10-Q: TOMI Environmental Q3 2025: Revenue Declines Amid Growth Initiatives

TOMI Environmental Solutions reports a 21% Q3 2025 revenue decrease and a significant year-to-date net loss, despite strategic partnerships and market expansion efforts.

Summary

• Net loss for the nine months ended September 30, 2025, was $(1,943,457), an increase from $(1,221,030) for the same period in 2024.
• Net loss for the three months ended September 30, 2025, was $(450,348), compared to net income of $58,962 for the same period in 2024.
• Total revenue for the three months ended September 30, 2025, was $2,011,556, a 21% decrease from $2,542,251 in the prior year.
• Total revenue for the nine months ended September 30, 2025, was $4,619,229, a 31% decrease from $6,669,730 in the prior year.
• Gross profit margins remained strong at 61% for the three months and 62% for the nine months ended September 30, 2025.
• Operating expenses increased by $141,000 (10%) for the three months ended September 30, 2025, primarily due to higher professional fees.
• Cash and cash equivalents stood at $490,022 as of September 30, 2025, down from $664,879 at December 31, 2024.
• Working capital decreased to $2,493,000 as of September 30, 2025, from $3,772,000 at December 31, 2024.
• Sales order backlog totaled approximately $0.9 million as of September 30, 2025, and increased to $1.3 million as of October 31, 2025.
• The company is actively negotiating an additional $2 million to $3 million in potential new contracts expected to close prior to year-end.
• Employee Retention Credits (ERC) resulted in $534,912 in other income and $81,887 in related interest income for the nine months ended September 30, 2025.
• Management identified a material weakness in internal control over financial reporting due to limited finance/accounting resources and ineffective policies/procedures.

Sentiment

Score: 3

Explanation: While there are positive strategic developments, market recognition, and sequential revenue growth in Q3 over Q2, the overall financial performance for the quarter and year-to-date is significantly negative. The substantial net losses, declining revenue year-over-year, reduced cash and working capital, and the explicit 'going concern' warning, coupled with identified material weaknesses in internal controls, indicate a very challenging financial position. The capital raise agreement provides some liquidity but also potential dilution, and the underlying financial health remains weak.

Positives

• Achieved 95% growth in revenue over the second quarter of 2025, indicating sequential improvement.
• Maintained strong gross profit margins at 61% for Q3 2025 and 62% for the nine months ended September 30, 2025, demonstrating resilient product mix and cost management.
• Successfully completed multiple high-profile installations, including at NASA's Johnson Space Center, Virginia Commonwealth University (VCU), and University of Miami, expanding into the aerospace sector.
• SteraMist iHP technology adopted by major pharmaceutical companies like AbbVie and Bausch & Lomb, establishing it as a benchmark for sterile environments.
• The onshoring of pharmaceutical production in Virginia, with commitments from Merck, Eli Lilly, and AstraZeneca, positions the company favorably for future growth.
• OEM partnership with Pharma Biotech System Components LLC/Pharma Biotech System Components Ltd (PBSC) strengthens product mix and market access for integrated solutions.
• Observed revenue growth among distributors and international partners, particularly in Europe, with pending regulatory approvals in the EU and UK.
• The FDA's final rule broadening the permitted use of hydrogen peroxide as a direct food additive is expected to positively impact the company's food safety market positioning.
• Received $534,912 in Employee Retention Credits (ERC) and $81,887 in related interest income, contributing to other income.
• Appointment of Mr. David Vanston as Chief Financial Officer in May 2025, bringing substantial experience to the finance department.

