late 2021, TOMI anticipates yearly
comparison case studies from many of these facilities who were
onboarded in 2020, which should show lower transference infection
rates in COVID, Clostridium difficile Spores and overall, HAI cases.
We
have recently hired a Vice President of Sales for this division who
brings over 25 years of experience in the HealthCare space
including working for Quest Diagnostics, Abbott, Siemens Bayer and
ThermoFisher Scientific.
22
Life Sciences
Our SteraMist®
Environment System, Custom Engineered
Systems, the SteraMist®
Select Surface Unit, custom
iHP™
implementation to decontamination
chambers and cage washers, and our iHP™
Corporate Service Division, are
designed to be tailored to provide a complete room solution to
address the regulatory inspections of disinfecting/decontaminating
and Installation Qualification (IQ)-Operational Qualification
(OQ)–Performance Qualification (PQ) validation processes
within the life sciences industry.
In addition, we have worked alongside many
research universities and government agencies in the effort to test
SteraMist®
efficacy on the disinfection and
reprocessing of N95 masks and other equivalent PPE, with results
that indicate that the use of SteraMist®
iHP™ will not reduce mask
efficacy, including on those containing 10% or less of cellulose
while assuring a sterile reprocessed mask 100% of the
time.
TOMI Service Network
The TOMI Service Network, or TSN, is an expansive
network consisting of third-party professionals specializing in a
wide array of disciplines who are exclusively licensed and trained
to use the SteraMist®
products. We sell, train, and service
a wide array of professional remediation companies in the use of
SteraMist®
through the TSN division. This allows
for increased accessibility and brand awareness of
iHP®
services to facilities in need of
local routine and emergency disinfection and
decontamination.
Many of these companies specialize in mold
remediation, treatment of water-damaged areas (including damage
from grey and black water loss (CAT 1-3 water loss), fire damage,
as well as professional specialists that are certified and practice
in the area of forensic restoration. Currently, the TSN features a
number of professionals throughout both the United States and
Canada, with some utilizing SteraMist®
as a standalone service and others
incorporating SteraMist®
into their existing business models
and methods.
Sales of BIT™
Solution increases yearly as our
network members utilize the technology more and more each year.
BIT™
Solution sales attributable to the TSN
for the years ended December 31, 2020 and 2019, were approximately
$2,059,000 and $268,000, respectively, representing an increase of
668%.
Many
of our TSN members were and are at the forefront on the fight
against the Coronavirus pandemic.
Food Safety
Food Safety presents significant potential as an
opportunity for substantial growth with continued product research
and compliance testing. With the food safety industry in North
America coming under closer scrutiny with the implementation and
enforcement of new and established guidelines, our consultants have
submitted a request to expand our current labels to include a 1%
acceptable concentration of hydrogen peroxide. This concentration
has previously been approved by the USDA and FDA for direct food
and crop application and will allow SteraMist®
to expand use sites beyond food
processing machinery, restaurants, and food contact areas to assist
in compliance with the newly established Food Safety Modernization
Act guidelines set in place by the FDA, as well as the Safe Food
for Canadians Act and Safe Food for Canadians Regulations in
Canada.
Although COVID-19 has delayed a significant
increase in our Food Safety division, the
SteraMist®
Select Surface Unit has been proven
effective for the industry. In the second quarter of 2020, the
United States Department of Agriculture (USDA), Food Safety and
Inspection Service (FSIS) and Office of Public Health and Safety
(OPHS) purchased three of these units. FSIS, a public health
regulatory agency of the USDA, protects consumers by ensuring that
meat, poultry, and egg products are safe, wholesome, and accurately
labeled. FSIS has three laboratories located in Athens, GA, St.
Louis, MO, and Albany, CA. These regulatory labs analyze meat,
poultry and egg products, to ensure that they are free of
adulteration. The labs are part of the critical infrastructure of
the country and continue to operate during the coronavirus pandemic
to provide a safe supply of food products. As the Select Surface
unit is portable and flexible, the disinfection unit can be used in
multiple areas and on different types of surfaces, which is ideal
for these labs. The units were purchased initially to provide lab
workers a safe environment to work in, however, since
SteraMist®
technology inactivates viruses and
kills bacteria. The units will also be useful after the threat of
the current pandemic ends as the Microbiology labs at all three (3)
sites handle a variety of pathogenic bacteria
routinely.
Recently, the USDA Research, Education, and
Economics Mission area in the Northeast Area purchased a
SteraMist®
Select Surface unit. Additionally, we
are seeing an increase in the interest of Universities assembling
funding to purchase SteraMist®
disinfection for their dining halls in
order to bring students back to school and open their dining halls
and cafes.
23
TOMI continues to work with premium companies in
testing and validating SteraMist®
technology in the Food Safety and seed
industries.
In
February 2021, we hired a Vice President of Sales for this division
who brings years of experience with leading TIC (Testing,
Inspection & Certification) companies and experience with food
safety diagnostic companies including 3M, NSF International and
Intertek.
Commercial
Due to a large interest and added customers in a
variety of other use sites, we launched a Commercial division.
These customers include but are not limited to use sites such as
aircraft, airports, police and fire, manufacturing companies,
automobile, military, cruise ships, shipping ports, preschool
education, primary and secondary schools, colleges including
dormitories, all modes of public and private transportation,
regulatory consulting agencies, retail, housing and recreation, and
of course emergency preparedness for counties and cities to use
SteraMist®
throughout their
community.
We
are actively pursuing federal grant monies and emergency
preparedness monies in many of these verticals.
In
October 2020, we hired a Vice President of Sales for this division
who brings 35 years of global executive leadership experience in
sales, marketing, strategy, business development, government
affairs and technology development in the aerospace, defense,
energy, and high-tech industries with companies such as GE,
Honeywell, Textron, and Airbus.
Business Highlights and Recent Events
Reverse Stock Split and Nasdaq:
On
September 10, 2020, we effected a 1-for-8 reverse stock split of
the outstanding shares of our common stock and preferred A stock.
On September 30, 2020, we announced our common stock was approved
for listing on the Nasdaq and our shares commenced trading on the
Nasdaq on October 1, 2020.
SARS CoV-2 coronavirus:
On
March 11, 2020 the World Health Organization declared the SARS
CoV-2 coronavirus a global pandemic, or the COVID-19 Pandemic, and
recommended containment and mitigation measures worldwide. We have
been identified as a disinfectant and decontamination vendor by
various agencies and countries. We have been working with
organizations to address the concerns and provide solutions for
disinfecting and decontamination of the SARS CoV-2 coronavirus. The
outbreak initially increased the demand for our products and
services. We believe that the COVID-19 Pandemic has permanently
created a public interest in disinfection. People all over the
world are seeing germs differently since this pandemic started,
mechanical disinfection is the wave of the future for this pandemic
and for the ones ahead of us. There is a permanent shift as to the
virus and in relationship to infectious control protocols which
have been changed forever.
We anticipate that the outbreak will change
requirements and protocols for disinfecting and decontamination
worldwide, of which SteraMist®
should be a solution. We are working
with our existing and new customers to develop and/or upgrade their
existing processes and requirements for disinfecting and
decontamination.
We have been addressing the increased demand for
our products as follows: (i) cooperation of our supply chain to
expedite product, (ii) increase our staff to be able to receive and
ship orders to meet customer timelines (iii) increase our customer
service support to answer questions and solve issues and (iv)
working with our TOMI service network to ensure that resources are
deployed in a timely manner. In addition, we increased our
production capacity as we entered into an agreement with a second
vendor to build our SteraMist®
products.
24
Customers:
Globally, we have added approximately two-hundred
and fifty (250) new customers across our five (5) divisions for the
year ended December 31, 2020. This represents a three-hundred and
sixty-three (363%) percent increase over the calendar year 2019.
Post COVID-19 outlook we will continue to see demand for the
SteraMist®
products and services. While the
initial outbreak saw a surge in demand for the
SteraMist®,
we expect that the demand for our products and services will
continue and we are building a team to address the post COVID-19
pandemic market opportunities. We are starting to see many of our
life science and biosafety customers come back to their
workplace.
Revenues:
Total
revenue for the year ended December 31, 2020 and 2019, was
$25,028,000 and $6,347,000, respectively, representing an increase
of $18,681,000, or 294% compared to the same prior year
period.
The
increase in revenue was attributable to increased global demand for
disinfection and infectious disease control products in response to
the COVID-19 pandemic. Although we saw a significant demand for our
product within our Hospital-Healthcare, TSN, and Commercial
divisions as a result of the COVID-19 pandemic during the first
half of 2020, we expect revenue to reflect steady growth as our
customers update their operation requirements to include
disinfecting and decontamination services into their regular
routines for all potential pathogens and across all our
divisions.
SteraMist®
product-based revenues for the years
ended December 31, 2020 and 2019, were $22,971,000 and $4,999,000,
representing an increase of $17,972,000 or 360% when compared to
the same prior year period. The growth is attributable to increased
mobile equipment orders and solution orders from our existing and
new customers. We expect solution orders to continue to grow as our
customers adopt new protocols for disinfecting and decontamination
services.
Our service-based revenue for the years ended
December 31, 2020 and 2019, was $2,057,000 and $1,348,000,
respectively, representing a year over year increase of 53%. The
increase in our service-based revenue was attributable to higher
training sales recorded in connection with onboarding new customers
and increased iHPTM
service jobs.
Our
domestic revenue for the years ended December 31, 2020 and 2019,
was $18,367,000 and $5,002,000, respectively, an increase of
$13,365,000, or 267% when compared to the same prior year period.
The increase was primarily due to the growth in our TSN network,
Hospital-Healthcare and Commercial sales.
Internationally,
our revenue for the years ended December 31, 2020 and 2019, was
approximately $6,661,000 and $1,345,000, respectively, representing
an increase of $5,316,000 or 395%. The increase in our
international revenue was attributable to the increased use and
expansion of our SteraMist®
line of products in Canada, Europe,
Asia and the Middle East. We expect our international revenue to
continue to grow as more countries adopt our products and services
as well as change their disinfecting and decontamination
requirements as countries open their borders when the COVID-19
pandemic subsides.
Due
to COVID-19, during most of 2020 and early 2021 many of our
established vertical clients were closed or required to hunker
down. The markets that were affected were our life sciences that
were nonessential, University and privately owned vivarium labs,
and many nonessential pharmaceutical research companies globally.
The healthcare industry, which has been overwhelmed and lost most
of its elective surgical and clinical revenue, had limited
non-essential onsite personnel which made it virtually impossible
to demo our equipment. Due to the decline in revenues, we are
experiencing selective limited budgets for new technology at this
time. We believe this will change mid-2021 as there will be
significant federal funds available to improve the preparedness for
subsequent pandemics. Our potential clients are already working on
reevaluating the lack of effectiveness of historic manual cleaning
process versus newer technologically driven mechanical cleaning
process which includes SteraMist. The re-opening of the country and
the rest of the world will allow us to meet with customers which
will get our core technology back on track to becoming the leading
disinfection and decontamination standard in the
world.
In
2020 we budgeted revenues to be $18.0M, with actual revenues at
approximately $25M, approximately 39% over budget. As we continue
to evaluate the post COVID-19 landscape, we will have clearer
understanding of 2021. Our goal is to meet our budgeted 2021
revenues of approximately $40 million. The goals will be driven by
the anticipated return to work of our clients and potential clients
within each of our verticals. As our customers return to work, they
will need our technology and our solution to continue their
everyday functions.
As
many industrial companies are pulling back on R&D and capital
expenditures spending due to the economic shock from the pandemic,
we are moving ahead with many new products in development. Going
forward we will spend more on capital expenditures (CapEx) and
operating expenditures (OpEx) including development of new
products, services and process technologies to sharpen our
competitive advantage. In addition, we will expand our commercial
service location to meet the expanding needs of our
customers.
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We
believe that we possess one of the best technologies in the world
in the decontamination space. This pandemic has given us the
confidence to develop a clear strategy to manufacture what may be
our best product portfolio to date. In addition, we continue to
move our BIT technology closer to becoming the standard in
disinfection and decontamination globally. This should lead to a
greater market share, increased profitability and capability
strength.
The
second half of 2020 showed us that our customers wanted a lower
cost disinfection device, even if it gave the end-user less
efficacy and the potential of damage to its personal property and
delicate equipment. Early in 2021, approximately 500,000 of the
lower cost competitors electrostatic devices were recalled by
Consumer Product Safety Commission. In addition to safety issues,
they were damaging the materials that they were being used on but
were also dangerous and causing explosions with many resulting in
fires.
In
order to respond to our customer demands of a lower cost and more
versatile product, we developed a Backpack unit that will possess
our award winning 6-log and above kill technology and speed without
the damage to space and materials. We expect our backpack to be
competitively priced and open SteraMist to the largest cleaning
market in the world-members of ISSA (International Sanitary Supply
Association) and its divisions IEHA (Integrated Environment and
Health Assessment) and EMEA (Europe, Middle East & Africa).
These organizations have historically been price conscious and were
resistant early on to our SteraMist pricing of our professional
decontamination equipment (SteraMist Surface and Environment Unit).
We plan on introducing our new innovative backpack globally in
early second quarter of 2021 with pre-orders being accepted on or
about April 1. We have budgeted to sell two thousand units in
2021.
As
of January 2021, the ELC (Epidemiology and Laboratory Capacity)
Cooperative Agreement has awarded $30 billion for all 50 states and
U.S. territories. The focus of the 2019-2024 ELC Cooperative
Agreement (CoAg) is to strengthen core public health program growth
while providing crucial flexibility needed to address emerging
infectious disease issues. These awards are for the detection,
response to, control and prevention of infectious disease. The ELC
runs to 2024 and additional awards are expected to be distributed
for 2021 – 2024.
Since
1995, the ELC program has been critical to U.S. health
departments’ ability to combat infectious
diseases.
Through ELC’s CoAg, all 50 states, several large metro areas,
and U.S. territories and affiliates receive direct financial
support to detect, respond to, control, and prevent infectious
diseases.
We believe that disinfection will and should be a line item on all
budgets going forward in both the public and private sectors and
that SteraMist provides the best disinfection solution. Dangerous
pathogens will still present themselves long after we recover from
this pandemic. While the United States and other parts of the world
are presently moving beyond this pandemic, there are many
pathogens, some of which are respiratory in nature, that represent
a looming threat. Preparedness is the most important measure to
mitigate their effect. We learned this first with Ebola and again
with SARS CoV-2. SteraMist can and will reduce the impact of the
next pandemic.
During
the pandemic, we have utilized our time to expand our salesforce in
all verticals to develop relationships in the life science and
healthcare industry. We believe Infectious Disease protocols have
changed forever due to this pandemic and the need for a speedy
comprehensive mechanical disinfectant/decontaminant will be
included in the new norm of cleaning.
Due
to the pandemic, there have been significant delays in our U.S.
regulatory agencies in approving our new 1% label for food safety
and for the FDA approving our product for reprocessing of personal
protective gear. The delays are primarily due to the regulatory
agencies not being able to have face-to-face committee meetings
with our consultants and our staff.
We believe that disinfection will be a line item on all
companies’ budgets going forward whether private, public or
government. Dangerous pathogens still exist “Disease X”
and will exist long after we recover from this pandemic. While the
United States and most of the world is currently recovering from
the SARS CoV-2 coronavirus outbreak there are many pathogens still
a looming threat, with cases occurring globally to this day. There
are 1.67 million unknown viruses in the world. Preparedness is the
most important measure to ensure your family and business survives.
We learned this with Ebola and recently with SARS CoV-2. SteraMist
can reduce the impact of the next pandemic as it has already
proven.
26
2020 Events:
In
November 2020 we announced the retention of IMS Investor Relations
to develop and execute a comprehensive investor relations and
financial communications program.
As previously released, SteraMist iHP technology
was deployed in the fight against EBOLA in West Africa, MERS in the
Kingdom of Saudi Arabia and South Korea, and in 2020 was ready to
be easily deployed throughout the world to aid in the fight against
Coronavirus, an enveloped virus. TOMI’s Binary Ionization
Technology (BIT) Solution, used exclusively in tandem with
SteraMist equipment including the Surface Unit and Environment
System, is listed on List G for Norovirus, List H for MRSA, List K
for Clostridium difficile spores, List L for Ebola, List M for H1N1, and as
of early 2020 List N: Disinfectants for Use Against SARS-CoV-2 with
labeled efficacy for large and small enveloped viruses in addition
to other pathogens.
After
a three (3) year-long submission process, TOMI received two (2)
separate registrations (SteraMist equipment and BIT solution)
officially approved and registered with the China CDC. TOMI signed
on a new distribution partner in Thailand, an exclusive partnership
with Clean Environmental Solutions along with receiving a
registration in the country. We shipped a number of units to Hong
Kong to assist with new innovative ways of helping Hong Kong with
their ongoing battle of controlling COVID-19. Routinely used to
disinfect high traffic areas, SteraMist iHP technology treated
public transportation, ambulances, hotel rooms, offices, and
universities to stop the spread of this virus with more than 50
international customers and partners ranging from countries in
Asia, Europe, and the Mideast using hundreds of SteraMist units,
many of which were deployed to stop the spread of COVID-19 in
2020.
●
A
hotel in York became the first in the United Kingdom to test
positive for COVID-19, and after receiving approval from the Public
Health of England, SteraMist was used to treat the hotel room. The
treatment was a resounding success: the room was disinfected with a
9-log inactivation, exceeding the 6-log inactivation
required.
●
ITH
Pharma relocated their eight (8) Environment Systems to an area
specifically designated for the manufacturing of COVID-19 testing
supplies under the Centers for Disease Control (CDC) procedures in
the United Kingdom.
●
Similarly,
SteraMist in Singapore, was used in the disinfection of the
National University of Singapore (NUS) upon realizing a professor
contracted the contagious virus. The Ministry of Health proceeded
to take action to stop the spread of the virus on campus, with the
university president calling on SteraMist to thoroughly disinfect
the facility - SteraMist was used in high traffic areas, such as
hand railings, lifts, and lift lobbies, and routine facility
cleaning was increased from two times a day to four times a day. In
2020, Singapore closed mosques to help stem the spread of SARS
CoV-2 coronavirus after 82 citizens returned from a religious
gathering in Malaysia with those thought to be confirmed with the
virus. Professional cleaning services worked on the premises
utilizing SteraMist disinfection, where all surfaces and
high-contact areas within facilities, such as Masjid Angullia - one
of Singapore’s oldest mosques, grateful for our superior
material computability. And, early in 2021 our partner L3M has just
sterilized a mosque in Malaysia.
●
South
Korea’s national total of COVID-19 cases grew to over 4,000
according to the South Korean Centers for Disease Control and
Prevention (KCDC). An established five-year TOMI authorized
distributor in South Korea, GD Sciences, addressed this problem by
utilizing SteraMist technology in transit systems, focusing
primarily on the metropolitan transit system of South Korea’s
capital city, Seoul which holds an annual ridership of over 1.2
billion. This same partner of TOMI’s also supplied SteraMist
decontamination to the Korea Armed Force CBR Defense Command, a
specialized team for the protection of life and death. It was used
in special areas such as hospital negative pressure isolation
rooms, operating rooms, and pharmaceutical sterile
rooms.
●
TOMI
's exclusive partner in Israel, Clean-BIT purchased over $2.4
million in 2020 of TOMI technology and Solution and secured
government contracts - including the Ministry of Defense - and
private contracts for SteraMist disinfection to be used in
hospitals, restaurants, grocery stores, food stores, ambulances and
other transportation, including aircraft. They remain on alert to
assist in an emergency situation by using SteraMist proprietary
protocols and the cutting edge SteraMist technology to address all
biological threats.
27
Along
with being on the forefront of fighting the 2020 pandemic
internationally, TOMI increased its TOMI Service Network provider
memberships and BIT solution sales dramatically increased due to
the amount of service jobs that our TSN providers conducted
including the treatment of schools, residential and commercial
buildings, rapid transit, airplanes and other transportation
methods along with many other areas. Many businesses and facilities
have taken proactive measures to help prevent the possibility of
cross-contamination, including military and multiple healthcare
facilities. Some businesses have also scheduled SteraMist service
in direct response to confirmed cases, such as fast-food
franchises. Certain members have begun to assist first responders,
supermarket chains and aerospace defense companies and government
facilities throughout the United States. TSN members throughout the
U.S. and Canada serve as a critical wide spectrum of
specializations within a variety of communities, and as a result of
this operational diversity, many businesses experience periods of
substantial growth over others depending on local
conditions.
One such member, Enviro-Mist, not only utilized
SteraMist during the PGA tour, but utilizes SteraMist technology to
treat 234,582 square feet across five Merakey Behavioral Health
campuses in Southeastern Pennsylvania on a quarterly basis.
Additionally, Merakey operations personnel treat their own
facilities using five (5) TOMI SteraMist Surface Unit disinfection
devices, one for each facility. Coronavirus has elevated
disinfection protocols adopted by the medical community and will
continue to evolve well beyond the pandemic, with further scrutiny
placed on other harmful pathogens prevalent in medical environments
such as MRSA, Clostridium difficile Spore and Candida auris.
