This section and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”)
contain forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, that involve risks and uncertainties.
Forward-looking statements provide current expectations of future events based
on certain assumptions and include any statement that does not directly relate
to any historical or current fact. For example, statements in this Form 10-Q
regarding the potential future impact of the COVID-19 pandemic on the Company’s
business and results of operations are forward-looking statements.
Forward-looking statements can also be identified by words such as “future,”
“anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,”
“predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms.
Forward-looking statements are not guaranteeing future performance and the
Company’s actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such differences
include, but are not limited to, those discussed in Part I, Item 1A of the
Company’s Annual Report on Form 10-K for the year ended
“2021 Form 10-K”) under the heading “Risk Factors.” The Company assumes no
obligation to revise or update any forward-looking statements for any reason,
except as required by law.
Unless otherwise stated, all information presented herein is based on the
Company’s fiscal calendar, and references to particular years, quarters, months
or periods refer to the Company’s fiscal years ended in December and the
associated quarters, months and periods of those fiscal years. Each of the terms
the “Company” and “TOMI” as used herein refers collectively to
Environmental Solutions, Inc.
The following discussion should be read in conjunction with the 2021 Form 10-K
filed with the
condensed consolidated financial statements and accompanying notes included in
Part I, Item 1 of this Form 10-Q. 0
Quarterly Highlights Business Update
The first four months of the 2022 fiscal year has been active with respect to
our sales and business development. We remain focused on growing our top line
revenue, expanding our customer base, adding key employees, and making further
innovations to our product line.
The first quarter of 2022 delivered improved revenue and operating results as we
achieved a 11% growth in our first quarter sales and 24% reduction in our
operating expenses when compared to the same period last year . Our first
quarter revenue also grew by 15% sequentially over what was reported in the
fourth quarter of 2021. The increase in sales was primarily due to higher
demand for our mobile equipment and iHP corporate services.
In the first quarter of 2022, we report positive cash flow from operations for
first time since the second quarter of 2020, and this improvement in cash flow
was attributable to customer deposits we received in the first quarter in
addition to lower operating expenses.
During the first quarter of 2022 we received approximately
orders from key fortune 500 customers, of which we anticipate about
of which to be recognized as revenue in our current calendar year. A key driver
to our longer-term growth is strengthening demand for our Custom Engineered
Systems (CES). We have secured several new orders for our iHP CES and more set
to close eminently, revenue recognition will be upon delivery throughout 2022
and early 2023.
As the markets need for our automated disinfection CES continues to increase,
TOMI has re-engaged with our manufacturing sales representatives and partners
both domestically and internationally. The renewed interest can be attributed
to TOMI corporate’s support and the launch of the SteraMist Support Portal that
is available on desktop. We have also developed a mobile app which provides
ease of use for sales support, branding, and assistance to our TOMI Service
Network providers, sales representatives, and international distributors and end
Studies remain a focus as TOMI continues to pursue a wide array of industries.
Studies focused on Botrytis cinerea and Mycotoxin, as well as furthering testing
on chemical and biological warfare agents will further enhance TOMI’s ability to
further penetrate the market.
25 Table of Contents
Finally, our manufacturing capacity and capabilities were improved in the first
quarter of 2022 with the addition of
our CES in their
Planet Innovation has expanded into
internal technology team and a lower cost in domestic shipment charges. We
anticipate these developments will reduce our overall costs and manufacturing
As many industrial companies are reducing R&D and capital expenditures spending
due to the economic impact of the pandemic, we are moving ahead with many new
products in development. In 2022, we intend to increase capital expenditures
(CapEx) and operating expenditures (OpEx), including development of new
products, services and process technologies to sharpen our competitive
advantage. In addition, we intend to expand our commercial service location to
meet the expanding needs of our customers.
The second half of 2020 showed us that our customers prefer a disinfection
device with lower cost and more versatility. To respond, we developed the
Backpack (SteraPak) that includes our award winning 6-log and above kill
technology and speed. In addition, our solution and process are environmentally
friendly as the only biproduct from our decontamination process is oxygen and
humidity. Our solution is OMRI certified and organically listed in
carbon footprint. We have competitively priced our SteraPak and expect to bring
SteraMist to the largest cleaning market in the world, including members of ISSA
Environment and Health Assessment) and EMEA (
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). As planned, we introduced our new
innovative SteraPak domestically towards the end of the third quarter 2021.
