TOMI ENVIRONMENTAL SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS – CONTINUED

(UNAUDITED)

	For the Six Months Ended June 30,
	2020	2019
Cash Flow From Financing Activities:
Proceeds from Exercise of Warrants and Options	121,000	-
Proceeds from Loan Payable	410,700	-
Repayment of Principal Balance on Convertible Note	(500,000)	-
Net Cash Provided By Financing Activities:	31,700	-
Increase (Decrease) In Cash and Cash Equivalents	5,370,838	(373,176)
Cash and Cash Equivalents - Beginning	897,223	2,004,938
Cash and Cash Equivalents – Ending	$6,268,061	$1,631,762

Supplemental Cash Flow Information:
Cash Paid For Interest	$107,356	$100,000
Cash Paid for Income Taxes	$800	$800
Non-Cash Investing and Financing Activities:
Accrued Equity Compensation	$27,189	$59,845
Conversion of Note Payable into Common Stock	$4,500,000	$-
Equipment, net Transferred to Inventory	$36,256	$-

For the Three Months Ended March 31,

Cash Flow From Financing Activities:
2020

2019

  Proceeds from Exercise of Warrants
  57,500
  -
  Repayment of Principal Balance on Convertible Note
  (500,000)
  -
Net Cash Used in Financing Activities
  (442,500)
  -
Increase (Decrease) In Cash and Cash Equivalents
  2,858,594
  (809,000)
Cash and Cash Equivalents - Beginning
  897,223
  2,004,938
Cash and Cash Equivalents – Ending
$3,755,816
$1,195,938



Supplemental Cash Flow Information:


   Cash Paid for Interest
$107,356
$100,000
   Cash Paid for Income Taxes
$-
$800
Non-Cash Investing and Financing Activities:


  Accrued Equity Compensation
$27,189
$59,845
Conversion of Note Payable into Common Stock
$4,500,000
$-
Equipment, net Transferred to Inventory
$36,256
$-

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

~~TOMI~~TOMI ENVIRONMENTAL SOLUTIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS

TOMI Environmental Solutions, Inc., a Florida corporation (“TOMI”, the “Company”, “we”, “our” and “us”) is a global provider of disinfection and decontamination essentials through its premier Binary Ionization Technology® (BIT™) platform, under which it manufactures, licenses, services and sells its SteraMist® brand of products, including SteraMist® BIT™, a hydrogen peroxide-based mist and fog.

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.

TOMI’s 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. TOMI products are also used in single-family homes and multi-unit residences. Recently TOMI’s products was included in List N from the EPA to help combat COVID-19. TOMI is actively using its SteraMist brand of products in the frontline for combating COVID-19 around the world.

TOMI’s mission is to help its customers create a healthier world through its product line in its divisions (Healthcare, Life Sciences, TOMI Service Network and Food Safety).

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

These financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2019 and notes thereto which are included in the Annual Report on Form 10-K previously filed with the SEC on March 30, 2020. The Company follows the same accounting policies in the preparation of interim reports. The results of operations for the interim periods covered by this Form 10-Q may not necessarily be indicative of results of operations for the full fiscal year or any other interim period.

Principles of Consolidation

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

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.~~

~~Level2:~~

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 or 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.~~

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 or 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 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. Bad debt expense for the three and six months ended ~~March 31,~~June 30, 2020 was approximately $48,000 and $73,000, respectively. Bad debt expense for the three and six months ended June 30, 2019 was ~~$25,000~~approximately $(27,000) and ~~$58,490,~~$32,000, respectively.

At ~~March 31,~~June 30, 2020 and December 31, 2019, the allowance for doubtful accounts was ~~$135,000~~$165,000 and $110,000, respectively.

~~As of March 31, 2020, one customer accounted for 12% of accounts receivable.~~ As of December 31, 2019, three customers accounted for 37% of accounts receivable.

One customer/distributor accounted for ~~31%~~13% of net revenue for the six months ended June 30, 2020. One customer accounted for 26% of net revenue for the three months ended ~~March 31, 2020~~June 30, 2019 and two customers accounted for ~~45%~~29% of net revenue for the ~~three~~six months ended ~~March 31,~~June 30, 2019.

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. Our reserve for obsolete inventory was $0 and $100,000 as of ~~March 31,~~June 30, 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 new standard, which allowed us to carry forward the historical determination of contracts as leases, lease classification and not reassess initial direct costs for historical lease arrangements. Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of the new standard to all comparative periods presented.

Operating lease assets are included within operating lease right-of-use assets, and the corresponding operating lease liabilities are recorded as current portion of long-term operating lease, and within long-term liabilities as long-term operating lease, net of current portion on our condensed consolidated balance sheet as of ~~March 31,~~June 30, 2020 and December 31, 2019.

We have elected not to present short-term leases on the condensed 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, the Company expenses 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. Amortization expense for the three and six months ended ~~March 31,~~June 30, 2020 was ~~$10,475.~~

$10,475 and $20,950, respectively.

Accounts Payable

As of ~~March 31,~~June 30, 2020, ~~and~~two vendors accounted for approximately 64% of accounts payable. As of December 31, 2019, one vendor accounted for approximately ~~33% and~~ 40% of accounts ~~payable, respectively.~~payable.

For the three and six months ended ~~March 31,~~June 30, 2020, two vendors accounted for 78% and 80% of cost of sales, respectively. For the three and six months ended June 30, 2019, one vendor accounted for ~~89%~~79% and ~~67%~~74% of cost of sales, respectively.

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 ~~manufacturer assumes~~manufacturers assume the warranty against product defects ~~for one year~~ 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 ~~March 31,~~June 30, 2020, and December 31, 2019, our warranty reserve was ~~$60,000~~$90,000 and $30,000, respectively (See Note ~~14)~~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 ~~March 31,~~June 30, 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.

Net Income (Loss) Per Share

Basic net income or (loss) per share is computed by dividing the Company’s 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 ~~March 31,~~June 30, 2020 consisted of ~~16,798,858~~13,696,675 shares of common stock issuable upon exercise of outstanding warrants, ~~830,000~~810,000 shares of common stock issuable upon outstanding options and 510,000 shares of common stock issuable upon conversion of outstanding shares of Preferred A stock (“Convertible Series A Preferred Stock”).

Potentially dilutive securities as of ~~March 31,~~June 30, 2019 consisted of 9,259,250 shares of common stock from convertible debentures, ~~26,800,611~~26,850,611 shares of common stock issuable upon exercise of outstanding warrants, 620,000 shares of common stock issuable upon outstanding options and 510,000 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 ~~16.7~~15.0 million and 27.6 million shares of common stock were outstanding at ~~March 31,~~June 30, 2020 and December 31, 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 Three Months Ended March 31, (Unaudited)
	2020	2019	For the Three Months Ended June 30, (Unaudited)
			2020	2019
Net Income (Loss)	$2,619,261	$(934,532)	$3,656,916	$(584,704)
Adjustments for convertible debt - as converted
Interest on convertible debt	40,689	50,000	-	50,000
Amortization of debt discount on convertible debt	-	17,534	-
Net income (loss) attributable to common shareholders	$2,659,950	$(866,998)	$3,656,916	$(534,704)
Weighted average number of shares of common stock outstanding:
Basic	126,802,819	124,659,307	133,541,403	124,699,539
Diluted	144,941,677	124,659,307	148,558,078	124,699,539
Net income (loss) attributable to common shareholders per share:
Basic	$0.02	$(0.01)	$0.03	$(0.00)
Diluted	$0.02	$(0.01)	$0.02	$(0.00)

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

	For the Three Months
	Ended June 30
	(Unaudited)
	2020	2019
Numerator:
Net Income (Loss)	$3,656,916	$(584,704)

Denominator:
Basic weighted-average shares	133,541,403	124,699,539
Effect of dilutive securities
Warrants	13,696,675	-
Convertible Debt	-	-
Options	810,000	-
Preferred Stock	510,000	-
Diluted Weighted Average Shares	148,558,078	124,699,539

Net Income (Loss) Per Common Share:
Basic	$0.03	$(0.00)
Diluted	$0.02	$(0.00)

Note: Warrants, options and preferred stock for the three months ended June 30, 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	$3,656,660	$(535,333)
Basic and Diluted Weighted
Average Shares
Basic	133,541,403	124,699,539
Diluted	148,558,078	124,699,539
Basic and Diluted Income (loss) Per Common Share
Basic	$0.03	$(0.00)
Diluted	$0.02	$(0.00)