Late
in 2020, TOMI launched its Commercial division, and has since
experienced growth in this sector that includes, but is not limited
to, aviation, police, fire and rescue departments, and emergency
community/city preparedness. Since its launch TOMI accrued a new
customer base within the Commercial division, with interest rapidly
growing and providing great feedback. Two such customers that have
integrated SteraMist into their disinfection/safety protocols are
the fire and rescue operations of Chester Fire Bureau in Chester,
PA and the fire rescue and police stations located on the airport
grounds at Cincinnati-Northern Kentucky International Airport
(CVG). Both of these enterprises share some commonality in their
requirements for disinfection and SteraMist has been proven to
perfectly fit their first responder needs. As Commissioner Rigby of
the Chester Fire Bureau stated, “The most important
consideration we have is the safety of our citizens and employees,
especially our police officers and firefighters who have been on
the front line of this pandemic alongside the amazing paramedics
and EMTs. We did not want just “good” decontamination
equipment…we wanted the “best” equipment
available to ensure that we are doing everything we can to keep our
people as safe as possible.”
TOMI
also announced that its local Operations Headquarters Frederick 911
Communications Center purchased a SteraMist Surface Unit to be used
throughout its office to combat COVID-19, quickly promoting it
within days through an article in The Frederick News-Post:
Top-of-the-line disinfecting device delivered to county 911 call
center. This initial purchase of one (1) unit has led to four (4)
additional units for other Communication Centers in the area with
budget approval in the future for ten (10) additional Surface
Units.
On
a manufacturing front, our long-term customer in the United
Kingdom, ITH Pharma an industry leader in aseptic compounding
services, mixing drugs into ready-to-use IV preparation that must
comply with stringent decontamination levels as required by
regulatory agencies such as the Medicines and Healthcare products
Regulatory Agency (MHRA), implemented an additional SteraMist eight
(8) applicator CES to service their new facility, following initial
success with a CES in use with their other refurbished facility.
Both systems have successfully been qualified and are in
use.
Mid
2020, TOMI entered into a new manufacturing agreement with Planet
Innovation who offers greater production capability with a large
production floor, providing the ability to house product and
accommodate increased production activity. Planet Innovation
specializes in healthcare technology and product commercialization,
with an established portfolio spanning well over a decade. As a
result of its significant growth in the first half of 2020, TOMI
made strides in growing and evolving its research and quality
control divisions, both of which have been involved in ongoing
discussions to ensure regulatory compliance and quality
consistency. The geography of this new manufacturer provides a
benefit of increased product availability internationally, allowing
for the significant growth of existing and future SteraMist product
end users into the Asia Pacific region, EU and Africa. The contract
has a three (3) year term, and the team is almost complete in the
design of the SteraPack™.
Robotic
applications using TOMI SteraMist iHP™ technology in
healthcare and many other industries will help to vastly reduce
direct human exposure to dangerous pathogens. TOMI signed
agreements with several companies in the Asia and Southeast Asia
region granting the right of its patented SteraMist iHP™ for
use in the development of disinfection robots. Prototype
disinfection robots have been developed and are undergoing
early-stage trials at various locations. One of TOMI’s
robotic development partners, RV Automation Technology Company
Limited successfully deployed SteraBot™ in late 2020, in a
pilot disinfection robot at the Lithuanian University Hospital of
Health Sciences.
28
Finally,
SteraMist technology once again successfully tested for direct
produce application efficacy, with testing results published in
Food Control for the third time. The United States Department of
Agriculture paper “Cold plasma-activated hydrogen peroxide
aerosol on populations of Salmonella Typhimurium and Listeria
innocua and quality changes of apple, tomato and cantaloupe during
storage – A pilot scale study” authored by Dr. Xuetong
Fan. The objective of this study sought to test direct application
of iHP™ directly onto the smooth surfaces of tomatoes and
apples, the stem scars of tomatoes, and the rinds of cantaloupes.
Resulting efficacy on the reduction of Salmonella Typhimurium and
Listeria innocua bacteria as well as any changes in quality
parameters for simulated storage were observed.
2021 Events to Date:
During
the first quarter of 2021, we hired two Vice President of Sales,
each of which, along with a Vice President of Sales, hired in the
fourth quarter of 2020, attended a week-long sales seminar hosted
by TOMI at the end of February 2021. The sales seminar was intended
to educate each sales professional about disinfection
decontamination competition in their respective divisions and the
advantages of SteraMist technology and products.
On
January 15, 2021, Dr. Halden Shane presented at the Needham Virtual
Growth Conference while continuing to pursue and enhance SteraMist
media presence across many platforms.
On
January 27, 2021, we released preliminary scientific results on one
of two studies conducted with the University of Virginia
demonstrating kill on SARS CoV-2 Virus in 5 seconds and look
forward to results on the second study achieving kill on
Adenovirus, which will help our Hospital-HealthCare, TOMI Service
Network, and Commercial markets.
Research Studies:
An
article was published on April 30, 2020, with our long-term
customer, Dana Farber in Boston on the research studies and
protocol developments of the decontamination of N95 masks and face
shields. This protocol is under review with the FDA and allows for
the disinfection of 2,000 masks in two (2) hours. Similar protocols
developed at the University of Iowa and Cedars Sinai of Los Angeles
are also under review with the FDA allowing for tens of thousands
of PPE reprocessing daily. We continue to wait for FDA EUA
approval.
We
have moved forward with testing on 1% BIT Solution in preparation
of another EPA label as we passed the third milestone for EPA
review on December 7, 2020 and our PRIA date has been extended
until early summer.
We
continue to work with our German aircraft partner and Boeing in a
third-party test required for the aviation industry. We will incur
no costs for this work as both testing partners are clients. We
anticipate the testing will be completed in Q2-21.
We
continue to work with the Virginia State University Agricultural
Research Station and its partner, Arkema on a food safety pilot
study based on novel, nonthermal, and environmentally friendly
technology to control foodborne pathogens on industrial hemp seed
and strawberry as representative model foods. The study will
investigate the efficacy of aerosolized hydrogen peroxide in
inactivating foodborne pathogens – determining the optimum
treatment conditions on microbial and physical quality of the two
model products. We anticipate the pilot to be completed
Q2-21.
We
are working with University of Virginia on two separate studies.
First, SteraMist efficacy against SARS-CoV-2 and as reported
successful results. We wait for the final published paper. The
second, against Adenovirus using the handheld SteraMist Surface
Unit and testing spray and contact time variables and we wait for
final results. We anticipate the testing will be completed in
Q3-21.
TOMI
has partnered with the Department of Chemistry and Biochemistry of
Texas Tech University to conduct a wide range of studies on spray
pattern, deposition, and hydrogen peroxide content in order to
compare our 1% label to other similar products on the
market.
We continue to participate in a large multi-year
federal funded study, known as the “SHIELD study”, that
compares hospital manual cleans to a SteraMist® mechanical
clean. Preliminary results collected by the current hospitals in
the study is showing a decrease in the transference of pathogens
resulting in HAIs and Clostridium difficile infections in the rooms that used
SteraMist® for
their terminal clean, as compared to the rooms that have been
manually cleaned. University of California, Los Angeles expanded
involvement in the SHIELD study allowing for additional collection
of data to validate the value of SteraMist® technology
in hospitals, this expansion has been postponed until the threat of
COVID-19 decreases and on-site EVS training can
continue.
29
Product Development:
We
have added four (4) new products to our growing line of
products:
SteraBot™
SteraBot™
is an autonomous, machine-based solution that provides a more
precise and efficient disinfection and decontamination, eliminating
potential human error and reducing a facility’s operating
expenses. It incorporates Automated Guided Vehicle (AGV) technology
for intuitive maneuverability in unmapped environments, perfect for
high touch surfaces maneuvering high and low, side by side, and
multi-angle directions. The software allows for enhanced AI
capability to optimize and execute mapping, autonomous navigation,
and disinfection routines based on proprietary algorithms. The
software also ensures the efficacy of SteraMist iHP™
disinfection under optimal operating parameters directed by TOMI,
including the support of handheld disinfection. Currently, the
SteraBot™ has been developed for testing internationally. The
Picture above demonstrates the one applicator robot version, and we
are currently in development of a three-applicator version. The
consumer will have a choice between a one applicator or a
three-applicator version depending on needs. We expect to launch
the SteraBot in late Q2-2021.
SteraPack™
The
soon to be launched domestically and internationally,
SteraPack™ will be a portable battery supplied product
producing the 5-second per square foot with no wet contact time,
high efficacy iHP™ technology. The SteraPack™ is
approximately 25 pounds with a run time of 45 minutes and will hold
a 1.0-liter BIT™ Solution bottle. The SteraPack™ will
have a 4-foot hybrid cable length, an ergonomic padded harness
which provides inputs for strap length and adjustment
ranges.
30
|
TOMI’s SteraMist Drive-in CES Decontamination System at
Frederick
TOMI
has a recently installed Customer Engineered System in its
Frederick Operations Office. The system houses three (3) permanent
90-degree rotating applicators and one (1) additional applicator
used for manual spraying. The full-service iHP disinfection room
was launched for emergency, police, fire, medical transports,
specialized transports, personal vehicles, auto dealerships for new
and used cars. In addition, our decontamination room can treat
personal and workplace equipment, furniture, sports equipment,
contaminated shipments and a lot more.
The SteraMist®
systems are versatile and easy to
maintain with relatively low upkeep. In fact, preventive
maintenance is not required to be performed by a service engineer
and remote guidance can be provided upon
request.
|
|
 |
|
|
|
|
|
SteraMist®
SteraBox
Late
in 2020, TOMI sold its first decontamination chamber. Currently we
now sell our chamber in two separate sizes and it is sold with the
Select Surface Unit or the Environment System and is dependent on
the customers decontamination needs. This product is remotely
initiated and includes a self-contained exhaust system without fear
of hydrogen peroxide exposure to the surrounding area. The customer
experiences speed, efficacy, and expansive material compatibility
in a controlled, customizable cabinet decontaminating all needs
with ease. The Chamber is expected to launch into the market in
Q2-2021
|
|
 |
Registrations & Intellectual Property (IP):
Our
portfolio includes more than twenty (20) Utility
Patent applications worldwide for both method and
system claims on SteraMist® BIT™,
either published or undergoing prosecution. Most
recently, in November 2020, we were granted utility
patents in Australia and Israel for our
SteraMist® BIT™ technology. In
the recent past, we have obtained two related US utility patents
giving us protection of our technology until the year 2038, and we
are pursuing further claims to additional capabilities in on-going
US and worldwide patent applications. In May 2020, we filed a
PCT application for further additional applications of
SteraMist® BIT™ which
were determined to be novel and inventive by the international
search authority.
Further
in 2020, we submitted utility patents in multiple
countries which are all in the national stage for review under
the patent prosecution highway for claims found novel and inventive
by the international search authority. Once these are received, we
will hold international acceptance for the inherited patents and
our newly received patents. During 2020, we were 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
thirty-two (32) separate design patents for our: Decontamination
Chamber(s), Decontamination Applicator, Decontamination Cart,
Applicator, and Surface Mounted Applicator 90-Degree Device.
These patents are published around the world, including but not
limited to United States, China, Hong Kong, Europe, United Kingdom,
Singapore, Taiwan, Vietnam, Canada, South Korea, and
Japan.
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 March 1,
2021, we held a total of one hundred seventy-eight
(178) trademarks (word and logo) registered or pending across
the globe. TOMI registers marks in seven (7) classes of
specification of goods and services: Class 1 for Chemicals for
Treating Hazardous Waste, Class 5 for Disinfectants, All-Purpose
for Hard Surfaces and for Treating Mold, Class 7 for Handheld Power
Operated Spraying Machines, Class 11 for Sterilizers for Medical
Use and Air Purification, Class 35 for Business Consultation and
Management Services, Class 37 for General Disinfecting Services,
and Class 40 for Chemical Decontamination and Manufacturing
Services.
31
Financial Operations Overview
Our
financial position as of December 31, 2020 and 2019, respectively,
was as follows:
|
|
December 31,
2020
|
December 31,
2019
|
|
Total
shareholders’ equity
|
$13,203,000
|
$890,000
|
|
Cash
and cash equivalents
|
$5,199,000
|
$897,000
|
|
Accounts
receivable, net
|
$3,717,000
|
$1,495,000
|
|
Inventories,
net
|
$3,782,000
|
$2,315,000
|
|
Prepaid
expenses
|
$421,000
|
$188,000
|
|
Vendor
Deposits
|
$389,000
|
$141,000
|
|
Other
Receivables
|
$199,000
|
$-
|
|
Current
liabilities (excluding convertible notes)
|
$2,203,000
|
$1,302,000
|
|
Convertible
notes payable, net
|
$-
|
$5,000,000
|
|
Long-term
liabilities
|
$1,364,000
|
$1,034,000
|
|
Working
Capital (excluding convertible notes)
|
$11,503,000
|
$3,734,000
|
|
Working
Capital (including convertible notes)
|
$11,503,000
|
$(1,266,000)
|
During
the year ended December 31, 2020, our debt and liquidity positions
were affected by the following:
●
Net
cash provided from operations of $4,578,000
●
Proceeds
from loan payable of $411,000
●
Net cash used in
investing activites of $401,000
●
Proceeds
from exercise of outstanding warrants and options to purchase
common stock of $214,000
●
Conversion
of convertible notes payable with a principal balance of $4,500,000
into shares of common stock
●
Repayment
of convertible note payable with a principal balance of
$500,000
Results of Operations for the Year Ended December 31, 2020 Compared
to the Year Ended December 31, 2019
|
|
For The Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
Revenue,
Net
|
$25,028,000
|
$6,347,000
|
$18,681,000
|
294%
|
|
Gross
Profit
|
15,043,000
|
3,914,000
|
11,129,000
|
284%
|
|
Total Operating Expenses (1)
|
10,534,000
|
5,997,000
|
4,537,000
|
76%
|
|
Income
(Loss) from Operations
|
4,509,000
|
(2,083,000)
|
6,592,000
|
NM(2)
|
|
Total
Other Income (Expense)
|
(40,000)
|
(214,000)
|
174,000
|
NM(2)
|
|
Provision
for Income Taxes
|
(77,000)
|
-
|
(77,000)
|
NM(2)
|
|
Net
Income (Loss)
|
$4,391,000
|
$(2,297,000)
|
$6,689,000
|
NM(2)
|
|
Basic
Net Income (Loss) per share
|
$0.27
|
$(0.15)
|
$0.42
|
NM(2)
|
|
Diluted
Net Income (Loss) per share
|
$0.23
|
$(0.15)
|
$0.38
|
NM(2)
|
(1)
Includes
$3,131,000 and $114,000 in non-cash equity compensation expense for
the years ended December 31, 2020 and 2019,
respectively.
(2)
NM
– Not Meaningful
Sales
During the years ended December 31, 2020 and
2019, we had net revenue of approximately $25,028,000 and
$6,347,000, respectively, representing an increase in revenue of approximately $18,681,000 or 294%. The increase in
revenue was attributable to increased global demand for
disinfection and infectious disease control products in response to
the COVID-19 Pandemic. Although we saw a significant demand for our
product within our Hospital-Healthcare, TSN, and Commercial
divisions as a result of the COVID-19 Pandemic during the first
half of 2020, we expect revenue to reflect steady growth as our
customers update their operation requirements to include
disinfecting and decontamination services into their regular
routines for all potential pathogens and across all our
divisions.
32
As
customers mature through the product and adoption cycle and our
sales pipeline converts to revenue, we expect to have more
predictable sales quarter over quarter. Further, as the COVID-19
pandemic subsides, we expect that the demand for our products and
services will continue and we are building a team to address the
post COVID-19 pandemic market opportunities.
Net Revenue
Product and Service Revenue
|
|
For the Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
SteraMist
Product
|
$22,971,000
|
$4,999,000
|
$17,972,000
|
360%
|
|
Service
and Training
|
2,057,000
|
1,348,000
|
709,000
|
53%
|
|
Total
|
$25,028,000
|
$6,347,000
|
$18,681,000
|
294%
|
Revenue by Geographic Region
|
|
For The Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
United
States
|
$18,367,000
|
$5,002,000
|
$13,365,000
|
267%
|
|
International
|
6,661,000
|
1,345,000
|
5,316,000
|
395%
|
|
Total
|
$25,028,000
|
$6,347,000
|
$18,681,000
|
294%
|
Cost of Sales
|
|
For The Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
Cost
of Sales
|
$9,985,000
|
$2,433,000
|
$7,552,000
|
310%
|
Cost
of sales was $9,985,000 and $2,433,000 for the year ended December
31, 2020 and 2019, respectively, an increase of $7,552,000, or
310%, compared to the prior year. The primary reason for the
increase in cost of sales is attributable to the increase in
revenue in the current year. Our gross profit as a percentage of
sales for the years ended December 31, 2020 was 60.1% compared to
61.7% in the same prior period, respectively. The lower gross
profit is attributable to the product mix in sales. As revenues
continue to grow and we are able to negotiate more favorable
pricing from our vendors, we anticipate that our cost per unit
could decrease.
Professional Fees
|
|
For The Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
Professional
Fees
|
$681,000
|
$364,000
|
$317,000
|
87%
|
Professional
fees are comprised mainly of legal, accounting, and financial
consulting fees.
Professional
fees were $681,000 and $364,000 for the years ended December 31,
2020 and 2019, respectively, an increase of approximately $317,000,
or 87%, in the current year period. The increase is attributable to
additional professional fees in connection with our up list to the
Nasdaq.
33
Depreciation and Amortization
|
|
For The Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
Depreciation
and Amortization
|
$720,000
|
$716,000
|
$4,000
|
1%
|
Depreciation
and amortization were approximately $720,000 and $716,000 for the
years ended December 31, 2020 and 2019, respectively, representing
an increase of $4,000, or 1%.
Selling Expenses
|
|
For The Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
Selling
Expenses
|
$1,247,000
|
$1,655,000
|
$(408,000)
|
(25)%
|
Selling expenses for the year ended December 31,
2020 were approximately $1,247,000, as compared to
$1,655,000 for the year ended
December 31, 2019, representing a decrease of approximately $408,000 or 25%.
We continue to invest and allocate resources into our sales,
marketing and advertising initiatives and have increased efforts in
the current year in order to further develop our brand recognition
and grow our base of customers. The decline in selling expenses is
primarily due to a revision of our sales department as well as a
complete reduction in tradeshow costs in the current year period as
a result of the COVID-19 pandemic. We expect tradeshow expenses to
continue to decline this year in connection with the COVID-19
pandemic as physical distancing continues to remain in effect. We
expect to increase our external sales team strategy during 2021
along with adding internal senior sales and sector Vice Presidents
to address the increase in the demand for our products and
services.
Research and Development
|
|
For the Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
Research
and Development
|
$455,000
|
$341,000
|
$114,000
|
33%
|
Research and development expenses for the year
ended December 31, 2020 were approximately $455,000, as compared to
$341,000 for the year ended December 31, 2019, representing an
increase of approximately
$114,000, or 33%. The increase in research and development expenses
is attributable to new product development and increased
testing.
Equity Compensation Expense
|
|
For The Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
Equity
Compensation Expense
|
$3,131,000
|
$114,000
|
$3,017,000
|
2,646%
|
Equity
compensation expense was $3,131,000 and $114,000 for the years
ended December 31, 2020 and 2019, respectively, representing an
increase of $3,017,000 or 2,646%. The increase in equity
compensation expense relates to the timing of warrants issued to
executives and consultants in 2020.
34
Consulting Fees
|
|
For the Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
Consulting
Fees
|
$327,000
|
$127,000
|
$200,000
|
157%
|
Consulting
fees were $327,000 and $127,000 for the year ended December 31,
2020 and 2019, respectively, representing an increase of $200,000,
or 157%, in the current year period. The increase is due to the
timing of certain projects that occurred in the current year that
did not occur in the same prior year period.
General and Administrative Expense
|
|
For The Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
General
and Administrative
|
$3,972,000
|
$2,681,000
|
$1,291,000
|
48%
|
General
and administrative expense includes salaries and payroll taxes,
rent, insurance expense, utilities, office expense and product
registration costs.
General
and administrative expense was $3,972,000 and $2,681,000 for the
years ended December 31, 2020 and 2019, respectively, an increase
of $1,291,000, or 48%, in the current year period. The increase in
General and administrative expense is attributable to a higher
employee headcount and higher wages as well as an increase in
international product registration.
Other Income and Expense
|
|
For The Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
Amortization
of Debt Discounts
|
$-
|
$(18,000)
|
$18,000
|
NM
|
|
Interest
Income
|
2,900
|
3,000
|
(100)
|
(3)%
|
|
Interest
Expense
|
(44,000)
|
(200,000)
|
156,000
|
(78)%
|
|
Other
Income (Expense)
|
$(41,100)
|
$(215,000)
|
$173,900
|
(81)%
|
Amortization
of debt discount was $0 and $18,000 for the years ended December
31, 2020 and 2019, respectively. Amortization of debt discount for
the year ended December 31, 2019, consisted of the amortization of
debt discount on the $6,000,000 principal amount of Notes issued in
March and May 2017. The debt discount was amortized over the life
of the Notes utilizing the effective interest method.
Interest
income was $2,900 and $3,000 for the years ended December 31, 2020
and 2019, respectively.
Interest
expense was $44,000 and $200,000 for the years ended December 31,
2020 and 2019, respectively. Interest expense for the years ended
December 31, 2020 and 2019 primarily consisted of the interest
incurred on the $6,000,000 principal amount of Notes issued in
March and May 2017 of which $4,500,000 was converted to common
stock in March, 2020 and the remaining $500,000 was paid in cash in
March 2020.