During the third quarter 2021, we established and expanded our production
capacity with the construction and purchase of the tooling and molds used in the
production of our SteraPak. Our tooling and molds will allow us to streamline
production and reduce manufacturing lead times and costs on the SteraPak.
Other new products that have been incorporated into our product line include the
Select Plus, which is a hybrid product consisting of the Company’s current
Surface Select and Environment systems. The unit will allow for enhanced
flexibility by using a single applicator to decontaminate full-room to
small-space volume while maintaining the size of the current Surface Select unit
with more robust process controls. The iHP SteraMist Transport System has been
designed for the transportation market, specifically ambulances. The iHP
SteraMist Transport System is a simple timer based fogging system that can be
installed semi-permanently or permanently and used for any transport and/or
cargo vehicle. It will be an easy-to-use turn-key integration system. The
implementation of this product and our patented non-corrosive iHP technology
should replace the number one competitor in this marketplace, which uses an
extremely harsh chemical.
Many of our customers have been waiting for the release and demonstration of
these new products, especially the SteraPak. All SteraMist systems will remain
important to the marketplace as they are designed for specific needs and
budgets. The Select Surface Unit perform most of the functionality that the Plus
offers and is priced at a lower cost, although Select Plus will provide
additional options that are appealing to certain customers, such as laboratory
and pharmaceutical companies. The SteraPak is a more cost-effective product and
designed for residential and commercial real estate including large buildings
and public space, any area that needs quick consistent disinfection. There are
many new and existing clients that are interested in the SteraPak due to the
cost and mobility.
In third quarter of 2021, we expanded our SteraMist® BIT™ solution product line
with a 32-ounce bottle for the SteraPak, and the introduction of a ten (10)
liter and five (5) gallon bottle. These three new additions bring the BIT
Solution product line to a total of five (5) options provided to our customers,
which should also benefit our razor razor-blade business model.
These new products and service introductions can significantly impact net sales,
cost of sales and operating expenses. The timing of product introductions can
also impact the Company’s net sales to its indirect distribution channels as
these channels are filled with new inventory following a product launch, and
channel inventory of an older product often declines as the launch of a newer
product approaches. Net sales can also be affected when consumers and
distributors anticipate a product introduction domestically and internationally.
26 Table of Contents Overview
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 solution and process are
environmentally friendly as the only biproduct from our decontamination process
is oxygen and humidity. Our solution is organically listed in
footprint. Most of our competitors in the disinfection space leave significant
byproducts and are corrosive. SteraMist is not corrosive, and it does not damage
equipment or facilities.
Our SteraMist® is a patented technology that produces ionized Hydrogen Peroxide
(iHP™) using cold plasma science created under a grant by the
Defense Advanced Research Projects Agency
Solution is composed of a low concentration of hydrogen peroxide converted to
iHP™ after passing the trade secret blended solution including its sole active
ingredient of 7.8% hydrogen peroxide through an atmospheric cold plasma arc. The
newly formed iHP™ fog and mist consists of submicron’s to 3-micron radical
particles that are carried throughout the treatment area in a fog or mist moving
with the same velocity and characteristics of a gas. This allows the ionized
hydrogen peroxide fog or mist to affect all surfaces and air space throughout
the targeted treatment area, over, above and beyond the ability of a manual
cleaning processes. iHP™ damages pathogenic organisms through the oxidation of
proteins, carbohydrates, and lipids. SteraMist® no-touch disinfection and or
decontamination treat areas mechanically, causing cellular disruptions and/or
dysfunctions resulting in a 6-log (99.9999%) and greater kill or inactivation of
all pathogens in the treatment area.
Under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), we are
required to register with the
seller of disinfectants. In
disinfectant for use as a misting/fogging agent. SteraMist® BIT™ now holds
registrations (# 90150-2) for mold control, and air and surface remediation (#
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
was further expanded to include efficacy against Salmonella and Norovirus. As of
Antimicrobial Products Effective against Clostridium difficile Spores”, as
published on the
included in the
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). In 2021, the
SteraMist® BIT™ brings to the world a mechanical and automated method of
cleaning using a game-changing technology and
disinfectant providing an upgrade to existing disinfecting and cleaning
protocols while limiting liability in a facility when it comes to resistant
infectious pathogens. We maintain this registration in all fifty (50) states,
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
(TSN), Food Safety and Commercial.
We continue to offer our customers a wide range of innovative mobile products
designed to be easily incorporated into their existing disinfection and
decontamination procedures and protocols. Our newly released SteraPak, among
other product lines will allow us to progress further into market share,
specifically for our Life Science,
divisions. Additionally, we offer integrated facility equipment installations
known as Custom Engineered Systems (CES), routine & emergency iHP Corporate
Service, essential training packages, validations and qualifications, and onsite
performance maintenance requests.