	For the Six Months Ended June 30, (Unaudited)
	2020	2019

Net Income (Loss)	$6,276,178	$(1,519,236)
Adjustments for convertible debt - as converted
Interest on convertible debt	40,689	100,000
Amortization of debt discount on convertible debt	-	17,534
Net income (loss) attributable to common shareholders	$6,316,867	$(1,401,702)
Weighted average number of shares of common stock outstanding:
Basic	130,172,111	124,679,534
Diluted	145,188,786	124,679,534
Net income (loss) attributable to common shareholders per share:
Basic	$0.05	$(0.01)
Diluted	$0.04	$(0.01)

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

For the Three Months

Ended March 31

(Unaudited)

2020

2019

Numerator:

Net Income (Loss)
$2,619,261
$(934,532)

	For the Six Months
	Ended June 30
	(Unaudited)
	2020	2019
Numerator:
Net Income (Loss)	$6,276,178	$(1,519,236)

Denominator:
Basic weighted-average shares	126,802,819	124,659,307	130,172,111	124,679,534
Effect of dilutive securities
Warrants	16,798,858	-	13,696,675	-
Convertible Debt	-		-
Options	830,000	-	810,000	-
Preferred Stock	510,000	-	510,000	-
Diluted Weighted Average Shares	144,941,677	124,659,307	145,188,786	124,679,534

Net Income (Loss) Per Common Share:

Basic	$0.02	$(0.01)	$0.05	$(0.01)
Diluted	$0.02	$(0.01)	$0.04	$(0.01)

The following table presents warranty reserve activities at:

	June 30, 2020 (Unaudited)	December 31, 2019
Beginning accrued warranty costs	$30,000	$30,000
Provision for warranty expense	61,864	2,609
Settlement of warranty claims	(1,864)	(2,609)
Ending accrued warranty costs	$90,000	$30,000

NOTE 16. LOAN PAYABLE

March 31, 2020
(Unaudited)

December 31, 2019

Beginning accrued warranty costs
$30,000
$30,000
Provision for warranty expense
  31,864
  2,609
Settlement of warranty claims
  (1,864)
  (2,609)
Ending accrued warranty costs
$60,000
$30,000
On April 21, 2020, TOMI Environmental Solutions, Inc. (the "Company") 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 three months ended June 30, 2020 was $787.

~~NOTE 15. CUSTOMER DEPOSITS~~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. To the extent the loan amount is not forgiven under the PPP, the Company will be obligated to make equal monthly payments of principal and interest beginning on the date that is seven months from the date of the Note, until the maturity date.

At March 31, 2020 and December 31, 2019, there were customer deposits of $1,017,533 and $0, respectively on future equipment orders. In the first quarter of 2020, we began requiring a 50% customer deposit on placing most orders and payment in full prior to delivery on most orders to mitigate credit risk and to improve liquidity.

NOTE ~~16.~~17. INCOME TAXES

For the three and six-months months ended ~~March 31,~~June 30, 2020 and 2019, our provision for income tax was $0. Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized in accordance with ASC guidance for income taxes. As of ~~March 31,~~June 30, 2020 and December 31, 2019, we recorded a valuation allowance of ~~$4,743,000~~$3,742,000 and $5,580,000, respectively 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 ~~$837,000~~$1,838,000 during the ~~three~~six months ended ~~March 31,~~June 30, 2020, primarily due to U.S. deferred tax assets incurred in the current period that ~~could~~cannot be realized. Management believes that based on the available information, it is more likely than not that the remaining U.S. deferred tax assets will not be realized, such that a 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.

NOTE ~~17.~~18. CUSTOMER CONCENTRATION

The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s accounts receivable.

~~As of March 31, 2020, one customer accounted for 12% of our accounts receivable.~~ As of December 31, 2019, three customers accounted for 37% of accounts ~~receivable~~.receivable.

~~For~~One customer accounted for 26% of net revenue for the three months ended ~~March 31, 2020, sales made to one international customer / distributor accounted for 31% of net revenue. For the three months ended March 31,~~June 30, 2019 and two customers accounted for ~~45%~~29% of net ~~revenue.~~revenue for the six months ended June 30, 2019.

One customer/distributor accounted for 13% of net revenue for the six months ended June 30, 2020.

NOTE ~~18.~~19. SUBSEQUENT EVENTS

On April 21, 2020, TOMI Environmental Solutions, Inc. (the "Company") 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.

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. To the extent the loan amount is not forgiven under the PPP, the Company will be obligated to make equal monthly payments of principal and interest beginning on the date that is seven months from the date of the Note, until the maturity date.

In ~~April~~July 2020, 215,517 shares of common stock were issued in connection with the ~~company issued 100,000~~exercise of warrants ~~to its Chief Executive Officer, 50,000 warrants to its Chief Operating Officer and 50,000 warrants to its Chief Financial Officer, all exercisable at $0.50 per share.~~for which we received proceeds of $62,500.

~~In May 2020, 3,116,666 warrants expired reducing the number of outstanding warrants to 13,912,192~~

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

You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-Q, particularly in Part II, Item 1A, “Risk Factors.”

Overview

TOMI Environmental Solutions, Inc. (“TOMI”, “we” and “our”) 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 fog or mist.

TOMI’s SteraMist is a patented technology that produces ionized Hydrogen Peroxide (iHP™) using plasma science created under a grant by the United States Defense Advanced Research Projects Agency (DARPA). TOMI’s 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 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.

SteraMist® Binary Ionization Technology® allows a facility to have a ~~hospital-healthCare~~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. This year TOMI’s EPA label was further amended to include Emerging Viral Pathogens claims, thus meeting the criteria against Enveloped viruses and Large Non-enveloped viruses. BIT™ is also listed on EPA’s List G (Norovirus), H (MRSA), K (C.diff), L (Ebola), M (Avian flu or Influenza) and N ~~for Norovirus, MRSA, C.diff, Ebola, Avian flu or Influenza and SARS-CoV-2 respectively.~~(Emerging Viral Pathogens including SARS-CoV-2). TOMI maintains this registration in 50 states, Canada, and approximately 2233 other countries.

Markets

TOMI’s SteraMist® products are designed to address a wide spectrum of industries using ionized Hydrogen Peroxide (iHP™). ~~Our~~In second quarter of 2020, our operations ~~are organized~~were changed into four main divisions based on our current target industries: Hospital-Healthcare, Life Sciences, TOMI Service Network (TSN) and Food Safety. ~~In addition, TOMI is able to bring SteraMist~~® ~~efficacy to each division through scheduled iHP~~® ~~Service in both routine and emergency capacities. SteraMist~~® ~~technology and iHP~~® ~~Service are available both domestically and internationally.~~

Products

We continue to offer our customers a wide range of innovative 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™ Service, 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.~~worldwide regardless of the type of facility requiring or requesting SteraMist® treatment.

Divisions

Hospital-Healthcare

TOMI’s ~~hospital-healthcare~~Hospital-HealthCare customer list continues to grow with the closing of every quarter. TOMI’s SteraMist® Hospital 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® Hospital 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~~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.~~UCLA, a study which will be expanding throughout other areas of one of the hospitals participating in the study. This mobile consolidation solution has resulted in remarkable results for facilities utilizing our technology. ~~Previously published results of N95 mask disinfection efficacy~~We were shortly followed by the official listing of SteraMist ~~as a~~in the EPA’s List N, for disinfectant use against the SARS-CoV-2 Coronavirus.

Life Sciences

TOMI’s SteraMist®. Environment System, Custom Engineered Solutions, the SteraMist® Select Surface Unit, custom iHP™ implementation to decontamination chambers and cage washers, and our iHP™ 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, TOMI has worked alongside many research universities and government agencies in the effort to test SteraMist efficacy on the disinfection and ~~re-use~~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. SteraMist has also been included in studies observing the effects of iHP disinfection on the reduction of Syphacia obvelata pinworm ova presence in rodent cages, which indicated positive results.

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. TOMI sells, trains, and services a wide array of professional remediation companies in the use of SteraMist® through the TSN division. This allows for increased accessibility of ~~Binary Ionization Technology~~BIT™ 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 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 make up a large amount of our consistent revenue stream, and members of the TOMI Service Network are a large portion of those recurring sales. As of January 1, 2020, we have removed the exclusivity portion of our service partner company agreements, allowing us to expand our network and further penetrate existing markets and additional markets. The TSN network has grown significantly to date in 2020, with the total number of service providers currently at one hundred and ~~sixty (160)~~sixty-seven (167), ~~which has expanded~~and with two recent new providers located in Hawaii and New Mexico, our network membership now spans across ~~forty-four (44)~~forty-six (46) U.S. States and two (2) Canadian provinces. ~~Currently, there are approximately 295 SteraMist~~® ~~units in the field across all members of TSN™.~~

Food Safety

~~As one of our newest targeted markets,~~ 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.