Provision for Income Taxes
|
|
For The Years Ended
December 31,
|
Change
|
||
|
|
2020
|
2019
|
$
|
%
|
|
Provision
for Income Taxes
|
$77,000
|
$-
|
$77,000
|
NM
|
Provision
for income taxes was $77,000 and $0 for the years ended December
31, 2020 and 2019, respectively.
35
Liquidity and Capital Resources
As
of December 31, 2020, we had cash and cash equivalents of
$5,199,000 and working capital of $11,503,000. Our principal
capital requirements are to fund operations, invest in research and
development and capital equipment, and the continued costs of
public company filing requirements. We have historically funded our
operations through debt and equity financings.
In
March 2020, convertible notes with a principal balance of
$4,500,000 were converted into 1,041,667 shares of our common stock
at a conversion price of $4.32 per share and the remaining
outstanding balance of $500,000 was repaid in the form of
cash.
For
the year ended December 31, 2020 we generated income from
operations of $4,509,000 and for the year ended December 31, 2019,
we incurred losses from operations of ($2,083,000). Cash
provided from operations for the year ended December 31, 2020, was
$4,578,000. Cash used in operations was ($814,000) for the year
ended December 31, 2019.
A
breakdown of our statement of cash flows for the year ended
December 31, 2020 and 2019 is provided below:
|
|
For the Year Ended
December 31,
|
|
|
|
2020
|
2019
|
|
Net
Cash Provided By (Used) in Operating Activities
|
$4,578,000
|
$(814,000)
|
|
Net
Cash Used in Investing Activities
|
$(401,000)
|
$(293,000)
|
|
Net
Cash Provided By Financing Activities:
|
$124,000
|
$-
|
Operating Activities
Cash provided by operating
activities for the year ended
December 31, 2020 was $4,578,000, compared to cash used in
operations for the year ended December 31, 2019 of ($814,000). Our
cash provided by operations improved in the current year period as
a result of increased revenue and net income.
Investing Activities
Cash used in investing
activities for the years ended
December 31, 2020 and 2019 was $401,000 and $293,000,
respectively.
Financing Activities
Cash
provided by financing activities for the years ended December 31,
2020 and 2019 was $124,000 and $0, respectively. The cash provided
by financing activities increased in the current period due to the
proceeds from the exercise of warrants and options in the amount of
$214,000 and proceeds from loans payable of $411,000 offset by
repayment of the principal balance of the convertible notes of
$500,000.
Liquidity
Our revenues can fluctuate due to the following factors, among
others:
●
ramp
up and expansion of our internal sales force and
manufacturers’ representatives;
●
length
of our sales cycle;
●
global
response to the outbreak of COVID-19 Pandemic;
●
expansion
into new territories and markets; and
●
timing
of orders from distributors.
We
could incur operating losses and an increase of costs related to
the continuation of product and technology development, and sales
expense as we continue to grow our sales teams and geographic
presence, tooling capital expenditures as we ramp up and streamline
our production and administrative activities including compliance
with the Sarbanes-Oxley Act of 2002 Section 404.
36
Management
has taken and will endeavor to continue to take a number of actions
in order to improve our results of operations and the related cash
flows generated from operations in order to strengthen our
financial position, including the following items:
●
expanding
our label with the EPA to further our product registration
internationally;
●
continued
expansion of our internal sales force and manufacturer
representatives in an effort to drive global revenue in all
verticals;
●
Continue
research and development and add new products to our
“Stera” product line
●
source
alternative lower-cost suppliers;
●
expansion
of international distributors; and
●
continued
growth in all of our verticals.
We expect that the cash we generate from our core operations will
generally be sufficient to cover our future capital expenditures
and to pay down our near-term debt obligations, although we may
choose to seek alternative financing sources.
We
believe that our existing balance of cash and cash equivalents and
amounts expected to be provided by operations will provide us with
sufficient financial resources to meet our cash requirements for
operations, working capital and capital expenditures over the next
twelve months.
Critical Accounting Policies and 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 policies as those that are, in
management’s view, most important to the portrayal of our
financial condition and results of operations and most demanding of
our judgment. We consider the following policies to be critical to
an understanding of our 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 Update (ASU) No. 2014-09, Revenue
from Contracts with Customers (Topic 606). We recognize revenue
when we transfer promised goods or services to customers in an
amount that reflects the consideration to which we expect to be
entitled in exchange for those goods or services. To determine
revenue recognition for contracts with customers we perform the
following five steps: (i) identify the contract(s) with a customer;
(ii) identify the performance obligation(s) in the contract; (iii)
determine the transaction price; (iv) allocate the transaction
price to the performance obligation(s) in the contract; and (v)
recognize revenue when (or as) we satisfy the performance
obligation(s). At contract inception, we assess the goods or
services promised within each contract, assess whether each
promised good or service is distinct and identify those that are
performance obligations.
We
must use judgment to determine: a) the number of performance
obligations based on the determination under step (ii) above and
whether those performance obligations are distinct from other
performance obligations in the contract; b) the transaction price
under step (iii) above; and c) the stand-alone selling price for
each performance obligation identified in the contract for the
allocation of transaction price in step (iv) above.
Title
and risk of loss generally pass to our customers upon shipment. Our
Customers include end users as well as dealers and distributors who
market and sell our products. Our revenue is not contingent upon
resale by the dealer or distributor, and we have no further
obligations related to bringing about resale. Shipping and handling
costs charged to customers are included in Product Revenues. The
associated expenses are treated as fulfillment costs and are
included in Cost of Revenues. Revenues are reported net of sales
taxes collected from Customers.
37
Product
revenue includes sales from our standard and customized equipment,
solution and accessories sold with our equipment. Revenue is
recognized upon transfer of control of promised products to
customers in an amount that reflects the consideration we expect to
receive in exchange for those products.
Service
and training revenue include sales from our high-level
decontamination and service engagements, validation of our
equipment and technology and customer training. Service revenue is
recognized as the agreed upon services are rendered to our
customers in an amount that reflects the consideration we expect to
receive in exchange for those services.
Costs to Obtain a Contract with a Customer
We
apply a practical expedient to expense costs as incurred for costs
to obtain a contract with a customer when the amortization period
would have been one year or less. We generally expense sales
commissions when incurred because the amortization period would
have been one year or less. These costs are recorded within selling
expenses.
Contract Balances
As
of December 31, 2020, and December 31, 2019 we did not have any
unsatisfied performance obligations for (i) contracts with an
original expected length of one year or less and (ii) contracts for
which we recognize revenue at the amount to which we have the right
to invoice for services performed.
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.
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 accounts
receivable, inventory, fair values of financial instruments,
intangible assets, useful lives of intangible assets and property
and equipment, fair values of stock-based awards, income taxes, and
contingent liabilities, among others. We base our estimates on
historical experience and on various other assumptions that are
believed to be reasonable, the results of which form the basis for
making judgments about the carrying values of our assets and
liabilities.
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.
|
38
Our
financial instruments include cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses. All these items
were determined to be Level 1 fair value measurements.
The
carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximated fair value
because of the short maturity of these instruments.
Cash and Cash Equivalents
For
purposes of the statement of cash flows, cash and cash equivalents
includes cash on hand, held at financial institutions and other
liquid investments with original maturities of three months or
less. At times, these deposits may be in excess of insured
limits.
Accounts Receivable
Our
accounts receivable are typically from credit worthy customers or,
for certain international customers, are supported by pre-payments.
For those customers to whom we extend credit, we perform periodic
evaluations of them and maintain allowances for potential credit
losses as deemed necessary. We have a policy of reserving for
doubtful accounts based on our best estimate of the amount of
potential credit losses in existing accounts receivable. We
periodically review our accounts receivable to determine whether an
allowance is necessary based on an analysis of past due accounts
and other factors that may indicate that the realization of an
account may be in doubt. Account balances deemed to be
uncollectible are charged to the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote.
Inventories
Inventories
are valued at the lower of cost or market using the first-in,
first-out (FIFO) method. Inventories consist primarily of finished
goods.
We
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. We record an allowance for
estimated losses when the facts and circumstances indicate that
particular inventories may not be usable.
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
In February 2016, the FASB issued ASU No. 2016-02
(ASC 842), Leases, to require lessees to recognize all leases, with
certain exceptions, on the balance sheet, while recognition on the
statement of operations will remain similar to current lease
accounting. Subsequently, the FASB issued ASU No. 2018-10,
Codification
Improvements to Topic 842, Leases, ASU No. 2018-11, Targeted
Improvements, ASU No.
2018-20, Narrow-Scope Improvements for
Lessors, and ASU
2019-01, Codification
Improvements, to clarify and
amend the guidance in ASU No. 2016-02. ASC 842 eliminates real
estate-specific provisions and modifies certain aspects of lessor
accounting. This standard is effective for interim and annual
periods beginning after December 15, 2018, with early adoption
permitted. We adopted ASC 842 as of January 1, 2019 using the
modified retrospective basis with a cumulative effect adjustment as
of that date. In addition, we elected the package of practical
expedients permitted under the transition guidance within the new
standard, which allowed us to carry forward the historical
determination of contracts as leases, lease classification and not
reassess initial direct costs for historical lease arrangements.
Accordingly, previously reported financial statements, including
footnote disclosures, have not been recast to reflect the
application of the new standard to all comparative periods
presented.
39
Operating
lease assets are included within operating lease right-of-use
assets, and the corresponding operating lease liabilities are
recorded as current portion of long-term operating lease, and
within long-term liabilities as long-term operating lease, net of
current portion on our consolidated balance sheet as of December
31, 2020 and December 31, 2019.
We
have elected not to present short-term leases on the consolidated
balance sheet as these leases have a lease term of 12 months or
less at lease inception and do not contain purchase options or
renewal terms that we are reasonably certain to exercise. All other
lease assets and lease liabilities are recognized based on the
present value of lease payments over the lease term at commencement
date. Because most of our leases do not provide an implicit rate of
return, we used our incremental borrowing rate based on the
information available at adoption date in determining the present
value of lease payments.
Capitalized Software Development Costs
In
accordance with ASC 985-20 regarding the development of software to
be sold, leased, or marketed we expense such costs as they are
incurred until technological feasibility has been established, at
and after which time those costs are capitalized until the product
is available for general release to customers. The periodic expense
for the amortization of capitalized software development costs will
be included in cost of sales.
Accrued Warranties
Accrued
warranties represent the estimated costs, if any, that will be
incurred during the warranty period of our products. We estimate
the expected costs to be incurred during the warranty period and
record the expense to the consolidated statement of operations at
the date of sale. Our manufacturers assume the warranty against
product defects which we extend to our customers upon sale of the
product. We assume responsibility for product reliability and
results.
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 Accounting Standards Codification (ASC) guidance
for income taxes.
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 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.
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
and is recognized as expense over the requisite service
period.
On
July 7, 2017, our shareholders approved the 2016 Equity Incentive
Plan, or the 2016 Plan. The 2016 Plan authorizes the grant of stock
options, stock appreciation rights, restricted stock, restricted
stock units and performance units/shares. Up to 625,000 shares of
common stock are authorized for issuance under the 2016 Plan.
Shares issued under the 2016 Plan may be either authorized but
unissued shares, treasury shares, or any combination thereof.
Provisions in the 2016 Plan permit the reuse or reissuance by the
2016 Plan of shares of common stock for numerous reasons,
including, but not limited to, shares of common stock underlying
canceled, expired, or forfeited awards of stock-based compensation
and stock appreciation rights paid out in the form of cash. Equity
compensation expense will typically be awarded in consideration for
the future performance of services to us. All recipients of awards
under the 2016 Plan are required to enter into award agreements
with us at the time of the award; awards under the 2016 Plan are
expressly conditioned upon such agreements.
On
December 30, 2020, we received shareholder approval to restate and
amend the 2016 Equity Incentive Plan to increase the maximum number
of shares of common stock authorized from issuance by 1,375,000,
from 625,000 shares to 2,000,000.
40
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, 2020 and
2019.
Recent Accounting Pronouncements
In
August 2018, the FASB issued ASU No. 2018-15,
“Intangibles-Goodwill and Other-Internal-Use Software (Topic
350): Customer’s Accounting for Implementation Costs Incurred
in a Cloud Computing Arrangement That is a Service Contract.”
This new guidance aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a
service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use
software. This new guidance is effective on a prospective or
retrospective basis beginning on January 1, 2020, with early
adoption permitted. We elected to adopt this guidance early, in
2020 on a prospective basis. The new guidance did not have a
material impact on our Consolidated Financial
Statements.
Off-Balance Sheet Arrangements
None.
Item 7A.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not
required.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The
financial statements required by this item are included in Part IV,
Item 15 of this Annual Report on Form 10-K, beginning on page F-1,
and are incorporated by reference herein.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our
management, with the participation of our Principal Executive
Officer and Principal Financial Officer, conducted an evaluation of
the effectiveness of our disclosure controls and procedures (as is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as
of the end of the period covered by this 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.
41
Based
on that evaluation, our Principal Executive Officer and Principal
Financial Officer have concluded that, as of the end of the period
covered by this Annual Report, our disclosure controls and
procedures were effective. Our management has concluded that the
financial statements included in this Annual Report on Form 10-K
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.
Management’s Annual Report on Internal Control Over Financial
Reporting
Management
is responsible for establishing and maintaining adequate internal
control over our financial reporting (as defined in Rule 13a-15(f)
and 15d-15(f) under the Exchange Act). Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States.
Our
internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets, (ii) provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America, and that our receipts and expenditures are being made only
in accordance with authorizations of our management and directors,
and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of
our assets that could have a material effect on the financial
statements. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our management, with the participation of our
Principal Chief Executive Officer and our Principal Chief Financial
Officer, conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in
Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, our Principal Chief Executive Officer along with our
Principal Chief Financial Officer concluded that, as of the end of
the period covered by this Annual Report on Form 10-K, our internal
control over financial reporting was effective. Our internal
control over financial reporting was not subject to attestation by
our independent registered public accounting firm as we are not an
accelerated filer, nor a large accelerated
filer.
Changes in Internal Control Over Financial Reporting
During
our most recent fiscal quarter, 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.
Item 9B. OTHER INFORMATION
None.
42
PART III
Item
10.
DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
Our
directors and executive officers and their ages and positions as of
March 21, 2021 are presented below.
|
Name
|
|
Age
|
|
Position
|
|
Halden S. Shane
|
|
76
|
|
Chief Executive Officer and Chairman of the Board
|
|
Elissa J. Shane
|
|
41
|
|
Chief Operating Officer
|
|
Nick Jennings
|
|
43
|
|
Chief Financial Officer
|
|
Harold W. Paul
|
|
72
|
|
Director, Secretary
|
|
Walter C. Johnsen
|
|
70
|
|
Director
|
|
Kelly J. Anderson
|
|
53
|
|
Director
|
|
Lim Boh Soon
|
|
65
|
|
Director
|
|
|
|
|
|
|
Halden
S. Shane: Dr. Shane has been
our Chief Executive Officer and Chairman of the Board since October
15, 2007, when we commenced our current operations.
Dr. Shane
also served as President and CEO of Tiger Management International,
a private management company that deals in business management of
private and public companies. Dr. Shane resigned all positions and
closed Tiger Management International in 2009. Dr. Shane was
founder and CEO of Integrated Healthcare Alliance, Inc. and also
founder and General Partner of Doctors Hospital West Covina,
California. Prior thereto, Dr. Shane practiced Podiatric Surgery
specializing in ankle arthroscopy. Dr. Shane received his
Bachelor of Science degree from the University of Miami in 1969,
his Bachelor of Medical Science degree from California College of
Podiatric Medicine in 1971, and his Doctor of Podiatric Medicine
Degree from the California College of Podiatric Medicine in 1973.
He is Board Certified by the American Board of Podiatric Surgery,
American Board of Orthopedics, and the American Board of Quality
Assurance and Review. Dr. Shane brings to our Board experience
in in the medical and finance industries.
Elissa
J. Shane: Ms. Shane
has been
our Chief Operating Officer since January
2018. Previously, she served
as our Chief Regulatory
and Compliance Officer from September 2015 to December 2017
and as our Corporate
Secretary in 2016. From January 2014 to September 2015, Ms. Shane
served as a paralegal with Levi Lubarsky Feigenbaum & Weiss
LLP, where she worked with the firm’s managing
partners and staff attorneys and directed all operational aspects
of the litigation cycle from inception through appeal. From
September 2009 to January 2014, she served as a paralegal with
Olshan Frome Wolosky LLP, where she managed all regulatory and
compliance issues, litigation procedures and advertising and
promotional matters. Ms. Shane received a B.A. in Psychology and
Communications with a minor in Economics from the University of
Southern California in 2001.
Nick
Jennings: Mr. Jennings has been
our Chief Financial Officer since October 2014. From July 2014
until his employment by the Company, Mr. Jennings was self-employed
and provided consulting, accounting and tax compliance services to
private-owned companies. From November 2006 until June 2014, Mr.
Jennings was a senior manager at Richardson Kontogouris Emerson
LLP, where he worked with various public and private companies
providing services in a variety of business areas including tax
compliance, tax consulting, general accounting, and business
assurance. He is a graduate of Loyola Marymount College with a
degree in accounting and is a member of the American Institute of
Certified Public Accountants.
Harold
W. Paul: Mr. Paul has been one
of our directors since June 2009 and currently acts as our
Corporate Secretary. He has been engaged in the private practice of
law for more than thirty-five years, primarily as a securities
specialist. Mr. Paul has been company counsel to public companies
listed on the AMEX, NASDAQ and OTC exchanges. He has served as a
director for six public companies in a variety of industries,
including technology and financial services. He holds a BA degree
from SUNY at Stony Brook and a JD from Brooklyn Law School and is
admitted to practice in New York and Connecticut. Mr. Paul brings
to our Board experience as a director of public companies and with
the United States securities laws.
Walter
C. Johnsen:
Mr. Johnsen
has been one of our directors since January 29, 2016. Since January
1, 2007, Mr. Johnsen has served as Chairman of the Board and Chief
Executive Officer of Acme United Corporation, a leading worldwide
supplier of innovative branded cutting, measuring and safety
products in the school, home, office, hardware & industrial
markets. From November 30, 1995 to December 31, 2006, he held the
titles of President and Chief Executive Officer at Acme United. Mr.
Johnsen previously served as Vice Chairman and a principal of
Marshall Products, Inc., a medical supply distributor. Mr. Johnsen
holds a Bachelor of Science in Chemical Engineering and a Master of
Science in Chemical Engineering from Cornell University, and a
Master of Business Administration from Columbia University. The
Board concluded that Mr. Johnsen’s business and operations
experience allows him to serve as one of our
directors.
43
Kelly
J. Anderson:
Ms.
Anderson has been one of our directors since January 29, 2016. Ms.
Anderson is the Chief Executive Officer of CXO Executive Solutions,
LLC, a provider of executive services. Ms. Anderson is also a board
member, including audit committee and compensation committee of
Guardion Health Sciences, Inc. and Concierge Technologies, Inc.
Between 2015 and July 2020, Ms. Anderson served as a partner in C
Suite Financial Partners, a financial consulting services company
dedicated to serving private, public, private equity,
entrepreneurial, family office and government-owned firms in all
industries. Ms. Anderson is an inactive California CPA and a 1989
graduate of the College of Business and Economics at California
State University, Fullerton. The Board concluded that Ms.
Anderson’s experience in finance qualifies her to serve as
one of our directors.
Dr. Lim Boh
Soon: Dr. Lim has served as a
member of the Board since January 2018. Dr. Lim has more than 25
years of experience in the banking and finance industry. For more
than the past five years, he has been a fellow of the Singapore
Institute of Directors and is currently an independent
non-executive director on the board of one publicly listed company
on the Singapore Stock Exchange. Since October 2015, Dr. Lim has
been a director of Jumbo Group Limited and from June 2017 until
September 2019, Dr. Lim also served a a director of OUE Commercial
REIT Management Pte. Ltd, a publicly listed company on the
Singapore Stock Exchange. In addition, Dr. Lim has worked in
various senior management positions for several regional and
multi-national organizations, including UBS Capital Asia Pacific
Limited, The NatSteel Group, Rothschild Ventures Asia Limited and
The Singapore Technologies Group. Dr. Lim was also a member of the
Regional Investment Committee for UBS AG in Asia. Dr. Lim graduated
with a First-Class Honors in Mechanical Engineering from The
University of Strathclyde in the United Kingdom (formerly The Royal
College of Science & Technology) in 1981 and obtained his
Doctor of Philosophy in Mechanical Engineering from The University
of Strathclyde in the United Kingdom in 1985. We believe that Dr.
Lim’s experience as a director of public companies and in the
finance industry qualifies him to serve on the
Board.
Family Relationships
Ms. Elissa J.
Shane, our Chief Operating
Officer, is the daughter of Dr.
Halden Shane, our Chief
Executive Officer and Chairman of the Board.
Board Composition
Our Board currently consists of five members. Our bylaws provide
that our directors will hold office until their successors have
been duly elected and qualified. Our Board is responsible for the
business and affairs of our Company and considers various matters
that require its approval. Our executive officers are appointed by
our Board and serve at its discretion.