27 Table of Contents
Each of these are structured to address the unique disinfection and
decontamination needs of our customers worldwide regardless of industry
requiring or requesting SteraMist® disinfection decontamination.
A brief overview of the target industries is presented below:
The SteraMist® Environment System, Custom Engineered Systems (CES), the
SteraMist® Select Surface Unit (Plus), SteraBox, 90 Degree Applicator and our
iHP™ Corporate Service Division, are designed to be tailored to provide a
complete solution to address the regulatory inspections of
disinfecting/decontaminating and Installation Qualification (IQ)-Operational
Qualification (OQ)-Performance Qualification (PQ) validation processes within
the life sciences industry.
Long term, ongoing projects and validations continue to be a focus and lead to
proposals and interest for our CES permanent decontamination room. As these are
longer lead-time sales that can take months to design, build and implement, we
expect installations to have impact to our results in 2022.
Further, we believe that post COVID pandemic has brought some attention to the
SteraMist product line, as our CES in Pfizer Missouri was recently showcased in
a New York Times article as they featured their COVID vaccine processes. In
addition, our iHP Corporate Service team treated one of four fill lines in a
vaccines, with the remaining three lines set to be decontaminated in the future
For 2022 and beyond TOMI expects growth in SteraMist Custom Engineered
Systems (CES) bids and the manufacturing and implementation of these fully
automated decontamination systems. The first CES system was completed in 2016
had the opportunity to integrate several new technologies to advance overall
efficiency, quality, and design. One such technology was the use of our ionized
Hydrogen Peroxide (iHP) decontamination. TOMI’s CES is an automated system that
can be fully integrated into any company’s infrastructure, enabling
decontamination, without burdening manual use and with the collaboration of
current premier customers and partners, TOMI has further perfected the system.
The CES eliminates issues such as human error, guarantees accuracy that is
unmatched by competitors, and decreases a client’s labor cost and downtime, and
in a short time the CES may make up a majority of TOMI’s revenue. Since its
launch, SteraMist’s CES has become a leading solution to growing customer
The SteraMist® line of products, specifically the SteraMist® Surface Unit and
SteraMist® Total Disinfection Cart, are our main solutions to aid our
patients and personnel by disinfecting operating rooms, pharmacies, ambulances,
and emergency environments throughout a healthcare facility. TOMI’s latest
product, the SteraPak, further assists healthcare communities with an
easy-to-use, cordless disinfection solution, creating a more mobile solution.
Our customers that have successfully adopted our technology in
BIT™ Solution. We plan to continue to expand our marketing, advertising and
educational campaigns targeted at the
to grow our customer base and increase adoption of our SteraMist® line of
Our team of technicians and representatives train, maintain, and service capital
equipment throughout the world for our
Training and Implementation department expands, we expect continued growth and
purchases in our
development and implementation of SteraMist® as it is critical in the healthcare
setting. During 2020 the use of our SteraMist® in such campuses increased due to
our comprehensive training for their day and night shift maintenance and
housekeeping departments. Annual comparison case studies from healthcare
facilities are now available, which shows lower transmission infection rates in
COVID, Clostridium difficile Spores and overall, HAI cases.
Study. The Shield Study is a multi-year study comparing SteraMist with manual
clean. The Study was conducted by multiple well-established hospitals. Initial
findings have been positive regarding ease of use, overall efficacy, and quick
turnaround time of patient rooms. TOMI looks forward to announcing the full
results as soon as they are available to make public.
28 Table of Contents
TOMI anticipates this study will assist in the expansion of current HealthCare
customers to follow the model of Gila River Health Care.
TOMI’s largest Healthcare customers owning a total of fourteen (14) Surface
Units and Two (2) SteraPaks.
Akimel O’oodham (
Care, a premier Native American healthcare system, provides high quality patient
care, delivering a wide variety of medical services such as general surgery,
dental, and emergency medicine, as well as associated health services such as
pharmacy and laboratory operations, skilled nursing and rehabilitation.
TOMI Service Network
The TOMI Service Network, or TSN, is an expansive network consisting of
to use the SteraMist® products. With the purchase of SteraMist and joining TSN,
TOMI trains and services a wide array of professional remediation companies in
the use of SteraMist® throughout the TSN division. TSN allows for increased
accessibility and brand awareness of iHP® services to facilities in need of
local routine and emergency disinfection and decontamination.