~~Our primary~~

This year TOMI received two (2) additional published Food Safety papers testing the efficacy and impact of the iHP™ process or our cold plasma arc when compared to soaking in hydrogen peroxide only. The studies detailed positive effects of SteraMist on various aspects of fresh produce quality and storage methods. Further, a fourth paper is set to be published shortly on the SteraMist claim of no residue left behind after treatment.

These published studies discuss the positive effect of using SteraMist in helping decrease pathogens in food safety. TOMI’s objective for the Food Safety industry is to prevent and/or minimize food decay without the use of harsh chemicals that leave toxic residues, which could create a lucrative opportunity to supplement or replace current pesticides and fungicides currently being used by industry leaders.

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 USDA (United States Department of Agriculture), FSIS (Food Safety and Inspection Service) and OPHS Office of Public Health and Safety) 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 3 sites handle a variety of pathogenic bacteria routinely.

Recently, the USDA research, education, and economics mission area in the Northeast purchased a SteraMist Select Surface unit. And, TOMI is seeing a slight 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. Further, one of our initial Food Safety customers, is looking to purchase a second SteraMist Environment system for the disinfecting of their production areas and process equipment expanding to multiple facilities.

Business Highlights and Recent Events

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 a disinfectant and decontamination vendor by various agencies and countries. We have been working relentlessly with organizations to address the concerns and provide solutions for disinfecting and decontamination of the SARS CoV-2 coronavirus. The outbreak has increased the demand for TOMI products and services. Since COVID-19 people see germs in a different way and there is no reason to think that will change back to the way the world was pre COVID-19. We also anticipate that the outbreak will change requirements and ~~processes~~protocols for ~~decontamination~~disinfecting and ~~disinfecting~~decontamination worldwide, of which SteraMist will be a solution. We are working with our existing and new customers to develop and/or upgrade their existing processes and requirements for ~~decontamination~~disinfecting and ~~disinfecting.~~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~~TOMI service network to ensure that resources are deployed in a timely manner. In addition, we increased our production capacity ~~and will be entering~~as we entered into an agreement with a second vendor to build our SteraMist products.

Customers:

In response to the increased demand due to the global pandemic outbreak, our customer list ~~grew substantially on~~experienced continued growth during the ~~first~~second quarter. 2020. Globally, we added ~~eighty-one (81)~~eighty-seven (87) new customers across all our divisions for the three months ended ~~March 31,~~June 30, 2020. This represents a ~~six~~three hundred and ~~eight-six (686%~~fifty-eight (358%) percent increase over the ~~first~~second quarter of 2019. ~~We anticipate that the new customers will continue to order products beyond the outbreak.~~

Our TSN division added ~~thirty-six (36)~~thirty-five (35) new service providers for the three months ended ~~March 31,~~June 30, 2020, an increase of ~~1700%~~1067% compared to the ~~first~~second quarter of 2019. TSN was the key division to address the demand for ~~decontamination~~disinfecting and ~~disinfecting~~decontamination services during the outbreak. We anticipate that TSN will continue to service the new customers as a result of the outbreak, as customers update their ~~requirements~~procedures and ~~processes~~requirements with these services.

Our Hospital-Healthcare division added ~~eighteen (18)~~twenty-seven (27) new healthcare facilities for the three months ended ~~March 31,~~June 30, 2020 which represents ~~800%~~575% increase compared to the prior year period.

~~Our Life Sciences customer base showed continued growth with the addition of eighteen (18) new customers~~Revenues:

Total revenue for the three months ended ~~March 31, 2020. This represents a 533%~~June 30, 2020 and 2019, was $10,028,000 and $1,639,000, respectively, representing an increase of $8,389,000, or 512% compared to the same prior year period. For the six months ended June 30, 2020 and 2019, our total revenue was $17,082,000 and $2,891,000, respectively, representing an increase of $14,191,000, or 491% compared to the same prior year period.

~~Revenues:~~

Total revenue for the three months ended March 31, 2020 and 2019, was approximately $7,053,000 and $1,253,000, respectively, representing an increase of $5,800,000, or 463% 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 SARS CoV-2 coronavirus global pandemic. ~~In the first quarter~~Through June 2020 we ~~saw~~have seen significant demand for our product with our Hospital-Healthcare, TSN, Commercial and ~~TSN sales~~Residential, Education, First responders (fire, police and prisons) and Transportation markets as a result of the SARS CoV-2 coronavirus global pandemic. We expect the revenue to continue to grow as our customers update their operation requirements ~~processes and procedures~~ to include ~~decontamination~~disinfecting and ~~disinfecting~~decontamination services into their regular routines.

SteraMist product-based revenues for the three months ended ~~March 31,~~June 30, 2020 and 2019, were ~~approximately $6,638,000~~$9,235,000 and ~~$1,029,000,~~$1,504,000, representing an increase of ~~$5,609,000~~$7,731,000 or ~~545%~~515% when compared to the same prior year period. Product based revenues for the six months ended June 30, 2020 and 2019, were $15,880,000 and $2,533,000, representing an increase of $13,347,000 or 527% when compared to the same prior year period. The growth is attributable to increased mobile equipment orders and solution orders from our existing customer base as well as our new customers. We expect solution orders to continue to grow as the new and existing customers adopt new ~~processes~~protocols for disinfecting and ~~requirements for~~ decontamination ~~and disinfecting~~ services. We cannot determine the frequency or quantities at this time, as the industry is rapidly evolving.

Our service-based revenue for the three months ended ~~March 31,~~June 30, 2020 and 2019, was ~~approximately $415,000~~$793,000 and ~~$224,000,~~$135,000, respectively, representing a year over year increase of ~~85%~~487%. For the six months ended June 30, 2020 and 2019, our service-based revenue was $1,202,000 and $358,000, representing an increase of $844,00 or 236% when compared to the same prior period in 2019. The increase in our service-based revenue was attributable to higher training sales recorded in ~~the first quarter to onboard~~connection with onboarding new ~~customers.~~customers and increased iHP service jobs.

Our domestic revenue for the three months ended ~~March 31,~~June 30, 2020 and 2019 was ~~$3,569,000~~$8,392,000 and ~~$1,136,000,~~$1,428,000, respectively, an increase of ~~$2,433,000,~~$6,964,000, or ~~214%~~488% when compared to the same prior year period. For the six months ended June 30, 2020 and 2019, our domestic revenues were $11,961,000 and $2,563,000, representing an increase of $9,398,000 or 367%. The increase was primarily due to the growth in our TSN network and in our Hospital-Healthcare customers.

Internationally, our revenue for the three months ended ~~March 31,~~June 30, 2020 and 2019, was approximately ~~$3,484,000~~$1,636,000 and ~~$117,000,~~$211,000, respectively, representing an increase of ~~$3,367,000~~$1,425,000 or ~~2,878%~~675% when compared to the ~~first~~second quarter of 2019. For the six months ended June 30, 2020 and 2019, our international revenues were $5,121,000 and $328,000, representing an increase of $4,793,000 or 1,461%. 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 ~~decontamination~~disinfecting and ~~disinfecting~~decontamination requirements.

Our Hospital-Healthcare revenues grew by approximately ~~6,000%~~227% in the ~~first~~second quarter of 2020 when compared to the same prior year period. The growth was primarily attributable to the significant demand for our product as a result of the SARS CoV-2 coronavirus global pandemic. We anticipate continued growth in this sector as hospital-healthcare facilities review and adopt ~~new processes~~mechanical cleaning in lieu or in combination to manual spray and ~~technologies~~wipe techniques to address this current and future outbreaks. Prior to the current outbreak this industry has been changing towards mechanical cleaning. We cannot predict the ~~frequency or~~ volume of ~~orders as the world’s response to decontamination and disinfecting is evolving. However,~~future orders; however, we anticipate continued growth moving into ~~2020.~~2021.

We expanded TSN membership and grew TSN revenue in the ~~first~~second quarter of 2020 by ~~727%~~1,392% when compared to the same prior year period. The growth in revenue was largely due to the increased demand for disinfecting and decontamination technologies in response to their clients’ needs to fight the SARS CoV-2 coronavirus ~~a global~~ pandemic.

We grew our second quarter 2020 Life Science based revenue by 178% compared to the second quarter of 2019.