Audit Committee
Our Audit Committee was established in June 2009
and currently is comprised of
Ms. Anderson, Mr. Johnsen and Dr. Lim. Ms. Anderson serves as
chairperson of the Audit Committee. The Company relies on the
exemption related to Mr. Johnsen’s lack of standing as a
financial expert, since a majority of the Audit Committee was
comprised of financial experts and does not believe the committee
composition materially affects its ability to act independently.
The Audit Committee operates under a written charter, which is
available at http://investor.tomimist.com/corporate-governance/audit-committee-charter.
The purpose of the Audit Committee is to assist the Board in
monitoring the integrity of the annual, quarterly and other
financial statements of the Company, the independent
auditor’s qualifications and independence, the performance of
the Company’s independent auditors and the compliance by the
Company with legal and regulatory requirements. The Audit Committee
also reviews and approves all related-party transactions. Our Board
has determined that Ms. Anderson is an “audit committee
financial expert” as defined by the regulations promulgated
by the SEC.
44
Code of Ethics
The Board adopted a Code of Ethics in 2008
that applies to, among other persons,
Board members, officers (including our Chief Executive
Officer), contractors,
consultants and advisors. Our Code of Ethics, which is available at
http://investor.tomimist.com/TOMZ/code_of_ethics/2139, sets forth
written standards designed to deter wrongdoing and to
promote:
1.
honest
and ethical conduct including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
2.
full,
fair, accurate, timely and understandable disclosure in reports and
documents that we file with or submit to the SEC and in other
public communications made by us;
3.
compliance
with applicable governmental laws, rules and
regulations;
4.
the
prompt internal reporting of violations of the Code of Ethics to an
appropriate person or persons identified in the Code of Ethics;
and
5.
accountability
for adherence to the Code of Ethics.
Item
11.
EXECUTIVE COMPENSATION
Summary Compensation
Table
The
following table sets forth the total compensation paid to or earned
by our named executive officers for the years ended December 31,
2020 and 2019, respectively:
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($) (1)
|
Option/
Warrant
Awards
($) (1)
|
All Other
Compensation
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
Halden S.
Shane
|
2020
|
400,833
|
—
|
—
|
2,835,090(2)
|
—
|
3,235,923
|
|
Chairman and
CEO (2)
|
2019
|
360,000
|
—
|
—
|
89,654(3)
|
—
|
449,654
|
|
|
|
|
|
|
|
|
|
|
Elissa J.
Shane (4)
|
2020
|
226,083
|
40,000(8)
|
—
|
226,950(4)
|
13,500(4)
|
506,533
|
|
COO
|
2019
|
200,000
|
7,500(8)
|
—
|
23,595(5)
|
9,000(5)
|
240,095
|
|
|
|
|
|
|
|
|
|
|
Nick Jennings
(6)
|
2020
|
165,225
|
50,000(8)
|
—
|
24,846(6)
|
—
|
240,071
|
|
CFO
|
2019
|
155,000
|
5,000(8)
|
—
|
4,483(7)
|
—
|
164,483
|
(1)
The
amounts shown in this column represent the aggregate grant date
fair value of stock, option and/or warrant award, as applicable,
granted during the year computed in accordance with FASB ASC Topic
718. See Note 2 of the notes to our audited consolidated financial
statements contained in this Annual Report on Form 10-K for a
discussion of valuation assumptions made in determining the grant
date fair value of the awards.
(2)
During
the year ended December 31, 2020, we issued Dr. Shane five and ten-year
warrants to purchase an aggregate of 543,750 shares of common stock
as executive compensation. The exercise price of the warrants range
was $1.20-6.95 per share, based on the three-day trailing VWAP on
the date of issuance. Utilizing the Black-Scholes pricing model, we
determined the fair value of the warrants issued to Dr. Shane was
approximately $2,835,000, with the following assumptions:
volatility, 136%-173%; expected dividend yield, 0%; risk free
interest rate, 0.67%-1.64%; and a life of 5-10 years. The grant
date fair value of each share of common stock underlying the
warrants range was $1.04-6.99. We recognized equity-based
compensation to Dr. Shane of approximately $2,835,000 on the
warrants during the year ended December 31, 2020 pursuant to an
employment agreement. Please refer to Item 11 Employment Agreements
for additional details of Dr. Shane’s annual
compensation.
(3)
During
the year ended December 31, 2019, we issued Dr. Shane five-year
warrant to purchase an aggregate of 125,000 shares of common stock
as executive compensation. The exercise price of the warrant was
$0.80 per share, based on the three-day trailing VWAP on the date
of issuance. Utilizing the Black-Scholes pricing model, we
determined the fair value of the warrants issued to Dr. Shane was
approximately $90,000, with the following assumptions: volatility,
143%; expected dividend yield, 0%; risk free interest rate, 2.58%;
and a life of 5 years. The grant date fair value of each share of
common stock underlying the warrants was $0.72. We recognized
equity-based compensation to Dr. Shane of approximately $90,000 on
the warrants during the year ended December 31, 2019 pursuant to an
employment agreement. Please refer to Item 11 Employment Agreements
for additional details of Dr. Shane’s annual
compensation.
45
(4)
During
the year ended December 31, 2020, we issued Ms. Shane a ten-year
warrant to purchase an aggregate of 6,250 shares of common stock as
executive compensation. The exercise price of the warrant was $4.00
per share. Utilizing the Black-Scholes pricing model, we determined
the fair value of the warrants issued to Ms. Shane was
approximately $25,000, with the following assumptions: volatility,
173%; expected dividend yield, 0%; risk free interest rate, 0.68%;
and a life of 10 years. The grant date fair value of each share of
common stock underlying the warrants was $4.00. During the year
ended December 31, 2020, we issued Ms. Shane’s options to
purchase an aggregate of 31,250 shares of common stock as executive
compensation. The exercise price of the option was $7.06 per share.
Utilizing the Black-Scholes pricing model, we determined the fair
value of the option issued to Ms. Shane was approximately $202,000,
with the following assumptions: volatility, 154%; expected dividend
yield, 0%; risk free interest rate, 0.67%; and a life of 5 years.
The grant date fair value of each share of common stock underlying
the options was $6.47.. In aggregate, we recognized equity-based
compensation to Ms. Shane of approximately $227,000 on the options
during the year ended December 31, 2020. The other compensation in
the amount of $13,500 represents an auto allowance pursuant to Ms.
Shane’s employment agreement. Please refer to Item 11
Employment Agreements for additional details of Ms. Shane’s
annual compensation.
(5)
During
the year ended December 31, 2019, we accrued the value of Ms.
Shane’s options to purchase an aggregate of 31,250 shares of
common stock as executive compensation. The exercise price of the
option was $0.80 and $0.96 per share. Utilizing the Black-Scholes
pricing model, we determined the fair value of the option issued to
Ms. Shane was approximately $24,000, with the following
assumptions: volatility, 135%; expected dividend yield, 0%; risk
free interest rate, 1.64%; and a life of 5 years. The grant date
fair value of each share of common stock underlying the options was
$0.72 and $0.80. We recognized equity-based compensation to Ms.
Shane of approximately $24,000 on the options during the year ended
December 31, 2019. The other compensation in the amount of $9,000
represents an auto allowance pursuant to Ms. Shane’s
employment agreement. Please refer to Item 11 Employment Agreements
for additional details of Ms. Shane’s annual
compensation.
(6)
During
the year ended December 31, 2020, we issued Mr. Jennings a ten-year
warrant to purchase an aggregate of 6,250 shares of common stock as
executive compensation. The exercise price of the warrant was $4.00
per share. Utilizing the Black-Scholes pricing model, we determined
the fair value of the warrants issued to Mr. Jennings was
approximately $25,000, with the following assumptions: volatility,
173%; expected dividend yield, 0%; risk free interest rate, 0.68%;
and a life of 10 years. The grant date fair value of each share of
common stock underlying the warrants was $4.00. We recognized
equity-based compensation to Mr. Jennings of approximately $25,000
on the options during the year ended December 31, 2020. Please
refer to Item 11 Employment Agreement for additional details of Mr.
Jennings’ annual compensation.
(7)
During
the year ended December 31, 2019, we issued Mr. Jennings options to
purchase an aggregate of 6,250 shares of common stock as executive
compensation. The exercise price of the option was $0.80 per share.
Utilizing the Black-Scholes pricing model, we determined the fair
value of the option issued to Mr. Jennings was approximately
$4,000, with the following assumptions: volatility, 143%; expected
dividend yield, 0%; risk free interest rate, 2.58%; and a life of 5
years. The grant date fair value of each share of common stock
underlying the options was $0.72. We recognized equity-based
compensation to Mr. Jennings of approximately $4,000 on the options
during the year ended December 31, 2019. Please refer to Item 11
Employment Agreement for additional details of Mr. Jennings’
annual compensation.
(8)
In
December 2019, the compensation committee approved cash bonuses to
the COO and CFO which were paid in 2019.
In
May and October 2020, the compensation committee approved cash
bonuses to the COO and CFO which were paid in 2020.
46
Outstanding Equity Awards at
2020 Fiscal
Year-End
The
following table sets forth certain information with respect to
outstanding options and warrants to purchase common stock
previously awarded to our named executive officers as of December
31, 2020.
|
Name
|
Number of
Securities
Underlying
Unexercised
Warrants /
Options
Exercisable(1)
(#)
|
Number of
Securities
Underlying
Unexercised
Warrants /
Options
Unexercisable
(#)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Warrants
(#)
|
Exercise
Price(1)
($)
|
Expiration
Date
|
|
Halden
S. Shane
|
125,000(2)
|
—
|
—
|
$2.40
|
2/11/2021
|
|
|
31,250(3)
|
—
|
—
|
$4.00
|
3/31/2021
|
|
|
31,250(4)
|
—
|
—
|
$3.36
|
6/30/2021
|
|
|
31,250(5)
|
—
|
—
|
$2.56
|
9/30/2021
|
|
|
31,250(6)
|
—
|
—
|
$2.16
|
12/30/2021
|
|
|
31,250(7)
|
—
|
—
|
$0.80
|
7/17/2022
|
|
|
437,500(8)
|
—
|
—
|
$0.96
|
12/22/2022
|
|
|
31,250(9)
|
—
|
—
|
$0.64
|
11/19/2023
|
|
|
125,000(10)
|
—
|
—
|
$0.80
|
1/26/2024
|
|
|
156,250(11)
|
—
|
—
|
$1.20
|
1/31/2025
|
|
|
12,500(12)
|
—
|
—
|
$4.00
|
4/24/2030
|
|
|
375,000(13)
|
—
|
—
|
$6.95
|
10/01/2030
|
|
Elissa
J. Shane
|
12,500(14)
|
—
|
—
|
$0.96
|
1/5/2023
|
|
|
31,250(15)
|
—
|
—
|
$0.88
|
1/03/2024
|
|
|
12,500(16)
|
—
|
—
|
$0.96
|
1/03/2025
|
|
|
18,750(17)
|
—
|
—
|
$0.80
|
1/15/2025
|
|
|
6,250(18)
|
—
|
—
|
$4.00
|
4/24/2030
|
|
|
31,250(19)
|
—
|
—
|
$7.06
|
10/1/2025
|
|
Nick
Jennings
|
12,500(20)
|
—
|
—
|
$2.40
|
10/1/2021
|
|
|
12,500(21)
|
—
|
—
|
$4.40
|
1/26/2021
|
|
|
6,250(22)
|
—
|
—
|
$0.80
|
1/26/2023
|
|
|
6,250(23)
|
—
|
—
|
$4.00
|
4/24/2030
|
(1)
Reflects
the 1-for-8 reverse stock split of our Common Stock and Series A
Preferred Stock effected on September 10, 2020.
(2)
Warrants
vested in increments of 125,000 on February 11, 2014, February 11,
2015, and February 11, 2016 and have a term of five
years.
(3)
Warrants
vested on March 31, 2016 and have a term of five
years.
(4)
Warrants
vested on June 30, 2016 and have a term of five years.
(5)
Warrants
vested on September 30, 2016 and have a term of five
years.
(6)
Warrants
vested on December 30, 2016 and have a term of five
years.
(7)
Warrants
vested on July 17, 2017 and have a term of five years.
(8)
Warrants
vested on December 22, 2017 and have a term of five
years.
(9)
Warrants
vested on November 19, 2018 and have a term of five
years.
(10)
Warrants
vested on January 26, 2019 and have a term of five
years.
(11)
Warrants
vested on January 31, 2020 and have a term of five
years.
(12)
Warrants
vested on April 24, 2020 and have a term of ten years.
(13)
Warrants
vested on October 01, 2020 and have a term of ten
years.
(14)
Options
pursuant to the 2016 Plan vested on January 5, 2018 and have a term
of five years.
(15)
Options
pursuant to the 2016 Plan vested on January 3, 2019 and have a term
of five years.
(16)
Options
pursuant to the 2016 Plan vested on January 3, 2020 and have a term
of five years.
(17)
Options
pursuant to the 2016 Plan vested on January 15, 2020 and have a
term of five years.
(18)
Warrants
vested on April 24, 2020 and have a term of ten years.
(19)
Options
pursuant to the 2016 Plan vested on October 01, 2020 and have a
term of five years.
(20)
Warrants
vested on October 1, 2016 and have term of five years.
(21)
Warrants
vested on January 26, 2016 and have a term of five
years.
(22)
Options
pursuant to the 2016 Plan vested on January 26, 2018 and have a
term of five years.
(23)
Warrants
vested on April 24, 2020 and have a term of ten years.
47
Employment Agreements, Termination of Employment and
Change-in-Control Arrangements
Except
as described below, we currently have no employment agreements with
any of our executive officers, nor any compensatory plans or
arrangements resulting from the resignation, retirement or any
other termination of any of our executive officers, from a
change-in-control, or from a change in any executive
officer’s responsibilities following a
change-in-control.
Employment Agreements
We
have entered into employment agreements with each of the named
executive officers and generally include the named executive
officer’s initial base salary and an indication of equity
compensation opportunities.
Halden S. Shane
On September 22, 2020,
we entered into a three year employment
agreement with Dr. Shane, effective October 1, 2020. The
agreement provides for a base annual salary of $500,000. The
agreement also provides for a signing bonus of 375,000 warrants.
Dr. Shane is also entitled to a cash performance bonus and an
annual issuance of an option to purchase 31,250 shares of common
stock from the 2016 Plan at the discretion of the Board. The
agreement also provides that we will reimburse Dr. Shane for the
expenses associated with the use of an automobile up to $750 a
month. The term of the agreement is three
years.
In the event Dr. Shane is terminated as CEO as a result of a change
in control, Dr. Shane will be entitled to a lump sum payment of two
years’ salary at the time of such termination.
The Board may terminate Dr. Shane for cause by written notification
to Dr. Shane; provided, however, that no termination for cause will
be effective unless Dr. Shane has been provided with prior written
notice and opportunity for remedial action and fails to remedy
within 30 days thereof, in the event of a termination by the
Company (i) by reason of willful dishonesty towards, fraud upon, or
deliberate injury or attempted injury to, the Company, (ii) by
reason of material breach of his employment agreement and (iii) by
reason of gross negligence or intentional misconduct with respect
to the performance of duties under the agreement. Upon termination
for cause, Dr. Shane will be immediately paid an amount equal to
his gross salary. The Board may terminate Dr. Shane other than for
cause at any time upon giving notice to Dr. Shane. Upon such
termination, Dr. Shane will be immediately paid an amount equal to
his gross salary.
Elissa J. Shane
On
October 1, 2020, we entered into an employment agreement with
Elissa J. Shane, effective October 1, 2020. Pursuant to her
employment agreement, Ms. Shane will receive an annual base salary
of at least $270,000, subject to annual review and discretionary
increase by the Compensation Committee of the Board. Ms. Shane is
eligible to receive an annual cash bonus and other annual incentive
compensation. The agreement originally provided for a grant of
93,750 warrants. Additionally, in connection with the execution
of her employment agreement, on October 1, 2020, we issued Ms.
Shane a warrant to purchase 93,750 shares of Common Stock at
an exercise price of $6.17 per share. These provisions were
subsequently amended to provide for the issuance to Ms. Shane of
31,250 options from the 2016 Equity Plan at the closing price of
$7.06 on the date of grant in lieu of the warrant grant and the
93,750 warrants were cancelled. Ms. Shane acknowledged that the
31,250 options were in full consideration of the amount she was
entitled to under the agreement. Her employment agreement also
provides that we will reimburse Ms. Shane for reasonable and
necessary business and entertainment expenses that she incurs in
performing her duties. During the term of her employment, Ms. Shane
will also be entitled to up to four weeks of paid vacation time
annually, which will accrue up to six weeks, and to participate
in our benefit plans and programs, including but not limited
to all group health, life, disability and retirement plans. Ms.
Shane is also entitled to the sum of $1,000 per month as a vehicle
allowance. The initial term of her employment agreement is
three years, which may be automatically extended for successive
one-year terms, unless either party provides the other with 120
days’ prior written notice of its intent to terminate
the agreement.
In
the event Ms. Shane is terminated as COO as a result of a change in
control, Ms. Shane will be entitled to a lump sum payment of one
and a half years’ salary at the time of such
termination.
Nick Jennings
On September 2, 2015, we entered into a new
employment agreement with Mr. Jennings, which superseded his prior
agreement, pursuant to which he continues to serve as our Chief
Financial Officer. Mr. Jennings’ annual salary is $132,000,
which is reviewed annually. On January 26, 2016, we issued Mr.
Jennings a five-year warrant to purchase up to 12,500 shares of
common stock at an exercise price of $4.40 per share. The agreement
also provided for the issuance of an additional five-year warrant
to purchase 12,500 shares of common stock in 2016, however, this
provision was modified to grant
a salary increase in lieu of the options. In October 2020, Mr.
Jennings’ annual salary was increased to $175,000 per year.
Mr. Jennings is also entitled to additional equity compensation
based upon superior performance of his responsibilities, as
determined by the Board in its sole discretion. The agreement also
provides that we will reimburse Mr. Jennings for certain business
and entertainment expenses. In the event of a change in control of
the Company that results in his termination, Mr. Jennings will be
entitled to a lump sum payment of one year’s salary and all
equity awards will be accelerated and fully vested. In the event
his employment is terminated other than for cause, Mr. Jennings
will receive an amount equal to his annual salary as of such
termination date after the second employment
anniversary.
48
Director Compensation
Each of our
non-employee directors receives cash fees and stock as compensation
for their service on the Board and the committees of the Board on
which they are a member. The tables below set forth
cash and
stock compensation earned by each non-employee director during the
fiscal year ended December 31, 2020.
|
Name
|
Fees earned or
paid in cash
($)
|
Stock awards
($)
|
Option awards
($)
|
Other Compensation
($)
|
Total
($)
|
|
Harold
W. Paul (1)
|
40,000
|
12,000
|
—
|
78,000
|
130,000
|
|
Walter
Johnsen (2)
|
40,000
|
12,000
|
—
|
—
|
52,000
|
|
Kelly
Anderson (3)
|
45,000
|
12,000
|
—
|
—
|
57,000
|
|
Lim
Boh Soon (4)
|
40,000
|
12,000
|
—
|
—
|
52,000
|
(1)
Mr.
Paul also received $78,000 in cash compensation in exchange for
legal services rendered during 2020. In January 2020, we issued Mr.
Paul 12,500 shares of common stock that were valued at
$12,000.
(2)
Mr.
Johnsen was elected to the Board on January 29, 2016. The term
of his agreement as director commenced on February 1, 2016 for up
to two years and until a successor is elected, or resignation or
removal. Mr. Johnsen was re-elected to the board for a 3-year
term at our 2019 annual meeting Our agreement with Mr. Johnsen
provides for an annual fee in the amount of $40,000 paid on a
quarterly basis and an annual grant of shares of common
stock. In January 2020, we issued Mr. Johnsen 12,500 shares of
common stock that were valued at $12,000.
(3)
Ms. Anderson was elected to the Board on January
29, 2016 and serves as the chairperson of our Audit
Committee. The term of her agreement as director commenced on
February 1, 2016 for up to two years and until a successor is elected, or
resignation or removal. Ms. Anderson was re-elected to the
board for a 3-year term at our 2019 annual meeting. Our agreement
with Ms. Anderson provides for an annual fee in the amount of
$45,000 paid on a quarterly basis and an annual grant of shares of
common stock. In January 2020, we issued Ms. Anderson 12,500
shares of common stock that were valued at
$12,000.
(4)
Mr. Lim was elected to the Board on January 29,
2018. The term of his agreement as director commenced on
February 1, 2018 for up to three years and until a successor is
elected, or resignation or removal. Our agreement with Mr. Lim
provides for an annual fee in the amount of $40,000 paid on a
quarterly basis and an annual grant of shares of common
stock. In January 2020, we issued Mr. Lim 12,500 shares of
common stock that were valued at $12,000.
49
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Equity
Compensation Plan
Information
We
currently maintain one compensation plan: the 2016 Plan. The 2016
Plan was approved by the Board on January 29, 2016 and received
shareholder approval on July 7, 2017. The 2016 Plan authorized the
issuance of 625,000 shares of common stock. On August 25, 2015, the
Board terminated the 2008 Plan, which we had maintained previously
and which our shareholders had approved. Accordingly, we will issue
future awards under the 2016 Plan.