The TOMI Service Network (TSN) division is addressing the cleaning protocols
that have changed permanently due to the COVID-19 pandemic, and our network is
expected to play a significant role in facilitating and maintaining these
disinfection services may have declined, but the education and support of such
services that TOMI personnel provide to our members creates an advantage by
maintaining strong business relationships while they service thousands of
SteraMist customers, and the world returns to the new normal.
Our SteraPak release is an important factor for this market that we will
increase the new member onboarding. Current members are showing interest in
purchasing the SteraPak to expand their current SteraMist offerings.
Food Safety presents significant potential as an opportunity for substantial
growth with continued product research and compliance testing. With the food
safety industry in
implementation and enforcement of new and established guidelines. This
concentration has previously been approved by the
and crop application and will allow SteraMist® to expand use sites beyond food
processing machinery, restaurants, and food contact areas. This will assist
compliance with the newly established Food Safety Modernization Act guidelines
set in place by the FDA, as well as the Safe Food for Canadians Act and Safe
Food for Canadians Regulations in
TOMI continues to work with premium companies in testing and validating
SteraMist® technology in the Food Safety and seed industries. In 2022, we look
to make further progress in enhancing brand awareness by promoting and marketing
this division. We are receiving an increase in inquiries within the Food Safety
division directly from these efforts.
With the global population explosion, we anticipate an increase in the demand
for a mechanical way to disinfect our food supply. Every day there are news
articles around the world pertaining to the contamination of food supply. The
many published articles that the
that our technology offers a consistent alternative to the decade’s old chemical
SteraMist will deliver more consistent and quicker results in all areas of our
food supply- From Farm to Market, Processing to packaging and Storage to
delivery. We plan on pursuing all these avenues. With the continued testing and
need for the market coupled with our new .35% label, should make pursuing these
opportunities successful. In addition, our solution and process is
environmentally friendly in that the biproduct of SteraMist is only oxygen and
humidity. We have our solution listed on OMRI and labeled as organic. Most
disinfectants leave residue on furniture, objects, and foods. SteraMist does not
leave any chemical residue on any surface. We have a very low carbon footprint,
Our Commercial division includes but is not limited to use sites such as
aviation, airports, police and fire, prisons, manufacturing companies,
automobile, military, cruise ships, shipping ports, preschool education, primary
and secondary schools, colleges including dormitories, all modes of public and
private transportation, regulatory consulting agencies, retail, housing and
recreation, and of course emergency preparedness for counties and cities to use
SteraMist® throughout their community.
29 Table of Contents
Interest in SteraMist disinfection within the commercial division remains high.
The SteraPak is a popular product for this division because customers are
looking for a more cost-effective solution compared to the current disinfectants
on the market. As quick and mobile disinfection solution is preferred in this
industry, we believe that SteraPak will generate substantial customer interest
and create sales opportunities. Currently our customers are purchasing our
SteraPak in all of our divisions to provide quick disinfection throughout
various sites in their facilities.
Business Highlights and Recent Events
Total revenue for the three months ended
compared to the same prior year period. The first quarter sales grew by 15% over
what was reported in the fourth quarter of 2021. The increase in revenue was
attributable to higher demand for our mobile equipment and iHP Corporate service
SteraMist product-based revenues for the three months ended
14% when compared to the same prior year period.
Our service-based revenue for the three months ended
Our domestic revenue for the three months ended
compared to the same prior year period.
Internationally, our revenue for the three months ended
We continue to see positive signs in the marketplace with our customers and
prospective customers which has contributed to our growth in our reportable
revenue for the first quarter and bolstered our current sales pipeline. During
the first quarter we received approximately
year. As of
be recognized into revenue in 2022. The growth in our orders was due to
increased demand for our mobile equipment and Custom Engineered Systems (CES)
from both the life science and hospital sectors.
We believe that we possess the best technologies in the world in the
disinfection and decontamination space. The COVID-19 pandemic has provided us
with the opportunity and motivation to implement a clear strategy to develop and
manufacture additional products to add to our portfolio. In addition, we
continue to move our BIT technology as a standard in disinfection and
decontamination globally, which we believe will lead to increased market share,
profitability, and capability strength. Our products are an environmentally
friendly solution and process which address the concerns of sustainability.