~~Events:~~

~~Following are the significant events during the first quarter 2020:~~

●

~~January 29, 2020 – TOMI SteraMist~~® ~~prepared to deploy to fight SARS CoV-2 coronavirus.~~

●

~~February 4, 2020 - TOMI Receives China CDC Registration Making SteraMist~~® ~~the Disinfection Industry Standard in China~~

●

~~February 27, 2020 - SteraMist~~® ~~Takes the Fight to the SARS CoV-2 coronavirus. Worldwide - China, Hong Kong, Thailand, Singapore, Israel and the United Kingdom~~

●

~~March 2, 2020 - SteraMist~~® ~~Declared Official Decontamination Technology of Seoul City Metropolitan Transit Systems~~

●

~~March 10, 2020 - SteraMist~~® ~~is Mobilized to Aid in the Control SARS-CoV-2 coronavirus in Daegu-Kyungbuk Province, South Korea~~

●

~~March 11, 2020 - SteraMist~~® ~~is Prepared to Fight SARS-CoV-2 coronavirus in Thailand~~

●

~~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 a disinfectant and decontamination vendor by various agencies and countries, ensuring TOMI’s continued operation through established federal and state quarantine measures while simultaneously increasing the demand for TOMI products and services. We have been working relentlessly with organizations to address the concerns and provide disinfection and decontamination solutions for the SARS CoV-2 coronavirus.

●

~~March 16, 2020 - SteraMist~~® ~~Deployed to Fight SARS-CoV-2 coronavirus in United States~~

●

~~March 16, 2020 – SteraMist~~® ~~qualified to meet the~~ ~~EPA Emerging Viral Pathogen Guidance for Antimicrobial Pesticides~~ ~~with the SteraMist~~®~~Environment System for room fogging/misting against SARS-CoV-2 coronavirus, the novel coronavirus that causes COVID-19 and was added to the EPA N List against SARS-CoV-2.~~

●

~~March 25, 2020 - SteraMist~~® ~~utilized in Singapore to help reopen mosques~~

●

~~In March 2020, convertible notes with a principal balance of $4,500,000 were converted~~ ~~into 8,333,332 shares of our common stock~~ ~~at a conversion price of $0.54 per share and the remaining outstanding balance of $500,000 was repaid in the form of cash.~~

~~During the first quarter of 2020, we experienced the following:~~

●

~~Sold substantially all of our equipment inventory, with a backlog and demand for 91 additional units,~~

●

~~Most New equipment orders require a 50% deposit, with balance due on most orders prior to final shipment of products.~~

●

~~Increased demand on solution re-orders as disinfecting and decontamination procedures have increased exponentially across the world,~~

●

~~Service revenue grew exponentially as the outbreak spread and demand for disinfecting and decontamination services increased,~~

●

~~Exclusivity in TSN was revoked as demand surged and new providers requested equipment, solution and training to provide disinfecting and decontamination services,~~

●

New channels were opened as decontamination and disinfecting processes are updated and implemented, including but not limited to, fire departments, morgues, FAA, police departments, county and state health departments, cruise ships, infectious disease research facilities, military and ambulances,

●

C~~onvertible notes~~ ~~with a principal balance of $4,500,000 were converted~~ ~~into 8,333,332 shares of our common stock~~ ~~at a conversion price of $0.54 per share, and the remaining outstanding balance of $500,000 was repaid.~~

●

Staffing – increased demand has led to the hiring and onboarding of additional employees to assist in a wide variety of company operations, from accounting, procurement, customer satisfaction to quality control.

~~Subsequent~~ Events:

Following are the significant events during the second quarter 2020:

●

April 23, 2020 – Study results showcasing SteraMist® efficacy on the disinfection and reuse of N95 masks published.

●

April 27, 2020 – SteraMist® Deployed to Meet Urgent Need for Decontamination and Reuse of N95 Masks for Healthcare ~~Workforce~~Workforce.

●

April 28, 2020 – SteraMist® Disinfection Used to Combat Coronavirus Throughout the United States with Expansion of its Service ~~Network~~Network.

●

April 29, 2020 – SteraMist® Demand for SteraMist BIT Solution ~~Surges~~Surges.

●

June 25, 2020-TOMI Adds Additional Manufacturer to Produce SteraMist® Equipment, Planet Innovation, increasing production capacity for a greater global footprint.

During the second quarter of 2020, we experienced the following:

●

Grew quarter over quarter revenue by $8,389,000 or 512%.

●

Sold 250 machines and added 87 new customers.

●

Increased demand on solution re-orders as disinfecting and decontamination procedures have increased exponentially across the world.

●

Saw an increase in Hospital-Healthcare customers purchasing multiple SteraMist units in order to deploy throughout multiple locations and/or areas within a facility.

●

Service revenue increased exponentially as the outbreak spread and demand for disinfecting and decontamination services grew.

●

Saw an increase in servicing national accounts across multiple facilities both via iHP Corporate Service and our TSN.

●

Continued surge in demand in TSN with the addition of 37 new providers, increased ordering of new and additional equipment and the consistent reordering of solution.

●

New policy requires a 50% deposit on equipment and solution orders with balance due on most orders prior to final shipment of products.

●

New channels were opened as disinfecting and decontamination protocols have been firmly implemented and enhanced across the world. To date, TOMI has shipped equipment to and onboarded a total of twenty-seven (27) customers in a variety of new commercial channels, both in domestic and international territories. These customers include but are not limited to use sites such as aviation aircraft (both fixed-wing aircraft planes and helicopters), FAA air traffic towers, prisons, police and fire departments, manufacturing companies, automobile, marine, education, regulatory consulting agencies, retail, housing and recreation, and of course emergency preparedness for counties and cities to use SteraMist throughout their community.

●

TOMI’s increased demand of product and services has led to the hiring and onboarding of additional employees to assist in a wide variety of company operations, including but not limited to accounting, procurement, customer satisfaction, and quality control.

Subsequent Events:

Following are the significant events during the third quarter 2020:

●

TOMI continues to see increased domestic and international demand for its products over the foreseeable ~~future.~~ future

●

TOMI ~~has expanded~~continues to expand its markets ~~into the private aviation sector~~substantially, domestically and internationally. For example, in ~~Germany, multiple market segments in Indonesia and hospital-healthcare,~~ military civil defense and homeland security in ~~Singapore.~~foreign lands.

●

July 23, 2020 – Study Detailing Positive Effects of SteraMist on Various Aspects of Fresh Produce Quality and Storage Published.

●

July 27, 2020 - TOMI Announces Completion and Testing Trial of Its First Disinfection Robot.

●

TOMI enters into three separate AMR (Automatous Mobile Robots) manufacturing agreements globally for “SteraBot” TOMI’s disinfecting automatous robot.

Research ~~Studies~~Studies:

An article was published 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.

TOMI is also moving forward with testing on 1% BIT Solution in preparation of another EPA label as we passed the third milestone for EPA review and our PRIA date is set in December 2020.

We are working with our German Aircraft partner and Boeing in a third-party test required for the aviation industry. TOMI will incur no costs for this work as both testing partners are clients.

TOMI is working 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 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 C. difficile infections in the rooms that used SteraMist® for their terminal clean, as compared to the rooms that have been manually cleaned. The University of Michigan, a recognized teaching university hospital, ~~joined~~was to join the California hospitals in this Shield Study in ~~the second quarter~~ 2020, allowing for additional collection of data to validate the value of SteraMist® technology in ~~hospitals.~~hospitals, this expansion has been postponed until the threat of COVID-19 decreases and on-site EVS training can continue.

Product ~~Development~~Development:

We ~~have added four~~continue to enhance and develop new ~~products to our growing line of~~SteraMist products:

●

~~The~~Model HHA-103. We released the upgraded SteraMist Surface Unit ~~has been upgraded to a new~~ model, the HHA-103. This model keeps the same functionality of the previous model with the featured addition of a new Harting™ Camlock port to the unit. This upgraded port allows for ~~a more~~an easier secure connection between the applicator and the Surface ~~Unit, effectively latching the connection in place and eliminating the presence of any possible pulling or tilting that could compromise the connection integrity over time.~~Unit. Additionally, the unit features additional room within the unit for applicator and accessory storage.

●

~~A single applicator build-in unit for decontamination chambers and cage washers, which was recently successfully validated at the University of Houston.~~

●

~~A decontamination cart for~~Mobile 90-degree applicator. We released a ~~Pfizer facility. We will be designing and engineering a second SteraMist~~® ~~mobile decontamination cart for this same facility by the second quarter of 2020.~~

●

A stainless-steel mobile 90-degree applicator ~~and the answer~~ to address the mobile treatment and decontamination of BSC cabinets and isolators. The 90-degree applicator product has led to a partnership with a large design and manufacturing company of washing and contamination control systems, and we plan on installing an all-in-one disinfection solution to Gnotobiotic Housings with our partner.