On
December 30, 2020, we received shareholder approval to restate and
amend the 2016 Equity Incentive Plan to increase the maximum number
of shares of common stock authorized from issuance by 1,375,000,
from 625,000 shares to 2,000,000.
The following table
provides information as of December 31, 2020 with respect to
compensation plans under which our equity securities
are authorized for issuance.
|
Plan Category
|
Number of securities to be issued upon
exercise of outstanding options, warrants and
rights(1)
|
Weighted-average exercise price of outstanding
options, warrants and rights(1)
|
Number of securities remaining available for
future issuance under equity compensation plans(1)
|
|
Equity
compensation plans approved by security holders
|
132,500(2)
|
$2.72
|
1,659,500(4)
|
|
Equity
compensation plans not approved by security holders
|
940,625(3)
|
$2.96
|
—
|
|
Total
|
1,073,125
|
$2.88
|
—
|
(1)
Reflects
the 1-for-8 reverse stock split of our Common Stock and Series A
Preferred Stock effected on September 10, 2020.
(2)
Prior
to August 25, 2015, we granted awards under the 2008
Plan.
(3)
Represents
shares of common stock issuable upon the exercise of warrants
issued to executive officers, employees and consultants in exchange
for services rendered.
(4)
On
July 7, 2017, the 2016 Plan received shareholder approval, which
permits the grant up to 625,000 shares of common stock. On December
30, 2020, we received shareholder approval to restate and amend the
2016 Equity Incentive Plan to increase the maximum number of shares
of common stock authorized from issuance by 1,375,000, from 625,000
shares to 2,000,000.
Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information with respect to
the beneficial ownership of our common stock and Series A preferred
stock (together, “Voting Stock”) as of March 5, 2021
for:
●
each person (or group of affiliated persons) known by us to be the
beneficial owner of more than 5% of our outstanding shares of
common stock or Series A preferred stock;
●
each of our directors and nominees for election to the
Board;
●
each of the executive officers named in the summary compensation
table; and
●
all of our directors and executive officers as a
group.
We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the persons
and entities named in the following table have sole voting and
investment power with respect to all shares of Voting Stock that
they beneficially own, subject to applicable community property
laws.
Applicable percentage ownership is based on
16,811,513 shares of common stock and 63,750 shares of Series
A preferred stock outstanding at March 5, 2021. In computing the number of shares of
Voting Stock beneficially owned by a person and the percentage
ownership of that person, we deemed to be outstanding all shares of
Voting Stock subject to options, warrants or other convertible
securities held by that person or entity that are currently
exercisable or releasable or that will become exercisable or
releasable within 60 days of March 5, 2021. We did not deem
these shares outstanding, however, for the purpose of computing the
percentage ownership of any other person. Except as otherwise
noted, the address of each person or entity in the following table
is c/o TOMI Environmental Solutions, Inc., 8430 Spires Way., Suite
N, Frederick, MD 21701.
50
|
|
Shares Beneficially Owned
|
|
|||
|
|
Common Stock
|
Series A Preferred Stock
|
|
||
|
|
Shares
|
% of Class
|
Shares
|
% of Class
|
% of Total Voting Power(1)
|
|
5% Shareholders:
|
|
|
|
|
|
|
Lau Sok Huy(2)
|
2,170,139
|
12.9%
|
—
|
—
|
12.9%
|
|
Ah Kee Wee (3)
|
956,099
|
5.7%
|
—
|
—
|
5.7%
|
|
Named Executive Officers and Directors:
|
|
|
|
|
|
|
Halden S. Shane(4)
|
3,961,881
|
21.6%
|
63,750
|
100.0%
|
21.9%
|
|
Elissa J. Shane(5)
|
442,664
|
2.4%
|
—
|
—
|
2.4%
|
|
Nick Jennings(6)
|
57,768
|
*
|
—
|
—
|
*
|
|
Harold W. Paul(7)
|
207,625
|
1.1%
|
—
|
—
|
1.1%
|
|
Walter Johnsen(8)
|
56,250
|
*
|
—
|
—
|
*
|
|
Kelly Anderson(9)
|
56,250
|
*
|
—
|
—
|
*
|
|
Lim Boh Soon(10)
|
111,274
|
*
|
—
|
—
|
*
|
|
Executive Officers and Directors as a Group
(11)
|
4,893,712
|
26.7%
|
—
|
—
|
26.9%
|
*
Denotes
ownership of less than 1%.
(1)
Percentage of total
voting power represents voting power with respect to all shares of
our Common Stock and Series A Preferred Stock, as a single
class. The holders of Common Stock and Series A Preferred
Stock are each entitled to one vote per share.
(2)
Based
on Form 3 filed with the SEC by Lau Sok Huy on January 24,
2018.
(3)
Based
on information reported by Mr. Wee to the Company. Consists of (i)
956,099 shares of common stock.
(4)
Consists of: (i) 2,355,631 shares of Common Stock
held of record by Dr. Shane; (ii) 187,500 shares of Common Stock
held of record by the Shane Family Trust; (iii) 125,000 shares of
Common Stock held of record by Belinha Shane; and (iv) 1,418,750
shares of Common Stock
issuable upon the exercise of warrants
to purchase Common Stock held by Dr. Shane that are exercisable or
will become exercisable within 60 days of March 5, 2021. Dr.
Shane is a co-trustee of the Shane Family Trust and may be
deemed to share voting and investment power over the securities
held by the trust. Belinha Shane is Dr. Shane’s wife. Dr.
Shane disclaims ownership of such shares held by his wife, except
to the extent of his pecuniary interest.
(5)
Consists of: (i) 236,414 shares of Common Stock
held of record by Ms. Shane; and (ii) 206,250 shares of
Common
Stock issuable upon the
exercise of warrants and options to purchase Common Stock
held by Ms. Shane that are exercisable
or will become exercisable within 60 days of March 5,
2021.
(6)
Consists of: (i) 26,519 shares of Common Stock
held of record by Mr. Jennings; and (ii) 31,250 shares of
Common
Stock issuable upon the
exercise of warrants and options to purchase Common Stock
held by Mr. Jennings that are
exercisable or will become exercisable within 60 days of March 5,
2021.
(7)
Consists of: (i) 202,000 shares
of Common Stock
held of
record by Mr. Paul; and (ii) 5,625 shares of Common Stock issuable
upon exercise of stock options that are exercisable or will become
exercisable within 60 days of March 5, 2021.
(8)
Consists of: (i) 53,125 shares of
Common Stock held of record by Mr.
Johnsen; and (ii) 3,125 shares of Common Stock issuable upon
exercise of stock options that are exercisable or will become
exercisable within 60 days of March 5, 2021.
(9)
Consists of: (i) 53,125 shares of
Common Stock held of record by Ms.
Anderson; and (ii) 3,125 shares of Common Stock issuable upon
exercise of stock options that are exercisable or will become
exercisable within 60 days of March 5, 2021.
(10)
Consists of 111,274 shares
of Common Stock
held of
record by Dr. Lim.
(11)
Consists of: (i) 3,350,587 shares of Common Stock;
(ii) 1,450,000 shares of Common Stock
issuable upon the exercise of warrants
to purchase Common Stock; and (iii) 218,125 shares of
Common
Stock issuable upon exercise of
stock options that are exercisable or will become exercisable
within 60 days of March 5, 2021.
Changes in Control
We
are unaware of any contract or other arrangement the operation of
which may at a subsequent date result in a change in control of our
Company.
51
Item 13.
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
None.
Independence of the Board
Based upon information submitted by Mr. Johnsen,
Ms. Anderson, Dr. Lim and Mr. Paul the Board has determined that
each of them is “independent” for purposes of OTC
Governance Guidelines for directors. Dr. Shane is not an
independent director. No
director will be considered “independent” unless the
Board affirmatively determines that the director has no direct or
indirect material relationship with the
Company.
Our
Board has three separate standing committees: the Audit Committee,
the Compensation Committee and the Nominating and Corporate
Governance Committee.
We
have made each of our committee charters available on our website
at http://investor.tomimist.com/.
Item
14.
PRINCIPAL ACCOUNTING FEES AND
SERVICES
Accountant Fees
The following table presents the aggregate fees
billed for audit and other services provided by our independent
registered public accounting firm, Wolinetz, Lafazan & Company,
P.C, during the 2020 and 2019
fiscal years:
|
|
For the Fiscal Years Ended
December 31,
|
|
|
|
2020
|
2019
|
|
Audit
Fees (1)
|
$138,000
|
$122,000
|
|
Audit-Related
Fees (2)
|
—
|
—
|
|
Tax
Fees (3)
|
—
|
—
|
|
All
Other Fees (4)
|
—
|
—
|
|
Total
|
$138,000
|
$122,000
|
(1)
Audit Fees- Audit fees represent the professional services rendered
for the audit of our annual financial statements and the review of
our financial statements included in quarterly reports, along with
services normally provided by the accounting firm in connection
with statutory and regulatory filings or engagements.
(2)
Audit-Related Fees- Audit-related fees represent professional
services rendered for assurance and related services by Wolinetz,
Lafazan & Company, P.C. that were reasonably related to the
performance of the audit or review of our financial statements that
are not reported under audit fees.
(3)
Tax Fees- Tax fees represent professional services rendered by the
accounting firm for tax compliance, tax advice, and tax
planning.
(4)
All Other Fees- All other fees represent fees billed for products
and services provided by Wolinetz, Lafazan & Company, P.C other
than the services reported for the other categories.
Pre-Approval Policies and Procedures
of the Audit Committee
Consistent
with the rules and regulations promulgated by the Securities and
Exchange Commission, the Audit Committee approves the engagement of
our independent registered public accounting firm and is also
required to pre-approve all audit and non-audit expenses. All of
the services described above were approved by the Audit Committee
in accordance with its procedure. We do not otherwise rely on
pre-approval policies and procedures.
52
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a)
Documents filed as part of this report:
(1)
Financial Statements. See Index to Financial Statements and
Schedule on page F-1.
(2)
Schedules to Financial Statements. All financial statement
schedules have been omitted because they are either inapplicable or
the information required is provided in our consolidated financial
statements and the related notes thereto, included in Part II,
Item 8 of this Annual Report on Form 10-K.
(3)
The exhibits listed on the accompanying Exhibit Index are filed (or
incorporated by reference herein) as part of this Annual Report on
Form 10-K.
53
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
DATED: March 30, 2021
|
|
TOMI ENVIRONMENTAL SOLUTIONS, INC.
|
|
|
|
|
|
|
|
/s/ HALDEN S. SHANE
|
|
|
|
Halden S Shane
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
|
POWER OF ATTORNEY
The
undersigned directors and officers of TOMI Environmental Solutions,
Inc. constitute and appoint Halden S. Shane and Nick Jennings, or
either of them, as their true and lawful attorney and agent with
power of substitution, to do any and all acts and things in our
name and behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the
capacities indicated below, which said attorney and agent may deem
necessary or advisable to enable said corporation to comply with
the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange
Commission, in connection with this Annual Report on Form 10-K,
including specifically but without limitation, power and authority
to sign for us or any of us in our names in the capacities
indicated below, any and all amendments hereto; and we do hereby
ratify and confirm all that said attorney and agent shall do or
cause to be done by virtue hereof. Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
|
|
|
|
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/
HALDEN S. SHANE
Halden S. Shane
|
Chairman
of the Board and Chief Executive Officer (Principal Executive
Officer)
|
March 30, 2021
|
|
|
|
|
|
/s/
NICK JENNINGS
Nick Jennings
|
Chief
Financial Officer (Principal Financial Officer and Principal
Accounting Officer)
|
March 30, 2021
|
|
|
|
|
|
/s/
HAROLD W. PAUL
Harold W. Paul
|
Director
|
March 30, 2021
|
|
/s/
WALTER C. JOHNSEN
Walter C. Johnsen
|
Director
|
March 30, 2021
|
|
/s/
KELLY J. ANDERSON
Kelly J. Anderson
|
Director
|
March 30, 2021
|
|
/s/
LIM BOH SOON
Lim Boh Soon
|
Director
|
March 30, 2021
|
54
EXHIBIT INDEX
|
|
Articles of
Restatement of the Registrant, effective October 6,
2009
|
|
S-1
|
|
333-162356
|
|
10/6/09
|
|
3.1
|
|
|
|
|
|
Articles of
Amendment of Articles of Incorporation of the Registrant, effective
October 24, 2011
|
|
8-K
|
|
000-09908
|
|
10/24/11
|
|
3.1(a)
|
|
|
|
|
|
Articles of
Amendment of Articles of Incorporation of the Registrant, effective
September 10, 2020
|
|
8-K
|
|
000-09908
|
|
9/14/20
|
|
3.1
|
|
|
|
|
|
Amended Bylaws of
the Registrant, adopted effective November 2, 2007
|
|
10-Q
|
|
000-09908
|
|
5/16/16
|
|
3.2
|
|
|
|
|
|
Amendment to
Amended Bylaws of the Registrant, adopted effective January 29,
2016
|
|
8-K
|
|
000-09908
|
|
2/1/16
|
|
3.2
|
|
|
|
|
4.1
|
|
Specimen
certificate evidencing shares of common stock of the
Registrant
|
|
S-3
|
|
333-249850
|
|
11/4/20
|
|
4.1
|
|
|
|
4.2
|
|
Description of
Registrants Securities
|
|
S-3
|
|
333-249850
|
|
11/4/20
|
|
|
|
|
|
10.1+
|
|
Amended and
Restated 2016 Equity Incentive Plan, as adopted by the
Registrant’s stockholders on December 30, 2020
|
|
DEF
14A
|
|
001-39574
|
|
12/2/20
|
|
Appendix
A
|
|
|
|
|
Offer Letter, dated
January 15, 2016, by and between the Registrant and Dr. Halden
Shane
|
|
10-Q
|
|
000-09908
|
|
5/16/16
|
|
10.1
|
|
|
|
|
|
Employment
Agreement, dated February 8, 2016, by and between the Registrant
and Robert Wotczak
|
|
10-Q
|
|
000-09908
|
|
5/16/16
|
|
10.2
|
|
|
|
|
|
Offer Letter, dated
September 2, 2015, by and between the Registrant and Nick
Jennings
|
|
10-Q
|
|
000-09908
|
|
5/16/16
|
|
10.3
|
|
|
|
|
|
Offer Letter, dated
September 2, 2015, by and between the Registrant and Norris
Gearhart
|
|
10-Q
|
|
000-09908
|
|
5/16/16
|
|
10.4
|
|
|
|
|
|
Form of Appointment
to the Board of Directors as Independent Director of the
Registrant
|
|
10-Q
|
|
000-09908
|
|
5/16/16
|
|
10.5
|
|
|
|
|
|
Restated
Manufacturing and Development Agreement, dated November 10, 2016,
by and between the Registrant and RG Group
|
|
10-Q
|
|
000-09908
|
|
9/30/16
|
|
10.1
|
|
|
|
|
|
Employment
Agreement, entered into as of January 5, 2018, by and between the
Registrant and Elissa J. Shane, effective as of January 1,
2018
|
|
8-K
|
|
000-09908
|
|
1/18/18
|
|
10.1
|
|
|
|
|
|
Code of
Ethics
|
|
10-K
|
|
000-09908
|
|
3/31/07
|
|
14
|
|
|
|
|
|
Subsidiaries of the
Registrant
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
Power of Attorney
(included in signature page)
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
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
|
|
|
|
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
|
|
|
|
Certifications of
Chief Executive Officer and 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
|
|
101.PRE
|
|
XBRL Taxonomy
Extension Presentation Linkbase
|
|
|
|
|
|
|
|
|
|
X
|
|
+
|
Indicates a management contract or compensatory plan.
|
|
|
|
|
#
|
The information in Exhibit 32.1 shall not be deemed
“filed” for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, or otherwise
subject to the liabilities of that section, nor shall they be
deemed incorporated by reference in any filing under the Securities
Act of 1933, as amended, or the Exchange Act (including this
report), unless the Registrant specifically incorporates the
foregoing information into those documents by
reference.
|
55
TOMI ENVIRONMENTAL SOLUTIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
|
|
|
|
Page
|
|
|
F-2
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-9
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Shareholders and Board of Directors of
TOMI
Environmental Solutions, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of TOMI
Environmental Solutions, Inc. and Subsidiary (the
“Company”) as of December 31, 2020 and 2019, and the
related consolidated statements of operations, shareholders’
equity and cash flows for each of the two years in the period ended
December 31, 2020, and the related notes (collectively referred to
as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of its operations and
its cash flows for each of the two years in the period ended
December 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
Critical
audit matters are matters arising from the current period audit of
the financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are
not, by communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the accounts
or disclosures to which they relate.
F-2
Revenue Recognition — Refer to Note 2 to the financial
statements
Critical Audit Matter Description
The
Company generates revenue primarily from the manufacture, license,
service and sale of its products. The Company’s contracts
with customers may include multiple performance obligations. The
Company enters into contracts that can include various combinations
of products and services, which are primarily distinct and
accounted for as separate performance obligations. Management
applies significant judgment in identifying and accounting for each
performance obligation as a result of evaluating terms and
conditions in contracts. The principal considerations for our
determination that performing procedures relating to revenue
recognition is a critical audit matter include the
following:
●
Determination
of whether products and services are considered distinct
performance obligations that should be accounted for separately
versus together.
●
The
pattern of delivery (i.e., timing of when revenue is recognized)
for each distinct performance obligation.
●
Identification
of specific or key contract terms that may impact the timing and
amount of revenue recognized.
Given these factors and due to the volume of transactions, the
related audit effort in evaluating management’s judgments in
determining revenue recognition for these customer agreements was
extensive and required a high degree of auditor
judgment.
How the Critical Audit Matter Was Addressed in the
Audit
Addressing
the matter involved performing procedures and evaluating audit
evidence in connection with forming our overall opinion on the
consolidated financial statements. The primary procedures we
performed to address this critical audit matter included the
following:
●
Considering the
effectiveness of controls relating to the revenue recognition
process, including controls over the identification and evaluation
of the contractual terms and conditions that impact the
identification of performance obligations and determination of
revenue recognition.
●
Testing the
completeness and accuracy of management’s identification and
evaluation of the terms and conditions in contracts with customers
by examining customer agreements on a test basis including
reviewing and evaluating management’s identification of
performance obligations.
WOLINETZ, LAFAZAN
& COMPANY, P.C.
We have
served as the Company's auditor since 2004.
Rockville
Centre, NY
March
30, 2021
F-3
TOMI
ENVIRONMENTAL SOLUTIONS, INC.
