10-Q: TOMI Environmental Reports Q2 Loss Amid Revenue Drop

TOMI Environmental Solutions, Inc. reported a significant net loss and revenue decline for Q2 2025, primarily due to customer capital expenditure deferrals, despite growth in service revenue and new strategic partnerships.

Summary

• Net sales for the three months ended June 30, 2025, decreased by 66% to $1,031,115 from $3,013,392 in the prior year period.
• Net sales for the six months ended June 30, 2025, decreased by 37% to $2,607,673 from $4,127,479 in the prior year period.
• The company reported a net loss of $1,237,516 for the three months ended June 30, 2025, compared to a net income of $30,198 in the same period last year.
• The net loss for the six months ended June 30, 2025, increased to $1,493,109 from $1,279,992 in the prior year period.
• Gross profit margin improved to 66% for the three months ended June 30, 2025, up from 62% in the prior year, driven by product mix and higher solution/service sales.
• Service-based revenue increased by 33% to $378,000 for the three months ended June 30, 2025, and by 46% to $955,000 for the six months ended June 30, 2025.
• Total operating expenses increased by 4% for the three months ended June 30, 2025, primarily due to higher professional fees.
• Cash and cash equivalents stood at $569,450 as of June 30, 2025, down from $664,879 at December 31, 2024.
• The company received $534,912 in Employee Retention Credits (ERC) and $81,887 in related interest during the six months ended June 30, 2025.
• Sales order backlog totaled approximately $1.4 million as of June 30, 2025.
• Combined recognized revenue, deferred revenue, and sales order backlog was approximately $4.6 million as of August 7, 2025.

Sentiment

Score: 3

Explanation: The company faces significant financial challenges, including a substantial revenue decline, increased net losses, and a going concern warning. The identified material weakness in internal controls adds to the negative sentiment. While there are positive developments in service revenue growth, new contracts, and strategic partnerships, these are overshadowed by the severe financial performance and liquidity concerns. The capital raise provides some short-term relief but highlights ongoing funding needs.

Positives

• Service-based revenue increased significantly, up 33% for the three months and 46% for the six months ended June 30, 2025, indicating growing demand for high-level decontamination and training.
• Gross profit margins improved to 66% for the three months ended June 30, 2025, due to a favorable product mix including higher sales of solutions and service offerings.
• Secured a significant contract to install a SteraMist iHP Custom Engineered System (CES) at a leading university in Rhode Island, valued at approximately $450,000.
• Expanded into the aerospace sector with the deployment of SteraMist iHP technology at the NASA Johnson Space Center.
• Formed an OEM partnership with Pharma Biotech System Components LLC/PBSC to integrate SteraMist iHP into pass-through hatches and chambers, enhancing the SteraMist Integrated System (SIS) product line.
• Received $534,912 in Employee Retention Credits (ERC) and $81,887 in related interest, contributing to other income and interest income.
• Regained compliance with Nasdaq's minimum bid price continuing listing requirement on July 1, 2025.
• The company's iHP technology is gaining popularity as a preferred decontamination solution for pharmaceutical and biotech companies, with quotes up 35% year over year for service.
• Open opportunities for CES, Hybrid solutions, and SIS total approximately $15 million, with $7 million designated as high-priority.
• SteraMist was honored with the prestigious 2025 Disinfection and Decontamination Products Company of the Year award.
• Demonstrated SteraMist efficacy in combating honeybee colony collapse, indicating potential for new market applications.

Negatives

• Total revenue for the three months ended June 30, 2025, decreased by 66% compared to the same prior year period, primarily due to customers deferring capital expenditure projects.
• The company reported a net loss of $1,237,516 for the three months ended June 30, 2025, a significant decline from a net income of $30,198 in the prior year period.
• The net loss for the six months ended June 30, 2025, increased to $1,493,109 from $1,279,992 in the prior year period.
• Cash and cash equivalents decreased to $569,450 as of June 30, 2025, from $664,879 at December 31, 2024.
• Working capital decreased to $2,810,000 as of June 30, 2025, from $3,772,000 at December 31, 2024.
• Product-based revenues for the three months ended June 30, 2025, decreased by 76% compared to the same prior year period.
• Domestic revenue for the three months ended June 30, 2025, decreased by 69%, and international revenue decreased by 47%.

Risks

• The company's recurring net losses and accumulated deficit of $55.8 million raise substantial doubt about its ability to continue as a going concern within one year.
• Identified a material weakness in internal control over financial reporting due to limited resources in finance and accounting with sufficient U.S. GAAP knowledge and ineffective policies/procedures for review, supervision, and monitoring of accounting and SEC reporting functions.
• Revenue fluctuations are influenced by factors such as the ramp-up and expansion of sales force, length of sales cycle, global/regional response to infectious diseases, expansion into new territories, and timing of distributor orders.
• The company's ability to raise additional capital through equity or debt financings is uncertain and may be affected by general market conditions, stock price volatility, investor interests, and financial performance.
• Dependence on a limited number of vendors, with one vendor accounting for approximately 49% of accounts payable and two vendors accounting for 50% and 49% of cost of sales for the three and six months ended June 30, 2025, respectively.
• Potential dilution to stockholders from the sale of additional equity securities.
• Increased debt service obligations and potential operating/financial covenants that could restrict operations if additional indebtedness is incurred.

Future Outlook

Management expects business opportunities and customer base to continue expanding and growing, potentially providing additional liquidity. The company plans to raise additional capital through the sale of convertible debt securities. The iHP Corporate Service division anticipates continuing higher growth in the second half of the year due to increased demand and quotes. The first chamber collaboration with PBSC is set for delivery in Q4 2025. The company is negotiating approximately $2 million in new custom and integrated contracts expected to close prior to year-end.