Customers are requesting and discussing the positive results of our product and
the environmentally friendly results compared to the caustic results of other
Dangerous pathogens still exist and will exist long after we recover from this
from the COVID-19 pandemic, there are many pathogens which are respiratory in
nature that are still a looming threat; these cases are occurring globally to
this day. We believe SteraMist can mitigate and reduce the impact of the next
pandemic as it has already proved during the outbreaks of Ebola, MERS and
recently with SARS CoV-2 pandemic. As the world faces uncertainty with an
ongoing war, SteraMist is prepared for a chemical and biological warfare with
proven efficacy against many agents, as well as inventory and support readily to
deploy at a moment’s notice. The need for a speedy comprehensive mechanical
disinfectant like SteraMist cannot be stressed enough and should be included as
the new norm of cleaning.
30 Table of Contents 2022 Events:
made, by providing its SteraMist Environmental Systems for use at On Demand
Pharmaceutical’s modular cleanroom.
of orders for its Custom Engineered Systems (CES) and have set installation
dates for these systems. Two of the orders are from a Fortune 500
pharmaceuticals company and the other is from a leading research facility
focused on immunology and infectious disease. These additional CES orders are
timed nicely after the final commissioning of the CES reported in
and installed months later after announcement for Fresenius Kabi’s Portuguese
engineering services & custom control panel manufacturer, to further develop its
SteraMist brand of products.
SteraPak units to its local distributor in
units were deployed by a well-known real-estate conglomerate in
use in shopping malls, commercial and residential buildings, and numerous other
business premises to effectively combat the massive outbreak of COVID-19 Omicron
variant infections in the city.
As conferences and tradeshows are reopening in 2022 companies to exhibit live,
TOMI will be attending multiple shows across the country. It is critical for
TOMI to perform live demonstrations to showcase the difference between our
SteraMist iHP technology and our competitors. TOMI looks forward to making a
large impact with live demonstrations of SteraMist disinfection technology
throughout our multiple divisions.
Restoration Convention & Industry Expo
of restoration businesses regarding mergers and acquisitions and meetings with
core entities to discuss SteraMist disinfection potential with large franchises.
which is the largest fire and rescue conference. As first-time exhibitors, we
gained knowledge on the
concerns of corrosion, vehicle turnover time, and residues left behind by older
technologies, SteraMist technology saw great interest as it does not corrode or
damage equipment, leave residue, and quickly disinfects. This market eagerly
awaits the release of the iHP SteraMist Transport System.
Research Studies and Publications:
houses, pre harvests and post harvests. TOMI is conducting internal studies with
the 0.35% on common pathogens in the food safety market to enhance protocols.
We continue to pursue acceptance of the additional 1% hydrogen peroxide label
significant delays by
including TOMI’s new 1% registration.
Partner Indoor Environmental Solutions and Consultants, or
their Forensic Architectural & Engineering Investigation and Decontamination
surface decontamination company dedicated to food and health safety. In addition
to being a TSN service provider, IESC are distributor partners to iHP SteraMist
technology. Kalera, a global leader in vertical community farms for greens and
culinary herbs harvested on demand all year is highly motivated to have iHP
SteraMist be their cleaning decontamination solution. The recently received
report outlines decontamination protocols and calculated savings and estimated
service and purchasing options for Kalera.
TOMI has once again partnered with
continued research on BIT solution and the modeling of cold plasma-activated
hydrogen peroxide process, evaluating concentration, treatment time, and dwell
time on the efficacy of the technology against bacteria on stem scar and smooth
surfaces of tomatoes. Although the final paper is with the reviewers to the
journal, the final draft of this latest publication was approved late March of
31 Table of Contents
Received great preliminary biotoxin iHP inactivation data against Ricin A Chain
toxoids. TOMI is working directly with the agency to find funding and supporting
efforts to validate their toxoid protocols against fully functional toxins. This
same agency is constructing a scalable, reusable, portable iHP decontamination
chamber for field remediation of biologically contaminated equipment.
Bio-Risk Decontamination and Restoration owner
book Mycotoxin Deactivation: A Successful Mycotoxin Treatment and Reduction Case
Study on the assessment, identification, treatment, and deactivation and
validation procedures of Mycotoxins highlighting SteraMist iHP as the treatment
for deactivating and render them inert. The book is available online at Amazon,
As previously discussed, TOMI has engaged
quantitative test of germ carriers for airborne room disinfection and testing of
the effectiveness of a method for disinfecting room air to meet the new
(standard) EN 17272. Certification that Binary Ionization Technology meets the
new standard will continue to position iHP as the premier
decontamination/disinfection technology available on the market today. On
evaluation. The EN 17272 is the European standard for airborne room disinfection
in the form of gas, steam and/or aerosol.
