TOMI Environmental Solutions, Inc.

TOMI ENVIRONMENTAL SOLUTIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS

Overview

TOMI Environmental Solutions, Inc. ("TOMI," "we," "our," or the "Company") is a global provider of disinfection and decontamination solutions, offering environmentally friendly products and services for indoor air and surface treatment. Our flagship product line, SteraMist uses our patented Binary Ionization Technology (“BIT”) to deliver a low-concentration (7.8%) hydrogen peroxide-based fog or mist that effectively treats all indoor environments and surface areas.

Developed under a grant from the United States Defense Advanced Research Projects Agency (“DARPA”), SteraMist generates ionized Hydrogen Peroxide (“iHP”) through a high-voltage atmospheric cold plasma arc, converting hydrogen peroxide solution into submicron hydroxyl radical particles. This process achieves a 6-log (99.9999%) or greater kill rate against a broad spectrum of pathogens, leaving only oxygen and humidity as by-products. We maintain U.S. Environmental Protection Agency (“EPA”) registration for our BIT solution, along with applicable regulatory approvals in all 50 states, Washington D.C., Canada, and approximately 40 other countries.

We serve four primary market divisions: Life Sciences, Hospital-Healthcare, Food Safety, and Commercial. Within such industries, our revenue is derived from equipment sales, BIT Solution consumables, corporate decontamination services, and Installation/Operational/Performance Qualification (IQ/OQ/PQ) services.

Our mission: Innovating for a Safer World®.

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 in the United States of America (GAAP), and stated in U.S. dollars, have been prepared by us, 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 we believe 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 our audited financial statements for the year ended December 31, 2025, and notes thereto which are included in the annual report on Form 10-K previously filed with the SEC on March 31, 2026, (the “Annual Report”). We follow 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 subsidiary, TOMI Environmental Solutions, Inc., a Nevada corporation. All 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 material effect on previously reported results of operations or financial position.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the accompanying consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to allowance for credit losses, inventory, 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 input, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

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

Cash and cash equivalents include 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 more than insured limits. At March 31, 2026, and December 31, 2025, there were no cash equivalents.

Accounts Receivable

Accounts receivable is stated at the amount management expects to collect from outstanding balances. The Company generally does not require collateral to support customer receivables. Management assesses the collectability of outstanding customer invoices and maintains an allowance resulting from the expected non-collection of customer receivables. In estimating this reserve, management considers factors such as industry sector, historical collection experience, customer creditworthiness, specific customer risk, and current and expected general economic conditions. For those customers to whom we extend credit, in accordance with the Current Expected Credit Loss (CECL) model, we make a risk-based evaluation at the point of sale which is then reviewed on both an individual and collective (pool) basis during each reporting period based on ASC 326.

Movements on credit loss accounts are shown below:

Inventories

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Inventories consist primarily of finished goods and raw materials. 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, and future customer demand. We record an allowance for estimated losses when the facts and circumstances indicate that inventories may not be usable or realized when comparing current inventory levels to anticipated demand for our product. Our reserve for obsolete inventory was $500,000 and $500,000 as of March 31, 2026, and December 31, 2025, 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 commences for equipment, furniture and fixtures and vehicles, once placed in service for its intended use. Leasehold improvements are amortized using the straight-line method over the remaining lease term at the time the asset was placed into service or the service lives of the improvements, whichever is shorter.

Leases

We recognize a right-of-use (“ROU”) asset and lease liability for all leases with terms of more than 12 months, in accordance with ASC 842. We utilize the short-term lease recognition exemption for all asset classes as part of our on-going accounting under ASC 842. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities. Recognition, measurement and presentation of expenses depend upon classification as a finance or operating lease.

As a lessee, we utilize the reasonably certain threshold criteria in determining which options we will exercise. Furthermore, our lease payments are based on index rates with minimum annual increases. These represent fixed payments and are captured in the future minimum lease payments calculation. In determining the discount rate to use in calculating the present value of lease payments, we used our incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

We have also elected the practical expedient not to separate lease and non-lease components for all asset classes, meaning all consideration that is fixed, or in-substance fixed, will be captured as part of our lease components for balance sheet purposes. Furthermore, all variable payments included in lease agreements will be disclosed as variable lease expense when incurred. Generally, variable lease payments are based on usage and common area maintenance. These payments will be included as variable lease expense in the period in which they are incurred.

Vendor Concentration

The Company is dependent on a limited number of third-party suppliers for the manufacture of its SteraMist® line of equipment and for the supply of its BIT Solution. This dependence results in concentration of both purchasing activity and accounts payable balances among a small number of vendors.

As of March 31, 2026, two vendors accounted for approximately 54% of total accounts payable, compared to approximately 42% for one vendor as of December 31, 2025.

For the three months ended March 31, 2026, two vendors collectively accounted for approximately 64% of total cost of sales, compared to approximately 50% for the three months ended March 31, 2025. The increase in concentration reflects an increase in equipment sales during the current year period.

The Company remains committed to diversifying its supplier base, though it is substantially dependent on these vendors for its primary product lines. Any disruption to these relationships could have a material adverse effect on the Company's ability to fulfill customer orders and on its results of operations. Refer to Item 1A, Risk Factors, as disclosed in the Company’s Form 10-K, for further discussion of risks related to its reliance on third-party manufacturers and suppliers.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities.