Management Comments

• "Our total recognized and deferred revenue for the three months ended June 30, 2025 amounted to $1,750,350, consisting of approximately $1,031,000 in recognized revenue in the quarter and deferred revenue of approximately $719,235 at the end of June 2025."
• "Recognized revenue for the three months ended June 30, 2025, was $1,031,000, down 66% from $3,013,000 in the three months ended June 30, 2024. This was primarily driven by customers deferring capital expenditure projects due to the uncertain economic environment with the impact of announced and implemented tariffs on their supply chain and long term planning."
• "The increase in service revenue was due to increased demand from current and new life sciences customers, expansion of services in additional industries being served by our products, and more stringent regulated procedures, resulting in quotes up 35% year over year, leading to expectations of continuing higher growth in the second half of the year."
• "As of August 7, 2025, the combined total of recognized revenue, deferred revenue, and sales order backlog was approximately $4.6 million, with active projects on schedule for delivery in 2025."
• "With the successful completion of each project, our iHP technology is rapidly gaining popularity as the preferred decontamination solution for pharmaceutical and biotech companies."
• "We believe that we possess the best technologies in the world in the disinfection and decontamination space."
• "The COVID-19 pandemic along with the needs of the pharmaceutical and vivarium space has provided us with the opportunity and experience to implement a clear strategy to develop and manufacture additional products to add to our portfolio."
• "Our products are an environmentally friendly solution, and our processes address the concern of sustainability."
• "Using a proven and trusted disinfectant for emergency outbreaks and daily for preventative maintenance, such as SteraMist, can alleviate the threat of infections from spreading and could stop a possible outbreak."
• "Our management, with oversight from our Audit Committee, is in the process of developing and implementing remediation plans in response to the identified material weaknesses."

Industry Context

The company operates in the disinfection and decontamination sector, which has seen increased attention due to the COVID-19 pandemic and ongoing biosecurity concerns in life sciences, healthcare, and food safety. Its SteraMist iHP technology, based on hydrogen peroxide, positions it as an environmentally friendly solution in a market seeking sustainable and effective decontamination methods. The expansion into aerospace and aquaculture, along with OEM partnerships, indicates a strategy to diversify applications beyond traditional healthcare and pharma, aligning with broader industry trends towards integrated and automated solutions for various sectors.

Comparison to Industry Standards

• The company's SteraMist iHP technology successfully outperformed key hydrogen peroxide competitors in securing a $450,000 contract at a leading university, demonstrating a competitive advantage in efficacy.
• The OEM partnership with PBSC, a premier manufacturer in high containment and cleanroom solutions, enhances the SteraMist Integrated System (SIS) product line, positioning it against competitors offering integrated decontamination solutions.
• The deployment at NASA Johnson Space Center and the SteraMistX campaign highlight the technology's potential for broader applications in aerospace and military, areas where high biosecurity standards are critical and comparable solutions may be limited.
• The company's focus on ease of use and automation with CES, Hybrid solutions, and SIS aligns with industry demand for repeatable, validated, and thoroughly tested disinfection solutions, suggesting a competitive offering against manual or less integrated systems.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently a party to any legal proceedings that would have a material adverse effect on its financial condition, results of operations, or cash flows.
• The company may become a party to litigation in the normal course of business and may file claims against parties infringing on its intellectual property.

Stakeholder Impact

• **Shareholders**: Face significant risk due to the company's going concern warning, increased net losses, and potential for further dilution from capital raises. The Nasdaq compliance regain is a positive for listing status.
• **Employees**: The appointment of a new CFO and plans to expand and train finance/accounting personnel indicate potential changes and opportunities within those departments.
• **Customers**: May experience delays in capital expenditure projects due to economic uncertainty and tariffs, impacting product sales. However, increased service demand and new product integrations (SIS) aim to meet evolving customer needs.
• **Suppliers/Vendors**: The company's high concentration of accounts payable and cost of sales with a few vendors indicates significant reliance, which could pose risks if relationships are disrupted or financial health deteriorates.
• **Creditors**: The increase in convertible notes payable and the going concern warning suggest elevated risk for creditors, although the capital raise provides some liquidity.

Next Steps

• Continue to fund ongoing activities by utilizing current cash on hand and cash generated from operations.
• Raise additional capital through equity or debt financings.
• Expand resources within the finance and accounting departments with personnel possessing sufficient U.S. GAAP knowledge and experience.
• 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 utilize third-party consultants and specialists.
• Reallocate and align roles and responsibilities within the accounting team to optimize skills and experience.
• Negotiate approximately $2 million in new custom and integrated contracts, with bids expected to close prior to year-end.
• Deliver the first chamber collaboration with PBSC in the fourth quarter of 2025.
• Collaborate with NASA Johnson Space Center on a potential publication for a case study.

Key Dates

Recommendation

The company's financial performance is severely deteriorating, evidenced by a 66% revenue decline in Q2 2025, a significant swing to net loss, and an explicit 'going concern' warning. While there are positive operational developments and a recent capital raise, these are insufficient to offset the fundamental financial instability and the identified material weakness in internal controls. The high accumulated deficit and continued cash burn from operations indicate a precarious financial position. A seasoned investor would view these factors as strong indicators of high risk and potential for further share price depreciation, making a 'sell' recommendation appropriate.

Keywords

Disinfection, Decontamination, SteraMist, Binary Ionization Technology, iHP, Biosecurity, Healthcare, Life Sciences, Food Safety, Commercial Disinfection, SEC Filing, 10-Q, Financial Results, Quarterly Report, TOMZ