We have participated in a large multi-year federal funded study, known as the
“SHIELD study” that compares hospital manual cleaning to a SteraMist® mechanical
cleaning. Preliminary results collected by the current hospitals in the study is
showing a decrease in the transference of pathogens resulting in HAIs and
Clostridium difficile infections in the rooms that used SteraMist® for their
terminal clean, as compared to the rooms that have been manually cleaned.
Sufficient data has been collected to complete the study in 2021, and we expect
that data to be provided to the examiners with a published paper to soon follow.
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. In 2021, we were
granted utility patents in
for our SteraMist BIT. In the recent past, we have obtained two related
2038, and we are pursuing further claims to additional capabilities in on-going
We have submitted utility patent applications in multiple countries, including
SteraMist BIT, and a related application has already been determined novel and
applicator device in
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
IP protection for further applications of our SteraMist BIT in diverse fields at
multiple jurisdictions, such as food decontamination.
Our products are sold around the world under various brand names and trademarks.
We consider our brand names and trademarks to be valuable in the marketing of
our products. As of today, we have over two hundred trademarks, (word and/or
logo) registered or pending across the globe. TOMI registers marks in eight (8)
classes of specification of goods and services: Class 1 for Chemicals for
Treating Hazardous Waste, Class 5 for Disinfectants, All-Purpose for Hard
Surfaces and for Treating Mold, Class 7 for Handheld Power Operated Spraying
Machines, Class 11 for Sterilizers for Medical Use and Air Purification, Class
35 for Business Consultation and Management Services, Class 37 for General
Disinfecting Services, Class 40 for Chemical Decontamination and Manufacturing
Services, and Class 41 for Providing Education Training and information related
to biological and bacterial decontamination services.
32 Table of Contents Financial Operations Overview Our financial position as of
March 31, 2022and December 31, 2022, respectively, was as follows: March 31, 2022 Unaudited December 31, 2021 Total shareholders' equity $ 13,288,000 $ 13,595,000Cash and cash equivalents $ 5,330,000$ 5,317,000 Accounts receivable, net $ 2,500,000$ 1,965,000 Inventories $ 5,100,000$ 4,743,000 Prepaid expenses $ 456,000$ 344,000 Vendor Deposits $ 315,000$ 289,000 Other Receivables $ 164,000$ 236,000 Current liabilities $ 3,069,000$ 1,816,000 Long-term liabilities $ 837,000$ 861,000 Working Capital $ 10,797,000 $ 11,077,000
During the three months ended
were affected by the following:
· Net cash provided from operations of approximately
$27,000. · Customer deposits received of approximately $607,000.
Results of Operations for the three months ended
three months ended
For The Three Months Ended March 31, Change 2022 2021 $ % Revenue, Net
$ 2,309,000 $ 2,073,000 $ 236,00011 % Gross Profit 1,421,000 1,235,000 186,000 15 %
Total Operating Expenses (1) 2,081,000 2,745,000 (664,000 ) -24 %
Income (Loss) from Operations (660,000 ) (1,510,000 ) 850,000
-56 % Total Other Income (Expense) - (1,000 ) 1,000 NM Provision for Income Taxes - - - NM Net Income (Loss)
$ (660,000 ) $ (1,511,000 )851,000 -56 % Basic Net Income (Loss) per share $ (0.03 ) $ (0.09 ) $ 0.06-63 % Diluted Net Income (Loss) per share $ (0.03 ) $ (0.09 ) $ 0.06-63 % (1) Includes $352,000and $228,000in non-cash equity compensation expense for the three months ended March 31, 2022and 2021, respectively. (2) NM - Not Meaningful Sales and Revenue
Total revenue for the three months ended
compared to the same prior year period. The increase in revenue was attributable
to higher mobile equipment sales and iHP service revenue.
As customers mature through the product and adoption cycle and our sales
pipeline converts to revenue, we expect to generate more predictable sales
quarter over quarter. Further, as the COVID-19 pandemic subsides, we expect that
the demand for our products and services will continue as we are building a team
to address the post COVID-19 pandemic market opportunities.
33 Table of Contents Net Revenue
Product and Service Revenue
For The Three Months Ended March 31, Change 2022 2021 $ % SteraMist Product
$ 1,886,000 $ 1,661,000 $ 225,00014 % Service and Training 423,000 412,000 11,000 3 % Total $ 2,309,000 $ 2,073,000 $ 236,00011 %
SteraMist product-based revenues for the three months ended
14% when compared to the same prior year period.