●

SteraMist Total Disinfection Cart. We upgraded the Cart with improved mobility, extra space compartments, and an improved locking mechanism.

●

The SteraMist Select Surface Unit. It has been proven in the Life Sciences industry, and recently in the second quarter of 2020, the USDA (United States Department of Agriculture), FSIS (Food Safety and Inspection Service) and OPHS ( Office of Public Health and Safety) facilities each purchased TOMI’s SteraMist Select Surface Units for testing and research on their chicken production labs throughout the nation.

●

SteraMist Robot “SteraBot”. TOMI along with three of our global partners have jointly designed, tested and produced the SteraMist disinfection robots. The robot will leverage the latest technologies in Automatic Guided Vehicle and will be able to map a new environment, perform autonomous navigation and conduct disinfection routine based on propriety algorithms. We are currently conducting extensive trials of the prototype disinfection SteraMist robot “SteraBot”.

During 2020, we will continue our focus on improving our SteraMist® Environment System and the development of a proprietary software that will be integrated into the next generation of SteraMist® equipment, both mobile and permanent. The new software will improve communication between our equipment and the end user’s system, provide improved reporting results and simplify the overall usage of the system itself. ~~We are in the final testing and validation phase of the new Environment System prototype, expecting to begin commercialization in 2020.~~

We are in the design phase with our partner Arkema and their client (a global food storage and safety company) on an engineered concept for the decontamination of large industrial food warehouse facilities. The concept is a six (6) applicator fully automated fogging system permanently mounted on a hydraulic lift that is capable of coverage in high-volume spaces. ~~We are in early phases of the project and don’t have an expected commercialization date.~~

Registrations & Intellectual Property (IP)

TOMI continues to expand its Intellectual Property protecting both trademarks and patents (design and utility). To date TOMI has over 40 published, granted, or pending design and utility patents or patent applications worldwide. This includes continuation in-part and patent cooperation treaty filings (CIP and PCT), national stage applications, and a Paris Convention application for countries included but not limited to European Union, Israeli, Singapore, and Canada for our two recently published patents in the United States, Decontamination Device and Method using Ultrasonic Cavitation and Method and System for Decontamination Small Enclosures.

Further, TOMI has over one hundred and sixty (160) trademarks worldwide between word and logo marks either active or pending acceptance. This includes, our most recent application for the SteraMist robot product line, SteraBot.

In February 2020, SteraMist equipment and BIT solution was registered with the Chinese Center for Disease Control and Prevention (China CDC). After a three (3) year-long submission process, we recently received confirmation that two (2) separate registrations - SteraMist equipment registration and BIT solution registration - have now been officially approved and registered with the China CDC. SteraMist is now the industry standard for disinfection throughout all of China. This registration allows China to take advantage of SteraMist disinfection and decontamination in a variety of verticals such as healthcare, pharmaceutical, commercial and residential, schools, and throughout the community.

TOMI is in discussions with many companies for implementation of SteraMist throughout the Asian markets.

In March 2020, our Binary Ionization Technology® (BIT™) Solution qualified to meet the EPA Emerging Viral Pathogen Guidance for Antimicrobial Pesticides with the SteraMist Environment System for room fogging/misting against SARS-CoV-2, the novel coronavirus that causes COVID-19. The EPA Emerging Viral Pathogen Guidance for Antimicrobial Pesticides is important because the occurrence of emerging viral pathogens is less common and predictable than established pathogens and there are currently no other EPA-registered combined whole room and portable technology and disinfectant solutions disinfectants with EPA product labels with claims against COVID-19. ~~The~~ SARS-CoV-2, the novel coronavirus that causes COVID-19 qualifies as an emerging viral pathogen. Our Binary Ionization Technology (BIT) Solution, used exclusively in tandem with SteraMist equipment including the Surface Unit and Environment System, is currently 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 now List N: Disinfectants for Use Against SARS-CoV-2. With labeled efficacy for large and small enveloped viruses in addition to other pathogens, we have confidence this EPA addition will support client efforts to reduce the ongoing spread of the COVID-19.

Financial Operations Overview

Our financial position as of ~~March 31,~~June 30, 2020 and December 31, 2019 was as follows:

	March 31, 2020 (Unaudited)	December 31, 2019	June 30, 2020 (Unaudited)	December 31, 2019
Total shareholders’ equity	$8,324,000	$890,000	$12,159,000	$890,000
Cash and cash equivalents	$3,756,000	$897,000	$6,268,000	$897,000
Accounts receivable, net	$3,146,000	$1,495,000	$4,591,000	$1,495,000
Inventories, net	$636,000	$2,315,000	$2,759,000	$2,315,000
Prepaid expenses	$171,000	$188,000	$258,000	$188,000
Vendor Deposits	$1,267,000	$141,000	$569,000	$141,000
Current liabilities (excluding convertible notes)	$2,610,000	$1,302,000	$3,862,000	$1,302,000
Convertible notes payable, net	$-	$5,000,000	$-	$5,000,000
Long-term liabilities	$1,015,000	$1,034,000	$1,406,000	$1,034,000
Working Capital (excluding convertible notes)	$6,365,000	$3,734,000	$10,583,000	$3,734,000
Working Capital (including convertible notes)	$6,365,000	$(1,266,000)	$10,583,000	$(1,266,000)

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, our liquidity positions were affected by the following:

●

Net cash provided from operations of ~~approximately $3,316,000~~$5,385,000

●

~~Vendor deposits~~Proceeds from loan payable of ~~approximately $1,267,000~~$411,000

●

~~Customer deposits~~Proceeds from exercise of ~~approximately $1,018,000~~outstanding warrants and options to purchase common stock of $121,000

●

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 Three and Six Months Ended ~~March 31,~~June 30, 2020 Compared to the Three and Six Months Ended ~~March 31,~~June 30, 2019

	Three Months Ended
	March 31, 2020 (Unaudited)	March 31, 2019 (Unaudited)	For The Three Months Ended June 30,		Change		For The Six Months Ended June 30,		Change
			2020	2019	$	%	2020	2019	$	%
Revenue, Net	$7,053,000	$1,253,000	$10,028,000	$1,639,000	$8,389,000	512%	$17,082,000	$2,891,000	$14,191,000	491%
Gross Profit	$4,488,000	$759,000	5,565,000	975,000	4,590,000	471%	10,053,000	1,735,000	8,318,000	479%
Total Operating Expenses (1)	$1,829,000	$1,627,000	1,908,000	1,511,000	397,000	26%	3,737,000	3,138,000	599,000	19%
Income (Loss) from Operations	$2,659,000	$(868,000)	3,657,000	(535,000)	4,192,000	NM	6,316,000	(1,403,000)	7,719,000	NM
Total Other Income (Expense)	$(40,000)	$(67,000)	-	(49,000)	49,000	NM	(40,000)	(116,000)	76,000	NM
Net Income (Loss)	$2,619,000	$(935,000)	$3,657,000	$(585,000)	$4,242,000	NM	$6,276,000	$(1,519,000)	$7,795,000	NM
Basic Net Income (Loss) per share	$0.02	$(0.01)	$0.03	$(0.00)	$0.03	NM	$0.05	$(0.01)	$0.06	NM
Diluted Net Income (Loss) per share	$0.02	$(0.01)	$0.02	$(0.00)	$0.02	NM	$0.04	$(0.01)	$0.05	NM

(1)

Includes ~~approximately $183,000~~$114,000 and ~~$81,000~~$6,000 in non-cash equity compensation expense for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively. Includes $297,000 and $87,000 in non-cash equity compensation expense for the six months ended June 30, 2020 and 2019, respectively.

(2)

NM – Not Meaningful

Net income was $3,657,000 compared to a net loss of ($585,000) for the three months ended June 30, 2020 and 2019, respectively, an increase in net income of $4,242,000, or 725%, in the current year period. The primary reasons for the higher net income is attributable to:

Higher sales and gross profit of $8,389,000 and $4,590,000, respectively;

Lower other expenses of $49,000, offset by

Higher operating expenses of $398,000.

Net income was $6,276,000 compared to a net loss of ($1,519,000) for the six months ended June 30, 2020 and 2019, respectively, an increase in net income of $7,795,000, or 513%, in the current year period. The primary reasons for the higher net income is attributable to:

Higher sales and gross profit of $14,191,000 and $8,318,000, respectively;

Lower other expenses of $76,000, offset by

Higher operating expenses of $599,000.