Negatives

• Reported a net loss of $(450,348) for the three months ended September 30, 2025, a significant decline from net income of $58,962 in the prior year period.
• Increased net loss for the nine months ended September 30, 2025, to $(1,943,457) from $(1,221,030) in the prior year, representing a 59% increase in loss.
• Total revenue decreased by 21% for the three months and 31% for the nine months ended September 30, 2025, compared to the same prior year periods.
• Domestic revenue decreased by 32% for the three months and 36% for the nine months ended September 30, 2025.
• International revenue decreased by 12% for the nine months ended September 30, 2025.
• Cash and cash equivalents decreased to $490,022 as of September 30, 2025, from $664,879 at December 31, 2024.
• Working capital decreased to $2,493,000 as of September 30, 2025, from $3,772,000 at December 31, 2024.
• Accounts receivable decreased significantly from $1,881,138 at December 31, 2024, to $619,965 at September 30, 2025.
• Operating expenses increased by 10% in Q3 2025 and 3% year-to-date 2025, contributing to increased losses.
• Professional fees increased by $80,000 (76%) in Q3 2025 and $202,000 (52%) year-to-date 2025.
• Research and development expenses decreased by 80% in Q3 2025 and 25% year-to-date 2025, potentially impacting future innovation.
• Consulting fees increased by 66% in Q3 2025 and 31% year-to-date 2025.
• General and administrative expenses increased by 18% in Q3 2025 and 3% year-to-date 2025, partly due to increased credit loss expense.
• Interest expense increased due to the issuance of additional convertible notes.
• Management has concluded that there is substantial doubt about the company's ability to continue as a going concern within one year.
• Identified a material weakness in internal control over financial reporting.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern within one year due to recurring net losses and cash used in operations.
• Inability to raise additional capital through equity or debt financings on acceptable terms, which may be affected by general market conditions, stock price volatility, investor interests, and financial performance.
• Revenue fluctuations are influenced by factors such as the ramp-up of sales force, length of sales cycles, global/regional responses to infectious diseases, expansion into new territories, and timing of distributor orders.
• Potential for increased operating losses and costs related to product/technology development, sales team growth, inventory, geographic presence, tooling capital expenditures, and compliance with Sarbanes-Oxley Act Section 404.
• Material weakness in internal control over financial reporting, specifically limited resources in finance/accounting with sufficient GAAP knowledge and ineffective policies/procedures for review, supervision, and monitoring.
• Customer projects and capital investment decisions are being impacted by tariff uncertainty in their supply chains, leading to delayed sales.
• Concentration of credit risk with a few key customers and vendors (e.g., two customers accounted for 40% of gross accounts receivable, one vendor for 46% of accounts payable as of September 30, 2025).
• Exposure to litigation in the normal course of business, including potential claims for intellectual property infringement, which could result in defense and settlement costs and diversion of management resources.

Future Outlook

The company expects continued growth in the fourth quarter of 2025 and beyond, driven by expanding the use of its technology for service providers, increasing bids for integration and custom installations, and building sales and technical teams. The onshoring of pharmaceutical production and industry trends towards continuous bioprocessing, flexible facilities, and AI-enabled manufacturing are anticipated to drive demand for SteraMist Integrated Systems (SIS), Hybrid, and Custom Engineered System (CES). The OEM partnership with PBSC is expected to commence its first collaboration installation in Q4 2025. The FDA's expanded use of hydrogen peroxide is projected to positively impact the food safety market, with potential for direct food treatment studies.

Management Comments

• "The third quarter of 2025 delivered improved financial results as we achieved 95% growth in revenue over the second quarter of 2025, and we continue to see positive trends in the market with demand for our product lines and recurring sales."
• "We believe that maintaining and expanding the use of our technology for our service providers, coupled with continued growth quarter over quarter in submissions of bids for integration and custom installations, and the building of our sales and technical teams, will drive increased adoption of our SteraMist iHP technology across all our registered industries and geographies."
• "This impact [timing reduction in iHP service sales] is temporary, and the customers operations and related service activity are expected to resume on a normal schedule."
• "Importantly, year-to-date service demand remains robust, with quote activity and pipeline volume up approximately 35% year-over-year, particularly in Life Sciences and Food Safety. This trend supports our expectation for continued growth in the fourth quarter and beyond."
• "The consistency of the gross profit margins underscores the resilience of our product mix and disciplined cost management."
• "Our iHP technology continues to gain market recognition as the preferred decontamination solution for pharmaceutical, biotech and now aerospace applications."
• "We believe our iHP technology is emerging as a benchmark for sterile environments, as evidenced by its adoption this year at companies such as AbbVie, Bausch & Lomb and others."
• "The onshoring of pharmaceutical production positions us favorably in Virginia for the next few years, particularly with major commitments from Merck, Eli Lilly, and AstraZeneca who are establishing new production sites."
• "Our OEM partnership with Pharma Biotech System Components LLC/Pharma Biotech System Components Ltd (PBSC), further strengthens our product mix and route to market, enabling us to integrate our SteraMist Integrated System (SIS) product into advanced high containment, material decontamination, and cleanroom solutions."
• "We are continuing to see revenue growth amongst our distributors, and international partners, particularly in Europe, positioning us for continued growth and expansion, as we work towards finalizing our pending regulatory approvals in the EU and UK."
• "The FDAs final rule broadening the permitted use of hydrogen peroxide (HO) as a direct food additive... is expected to positively impact our positioning in the food safety market."
• "We believe this interest [in direct food treatment studies] may continue to grow in the future, driven by industry trends toward 'natural' food additives and colorings."
• "Management expects these actions [optimizing product mix, expanding recurring solution sales, managing overhead] to support our liquidity needs through 2025."
• "While we cannot predict our liquidity position beyond the next twelve months, we are expecting our business opportunities and customer base to continue to expand and grow, which may provide us with additional liquidity to fund our operations."