Our service-based revenue for the three months ended
Geographic RegionFor The Three Months Ended March 31, Change 2022 2021 $ % United States $ 1,879,000 $ 1,804,000 $ 75,0004 % International 430,000 269,000 161,000 60 % Total $ 2,309,000 $ 2,073,000 $ 236,00011 %
Our domestic revenue for the three months ended
compared to the same prior year period.
Internationally, our revenue for the three months ended
Cost of Sales For The Three Months Ended March 31, Change 2022 2021 $ % Cost of Sales
$ 888,000 $ 838,00050,000 6 %
Cost of sales was
prior year. The primary reason for the increase in cost of sales is attributable
to higher revenue in the current quarter. Our gross profit as a percentage of
sales for the three months ended
the same prior period, respectively. The higher gross profit is attributable to
the product mix in sales.
Professional Fees For The Three Months Ended March 31, Change 2022 2021 $ % Professional Fees
$ 191,000 $ 173,000 $ 18,00010 % 34 Table of Contents
Professional fees are comprised mainly of legal, accounting, and financial
Professional fees were
in the current year period.
Depreciation and Amortization
For The Three Months Ended March 31, Change 2022 2021 $ %
Depreciation and Amortization
Depreciation and amortization were approximately
three months ended
Selling Expenses For The Three Months Ended March 31, Change 2022 2021 $ % Selling Expenses
$ 341,000 $ 474,000 $ (133,000 )-28 %
Selling expenses for the three months ended
representing a decrease of approximately
selling expense is attributable to a lower employee headcount and sales
commissions in the current year period.
Research and Development For The Three Months Ended March 31, Change 2022 2021 $ % Research and Development
$ 37,000 $ 196,000 $ (159,000 )-81 %
Research and development expenses for the three months ended
research and development expenses is attributable to product development charges
we incurred on the prior year period which did not reoccur in the current year
Consulting Fees For The Three Months Ended March 31, Change 2022 2021 $ %
$ 63,000 $ 106,000 $ (43,000 )-41 %
Consulting fees were
current quarter period. The decrease is due to the timing of certain projects
that occurred in the prior year that did not occur in the same current year
35 Table of Contents
General and Administrative Expense
For The Three Months Ended March 31, Change 2022 2021 $ % General and Administrative
$ 1,367,000 $ 1,712,000 $ (345,000 )-20 %
General and administrative expense includes salaries and payroll taxes, rent,
insurance expense, utilities, office expense, product registration costs, equity
compensation and bad debt expense.
General and administrative expense was
the current period. The decline in general and administrative expense is
primarily attributable to lower payroll costs in the current year period.
Other Income and Expense For The Three Months Ended March 31, Change 2022 2021 $ % Interest Expense - (1,000 ) 1,000 NM Other Income (Expense) $ - $ (1,000 )
Interest expense was
Liquidity and Capital Resources
operations, invest in research and development and capital equipment, and the
continued costs of public company reporting requirements. We have historically
funded our operations through funds generated through operations and debt and
equity financings. The sale of additional equity securities could result in
dilution to our stockholders. The incurrence of indebtedness would result in
increased debt service obligations and may include operating and financial
covenants that would restrict our operations. We cannot be certain that any
financing will be available in the amounts we need or on terms acceptable to us,
if at all.
direct offering to certain institutional investors and issued 1,434,721 warrants
in a concurrent private placement. We received net proceeds from the
estimated offering expenses. The Warrants have an exercise price of
share, are exercisable immediately upon issuance and have a term of exercise
equal to five years from the date of issuance.
For the three months ended
operations of (
operations for the three months ended
36 Table of Contents
A breakdown of our statement of cash flows for the three months ended
For the three months ended
March 31, 20222021
Net Cash Provided By (Used) in Operating Activities
$ (14,000 ) $ (28,000 )Net Cash Provided by Financing Activities: $ - $ - Operating Activities
Cash provided by operating activities for the three months ended
was 27,000, compared to cash used in operations for the three months ended
year period as a result of increase sales, gross profit, customer deposits and
lower operating expenses.
Cash used in investing activities for the three months ended
Cash provided by financing activities for three months ended
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, sales expense as we continue
to grow our sales teams, inventory as we continue to ensure we have products
needed and geographic presence, tooling capital expenditures as we ramp up and
streamline our production and administrative activities including compliance
with the Sarbanes-Oxley Act of 2002 Section 404.