Net Revenue

	For The Three Months Ended June 30,		Change		For The Six Months Ended June 30,		Change
	2020	2019	$	%	2020	2019	$	%
Sales, net	$10,028,000	$1,639,000	$8,389,000	512%	$17,082,000	$2,891,000	$14,191,000	491%

~~Sales~~

Total revenue for the three months ended ~~March 31,~~June 30, 2020 and 2019, was ~~approximately $7,053,000~~$10,028,000 and ~~$1,253,000,~~$1,639,000, respectively, representing an increase of ~~$5,800,000,~~$8,389,000, or ~~463%~~512% compared to the same prior year period. Total revenue for the six months ended June 30, 2020 and 2019, was $17,082,000 and $2,891,000, respectively, representing an increase of $14,191,000, or 491% 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 SARS CoV-2 coronavirus global pandemic. In the ~~first~~second quarter we saw significant demand for our product with our Hospital-Healthcare and TSN sales as a result of the SARS CoV-2 coronavirus global pandemic. We expect the revenue to continue to grow as our customers update their requirements, processes and procedures to include ~~decontamination~~disinfecting and ~~disinfecting~~decontamination services into their regular routines.

In the ~~first~~second quarter, we saw a rapid expansion of our customer list and continued to see strong reorders for solution from our existing customers. Our new customer pipeline remains strong. 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.

Product and Service Revenue

	For the three months ended March 31, (Unaudited)		For The Three Months Ended June 30,		Change		For The Six Months Ended June 30,		Change
	2020	2019	2020	2019	$	%	2020	2019	$	%
SteraMist Product	$6,638,000	$1,029,000	$9,235,000	$1,504,000	$7,731,000	514%	$15,880,000	$2,533,000	$13,347,000	527%
Service and Training	415,000	224,000	793,000	135,000	658,000	487%	1,202,000	358,000	844,000	236%
Total	$7,053,000	$1,253,000	$10,028,000	$1,639,000	$8,389,000	512%	$17,082,000	$2,891,000	$14,191,000	491%

~~Level 1:~~

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 or 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.~~
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 or 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

Accounts Receivable

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.

Property and Equipment

Leases

Capitalized Software Development Costs

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 ~~manufacturer assumes~~manufacturers assume the warranty against product defects ~~for one year from date of sale,~~ which we extend to our customers upon sale of the product. We assume responsibility for product reliability and results.

Income Taxes

Net Income (Loss) Per Share

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 (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 5,000,000 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 the Company at the time of the award; awards under the 2016 Plan are expressly conditioned upon such agreements.

Concentrations of Credit Risk

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

Long-Lived Assets Including Acquired Intangible Assets

We assess long-lived assets for potential impairments at the end of each year, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating long-lived assets for impairment, we measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If our long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. We base the calculations of the estimated fair value of our long-lived assets on the income approach. For the income approach, we use an internally developed discounted cash flow model that includes, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on our historical data and experience, industry projections, micro and macro general economic condition projections, and our expectations. We had no long-lived asset impairment charges for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019.

Recent Accounting Pronouncements

~~None applicable.~~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 for the Company on a prospective or retrospective basis beginning on January 1, 2020, with early adoption permitted. The Company elected to adopt this guidance early, in 2020 on a prospective basis. The new guidance did not have a material impact on the Company’s Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

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

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 405 under the Securities Act of 1933, as amended, and Rule 12b-2 under the Exchange Act and are not required to disclose the information required by this Item 3 pursuant to Item 305(e) of Regulation S-K.

Item 4. 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 quarterly report on Form 10-Q. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

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

Limitations on Effectiveness of Controls and Procedures

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

P~~ART~~PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

While, as a smaller reporting company, we are not required to provide the information required by this Item 1A, you should carefully review and consider the risk factors contained in our other reports and periodic filings with the SEC, including without limitation the risk factors contained under the caption “Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. The risk factors discussed in that Form 10-K do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

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

SIGNATURES

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

TOMI ENVIRONMENTAL SOLUTIONS, INC.


Date: ~~May~~August 14, 2020	~~By:~~	By: /s/ Halden S. Shane
	Halden S. Shane
	Chief Executive Officer
	(Principal Executive Officer)


~~Halden S. Shane~~Date: August 14, 2020	By: /s/ Nick Jennings
		~~Chief Executive Officer~~ ~~(Principal Executive Officer)~~	Nick Jennings

~~Date:~~ ~~May 14, 2020~~	~~By:~~	~~/s/~~ ~~Nick Jennings~~	Chief Financial Officer
		~~Nick Jennings~~
		~~Chief Financial Officer (Principal~~(Principal Financial Officer and Principal Accounting Officer)

EXHIBIT INDEX

Incorporated by Reference

Filed

Herewith

Exhibit Number

Exhibit Description

Form

File No.

Exhibit

Filing

Date

10.1

PPP Note

31.1

Certification of Halden S. Shane, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Nick Jennings, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~32.1~~32.1##

Certification of Halden S. Shane, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~32.2~~32.2##

Certification of Nick Jennings, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

Indicates a management contract or compensatory plan.

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

~~TOMI ENVIRONMENTAL SOLUTIONS, INC.~~

~~(Exact name of registrant as specified in its charter)~~

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

~~9454 Wilshire Blvd., Penthouse, Beverly Hills, CA 90212~~
~~(Address of principal executive offices) (Zip Code)~~

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

~~Not Applicable~~
~~(Former name, former address and former fiscal year, if changed since last report)~~

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.01 per share		TOMZ		OTC Markets Group Inc.

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

~~QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2020~~		Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		3

~~TABLE OF CONTENTS~~

		~~Page~~

ASSETS
Current Assets:	March 31, 2020 (Unaudited)	December 31, 2019
Cash and Cash Equivalents	$3,755,816	$897,223
Accounts Receivable - net	3,146,197	1,494,658
Inventories (Note 3)	635,529	2,315,214
Vendor Deposits (Note 4)	1,266,560	141,052
Prepaid Expenses	170,856	187,664
Total Current Assets	8,974,958	5,035,811

Property and Equipment – net (Note 5))	1,257,831	1,367,864

Other Assets:
Intangible Assets – net (Note 6)	845,663	939,010
Operating Lease - Right of Use Asset (Note - 7)	664,198	674,471
Capitalized Software Development Costs - net (Note 8)	83,803	94,278
Other Assets	122,957	114,033
Total Other Assets	1,716,621	1,821,792
Total Assets	$11,949,410	$8,225,467


~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS~~		2

PART I	FINANCIAL INFORMATION

Item 1	Financial Statements.	34

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24 31

Item 3	Quantitative and Qualitative Disclosures About Market Risk.	3749

Item 4	Controls and Procedures.	3749

PART II	OTHER INFORMATION

Item 1	Legal Proceedings.	38 50

Item 1A	Risk Factors.	38 50

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds.	38 50

Item 3	Defaults Upon Senior Securities.	38 50

Item 4	Mine Safety Disclosures.	38 50

Item 5	Other Information.	38 50

Item 6	Exhibits.	38 50

SIGNATURES		39 51

EXHIBIT INDEX		40 52

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$832,177	$713,222
Accrued Expenses and Other Current Liabilities (Note 13)	655,736	450,112
Accrued Officers Compensation	30,383	-
Accrued Interest (Note 9)	-	66,667
Customer Deposits (Note 15)	1,017,533	-
Current Portion of Long-Term Operating Lease	73,851	71,510
Convertible Notes Payable, net of discount of $0
at December 31, 2019 (Note 9)	-	5,000,000
Total Current Liabilities	2,609,680	6,301,511

Long-Term Liabilities:
Long-Term Operating Lease, Net of Current Portion (Note 7)	1,015,465	1,034,413
Total Long-Term Liabilities	1,015,465	1,034,413
Total Liabilities	3,625,145	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; 510,000 shares issued
and outstanding at March 31, 2020 and December 31, 2019	5,100	5,100
Cumulative Convertible Series B Preferred Stock; $1,000 stated value;
7.5% Cumulative dividend; 4,000 shares authorized; none issued
and outstanding at March 31, 2020 and December 31, 2019	-	-
Common stock; par value $0.01 per share, 250,000,000 shares authorized;
133,517,083 and 124,700,418 shares issued and outstanding
at March 31, 2020 and December 31, 2019, respectively.	1,335,170	1,247,004
Additional Paid-In Capital	47,863,977	43,136,683
Accumulated Deficit	(40,879,982)	(43,499,244)
Total Shareholders’ Equity	8,324,265	889,543
Total Liabilities and Shareholders’ Equity	$11,949,410	$8,225,467