CONSOLIDATED
BALANCE SHEET
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets:
|
December
31,
2020
(1)
|
December
31,
2019
(1)
|
|
Cash and Cash
Equivalents
|
$5,198,842
|
$897,223
|
|
Accounts Receivable
- net
|
3,716,701
|
1,494,658
|
|
Other
Receivables
|
198,951
|
-
|
|
Inventories (Note
3)
|
3,781,515
|
2,315,214
|
|
Vendor Deposits
(Note 4)
|
388,712
|
141,052
|
|
Prepaid
Expenses
|
421,305
|
187,664
|
|
Total
Current Assets
|
13,706,027
|
5,035,811
|
|
|
|
|
|
Property and
Equipment – net (Note 5)
|
1,298,103
|
1,367,864
|
|
|
|
|
|
Other
Assets:
|
|
|
|
Intangible Assets
– net (Note 6)
|
722,916
|
939,010
|
|
Operating Lease -
Right of Use Asset (Note 7)
|
631,527
|
674,471
|
|
Capitalized
Software Development Costs - net (Note 8)
|
52,377
|
94,278
|
|
Other
Assets
|
358,935
|
114,033
|
|
Total
Other Assets
|
1,765,755
|
1,821,792
|
|
Total
Assets
|
$16,769,885
|
$8,225,467
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
Payable
|
$1,501,469
|
$713,222
|
|
Accrued
Expenses and Other Current Liabilities (Note 14)
|
501,849
|
450,112
|
|
Accrued
Interest (Note 10)
|
-
|
66,667
|
|
Customer
Deposits
|
118,880
|
-
|
|
Current
Portion of Long-Term Operating Lease
|
81,223
|
71,510
|
|
Convertible
Notes Payable, net of discount of $0
|
|
|
|
at
December 31, 2019 (Note 10)
|
-
|
5,000,000
|
|
Total
Current Liabilities
|
2,203,421
|
6,301,511
|
|
|
|
|
|
Long-Term
Liabilities:
|
|
|
|
Loan
Payable (Note 16)
|
410,700
|
-
|
|
Long-Term
Operating Lease, Net of Current Portion (Note 7)
|
953,190
|
1,034,413
|
|
Total
Long-Term Liabilities
|
1,363,890
|
1,034,413
|
|
Total
Liabilities
|
3,567,311
|
7,335,924
|
|
|
|
|
|
Commitments
and Contingencies
|
-
|
-
|
|
|
|
|
|
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 December 31, 2020 and December 31, 2019
|
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 December 31, 2020 and December 31, 2019
|
-
|
-
|
|
Common
stock; par value $0.01 per share, 250,000,000 shares
authorized;
|
|
|
|
16,761,513
and 15,587,552 shares issued and outstanding
|
|
|
|
at
December 31, 2020 and December 31, 2019, respectively.
|
167,615
|
155,875
|
|
Additional
Paid-In Capital
|
52,142,399
|
44,232,274
|
|
Accumulated
Deficit
|
(39,108,078)
|
(43,499,244)
|
|
Total
Shareholders’ Equity
|
13,202,574
|
889,543
|
|
Total Liabilities
and Shareholders’ Equity
|
$16,769,885
|
$8,225,467
|
|
(1)
Share amounts with respect to the common stock and Convertible
Series A Preferred Stock have been retroactively restated to
reflect the reverse
|
|||
|
split
thereof, which was effected as of the close of business on
September 10, 2020. Refer to Note 11—Equity for further
information.
|
|||
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated
financial statements.
|
|||
F-4
TOMI
ENVIRONMENTAL SOLUTIONS, INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
For The Years
Ended
|
|
|
|
December
31,
|
|
|
|
2020
(1)
|
2019
(1)
|
|
|
|
|
|
Sales,
net
|
$25,027,637
|
$6,347,160
|
|
Cost
of Sales
|
9,985,046
|
2,433,243
|
|
Gross
Profit
|
15,042,591
|
3,913,917
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
Professional
Fees
|
681,377
|
363,789
|
|
Depreciation
and Amortization
|
719,760
|
716,165
|
|
Selling
Expenses
|
1,247,444
|
1,654,564
|
|
Research
and Development
|
455,046
|
340,582
|
|
Equity
Compensation Expense (Note 11)
|
3,130,986
|
114,222
|
|
Consulting
Fees
|
327,232
|
126,693
|
|
General
and Administrative
|
3,971,956
|
2,681,146
|
|
Total Operating
Expenses
|
10,533,802
|
5,997,161
|
|
Income (loss) from
Operations
|
4,508,789
|
(2,083,244)
|
|
|
|
|
|
Other Income
(Expense):
|
|
|
|
Amortization
of Debt Discounts
|
-
|
(17,534)
|
|
Interest
Income
|
2,915
|
3,045
|
|
Interest
Expense
|
(43,538)
|
(200,000)
|
|
Total Other Income
(Expense)
|
(40,623)
|
(214,489)
|
|
|
|
|
|
Income (loss)
before income taxes
|
4,468,166
|
(2,297,733)
|
|
Provision for
Income Taxes (Note 17)
|
77,000
|
-
|
|
Net Income
(loss)
|
$4,391,166
|
$(2,297,733)
|
|
|
|
|
|
Net income (loss)
Per Common Share
|
|
|
|
Basic
|
$0.27
|
$(0.15)
|
|
Diluted
|
$0.23
|
$(0.15)
|
|
|
|
|
|
Basic Weighted
Average Common Shares Outstanding
|
16,512,126
|
15,586,258
|
|
Diluted Weighted
Average Common Shares Outstanding
|
18,757,509
|
15,586,258
|
|
(1)
Share amounts with respect to the common stock and Convertible
Series A Preferred Stock have been retroactively restated to
reflect the reverse
|
||||||
|
split
thereof, which was effected as of the close of business on
September 10, 2020. Refer to Note 11—Equity for further
information.
|
||||||
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated
financial statements.
|
||||||
F-5
TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (1)
|
|
Series A
Preferred
|
Common
Stock
|
|
|
|
||
|
|
|
|
|
|
Additional
Paid
|
Accumulated
|
Total
Shareholders’
|
|
|
Shares
|
Amount
|
Shares
|
Amount
|
in
Capital
|
Deficit
|
Equity
|
|
|
|||||||
|
Balance at
December 31, 2018
|
63,750
|
$638
|
15,536,302
|
$155,363
|
$44,040,708
|
$(41,201,511)
|
$2,995,198
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation
|
|
|
|
|
146,878
|
|
146,878
|
|
Common Stock
Issued for Services Provided
|
|
|
51,250
|
513
|
44,688
|
|
45,200
|
|
Net Loss for
the year ended December 31, 2019
|
|
|
|
|
|
(2,297,733)
|
(2,297,733)
|
|
Balance at
December 31, 2019
|
63,750
|
638
|
15,587,552
|
155,876
|
44,232,274
|
(43,499,244)
|
889,543
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation
|
|
|
|
|
3,158,175
|
|
3,158,175
|
|
Common Stock
Issued for Services Provided
|
|
|
50,500
|
505
|
49,685
|
|
50,190
|
|
Conversion of
Notes Payable into Common Stock
|
|
|
1,041,667
|
10,417
|
4,489,584
|
|
4,500,000
|
|
Warrants and
Options Exercised
|
|
|
79,296
|
793
|
212,707
|
|
213,500
|
|
Other
|
|
|
2,499
|
25
|
(25)
|
|
-
|
|
Net Income for
the year ended December 31, 2020
|
|
|
|
|
|
4,391,166
|
4,391,166
|
|
Balance at
December 31, 2020
|
63,750
|
$638
|
16,761,514
|
$167,614
|
$52,142,400
|
$(39,108,078)
|
$13,202,573
|
|
(1)
Share amounts with respect to the common stock and Convertible
Series A Preferred Stock have been retroactively restated to
reflect the reverse
|
|||||||||||||
|
split
thereof, which was effected as of the close of business on
September 10, 2020. Refer to Note 11—Equity for further
information.
|
|||||||||||||
|
The
accompanying notes are an integral part of the consolidated
financial statements.
|
F-6
TOMI ENVIRONMENTAL SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CASH
FLOWS
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
2019
|
|
Cash
Flow From Operating Activities:
|
|
|
|
Net
Income (Loss)
|
$4,391,166
|
$(2,297,733)
|
|
Adjustments
to Reconcile Net Income (Loss) to
|
|
|
|
Net
Cash Provided by (Used) In Operating Activities:
|
|
|
|
Depreciation
and Amortization
|
719,760
|
716,165
|
|
Amortization
of Right of Use Asset
|
157,315
|
157,315
|
|
Amortization
of Debt Discount
|
-
|
17,534
|
|
Amortization
of Software Costs
|
41,900
|
31,426
|
|
Equity
Compensation Expense
|
3,130,986
|
114,222
|
|
Value
of Equity Issued for Services
|
50,190
|
45,200
|
|
Reserve
for Bad Debt
|
280,000
|
(190,000)
|
|
Inventory
Reserve
|
(100,000)
|
-
|
|
|
|
|
|
Changes
in Operating Assets and Liabilities:
|
|
|
|
Decrease
(Increase) in:
|
|
|
|
Accounts
Receivable
|
(2,502,043)
|
840,964
|
|
Inventory
|
(1,388,986)
|
348,226
|
|
Prepaid
Expenses
|
(233,642)
|
78,269
|
|
Vendor
Deposits
|
(247,660)
|
(31,611)
|
|
Other
Receivables
|
(198,951)
|
-
|
|
Other
Assets
|
(294,659)
|
(154,330)
|
|
Increase
(Decrease) in:
|
|
|
|
Accounts
Payable
|
788,247
|
(420,427)
|
|
Accrued
Expenses
|
78,926
|
67,569
|
|
Accrued
Interest
|
(66,667)
|
-
|
|
Accrued
Officer Compensation
|
-
|
(70,000)
|
|
Customer
Deposits
|
118,880
|
(1,486)
|
|
Lease
Liability
|
(146,688)
|
(65,753)
|
|
|
|
|
|
Net
Cash Provided (Used) in Operating Activities
|
4,578,076
|
(814,451)
|
|
|
|
|
|
Cash
Flow From Investing Activities:
|
|
|
|
Capitalized
Software Costs
|
-
|
(125,704)
|
|
Capitalized
Patent Costs
|
(111,386)
|
(21,980)
|
|
Purchase
of Property and Equipment
|
(289,270)
|
(145,580)
|
|
Net
Cash (Used) in Investing Activities
|
(400,655)
|
(293,264)
|
The
accompanying notes are an integral part of the consolidated
financial statements.
F-7
|
TOMI ENVIRONMENTAL SOLUTIONS, INC.
|
|||||
|
CONSOLIDATED STATEMENT OF CASH FLOWS –
CONTINUED
|
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
2019
|
|
Cash
Flow From Financing Activities:
|
|
|
|
Proceeds
from Exercise of Warrants and Options
|
213,500
|
-
|
|
Proceeds
from Loan Payable
|
410,700
|
-
|
|
Repayment
of Principal Balance on Convertible Note
|
(500,000)
|
-
|
|
Net
Cash Provided by Financing Activities:
|
124,200
|
-
|
|
Increase
(Decrease) In Cash and Cash Equivalents
|
4,301,620
|
(1,107,715)
|
|
Cash
and Cash Equivalents - Beginning
|
897,223
|
2,004,938
|
|
Cash
and Cash Equivalents – Ending
|
$5,198,842
|
$897,223
|
|
|
|
|
|
Supplemental
Cash Flow Information:
|
|
|
|
Cash
Paid For Interest
|
$107,356
|
$200,000
|
|
Cash
Paid for Income Taxes
|
$800
|
$800
|
|
Non-Cash
Investing and Financing Activities:
|
|
|
|
Accrued
Equity Compensation
|
$27,189
|
$32,656
|
|
Conversion
of Note Payable into Common Stock
|
$4,500,000
|
$-
|
|
Equipment,
net Transferred to and from Inventory
|
$22,685
|
$18,574
|
|
Patent and trademark costs reclassified from Other
Assets
|
$49,758
|
$51,692
|
The
accompanying notes are an integral part of the consolidated
financial statements.
F-8
TOMI ENVIRONMENTAL SOLUTIONS, INC.
NOTES TO 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 business is organized into five divisions: Healthcare,
Life Sciences, TOMI Service Network, 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 (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, universities and research
facilities, vivarium labs, all 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
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 significant 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 effect on previously reported
results of operations or financial position.
Use of Estimates
The
preparation of the 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 accounts receivable, inventory, fair values of financial
instruments, intangible assets, useful lives of intangible assets
and property and equipment, fair values of stock-based awards,
income taxes, and contingent liabilities, among others. We base our
estimates on historical experience and on various other assumptions
that are believed to be reasonable, the results of which form the
basis for making judgments about the carrying values of our assets
and liabilities.
F-9
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.
|
Our
financial instruments include cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses. All these items
were determined to be Level 1 fair value measurements.
The
carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximated fair value
because of the short maturity of these instruments.
Cash and Cash Equivalents
For purposes of the statement of
cash flows, cash and cash equivalents includes cash on hand, held
at financial institutions and other liquid investments with
original maturities of three months or less. At times, these
deposits may be in excess of insured limits.
Accounts Receivable
Our
accounts receivable are typically from credit worthy customers or,
for certain international customers, are supported by pre-payments.
For those customers to whom we extend credit, we perform periodic
evaluations of their status and maintain allowances for potential
credit losses as deemed necessary. We have a policy of reserving
for doubtful accounts based on our best estimate of the amount of
potential credit losses in existing accounts receivable. We
periodically review our accounts receivable to determine whether an
allowance is necessary based on an analysis of past due accounts
and other factors that may indicate that the realization of an
account may be in doubt. Account balances deemed to be
uncollectible are charged to the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote. Bad debt expense for the years ended December
31, 2020 and 2019 was $332,027 and $32,721,
respectively.
At
December 31, 2020 and December 31, 2019, the allowance for doubtful
accounts was $390,000 and $110,000, respectively.
Inventories
Inventories
are valued at the lower of cost or market using the first-in,
first-out (FIFO) method. Inventories consist primarily of finished
goods.
We
expense costs to maintain certification to cost of goods sold as
incurred.
F-10
We
review inventory on an ongoing basis, considering factors such as
deterioration and obsolescence. We record an allowance for
estimated losses when the facts and circumstances indicate that
particular inventories may not be usable. Our reserve for obsolete
inventory was $0 and $100,000 as of December 31, 2020 and December
31, 2019, 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
In February 2016, the FASB issued ASU No. 2016-02
(ASC 842), Leases, to require lessees to recognize all leases, with
certain exceptions, on the balance sheet, while recognition on the
statement of operations will remain similar to current lease
accounting. Subsequently, the FASB issued ASU No. 2018-10,
Codification
Improvements to Topic 842, Leases, ASU No. 2018-11, Targeted
Improvements, ASU No.
2018-20, Narrow-Scope Improvements for
Lessors, and ASU
2019-01, Codification
Improvements, to clarify and
amend the guidance in ASU No. 2016-02. ASC 842 eliminates real
estate-specific provisions and modifies certain aspects of lessor
accounting. This standard is effective for interim and annual
periods beginning after December 15, 2018, with early adoption
permitted. We adopted ASC 842 as of January 1, 2019 using the
modified retrospective basis with a cumulative effect adjustment as
of that date. In addition, we elected the package of practical
expedients permitted under the transition guidance within the
standard, which allowed us to carry forward the historical
determination of contracts as leases, lease classification and not
reassess initial direct costs for historical lease arrangements.
Accordingly, previously reported financial statements, including
footnote disclosures, have not been recast to reflect the
application of the standard to all comparative periods
presented.
Operating
lease assets are included within operating lease right-of-use
assets, and the corresponding operating lease liabilities are
recorded as current portion of long-term operating lease, and
within long-term liabilities as long-term operating lease, net of
current portion on our consolidated balance sheet as of December
31, 2020 and December 31, 2019.
We
have elected not to present short-term leases on the consolidated
balance sheet as these leases have a lease term of 12 months or
less at lease inception and do not contain purchase options or
renewal terms that we are reasonably certain to exercise. All other
lease assets and lease liabilities are recognized based on the
present value of lease payments over the lease term at commencement
date. Because most of our leases do not provide an implicit rate of
return, we used our incremental borrowing rate based on the
information available at adoption date in determining the present
value of lease payments.
Capitalized Software Development Costs
In
accordance with ASC 985-20 regarding the development of software to
be sold, leased, or marketed, we expense such costs as they are
incurred until technological feasibility has been established, at
and after which time those costs are capitalized until the product
is available for general release to customers. The periodic expense
for the amortization of capitalized software development costs will
be included in cost of sales. The periodic expense for the
amortization of capitalized software development costs will be
included in cost of sales. Amortization expense for the years ended
December 31, 2020 and 2019, was $41,900 was $31,426,
respectively.
Accounts Payable
As of December 31, 2020, two vendors accounted for approximately
32% of accounts payable. As of December 31, 2019, one vendor
accounted for approximately 40% of accounts payable.
For
the year ended December 31, 2020, two vendors accounted for 76% of
cost of sales. For the year ended December 31, 2019, one vendor
accounted for 72% of cost of sales.
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, 2020, and December 31,
2019, our warranty reserve was $68,000 and $30,000, respectively
(See Note 15).
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 Accounting Standards Codification (ASC) guidance
for income taxes. Net deferred tax benefits have been fully
reserved at December 31, 2020 and December 31, 2019. The effect on
deferred income tax assets and liabilities of a change in tax rates
is recognized in the period that such tax rate changes are
enacted.
F-11
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 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.
Potentially
dilutive securities as of December 31, 2020 consisted of 2,049,133
shares of common stock issuable upon exercise of outstanding
warrants, 132,500 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”).
Potentially
dilutive securities as of December 31, 2019 consisted of
1,157,406 shares of common stock from convertible debentures,
2,155,065 shares of common stock issuable upon exercise of
outstanding warrants, 77,500 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”). Diluted and
basic weighted average shares are the same, as potentially dilutive
shares are anti-dilutive.
Diluted
net income or (loss) per share is computed similarly to basic net
income or (loss) per share except that the denominator is increased
to include the number of additional shares of common stock that
would have been outstanding if the potential shares of common stock
had been issued and if such additional shares were dilutive.
Options, warrants, preferred stock and shares associated with the
conversion of debt to purchase approximately 2.2 million and 3.5
million shares of common stock were outstanding at December 31,
2020 and 2019, respectively, but were excluded from the computation
of diluted net loss per share at December 31, 2019 due to the
anti-dilutive effect on net loss per share.
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
2019
|
|
Net
Income (Loss)
|
$4,391,166
|
$(2,297,733)
|
|
Adjustments
for convertible debt - as converted
|
|
|
|
Interest
on convertible debt
|
40,689
|
200,000
|
|
Amortization
of debt discount on convertible debt
|
-
|
17,534
|
|
Net
income (loss) attributable to common shareholders
|
$4,431,855
|
$(2,080,199)
|
|
Weighted
average number of shares of common stock outstanding:
|
|
|
|
Basic
|
16,512,126
|
15,586,258
|
|
Diluted
|
18,757,509
|
15,586,258
|
|
Net
income (loss) attributable to common shareholders per
share:
|
|
|
|
Basic
|
$0.27
|
$(0.13)
|
|
Diluted
|
$0.24
|
$(0.13)
|
F-12
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,
|
|
|
|
2020
|
2019
|
|
Numerator:
|
|
|
|
Net
Income (Loss)
|
$4,391,166
|
$(2,297,733)
|
|
Denominator:
|
|
|
|
Basic
weighted-average shares
|
16,512,126
|
15, 586,258
|
|
Effect
of dilutive securities
|
|
|
|
Warrants
|
2,049,133
|
-
|
|
Convertible
Debt
|
-
|
-
|
|
Options
|
132,500
|
-
|
|
Preferred
Stock
|
63,750
|
-
|
|
Diluted
Weighted Average Shares
|
18,757,509
|
15, 586,258
|
|
|
|
|
|
Net
Income (Loss) Per Common Share:
|
|
|
|
Basic
|
$0.27
|
$(0.15)
|
|
Diluted
|
$0.23
|
$(0.15)
|
Note:
Warrants, options and preferred stock for the years ended December
31, 2019 are not included in the computation of diluted weighted
average shares as such inclusion would be
anti-dilutive.
|
Income (loss) from Operations Data:
|
|
|
|
|
|
|
|
Income
(Loss) from Operations
|
$4,508,789
|
$(2,083,244)
|
|
|
|
|
|
Basic
and Diluted Weighted Average Shares
|
|
|
|
Basic
|
16,512,126
|
15, 586,258
|
|
Diluted
|
18,757,509
|
15, 586,258
|
|
Basic
and Diluted Income (loss) Per Common Share
|
|
|
|
Basic
|
$0.27
|
$(0.13)
|
|
Diluted
|
$0.24
|
$(0.13)
|
Revenue Recognition
We
recognize revenue in accordance with Financial Accounting Standards
Board (FASB) Accounting Standards Update (ASU) No. 2014-09, Revenue
from Contracts with Customers (Topic 606). We recognize revenue
when we transfer promised goods or services to customers in an
amount that reflects the consideration to which we expect to be
entitled in exchange for those goods or services. To determine
revenue recognition for contracts with customers we perform the
following five steps: (i) identify the contract(s) with a customer;
(ii) identify the performance obligation(s) in the contract; (iii)
determine the transaction price; (iv) allocate the transaction
price to the performance obligation(s) in the contract; and (v)
recognize revenue when (or as) we satisfy the performance
obligation(s). At contract inception, we assess the goods or
services promised within each contract, assess whether each
promised good or service is distinct and identify those that are
performance obligations.
F-13
We
must use judgment to determine: a) the number of performance
obligations based on the determination under step (ii) above and
whether those performance obligations are distinct from other
performance obligations in the contract; b) the transaction price
under step (iii) above; and c) the stand-alone selling price for
each performance obligation identified in the contract for the
allocation of transaction price in step (iv) above.
Title
and risk of loss generally pass to our customers upon shipment. Our
Customers include end users as well as dealers and distributors who
market and sell our products. Our revenue is not contingent upon
resale by the dealer or distributor, and we have no further
obligations related to bringing about resale. Shipping and handling
costs charged to customers are included in Product Revenues. The
associated expenses are treated as fulfillment costs and are
included in Cost of Revenues. Revenues are reported net of sales
taxes collected from Customers.
Disaggregation of Revenue
The
following table presents our revenues disaggregated by revenue
source.
Product and Service Revenue
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
2019
|
|
SteraMist
Product
|
$22,971,000
|
$4,999,000
|
|
Service
and Training
|
2,057,000
|
1,348,000
|
|
Total
|
$25,028,000
|
$6,347,000
|
Revenue by Geographic Region
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
2019
|
|
United
States
|
$18,367,000
|
$5,002,000
|
|
International
|
6,661,000
|
1,345,000
|
|
Total
|
$25,028,000
|
$6,347,000
|
Product
revenue includes sales from our standard and customized equipment,
solution and accessories sold with our equipment. Revenue is
recognized upon transfer of control of promised products to
customers in an amount that reflects the consideration we expect to
receive in exchange for those products.
Service
and training revenue include sales from our high-level
decontamination and service engagements, validation of our
equipment and technology and customer training. Service revenue is
recognized as the agreed upon services are rendered to our
customers in an amount that reflects the consideration we expect to
receive in exchange for those services.
Costs to Obtain a Contract with a Customer
We
apply a practical expedient to expense costs as incurred for costs
to obtain a contract with a customer when the amortization period
would have been one year or less. We generally expense sales
commissions when incurred because the amortization period would
have been one year or less. These costs are recorded within selling
expenses.
Contract Balances
As
of December 31, 2020, and December 31, 2019 we did not have any
unsatisfied performance obligations for (i) contracts with an
original expected length of one year or less and (ii) contracts for
which we recognize revenue at the amount to which we have the right
to invoice for services performed.
F-14
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.
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.