Industry Context

The company operates in the disinfection and decontamination market, leveraging its proprietary Binary Ionization Technology (BIT) and SteraMist products. The industry is experiencing increased demand for high-level decontamination solutions across life sciences, hospital healthcare, food safety, and commercial sectors. The company's iHP technology is gaining recognition as a preferred solution in pharmaceutical, biotech, and aerospace applications, aligning with the pharmaceutical industry's shift towards automated, integrated, and flexible decontamination systems. The trend of onshoring pharmaceutical production in the U.S. (e.g., Virginia) presents a favorable market. Regulatory changes, such as the FDA's expanded use of hydrogen peroxide as a direct food additive, open new opportunities in food safety, particularly in the ready-to-eat (RTE) segment. Global concerns over emerging public health threats (RSV, HMPV, Avian Influenza H5N1) continue to drive demand for advanced infection prevention strategies, and the company is also exploring environmental biosecurity applications, such as combating honeybee colony collapse.

Comparison to Industry Standards

• Successfully outperformed key hydrogen peroxide and harsh chemical gaseous competitors in high-containment environments, demonstrating superior efficacy.
• iHP technology is emerging as a benchmark for sterile environments, evidenced by its adoption at leading companies like AbbVie and Bausch & Lomb.
• Secured a major new customer in the eye health industry, comparable to Pfizer and Merck, indicating strong competitive positioning and adoption among industry leaders.

Management Changes

Corporate Governance

Legal Proceedings

• No legal matters involving the company that would have a material adverse effect on its financial condition, results of operations, or cash flows.
• May become a party to litigation in the normal course of business.
• May have to file claims against parties that infringe on intellectual property.

Stakeholder Impact

• Shareholders face significant dilution risk from the issuance of convertible notes and the potential sale of up to $20 million in common stock through the Equity Purchase Agreement. The substantial net losses and 'going concern' warning negatively impact shareholder value.
• Employees in the finance and accounting departments will see an expansion of resources and a reallocation of roles as part of remediation efforts for internal control weaknesses.
• Customers are experiencing delayed capital investment decisions due to tariff uncertainty, impacting service sales. However, new high-profile installations and strategic partnerships indicate continued demand for the company's products and services.
• Creditors, particularly holders of convertible notes, face increased risk due to the company's deteriorating financial health and the explicit 'going concern' warning, which raises questions about the company's ability to meet its debt obligations.

Next Steps

• Continue to maintain and expand the use of iHP technology for service providers and drive increased adoption across all registered industries and geographies.
• Continue to grow quarter over quarter in submissions of bids for integration and custom installations.
• Continue building sales and technical teams.
• Work towards finalizing pending regulatory approvals in the EU and UK.
• Commence the first collaboration installation with OEM partner PBSC in the fourth quarter of 2025.
• Explore and conduct studies on the direct treatment of food with iHP technology.
• Expand resources within the finance and accounting departments with personnel possessing sufficient knowledge and experience in U.S. GAAP.
• Design and implement additional policies and procedures for the review, supervision, and monitoring of accounting and SEC reporting functions.
• Recruit and train personnel with appropriate internal controls and accounting knowledge and experience.
• Reallocate and align roles and responsibilities within the accounting team to optimize skills and experience.
• Continue to consider and pursue various financing transactions, such as equity and debt offerings, to fund ongoing activities.
• Register the issuances and sales of shares of Common Stock under the Equity Purchase Agreement with Hudson Global Ventures, LLC.
• Obtain stockholder approval as required by Nasdaq Rule 5635(d) if sales to Hudson Global Ventures, LLC exceed 19.99% of outstanding shares.

Key Dates

Recommendation

The company's financial performance shows significant deterioration, with increasing net losses, declining revenue, and a weakening liquidity position, culminating in a 'going concern' warning. While strategic initiatives and market recognition are positive, they are currently insufficient to offset the severe financial challenges and material weaknesses in internal controls. The reliance on further dilutive capital raises to sustain operations, combined with the overall negative financial trajectory, presents a high-risk profile. A seasoned investor would likely recommend selling to mitigate further potential losses.

Keywords

Disinfection, Decontamination, SteraMist, iHP, Binary Ionization Technology, Environmental Solutions, Healthcare, Life Sciences, Food Safety, Commercial, NASDAQ, 10-Q, Quarterly Report, Financials, SEC Filing, TOMI Environmental Solutions, Corporate Governance, Risk Factors, Convertible Notes, Capital Raise, FDA, NASA, Biosecurity, Pharmaceutical, Biotech, Aerospace