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

	For The Three Months Ended
	March 31,
	2020	2019

Sales, net	$7,053,418	$1,252,658
Cost of Sales	2,565,410	493,310
Gross Profit	4,488,008	759,348

Operating Expenses:
Professional Fees	136,125	105,481
Depreciation and Amortization	171,909	176,845
Selling Expenses	378,645	441,671
Research and Development	59,458	92,577
Equity Compensation Expense (Note 10)	182,772	80,917
Consulting Fees	81,545	35,006
General and Administrative	818,145	694,880
Total Operating Expenses	1,828,599	1,627,377
Income (loss) from Operations	2,659,409	(868,030)

Other Income (Expense):
Amortization of Debt Discounts	-	(17,534)
Interest Income	542	1,030
Interest Expense	(40,689)	(50,000)
Total Other Income (Expense)	(40,147)	(66,504)

Income (loss) before income taxes	2,619,261	(934,532)
Provision for Income Taxes (Note 16)	-	-
Net income (loss)	$2,619,261	$(934,532)

Net income (loss) Per Common Share
Basic	$0.02��	$(0.01)
Diluted	$0.02	$(0.01)

Basic Weighted Average Common Shares Outstanding	126,802,819	124,659,307
Diluted Weighted Average Common Shares Outstanding	144,941,677	124,659,307

	For The Three Months Ended		For The Six Months Ended
	June 30,		June 30,
	2020	2019	2020	2019

Sales, net	$10,028,497	$1,638,674	$17,081,915	$2,891,332
Cost of Sales	4,463,602	663,362	7,029,012	1,156,672
Gross Profit	5,564,895	975,312	10,052,903	1,734,660

Operating Expenses:
Professional Fees	54,831	108,923	190,956	214,404
Depreciation and Amortization	172,298	179,535	344,207	356,380
Selling Expenses	388,827	518,546	767,472	960,216
Research and Development	141,123	68,659	200,581	161,236
Equity Compensation Expense (Note 11)	114,293	6,116	297,065	87,033
Consulting Fees	69,705	20,261	151,250	55,267
General and Administrative	967,158	608,605	1,785,303	1,303,485
Total Operating Expenses	1,908,235	1,510,645	3,736,834	3,138,021
Income (loss) from Operations	3,656,660	(535,333)	6,316,069	(1,403,361)

Other Income (Expense):
Amortization of Debt Discounts	-	-	-	(17,534)
Interest Income	1,043	629	1,585	1,659
Interest Expense	(787)	(50,000)	(41,476)	(100,000)
Total Other Income (Expense)	256	(49,371)	(39,891)	(115,875)

Income (loss) before income taxes	3,656,916	(584,704)	6,276,178	(1,519,236)
Provision for Income Taxes (Note 17)	-	-	-	-
Net Income (loss)	$3,656,916	$(584,704)	$6,276,178	$(1,519,236)

Net income (loss) Per Common Share
Basic	$0.03	$(0.00)	$0.05	$(0.01)
Diluted	$0.02	$(0.00)	$0.04	$(0.01)

Basic Weighted Average Common Shares Outstanding	133,541,403	124,699,539	130,172,111	124,679,534
Diluted Weighted Average Common Shares Outstanding	148,558,078	124,699,539	145,188,786	124,679,534

	Series A Preferred		Common Stock		Additional Paid in	Accumulated	Total Shareholders'
	Shares	Amount	Shares	Amount	Capital	Deficit	Equity
Balance at December 31, 2019	510,000	$5,100	124,700,418	$1,247,004	$43,136,683	$(43,499,243)	$889,543

Equity Compensation					209,961		209,961
Common Stock Issued for Services Provided			400,000	4,000	44,000		48,000
Conversion of Notes Payable into Common Stock			8,333,332	83,333	4,416,667		4,500,000
Warrants exercised			83,333	833	56,667		57,500
Net Income for the three months ended March 31, 2020						2,619,261	2,619,261
Balance at March 31, 2020	510,000	$5,100	133,517,083	$1,335,170	$47,863,978	$(40,879,982)	$8,324,265

	For the six months ended June 30, 2020
	Series A Preferred		Common Stock
					Additional Paid	Accumulated	Total Shareholders’
	Shares	Amount	Shares	Amount	in Capital	Deficit	Equity

Balance at December 31, 2019	510,000	$5,100	124,700,418	$1,247,004	$43,136,683	$(43,499,243)	$889,543

Equity Compensation					324,254		324,254
Common Stock Issued for Services Provided			400,000	4,000	44,000		48,000
Conversion of Notes Payable into Common Stock			8,333,332	83,333	4,416,667		4,500,000
Warrants and Options Exercised			318,850	3,189	117,811		121,000
Net Income for the six months ended June 30, 2020						6,276,178	6,276,178
Balance at June 30, 2020	510,000	$5,100	133,752,600	$1,337,525	$48,039,415	$(37,223,065)	$12,158,974

	For the six months ended June 30, 2019
	Series A Preferred		Common Stock
					Additional Paid	Accumulated	Total Shareholders’
	Shares	Amount	Shares	Amount	in Capital	Deficit	Equity
Balance at December 31, 2018	510,000	$5,100	124,290,418	$1,242,904	$42,948,705	$(41,201,511)	$2,995,198

Equity Compensation					146,878		146,878
Common Stock Issued for Services Provided			410,000	4,100	41,100		45,200
Net Loss for the six months ended June 30, 2019						(1,519,236)	(1,519,236)
Balance at June 30, 2019	510,000	$5,100	124,700,418	$1,247,004	$43,136,683	$(42,720,747)	$1,668,040

	For the three months ended June 30, 2020
	Series A Preferred		Common Stock
					Additional Paid	Accumulated	Total Shareholders’
	Shares	Amount	Shares	Amount	in Capital	Deficit	Equity

Balance at March 31, 2020	510,000	$5,100	133,517,083	$1,335,170	$47,863,978	$(40,879,982)	$8,324,265

Equity Compensation					114,293		114,293
Warrants and Options Exercised			235,517	2,355	61,145		63,500
Net Income for the three months ended June 30, 2020						3,656,916	3,656,916
Balance at June 30, 2020	510,000	$5,100	133,752,600	$1,337,525	$48,039,415	$(37,223,065)	$12,158,974

	For the three months ended June 30, 2019
	Series A Preferred		Common Stock
					Additional Paid	Accumulated	Total Shareholders’
	Shares	Amount	Shares	Amount	in Capital	Deficit	Equity

Balance at March 31, 2019	510,000	$5,100	124,690,418	$1,246,904	$43,129,467	$(42,136,043)	$2,245,428

Equity Compensation					6,116		6,116
Common Stock Issued for Services Provided			10,000	100	1,100		1,200
Net Loss for the three months ended June 30, 2019						(584,704)	(584,704)
Balance at June 30, 2019	510,000	$5,100	124,700,418	$1,247,004	$43,136,683	$(42,720,747)	$1,668,040

	For the Three Months Ended March 31,
	2020	2019
Cash Flow From Operating Activities:
Net Income (Loss)	$2,619,261	$(934,532)
Adjustments to Reconcile Net Income (Loss) to		.
Net Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization	171,909	176,845
Amortization of Lease Liability	39,329	39,644
Amortization of Debt Discount	-	17,534
Amortization of Software Costs	10,475	-
Equity Compensation Expense	182,772	80,917
Value of Equity Issued for Services	48,000	44,000
Reserve for Bad Debt	25,000	(105,000)
Inventory Reserve	(100,000)	-
Changes in Operating Assets and Liabilities:
Decrease (Increase) in:
Accounts Receivable	(1,676,539)	222,922
Inventory	1,815,942	288,827
Prepaid Expenses	16,807	6,792
Vendor Deposits	(1,125,508)	(79,275)
Other Assets	(8,924)	(64,914)
Increase (Decrease) in:
Accounts Payable	118,955	(475,851)
Accrued Expenses	232,813	225,072
Accrued Interest	(66,667)	(50,000)
Accrued Officer Compensation	30,383	(40,208)
Customer Deposits	1,017,533	(1,486)
Lease Liability	(35,865)	-

Net Cash Provided By (Used in) Operating Activities	3,315,678	(648,714)

Cash Flow From Investing Activities:
Capitalized Software Costs	-	(125,704)
Purchase of Property and Equipment	(14,585)	(34,582)
Net Cash (Used in) Investing Activities	(14,585)	(160,286)