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
EPAto 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
37 Table of Contents
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 condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in
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.
view, most important to the portrayal of our financial condition and results of
operations and most demanding of our judgment. We consider the following
policies to be critical to an understanding of our condensed consolidated
financial statements and the uncertainties associated with the complex judgments
made by us that could impact our results of operations, financial position and
We recognize revenue in accordance with
(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
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.
38 Table of Contents Contract Balances
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
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 condensed consolidated financial statements in conformity
amounts reported and disclosed in the accompanying condensed consolidated
financial statements and the accompanying notes. Actual results could differ
materially from these estimates. On an ongoing basis, we evaluate our estimates,
including those related to accounts receivable, inventory, fair values of
financial instruments, intangible assets, useful lives of intangible assets and
property and equipment, fair values of stock-based awards, income taxes, and
contingent liabilities, among others. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable,
the results of which form the basis for making judgments about the carrying
values of our assets and liabilities.
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.
39 Table of Contents 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.
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
Inventories are valued at the lower of cost or net realizable value using the
first-in, first-out (FIFO) method. Inventories consist primarily of finished
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
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.
We recognize a right-of-use (“ROU”) asset and lease liability for all leases
with terms of more than 12 months, in accordance with ASC 842. We utilize the
short-term lease recognition exemption for all asset classes as part of our
on-going accounting under ASC 842. This means, for those leases that qualify, we
will not recognize ROU assets or lease liabilities. Recognition, measurement and
presentation of expenses depends on classification as a finance or operating
As a lessee, we utilize the reasonably certain threshold criteria in determining
which options we will exercise. Furthermore, our lease payments are based on
index rates with minimum annual increases. These represent fixed payments and
are captured in the future minimum lease payments calculation. In determining
the discount rate to use in calculating the present value of lease payments, we
used our incremental borrowing rate based on the information available at
adoption date in determining the present value of lease payments.
We have also elected the practical expedient to not separate lease and non-lease
components for all asset classes, meaning all consideration that is fixed, or
in-substance fixed, will be captured as part of our lease components for balance
sheet purposes. Furthermore, all variable payments included in lease agreements
will be disclosed as variable lease expense when incurred. Generally, variable
lease payments are based on usage and common area maintenance. These payments
will be included as variable lease expense when recognized.
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.
40 Table of Contents 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 condensed
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
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
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.
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.
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.
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
41 Table of Contents
Long-Lived Assets Including Acquired Intangible Assets
We assess long-lived assets for potential impairments at the end of each year,
or during the year if an event or other circumstance indicates that we may not
be able to recover the carrying amount of the asset. In evaluating long-lived
assets for impairment, we measure recoverability of these assets by comparing
the carrying amounts to the future undiscounted cash flows the assets are
expected to generate. If our long-lived assets are considered to be impaired,
the impairment to be recognized equals the amount by which the carrying value of
the asset exceeds its fair market value. We base the calculations of the
estimated fair value of our long-lived assets on the income approach. For the
income approach, we use an internally developed discounted cash flow model that
includes, among others, the following assumptions: projections of revenues and
expenses and related cash flows based on assumed long-term growth rates and
demand trends; expected future investments to grow new units; and estimated
discount rates. We base these assumptions on our historical data and experience,
industry projections, micro and macro general economic condition projections,
and our expectations. We had no long-lived asset impairment charges for the
three months ended
Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
and Contract Liabilities from Contracts with Customers (Topic 805). This ASU
requires an acquirer in a business combination to recognize and measure contract
assets and contract liabilities (deferred revenue) from acquired contracts using
the revenue recognition guidance in Topic 606. At the acquisition date, the
acquirer applies the revenue model as if it had originated the acquired
contracts. The ASU is effective for annual periods beginning after
should be applied prospectively. Early adoption is also permitted, including
adoption in an interim period. If early adopted, the amendments are applied
retrospectively to all business combinations for which the acquisition date
occurred during the fiscal year of adoption. This ASU is currently not expected
to have a material impact on our condensed consolidated financial statements.
Recently adopted accounting pronouncements
832). This ASU requires business entities to disclose information about
government assistance they receive if the transactions were accounted for by
analogy to either a grant or a contribution accounting model. The disclosure
requirements include the nature of the transaction and the related accounting
policy used, the line items on the balance sheets and statements of operations
that are affected and the amounts applicable to each financial statement line
item and the significant terms and conditions of the transactions. The ASU is
effective for annual periods beginning after
2021-10 starting in 2022, which did not have a material impact on our condensed
consolidated financial statements.
42 Table of Contents
© Edgar Online, source