On
July 7, 2017, our shareholders approved the 2016 Equity Incentive
Plan, or the 2016 Plan. The 2016 Plan authorizes the grant of stock
options, stock appreciation rights, restricted stock, restricted
stock units and performance units/shares. Up to 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; awards under the 2016 Plan are
expressly conditioned upon such agreements. For the year ended
December 31, 2020 and 2019, we issued 50,000 and 50,000 shares of
common stock, respectively, 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 years ended December 31, 2020 and
2019.
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, 2020 and 2019 were approximately
$276,000 and $144,000, respectively.
F-15
Research and Development Expenses
We expense research and development expenses in the period in which
they are incurred. For the years ended December 31, 2020 and 2019,
research and development expenses were approximately $455,000 and
$341,000, respectively.
Business Segments
We
currently have one reportable business segment due to the fact that
we derive our revenue primarily from one product. A breakdown of
revenue is presented in “Revenue Recognition” in Note 2
above.
Recent Accounting Pronouncements
In
August 2018, the FASB issued ASU No. 2018-15,
“Intangibles-Goodwill and Other-Internal-Use Software (Topic
350): Customer’s Accounting for Implementation Costs Incurred
in a Cloud Computing Arrangement That is a Service Contract.”
This new guidance aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a
service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use
software. This new guidance is effective on a prospective or
retrospective basis beginning on January 1, 2020, with early
adoption permitted. We elected to adopt this guidance early, in
2020 on a prospective basis. The new guidance did not have a
material impact on our Consolidated Financial
Statements.
NOTE 3. INVENTORIES
Inventories
consist of the following at:
|
|
December 31,
2020
|
December 31,
2019
|
|
Finished
goods
|
$3,404,025
|
$2,364,786
|
|
Raw
Materials
|
377,490
|
50,428
|
|
Inventory
Reserve
|
-
|
(100,000)
|
|
|
$3,781,515
|
$2,315,214
|
NOTE 4. VENDOR DEPOSITS
On
December 31, 2020 and December 31, 2019, we maintained vendor
deposits of $388,712 and $141,052, respectively, for open purchase
orders for inventory.
NOTE 5. PROPERTY AND EQUIPMENT
Property
and equipment consist of the following at:
|
|
December 31,
2020
|
December 31,
2019
|
|
Furniture
and fixtures
|
$357,236
|
$357,236
|
|
Equipment
|
1,580,743
|
1,355,014
|
|
Vehicles
|
60,703
|
60,703
|
|
Computer
and software
|
203,704
|
166,598
|
|
Leasehold
improvements
|
386,120
|
362,898
|
|
Tenant
Improvement Allowance
|
405,000
|
405,000
|
|
|
2,993,507
|
2,707,449
|
|
Less:
Accumulated depreciation
|
1,695,404
|
1,339,585
|
|
|
$1,298,103
|
$1,367,864
|
F-16
For
the years ended December 31, 2020 and 2019, depreciation was
$342,523 and $345,687, respectively. For the years ended December
31, 2020 and 2019, amortization of tenant improvement allowance was
$39,194 and was recorded as lease expense and included within
general and administrative expense on the consolidated statement of
operations.
NOTE 6. INTANGIBLE ASSETS
Intangible
assets consist of patents and trademarks related to our Binary
Ionization Technology. We amortize the patents over the estimated
remaining lives of the related patents. The trademarks have an
indefinite life. Amortization expense was $377,237 and $370,478 for
the years ended December 31, 2020 and 2019,
respectively.
Definite
life intangible assets consist of the following:
|
|
December 31,
2020
|
December 31,
2019
|
|
Intellectual
Property and Patents
|
$3,000,012
|
$2,906,507
|
|
Less:
Accumulated Amortization
|
2,856,991
|
2,479,754
|
|
Intangible
Assets, net
|
$143,021
|
$426,753
|
Indefinite
life intangible assets consist of the following:
|
Trademarks
|
579,895
|
512,257
|
|
|
|
|
|
Total Intangible Assets, net
|
$722,916
|
$939,010
|
Approximate future
amortization is as follows:
|
Year
Ended:
|
Amount
|
|
|
|
|
December
31, 2021
|
$10,000
|
|
December
31, 2022
|
10,000
|
|
December
31, 2023
|
10,000
|
|
December
31, 2024
|
10,000
|
|
December
31, 2025
|
10,000
|
|
Thereafter
|
93,000
|
|
|
$143,000
|
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 was scheduled to commence on December 1, 2018 or 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 March 2019 to provide for a 4-month rent
holiday and a commencement date of April 1, 2019. Lease expense for
operating lease payments is recognized on a straight-line basis
over the lease term.
F-17
The
balances for our operating lease where we are the lessee are
presented as follows within our consolidated balance
sheet:
|
Operating leases:
|
December 31,
2020
|
December 31,
2019
|
|
Assets:
|
|
|
|
Operating
lease right-of-use asset
|
$631,527
|
$674,471
|
|
Liabilities:
|
|
|
|
Current
Portion of Long-Term Operating Lease
|
$81,223
|
$71,510
|
|
Long-Term
Operating Lease, Net of Current Portion
|
953,190
|
1,034,413
|
|
|
$1,034,413
|
$1,105,923
|
The
components of lease expense are as follows within our consolidated
statement of operations:
|
|
For the Year Ended December 31,
2020
|
For the Year Ended December 31,
2019
|
|
|
|
|
|
Operating
lease expense
|
$157,315
|
$157,315
|
Other
information related to leases where we are the lessee is as
follows:
|
|
December 31,
2020
|
|
December 31,
2019
|
|
Weighted-average remaining lease term:
|
|
|
|
|
Operating leases
|
8.25 years
|
|
9.25 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 Year Ended
December 31,
2020
|
For the Year Ended
December 31,
2019
|
|
Cash
paid for amounts included in the measurement of lease
liabilities:
|
$146,688
|
$65,753
|
As of December 31, 2020, the maturities of our operating lease
liability are as follows:
|
Year Ended:
|
Operating Lease
|
|
December
31, 2021
|
$151,088
|
|
December
31, 2022
|
155,621
|
|
December
31, 2023
|
160,290
|
|
December
31, 2024
|
165,098
|
|
December
31, 2025
|
170,051
|
|
Thereafter
|
575,131
|
|
Total
minimum lease payments
|
1,377,280
|
|
Less:
Interest
|
342,867
|
|
Present
value of lease obligations
|
1,034,413
|
|
Less:
Current portion
|
81,223
|
|
Long-term
portion of lease obligations
|
$953,190
|
F-18
NOTE 8. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
In
accordance with ASC 985-20 we capitalized certain software
development costs associated with updating our continuing line of
product offerings. Capitalized software development costs consist
of the following at:
|
|
December 31,
2020
|
December 31,
2019
|
|
Capitalized
Software Development Costs
|
$125,704
|
$125,704
|
|
Less:
Accumulated Amortization
|
(73,327)
|
(31,426)
|
|
|
$52,377
|
$94,278
|
Amortization
expense for the years ended December 31, 2020 and 2019 was $41,900
and $31,426, respectively.
NOTE 9. CLOUD COMPUTING SERVICE
CONTRACT
In May 2020 we entered into a cloud computing service contract. 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.
Amortization expense for the year ended December 31, 2020 was
$17,745.
We have incurred
implementation costs of $68,330 in connection with the cloud
computing service contract which have been capitalized in prepaid
expenses as of December 31, 2020. In accordance with
ASU No. 2018-15, such implementation
costs will be amortized once the cloud-based service contract is
placed in service.
NOTE 10. CONVERTIBLE DEBT
In
March and May 2017, we closed a private placement transaction in
which we issued to certain accredited investors unregistered senior
callable convertible promissory notes, or the Notes, and three-year
warrants to purchase an aggregate of 125,000 shares of common stock
at an exercise price of $5.52 per share in exchange for aggregate
gross proceeds of $6,000,000. The Notes bear interest at a rate of
4% per annum. $5,300,000 in principal was originally scheduled to
mature on August 31, 2018 and $700,000 in principal was originally
scheduled to mature on November 8, 2018, unless earlier redeemed,
repurchased or converted. The Notes are convertible at the option
of the holder into common stock at a conversion price of $4.32 per
share. Subsequent to September 1, 2017, we may redeem the Notes
that are scheduled to mature on August 31, 2018 at any time prior
to maturity at a price equal to 100% of the outstanding principal
amount of the Notes to be redeemed, plus accrued and unpaid
interest as of the redemption date. Prior to November 8, 2018,
we may redeem the Notes that are scheduled to mature on such date
at any time prior to maturity at a price equal to 100% of the
outstanding principal amount of the Notes to be redeemed, plus
accrued and unpaid interest as of the redemption date. Interest on
the Notes is payable semi-annually in cash on February 28 and
August 31 of each year, beginning on August 31, 2017. Interest
expense related to the Notes for the years ended December 31, 2020
and 2019 was $40,689 and $200,000, respectively.
The
warrants were valued at $62,559 using the Black-Scholes pricing
model with the following assumptions: expected volatility: 104.06%
–111.54%; expected dividend: $0; expected term: 3 years; and
risk-free rate: 1.49%–1.59%. We recorded the warrants’
relative fair value of $61,904 as an increase to additional paid-in
capital and a discount against the related Notes.
The
debt discount was amortized over the life of the Notes using the
effective interest method. Amortization expense for the years ended
December 31, 2020 and 2019, was $0 and $17,534,
respectively.
In February and March 2018, we extended the
maturity date of the Notes— we
extended the maturity date to April 1, 2019 for $5,300,000 of
principal on the Notes and to June 8, 2019 for the remaining
$700,000 Note. No additional consideration was paid or accrued by
us. The stated rate of the Notes was unchanged, and the estimated
fair value of the new debt approximates its carrying amount
(principal plus accrued interest at the date of the modification).
We determined that the modification of these Notes is not a
substantial modification in accordance with ASC 470-50,
“Modifications and
Extinguishments.”
F-19
In May 2018, we offered
a noteholder the option to convert its Note at a reduced conversion
price of $3.68. The noteholder
accepted and converted at such price. Pursuant to the terms
of the conversion offer, an aggregate of $700,000 of principal and
$5,212 of accrued interest outstanding under the Note were
converted into 234,745 shares of common stock. We recognized
an induced conversion cost of $57,201 related to the
conversion.
In December 2018, a
noteholder redeemed a note with a principal balance of $300,000 in
exchange for $150,000 in cash. We recognized a gain on redemption of convertible
note income in the amount of $150,000 as a result of the
transaction.
On
March 30, 2019, the two remaining noteholders agreed to extend the
maturity dates of their notes totaling $5,000,000 to April 3, 2020.
As part of the extensions, we agreed that if we do not make payment
on or before the new maturity dates, after five (5) days written
notice, the holders will have the right, but not the obligation, to
convert the notes into our common shares at a conversion price of
$0.88 per share or a total of 5,681,818 shares. All other
provisions of the notes remain unchanged. We determined that the
modification of these Notes is not a substantial modification in
accordance with ASC 470-50, “Modifications and
Extinguishments.”
In
March 2020, convertible notes with a principal balance of
$4,500,000 were converted into 1,041,667 shares of our common stock
at a conversion price of $4.32 per share and the remaining
outstanding balance of $500,000 was repaid in the form of cash.
With respect to the 125,000 warrants issued as part of the
convertible note transaction, 100,000 warrants expired in March
2020. In March 2020, 10,417, warrants were exercised, and 14,583
warrants expired in May 2020.
Convertible
notes consist of the following at:
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
|
|
Convertible
notes
|
$-
|
$5,000,000
|
|
Initial
discount
|
-
|
(53,873)
|
|
Accumulated
amortization
|
-
|
53,873
|
|
Convertible
notes, net
|
$-
|
$5,000,000
|
NOTE 11. SHAREHOLDERS’ EQUITY
Our
Board of Directors (the “Board”) may, without further
action by our shareholders, from time to time, direct the issuance
of any authorized but unissued or unreserved shares of preferred
stock in series and at the time of issuance, determine the rights,
preferences and limitations of each series. The holders of such
preferred stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up by us
before any payment is made to the holders of our common stock.
Furthermore, the Board could issue preferred stock with voting and
other rights that could adversely affect the voting power of the
holders of our common stock.
Reverse Stock Split
On
September 9, 2020, the Board approved a reverse stock split of our
common stock and our Convertible Series A Preferred Stock, in each
case, at a ratio of 1-for-8 and without any change to the
respective par value thereof (the “Reverse Stock
Split”), and, on September 10, 2020, we filed an Articles of
Amendment to our Articles of Incorporation with the Department of
State of the State of Florida to effect the Reverse Stock Split.
The Reverse Stock Split became effective as of 5:00 p.m.,
Eastern time, on September 10, 2020 (the “Effective
Time”). All per-share and share amounts have been
retroactively restated in this Annual Report on Form 10-K for all
periods presented to reflect the reverse stock split.
Convertible Series A Preferred Stock
Our
authorized Convertible Series A Preferred Stock, $0.01 par value,
consists of 1,000,000 shares. At December 31, 2020 and 2019, 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.
F-20
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
December 31, 2020 and 2019, there were no shares issued and
outstanding, respectively. Each share of Convertible Series B
Preferred Stock may be converted (at the holder’s election)
into two hundred shares of our common stock.
Common Stock
In
November 2019, we amended our Restated Articles of Incorporation,
increasing the number of authorized shares of our Common Stock from
200,000,000 to 250,000,000.
During
the year ended December 31, 2019, we issued 50,000 shares of common
stock valued at $44,000 to members of our Board (see Note 13).
During the year ended December 31, 2019, we issued 1,250 shares of
common stock valued at $1,200 to a consultant.
During
the year ended December 31, 2020, we issued 50,000 shares of common
stock valued at $48,000 to members of our Board (see Note
13). During the year ended December 31, 2020, we issued 500
shares of common stock valued at $2,190 to a
consultant.
In
March 2020, 1,041,667 shares of common stock were issued in
connection with the conversion of convertible notes payable
aggregating $4,500,000 (see Note 10).
In
March 2020, 10,417 shares of common stock were issued in connection
with the exercise of warrants for which we received proceeds of
$57,500.
In
May 2020, 2,500 shares of common stock were issued in connection
with the exercise of options for which we received proceeds of
$1,000.
In
June 2020, 26,940 shares of common stock were issued in connection
with the exercise of warrants for which we received proceeds of
$62,500.
In
July 2020, 26,940 shares of common stock were issued in connection
with the exercise of warrants for which we received proceeds of
$62,500.
In
October 2020, 12,500 shares of common stock were issued to our CFO
in connection with the exercise of warrants for which we received
proceeds of $30,000.
Stock Options
In
January 2019, pursuant to an employment agreement, we issued
options to purchase an aggregate of 31,250 shares of common stock
to our Chief Operating Officer, valued at $24,694. The options have
an exercise price of $0.88 per share and expire in January 2024.
The options were valued using the Black-Scholes model using the
following assumptions: volatility: 144%; dividend yield: 0%; zero
coupon rate: 2.47%; and a life of 5 years. The value of the options
was expensed in the fourth quarter of 2018 and included in accrued
expenses at December 31, 2018.
In
January 2019, we issued options to purchase an aggregate of 6,250
shares of common stock to our Chief Financial Officer, valued at
$4,483. The options have an exercise price of $0.80 per share and
expire in January 2024. The options were valued using the
Black-Scholes model using the following assumptions: volatility:
143%; dividend yield: 0%; zero coupon rate: 2.58%; and a life of 5
years.
F-21
In
January 2020, we issued two options to purchase an aggregate of
31,250 shares of common stock to our Chief Operating Officer at an
exercise price of $0.80 and $0.96 per share pursuant to her
employment agreement with us. The options were valued at a total of
$23,595 and have a term of 5 years. We utilized the Black-Scholes
method to fair value the options received by the COO with the
following assumptions: volatility, 135%; expected dividend yield,
0%; risk free interest rate, 1.64%; and a life of 5 years. The
grant date fair value of each share of common stock underlying the
options was $0.72 and $0.80. The value of the stock option was
included in accrued expenses at December 31, 2019.
In
October 2020, we issued options to purchase an aggregate of 31,250
shares of common stock to our Chief Operating Officer at an
exercise price of $7.06 per share pursuant to her employment
agreement with us. The options were valued at a total of $202,104
and have a term of 5 years. We utilized the Black-Scholes method to
fair value the options received by the COO with the following
assumptions: volatility, 154%; expected dividend yield, 0%; risk
free interest rate, 0.67%; and a life of 5 years. The grant date
fair value of each share of common stock underlying the options was
$6.47.
The
following table summarizes stock options outstanding as of December
31, 2020 and 2019:
|
|
December 31, 2020
|
December 31, 2019
|
||
|
|
Number of Options
|
Weighted Average Exercise Price
|
Number of Options
|
Weighted Average Exercise Price
|
|
Outstanding,
beginning of period
|
77,500
|
$2.56
|
40,000
|
$4.16
|
|
Granted
|
62,500
|
3.96
|
37,500
|
0.88
|
|
Exercised
|
(2,500)
|
0.40
|
-
|
-
|
|
Expired
|
(5,000)
|
16.80
|
-
|
-
|
|
Outstanding,
end of period
|
132,500
|
$ 2.72
|
77,500
|
$2.56
|
Options
outstanding and exercisable by price range as of December 31, 2020
were as follows:
|
Outstanding Options
|
Average
Weighted
|
Exercisable Options
|
||
|
Range
|
Number
|
Remaining
Contractual
Life in Years
|
Number
|
Weighted
Average
Exercise Price
|
|
$0.80
|
27,500
|
4.10
|
27,500
|
$0.80
|
|
$0.88
|
31,250
|
3.01
|
31,250
|
$0.88
|
|
$0.96
|
25,000
|
3.02
|
25,000
|
$0.96
|
|
$2.16
|
5,000
|
4.01
|
5,000
|
$2.16
|
|
$4.40
|
12,500
|
5.10
|
12,500
|
$4.40
|
|
$7.06
|
31,250
|
4.75
|
31,250
|
$7.06
|
|
|
|
|
|
|
|
|
132,500
|
3.89
|
132,500
|
$2.72
|
Stock Warrants
In
January 2019 we issued a warrant to purchase 125,000 shares of
common stock to our Chief Executive Officer at an exercise price of
$0.80 per share pursuant to an employment agreement. The warrant
was valued at $89,654 and has a term of 5 years. We utilized the
Black-Scholes model to fair value the warrant received by our Chief
Executive Officer with the following assumptions: volatility, 143%;
expected dividend yield, 0%; risk free interest rate, 2.58%; and a
life of 5 years. The grant date fair value of each share of common
stock underlying the warrant was $0.72.
F-22
In
January 2019 we issued a warrant to purchase 31,250 shares of
common stock to an employee at an exercise price of $0.96 per
share. The warrant was valued at $21,931 and has a term of 3 years.
We utilized the Black-Scholes model to fair value the warrant
received by the employee with the following assumptions:
volatility, 148%; expected dividend yield, 0%; risk free interest
rate, 2.55%; and a life of 3 years. The grant date fair value of
each share of common stock underlying the warrant was $0.72. The
value of the warrants was expensed in the fourth quarter of 2018
and included in accrued expenses at December 31, 2018.
In
April 2019 we issued a warrant to purchase 6,250 shares of common
stock to an employee at an exercise price of $1.12 per share. The
warrant was valued at $6,116 and has a term of 5 years. We utilized
the Black-Scholes model to fair value the warrant received by the
employee with the following assumptions: volatility, 134%; expected
dividend yield, 0%; risk free interest rate, 2.32%; and a life of 5
years. The grant date fair value of each share of common stock
underlying the warrant was $0.96.
In
January 2020 we issued a warrant to purchase 156,250 shares of
common stock to our Chief Executive Officer at an exercise price of
$1.20 per share pursuant to an employment agreement. The warrant
was valued at $164,201 and has a term of 5 years. We utilized the
Black-Scholes model to fair value the warrant received by our Chief
Executive Officer with the following assumptions: volatility, 136%;
expected dividend yield, 0%; risk free interest rate, 1.64%; and a
life of 5 years. The grant date fair value of each share of common
stock underlying the warrant was $1.04.
In
January 2020 we issued a warrant to purchase 5,208 shares of common
stock to an employee at an exercise price of $0.96 per share. The
warrant was valued at $3,594 and has a term of 5 years. We utilized
the Black-Scholes model to fair value the warrant received by the
employee with the following assumptions: volatility, 135%; expected
dividend yield, 0%; risk free interest rate, 1.58%; and a life of 5
years. The grant date fair value of each share of common stock
underlying the warrant was $0.72. The value of the warrants was
expensed in the fourth quarter of 2019 and included in accrued
expenses at December 31, 2019.
In
February 2020 we issued a warrant to purchase 18,750 shares of
common stock to an employee at an exercise price of $1.20 per
share. The warrant was valued at $18,571 and has a term of 3 years.
We utilized the Black-Scholes model to fair value the warrant
received by the employee with the following assumptions:
volatility, 155%; expected dividend yield, 0%; risk free interest
rate, 1.64%; and a life of 3 years. The grant date fair value of
each share of common stock underlying the warrant was
$0.96.