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

	March 31, 2020 (Unaudited)	December 31, 2019	June 30, 2020 (Unaudited)	December 31, 2019
Furniture and fixtures	$357,236		$357,236
Equipment	1,292,860	1,355,014	1,292,860	1,355,014
Vehicles	60,703		60,703
Computer and software	181,182	166,598	189,388	166,598
Leasehold improvements	362,898		386,120	362,898
Tenant Improvement Allowance	405,000		405,000
	2,659,880	2,707,449	2,691,307	2,707,449
Less: Accumulated depreciation	1,402,049	1,339,585	1,490,797	1,339,585
	$1,257,831	$1,367,864	$1,200,510	$1,367,864

Trademarks	$512,257		$512,257

Total Intangible Assets, net	$845,663	$939,010	$752,316	$939,010

Year Ended:	Amount
~~April~~
July 1 – December 31, 2020	$~~279,000~~186,000
December 31, 2021	3,000
December 31, 2022	3,000
December 31, 2023	3,000
December 31, 2024	3,000
Thereafter	42,000
	$~~333,000~~240,000

	For the Three Months Ended March 31,
Cash Flow From Financing Activities:	2020	2019
Proceeds from Exercise of Warrants	57,500	-
Repayment of Principal Balance on Convertible Note	(500,000)	-
Net Cash Used in Financing Activities	(442,500)	-
Increase (Decrease) In Cash and Cash Equivalents	2,858,594	(809,000)
Cash and Cash Equivalents - Beginning	897,223	2,004,938
Cash and Cash Equivalents – Ending	$3,755,816	$1,195,938

Supplemental Cash Flow Information:
Cash Paid for Interest	$107,356	$100,000
Cash Paid for Income Taxes	$-	$800
Non-Cash Investing and Financing Activities:
Accrued Equity Compensation	$27,189	$59,845
Conversion of Note Payable into Common Stock	$4,500,000	$-
Equipment, net Transferred to Inventory	$36,256	$-

	For the Three Months
	Ended March 31
	(Unaudited)
	2020	2019
Numerator:
Net Income (Loss)	$2,619,261	$(934,532)

Income (loss) from Operations Data:

Income (Loss) from Operations	$2,659,409	$(868,030)	$6,316,069	$(1,403,361)
Basic and Diluted Weighted
Average Shares
Basic	126,802,819	124,659,307	130,172,111	124,679,534
Diluted	144,941,677	124,659,307	145,188,786	124,679,534
Basic and Diluted Income (loss) Per Common Share
Basic	$0.02	$(0.01)	$0.05	$(0.01)
Diluted	$0.02	$(0.01)	$0.04	$(0.01)

Operating leases:	March 31, 2020 (Unaudited)	December 31, 2019	June 30, 2020 (Unaudited)	December 31, 2019
Assets:
Operating lease right-of-use asset	$664,198	$674,471	$653,626	$674,471
Liabilities:
Current Portion of Long-Term Operating Lease	$73,851	$71,510	$76,266	$71,510
Long-Term Operating Lease, Net of Current Portion	1,015,465	1,034,413	995,068	1,034,413
	$1,089,316	$1,105,923	$1,071,333	$1,105,923

	Three Months Ended March 31, 2020 (Unaudited)	Three Months Ended March 31, 2019 (Unaudited)

Operating lease expense	$39,329	$39,644

	Three Months Ended June 30, 2020 (Unaudited)	Three Months Ended June 30, 2019 (Unaudited)

Operating lease expense	$39,329	$39,644

	Six Months Ended June 30, 2020 (Unaudited)	Six Months Ended June 30, 2019 (Unaudited)

Operating lease expense	$78,657	$79,289

	Three Months Ended ~~March 31,~~ June 30, 2020 (Unaudited)	Three Months Ended ~~March 31,~~ June 30, 2019 (Unaudited)
Cash paid for amounts included in the measurement of lease liabilities:	$~~35,865~~36,940	$-

	Six Months Ended June 30, 2020 (Unaudited)	Six Months Ended June 30, 2019 (Unaudited)
Cash paid for amounts included in the measurement of lease liabilities:	$72,806	$-

Year Ended:	Operating Lease
~~April~~July 1 – December 31, 2020	$~~110,823~~73,881
December 31, 2021	151,088
December 31, 2022	155,621
December 31, 2023	160,290
December 31, 2024	165,098
Thereafter	745,183
Total minimum lease payments	~~1,488,103~~1,451,162
Less: Interest	~~398,787~~379,829
Present value of lease obligations	~~1,089,316~~1,071,333
Less: Current portion	~~73,851~~76,266
Long-term portion of lease obligations	$~~1,015,465~~995,068

	March 31, 2020		June 30, 2020	December 31,
	(Unaudited)	December 31, 2019	(Unaudited)	2019
Capitalized Software Development Costs	$125,704		$125,704
Less: Accumulated Amortization	(41,901)	(31,426)	(52,377)	(31,426)
	$83,803	$94,278	$73,327	$94,278

	~~March~~June 30, 2020 (Unaudited)	December 31, ~~2020 (Unaudited)~~ 2019
		~~December 31,~~
Convertible notes	$-	$5,000,000
Initial discount	-	(53,873)
Accumulated amortization	-	53,873
Convertible notes, net	$-	$5,000,000

Outstanding Options	Outstanding Options	Average Weighted	Exercisable Options		Outstanding Options		Exercisable Options
Range	Number	Remaining Contractual Life in Years	Number	Weighted Average Exercise Price	Number	Average Weighted Remaining Contractual Life in Years	Number	Weighted Average Exercise Price

$0.05	20,000	0.77	20,000	$0.05
$0.10	220,000	4.85	220,000	$0.10	220,000	4.60	220,000	$0.10
$0.11	250,000	3.76	250,000	$0.11	250,000	3.51	250,000	$0.11
$0.12	200,000	3.77	200,000	$0.12	200,000	3.52	200,000	$0.12
$0.27	40,000	4.76	40,000	$0.27	40,000	4.51	40,000	$0.27
$0.55	100,000	5.85	100,000	$0.55	100,000	5.60	100,000	$0.55

	830,000	4.28	830,000	$0.17	810,000	4.12	810,000	$0.17

Outstanding Warrants	Outstanding Warrants		Exercisable Warrants		Outstanding Warrants		Exercisable Warrants
Exercise Price	Number	Average Weighted Remaining Contractual Life in Years	Number	Weighted Average Exercise Price	Number	Average Weighted Remaining Contractual Life in Years	Number	Weighted Average Exercise Price
$0.08	250,000	3.65	250,000	$0.08	250,000	3.40	250,000	$0.08
$0.10	1,265,000	3.51	1,265,000	$0.10	1,265,000	3.26	1,265,000	$0.10
$0.12	3,791,667	2.69	3,791,667	$0.12	3,791,667	2.44	3,791,667	$0.12
$0.14	50,000	4.05	50,000	$0.14	50,000	3.80	50,000	$0.14
$0.15	1,400,000	4.63	1,400,000	$0.15	1,400,000	4.38	1,400,000	$0.15
$0.17	10,000	2.57	10,000	$0.17	10,000	2.32	10,000	$0.17
$0.27	250,000	1.75	250,000	$0.27	250,000	1.50	250,000	$0.27
$0.29	4,615,525	1.91	4,615,525	$0.29	4,400,008	1.66	4,400,008	$0.29
$0.30	1,200,000	0.89	1,200,000	$0.30	1,200,000	0.64	1,200,000	$0.30
$0.32	250,000	1.50	250,000	$0.32	250,000	1.25	250,000	$0.32
$0.42	250,000	1.25	250,000	$0.42	250,000	1.00	250,000	$0.42
$0.50	250,000	1.00	250,000	$0.50	480,000	5.10	480,000	$0.50
$0.55	100,000	0.83	100,000	$0.55	100,000	0.58	100,000	$0.55
$0.69	116,666	0.10	116,666	$0.69
$1.00	3,000,000	0.09	3,000,000	$1.00
	16,798,858	2.01	16,798,858	$0.36	13,696,675	2.35	13,696,675	$0.22


	March 31, 2020 (Unaudited)	December 31, 2019
Commissions	$237,466	$112,102
Payroll and related costs	224,752	167,689
Director fees	41,250	41,250
Sales Tax Payable	27,810	21,814
Accrued warranty (Note 14)	60,000	30,000
Other accrued expenses	64,458	77,257
Total	$655,736	$450,112