In
April 2020 we issued a warrant to purchase 12,500 shares of common
stock to our Chief Executive Officer at an exercise price of $4.00
per share pursuant to an employment agreement. The warrant was
valued at $49,693 and has a term of 10 years. We utilized the
Black-Scholes model to fair value the warrant received by our Chief
Executive Officer with the following assumptions: volatility, 173%;
expected dividend yield, 0%; risk free interest rate, 0.68%; and a
life of 10 years. The grant date fair value of each share of common
stock underlying the warrant was $4.00.
In
April 2020 we issued a warrant to purchase 6,250 shares of common
stock to our Chief Operating Officer at an exercise price of $4.00
per share pursuant to an employment agreement. The warrant was
valued at $24,846 and has a term of 10 years. We utilized the
Black-Scholes model to fair value the warrant received by our Chief
Operating Officer with the following assumptions: volatility, 173%;
expected dividend yield, 0%; risk free interest rate, 0.68%; and a
life of 10 years. The grant date fair value of each share of common
stock underlying the warrant was $4.00.
In
April 2020 we issued a warrant to purchase 6,250 shares of common
stock to our Chief Financial Officer at an exercise price of $4.00
per share pursuant to an employment agreement. The warrant was
valued at $24,846 and has a term of 10 years. We utilized the
Black-Scholes model to fair value the warrant received by our Chief
Financial Officer with the following assumptions: volatility, 173%;
expected dividend yield, 0%; risk free interest rate, 0.68%; and a
life of 10 years. The grant date fair value of each share of common
stock underlying the warrant was $4.00.
In
April 2020 we issued a warrant to purchase 3,750 shares of common
stock to a consultant at an exercise price of $4.00 per share. The
warrant was valued at $14,908 and has a term of 10 years. We
utilized the Black-Scholes model to fair value the warrant received
by the consultant with the following assumptions: volatility, 173%;
expected dividend yield, 0%; risk free interest rate, 0.68%; and a
life of 10 years. The grant date fair value of each share of common
stock underlying the warrant was $4.00.
In
August 2020 we issued a warrant to purchase 893 shares of common
stock to a consultant at an exercise price of $8.40 per share. The
warrant was valued at $6,372 and has a term of 3 years. We utilized
the Black-Scholes model to fair value the warrant received by the
consultant with the following assumptions: volatility, 166%;
expected dividend yield, 0%; risk free interest rate, 0.13%; and a
life of 3 years. The grant date fair value of each share of common
stock underlying the warrant was $7.13.
F-23
In
August 2020 we issued a warrant to purchase 595 shares of common
stock to a consultant at an exercise price of $8.40 per share. The
warrant was valued at $4,249 and has a term of 3 years. We utilized
the Black-Scholes model to fair value the warrant received by the
consultant with the following assumptions: volatility, 166%;
expected dividend yield, 0%; risk free interest rate, 0.13%; and a
life of 3 years. The grant date fair value of each share of common
stock underlying the warrant was $7.14.
In
October 2020 we issued a warrant to purchase 375,000 shares of
common stock to our Chief Executive Officer at an exercise price of
$6.95 per share pursuant to an employment agreement. The warrant
was valued at $2,621,196 and has a term of 10 years. We utilized
the Black-Scholes model to fair value the warrant received by our
Chief Executive Officer with the following assumptions: volatility,
162%; expected dividend yield, 0%; risk free interest rate, 0.67%;
and a life of 10 years. The grant date fair value of each share of
common stock underlying the warrant was $6.99.
The
following table summarizes the outstanding common stock warrants as
of December 31, 2020 and 2019:
|
|
December 31, 2020
|
December 31, 2019
|
||
|
|
Number of Warrants
|
Weighted Average Exercise Price
|
Number of Warrants
|
Weighted Average Exercise Price
|
|
Outstanding,
beginning of period
|
2,155,065
|
$3.12
|
3,318,826
|
$2.72
|
|
Granted
|
585,447
|
4.97
|
162,500
|
0.88
|
|
Exercised
|
(76,796)
|
(2.77)
|
-
|
-
|
|
Expired
|
(614,583)
|
(6.40)
|
(1,326,261)
|
(1.84)
|
|
Outstanding,
end of period
|
2,049,133
|
$2.55
|
2,155,065
|
$3.12
|
Warrants
outstanding and exercisable by price range as of December 31, 2020
were as follows:
|
Outstanding Warrants
|
|
Exercisable Warrants
|
||
|
Exercise Price
|
Number
|
Average Weighted
Remaining Contractual
Life in Years
|
Number
|
Weighted Average
Exercise Price
|
|
$0.64
|
31,250
|
2.90
|
31,250
|
$0.64
|
|
$0.80
|
158,125
|
2.76
|
158,125
|
$0.80
|
|
$0.96
|
473,958
|
1.94
|
473,958
|
$0.96
|
|
$1.12
|
6,250
|
3.30
|
6,250
|
$1.12
|
|
$1.20
|
175,000
|
3.88
|
175,000
|
$1.20
|
|
$1.36
|
1,250
|
1.82
|
1,250
|
$1.36
|
|
$2.16
|
31,250
|
1.00
|
31,250
|
$2.16
|
|
$2.32
|
523,061
|
1.16
|
523,061
|
$2.32
|
|
$2.40
|
137,500
|
0.14
|
137,500
|
$2.40
|
|
$2.56
|
31,250
|
0.75
|
31,250
|
$2.56
|
|
$3.36
|
31,250
|
0.50
|
31,250
|
$3,36
|
|
$4.00
|
60,000
|
4.60
|
60,000
|
$4.00
|
|
$4.40
|
12,500
|
0.09
|
12,500
|
$4.40
|
|
$6.95
|
375,000
|
9.75
|
375,000
|
$6.95
|
|
$8.40
|
1,488
|
2.63
|
1,488
|
$8.40
|
|
|
2,049,133
|
3.31
|
2,049,133
|
$2.55
|
There
were no unvested warrants outstanding as of December 31,
2020.
F-24
NOTE 12. 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 December 31, 2020 and 2019, there were no claims against us for
product liability.
SARS CoV-2 coronavirus
On March 11, 2020 the World Health Organization declared
the SARS CoV-2 coronavirus a global pandemic and
recommended containment and mitigation measures worldwide. We have
been identified as an essential disinfectant and decontamination
vendor by various agencies and countries. Our operations being
essential have been materially affected by the coronavirus outbreak
to date. As demand for our product and services increases, the
uncertain nature of its spread globally may or may not impact our
business operations resulting from quarantines of employees,
customers and suppliers as well as potential travel restrictions in
areas affected or may be affected in the
future.
NOTE 13. CONTRACTS AND AGREEMENTS
Executive Agreements
Halden S. Shane
On September 22, 2020,
we entered into a three year employment
agreement with Dr. Shane, effective October 1, 2020. The
agreement provides for a base annual salary of $500,000. The
agreement also provides for a signing bonus of 375,000 warrants.
Dr. Shane is also entitled to a cash performance bonus and an
annual issuance of an option to purchase 31,250 shares of common
stock from the 2016 Plan at the discretion of the Board. The
agreement also provides that we will reimburse Dr. Shane for the
expenses associated with the use of an automobile up to $750 a
month. The term of the agreement is three
years.
In the event Dr. Shane is terminated as CEO as a result of a change
in control, Dr. Shane will be entitled to a lump sum payment of two
years’ salary at the time of such termination.
The Board may terminate Dr. Shane for cause by written notification
to Dr. Shane; provided, however, that no termination for cause will
be effective unless Dr. Shane has been provided with prior written
notice and opportunity for remedial action and fails to remedy
within 30 days thereof, in the event of a termination by the
Company (i) by reason of willful dishonesty towards, fraud upon, or
deliberate injury or attemptedinjury to, the Company, (ii) by
reason of material breach of his employment agreement and (iii) by
reason of gross negligence or intentional misconduct with respect
to the performance of duties under the agreement. Upon termination
for cause, Dr. Shane will be immediately paid an amount equal to
his gross salary. The Board may terminate Dr. Shane other than for
cause at any time upon giving notice to Dr. Shane. Upon such
termination, Dr. Shane will be immediately paid an amount equal to
his gross salary.
Elissa J. Shane
On
October 1, 2020, we entered into an employment agreement with
Elissa J. Shane, effective October 1, 2020. Pursuant to her
employment agreement, Ms. Shane will receive an annual base salary
of at least $270,000, subject to annual review and discretionary
increase by the Compensation Committee of the Board. Ms. Shane is
eligible to receive an annual cash bonus and other annual incentive
compensation. The agreement originally provided for a grant of
93,750 warrants. Additionally, in connection with the execution
of her employment agreement, on October 1, 2020, we issued Ms.
Shane a warrant to purchase 93,750 shares of Common Stock at
an exercise price of $6.17 per share. These provisions were
subsequently amended to provide for the issuance to Ms. Shane of
31,250 options from the 2016 Equity Plan at the closing price of
$7.06 on the date of grant in lieu of the warrant grant and the
93,750 warrants were cancelled. Ms. Shane acknowledged that the
31,250 options were in full consideration of the amount she was
entitled to under the agreement. Her employment agreement also
provides that we will reimburse Ms. Shane for reasonable and
necessary business and entertainment expenses that she incurs in
performing her duties. During the term of her employment, Ms. Shane
will also be entitled to up to four weeks of paid vacation time
annually, which will accrue up to six weeks, and to participate
in our benefit plans and programs, including but not limited
to all group health, life, disability and retirement plans. Ms.
Shane is also entitled to the sum of $1,000 per month as a vehicle
allowance. The initial term of her employment agreement is
three years, which may be automatically extended for successive
one-year terms, unless either party provides the other with 120
days’ prior written notice of its intent to terminate
the agreement.
In
the event Ms. Shane is terminated as COO as a result of a change in
control, Ms. Shane will be entitled to a lump sum payment of one
and a half years’ salary at the time of such
termination.
F-25
Agreements with Directors
In
December 2017, we increased the annual fee to the members of our
Board to $40,000, to be paid in cash on a quarterly basis, with the
exception of the audit committee chairperson, whose annual fee we
increased to $45,000, also to be paid in cash on a quarterly basis.
Director compensation also includes the annual issuance of our
common stock.
For
the year ended December 31, 2019, we issued an aggregate of 50,000
shares of common stock that were valued at $44,000 to members of
our Board.
For
the year ended December 31, 2020, we issued an aggregate of 50,000
shares of common stock that were valued at $48,000 to members of
our Board.
Manufacturing Agreement
In June 2020 we entered into a manufacturing agreement with Planet
Innovation Products, Pty Ltd (“PI”). The agreement does
not provide for any minimum purchase commitments and is for a term
of three years. The agreement also provides for a warranty against
product defects.
Cloud Computing Service Contract
In May 2020 we entered
into an agreement for a cloud computing service contract. The
contract provides for annual payments in the amount of $30,409 and
has a term of 5 years. Approximate minimum payments under the contract
are as follows
|
Year Ended:
|
Amount
|
|
|
|
|
December
31, 2021
|
$18,000
|
|
December
31, 2022
|
30,000
|
|
December
31, 2023
|
30,000
|
|
December
31, 2024
|
30,000
|
|
December
31, 2025
|
15,000
|
|
|
$123,000
|
F-26
Other Agreements
TOMI Service Network (“TSN”) is a
national service network composed of existing full-service
restoration industry specialists that have entered initially into
licensing agreements with us to become Primary Service Providers
(“PSPs”). The licensing agreements originally granted
protected territories to PSPs to perform services using our
SteraMist®
platform of products and also provide
for potential job referrals to PSPs whereby we are entitled to
referral fees. Additionally, the agreement provides for commissions
due to PSPs for equipment and solution sales they facilitate to
other service providers in their respective territories. As part of
these agreements, we are obligated to provide to the PSPs various
training, ongoing support and facilitate a referral network call
center. As of December 31, 2020, we have approximately 180 network
companies in TSN. The nature and terms of our TSN agreements may
represent multiple deliverable arrangements. Each of the
deliverables in these arrangements typically represent a separate
unit of accounting. As of January 1, 2020, there is no exclusivity
in our TSN network.
F-27
NOTE 14. ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
Accrued
expenses and other current liabilities consisted of the following
at:
|
|
December 31,
2020
|
December 31,
2019
|
|
Commissions
|
$151,709
|
$112,102
|
|
Payroll
and related costs
|
84,000
|
167,689
|
|
Director
fees
|
41,250
|
41,250
|
|
Sales
Tax Payable
|
9,784
|
21,814
|
|
Income
Taxes Payable (Note 17)
|
77,000
|
-
|
|
Accrued
warranty (Note 15)
|
68,000
|
30,000
|
|
Other
accrued expenses
|
70,106
|
77,257
|
|
Total
|
$501,849
|
$450,112
|
NOTE 15. 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:
|
|
December 31,
2020
|
December 31,
2019
|
|
Beginning
accrued warranty costs
|
$30,000
|
$30,000
|
|
Provision
for warranty expense
|
101,041
|
2,609
|
|
Settlement
of warranty claims
|
(63,041)
|
(2,609)
|
|
Ending
accrued warranty costs
|
$68,000
|
$30,000
|
NOTE 16. LOAN PAYABLE
On
April 21, 2020, we received $410,700 in loan funding from the
Paycheck Protection Program (the "PPP") established pursuant to the
recently enacted Coronavirus Aid, Relief, and Economic Security Act
of 2020 (the "CARES Act") and administered by the U.S. Small
Business Administration ("SBA"). The unsecured loan (the "PPP
Loan") is evidenced by a promissory note of the Company, dated
April 21, 2020 (the "Note") in the principal amount of $410,700
with City National Bank (the "Bank"), the lender. Interest expense
for the year ended December 31, 2020 was $2,849.
Under
the terms of the Note and the PPP Loan, interest accrues on the
outstanding principal at the rate of 1.0% per annum. The
term of the Note is two years, though it may be payable sooner in
connection with an event of default under the
Note.
F-28
NOTE 17. INCOME TAXES
The Company’s income tax expense consisted of:
|
|
For the Year Ended
|
|
|
|
December 31,
|
December 31,
|
|
|
2020
|
2019
|
|
Current:
|
|
|
|
Federal
|
$-
|
$-
|
|
State
|
77,000
|
-
|
|
Foreign
|
-
|
-
|
|
|
77,000
|
-
|
|
Deferred:
|
|
|
|
Federal
|
-
|
-
|
|
State
|
-
|
-
|
|
Foreign
|
-
|
-
|
|
|
-
|
-
|
|
Total
|
$77,000
|
$-
|
The Company’s net income (loss) before income tax consisted
of:
|
|
For the Year Ended
|
|
|
|
December 31,
|
December 31,
|
|
|
2020
|
2019
|
|
|
|
|
|
United
States
|
$4,468,166
|
$(2,297,733)
|
|
Foreign
|
-
|
-
|
|
Total
|
$4,468,166
|
$(2,297,733)
|
Our
income tax expense differed from the amounts computed by applying
the United States statutory corporate income tax rate for the
following reasons:
On
December 22, 2017, the 2017 Tax Cuts and Jobs Act (“Tax
Act”) was enacted into law making significant changes to the
Internal Revenue Code. Changes include, but are not limited to, a
federal corporate tax rate decrease from 35% to 21% for tax years
beginning after December 31, 2017, the transition of U.S.
international taxation from a worldwide tax system to a territorial
system and a one-time transition tax on the mandatory deemed
repatriation of foreign earnings. We are required to recognize the
effect of the tax law changes in the period of enactment, such as
re-measuring our U.S. deferred tax assets and liabilities as well
as reassessing the net realizability of our deferred tax assets and
liabilities. The Tax Act did not give rise to any material impact
on the consolidated balance sheets and consolidated statements of
operations due to our historical loss position and the full
valuation allowance on our net U.S. deferred tax
assets.
In December 2017, the Securities and Exchange
Commission staff issued Staff Accounting Bulletin
No. 118, Income Tax Accounting
Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows
us to record provisional amounts during a measurement period not to
extend beyond one year from the enactment date. As such, in
accordance with SAB 118, we completed our analysis during the
fourth quarter of 2018 considering current legislation and guidance
resulting in no material adjustments from the provisional amounts
recorded during the prior year.
F-29
The
reconciliation of taxes at the federal and state statutory rate to
our provision for income taxes for the years ended
December 31, 2020 and 2019 was as follows:
|
|
For the Year Ended
|
|
|
|
December 31,
|
December 31,
|
|
|
2020
|
2019
|
|
|
|
|
|
Income
(Loss) before income tax
|
$4,468,166
|
$(2,297,733)
|
|
US
statutory corporate income tax rate
|
28.00%
|
28.00%
|
|
Income
tax expense computed at US statutory corporate income tax
rate
|
|
|
|
Income
tax expense computed at US statutory corporate income tax
rate
|
1,251,086
|
(643,365)
|
|
Reconciling
items:
|
|
|
|
Change
in valuation allowance on deferred tax assets
|
(2,050,485)
|
620,817
|
|
Provision
to prior year tax return
|
-
|
6,991
|
|
Incentive
stock options and warrants
|
876,676
|
31,982
|
|
Amortized
debt discount
|
-
|
4,910
|
|
Meals
and Entertainment
|
1,300
|
2,005
|
|
Other
|
(1,577)
|
(23,340)
|
|
Income
tax expense
|
$77,000
|
$-
|
Components
of our deferred income tax assets (liabilities) are as
follows:
|
|
December 31,
|
December 31,
|
|
|
2020
|
2019
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Reserve
for Bad Debt
|
$109,000
|
$31,000
|
|
Inventory
Reserve
|
-
|
28,000
|
|
Accrued
Vacation
|
82,000
|
92,000
|
|
Warranty
Reserve
|
19,000
|
8,000
|
|
Intangible
Assets
|
412,000
|
381,000
|
|
Operating
lease right-of-use liabilities
|
290,000
|
310,000
|
|
Net
operating losses
|
3,100,000
|
5,223,000
|
|
Valuation
Allowance
|
(3,530,000)
|
(5,580,000)
|
|
Deferred
Tax Assets
|
482,000
|
493,000
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
Operating
lease right-of-use assets
|
(290,000)
|
(302,000)
|
|
Property
and Equipment
|
(192,000)
|
(191,000)
|
|
|
(482,000)
|
(493,000)
|
|
|
|
|
|
Net
Deferred Tax Assets and Liabilities
|
$-
|
$-
|
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 ASC guidance for income
taxes. As of December 31, 2020, we recorded a valuation allowance of $3,530,000
for the portion of the deferred tax assets that we do not expect to
be realized. The valuation allowance
on our net deferred taxes decreased by $2,050,000 during the year
ended December 31, 2020, primarily due to the utilization of
deferred tax assets. Management
believes that based on the available information, it is more likely
than not that the U.S. deferred tax assets will not be realized,
such that a valuation allowance is required against U.S. deferred
tax assets. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in the period
that such tax rate changes are enacted.
F-30
For income tax purposes in the United States, we
had available federal net operating loss carryforwards
(“NOL”) as of December 31, 2020 and 2019 of
approximately $11,465,000 and $9,596,000 respectively to reduce
future federal taxable income. For income tax purposes
in the United States, we had available state NOL carryforwards as
of December 31, 2020 and 2019 of approximately $9,663,000 and
$16,463,000 respectively to reduce future state taxable
income. If any of the
NOL’s generated prior to 2018 are not utilized, they will
expire at various dates through 2037. NOL’s generated after
2017 carry forward indefinitely. There may be certain limitations
as to the future annual use of the NOLs due to certain changes in
our ownership.
We
record uncertain tax positions in accordance with ASC 740 on the
basis of a two-step process whereby (1) we determine whether it is
more likely than not that the tax positions will be sustained on
the basis of the technical merits of the position and (2) for those
tax positions that meet the more-likely-than-not recognition
threshold, we recognize the largest amount of tax benefit that is
more than 50 percent likely to be realized upon ultimate settlement
with the related tax authority. As of December 31, 2020, and 2019,
the management of the Company determined there were no reportable
uncertain tax positions.
NOTE 18. CUSTOMER CONCENTRATION
The
Company had certain customers whose accounts receivable balances
individually represented 10% or more of the Company’s
accounts receivable.
As of December 31, 2020, three customers accounted for 36% of
accounts receivable.
As of December 31, 2019, three customers accounted for 37% of
accounts receivable.
For the years ended December 31, 2020 and 2019, we had no customers
who represented 10% or more of revenue.
F-31
NOTE 19. SUBSEQUENT EVENTS
Pursuant
to the agreement with our Board of Directors, in January 2021, we
issued an aggregate of 50,000 shares of common stock valued at
approximately $211,000. The agreements with our Board provide for
the annual issuance of shares of our common stock.
On
February 11, 2021, we agreed to amend (the "Warrant Amendment") the
warrant to purchase 125,000 shares of TOMI common stock, par value
$0.01 (the "Common Stock"), issued by TOMI to Dr. Halden S. Shane,
TOMI's Chief Executive Officer and a director on TOMI's board of
directors, on February 11, 2014 (the "Warrant"), to provide TOMI an
option to repurchase the Warrant from Dr. Shane at a negotiated
price. In connection with the Warrant Amendment, TOMI repurchased
the warrant from Dr. Shane (the "Repurchase") for an aggregate cash
consideration of $314,500, representing a 15% discount of the net
exercise cash value of the Warrant, which was calculated using the
closing price of the Common Stock on the Nasdaq on February 11,
2021. On the same date, the Warrant Amendment and the Repurchase
was considered, approved and adopted by a disinterested majority of
TOMI's board of directors.
F-32