A significant area of judgment relates to the realization of deferred tax assets, including net operating loss carryforwards and other deductible temporary differences. The Company evaluates the realizability of its deferred tax assets based on available evidence, including historical operating results, projections of future taxable income, and the expected reversal of temporary differences.

Based on the Company’s recent history of operating losses, management has concluded that it is more likely than not that its deferred tax assets will not be realized. Accordingly, the Company has recorded a full valuation allowance against its deferred tax assets. The valuation allowance will be maintained until sufficient positive evidence exists to support the realization of these assets.

Additional information regarding the Company’s income taxes, including deferred tax assets and net operating loss carryforwards, is included in Note 13. Income Taxes to the consolidated financial statements.

Net Loss Per Share

Basic net loss per share is computed by dividing our net loss by the weighted average number of shares of common stock outstanding during the period presented. Diluted 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. The computation of diluted EPS is similar to the computation of basic EPS except that the numerator may have to adjust for any dividends and income or loss associated with potentially dilutive securities that are assumed to have resulted in the issuance of shares of common stock and the denominator may have to adjust to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued during the period to reflect the potential dilution that could occur from shares of common stock issuable through a contingent shares issuance arrangement, stock options, warrants, or convertible preferred stock. For purposes of determining diluted earnings per common share, the treasury stock method is used for stock options, and warrants, and the if-converted method is used for convertible preferred stock as prescribed in FASB ASC Topic 260. Because of the net loss for the three months ended March 31, 2026 and 2025, the impact of including these in our computation of diluted EPS was anti-dilutive.

Potentially dilutive securities as of March 31, 2026 consisted of 2,508,000 shares of common stock from convertible debentures,2,604,388 shares of common stock issuable upon exercise of outstanding warrants,725,042 shares of common stock issuable upon outstanding options,66,666 shares of common stock issuable upon vesting of restricted stock units and 63,750 shares of common stock issuable upon conversion of outstanding shares of Preferred A Stock (“Convertible Series A Preferred Stock”).

Potentially dilutive securities as of March 31, 2025 consisted of 2,308,000 shares of common stock from convertible debentures,2,604,388 shares of common stock issuable upon exercise of outstanding warrants,768,792 shares of common stock issuable upon outstanding stock options and 63,750 shares of common stock issuable upon conversion of outstanding shares of Convertible Series A Preferred Stock.

Options, warrants, RSU’s, preferred stock and shares associated with the conversion of debt to purchase approximately 5.97 million and 5.7 million shares of common stock were outstanding at March 31, 2026 and March 31, 2025, respectively, but were excluded from the computation of diluted net loss per share at March 31, 2026 and 2025 due to the anti-dilutive effect on net loss per share.

Revenue Recognition

We recognize revenue in accordance with ASC Topic 606,Revenue from Contracts with Customers. We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as we satisfy the performance obligations.

We must use judgment to determine: (a) the number of performance obligations and whether they are distinct from one another; (b) the transaction price; and (c) the standalone selling price for each performance obligation for purposes of transaction price allocation.

Title and risk of loss generally pass to our customers upon shipment. Shipping and handling costs charged to customers are included in product revenues, and the associated expenses are treated as fulfillment costs included in cost of revenues. Revenues are reported net of sales taxes collected from customers.

Product revenue includes sales of our standard and customized equipment, BIT Solution and accessories, recognized upon transfer of control to the customer. Service and training revenue includes high-level decontamination engagements, equipment validation and customer training, recognized as the agreed-upon services are rendered.

A portion of our revenue is derived from SIS and CES, which may involve multiple performance obligations including equipment supply, installation, validation and ongoing service. For these arrangements, management exercises significant judgment in identifying and allocating the transaction price among the distinct performance obligations and in determining the point at which control transfers to the customer. Delays in project completion or customer acceptance can affect the timing of revenue recognition.

We record estimated allowances for sales returns using a specific identification method based on subsequent return activity and historical averages. As of March 31, 2026 and December 31, 2025, we recorded allowances of $76,064 and $47,844, respectively.

Disaggregation of Revenue

The following table presents our revenues disaggregated by revenue source (rounded to nearest thousand).

Product and Service Revenue

Revenue by Geographic Region

Costs to Obtain a Contract with a Customer

We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. We generally expense sales commissions when incurred because the amortization period would have been one year or less.

Contract Balances

As of March** **31, 2026, and December 31, 2025, we had contract balances and unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed in the amounts of $601,130 and $424,032, respectively. The increase in deferred revenue reflects growth in our SIS and CES project pipeline and the timing of project milestones. Changes in assumptions regarding the timing of project completion or customer acceptance could affect the amount and timing of revenue recognized in future periods.

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.

The valuation methodology used to determine the fair value of options and warrants issued as compensation during the period is the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term. The expected term of the Company’s warrants has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” warrants. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its common stock, par value $0.01 (the “Common Stock”) and does not intend to pay dividends on its Common Stock in the foreseeable future. The Company has elected to account for forfeitures as they occur.

On July 7, 2017, our shareholders approved the Company’s Amended and Restated 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 2,000,000 shares of Common Stock are authorized for issuance under the 2016 Plan. Shares issued under the 2016 Plan may be either authorized but unissued shares, treasury shares, or any combination thereof. Provisions in the 2016 Plan permit the reuse or reissuance by the 2016 Plan of shares of Common Stock for numerous reasons, including, but not limited to, shares of Common Stock underlying canceled, expired, or forfeited awards of stock-based compensation and stock appreciation rights paid out in the form of cash. Equity compensation expense will typically be awarded in consideration for the future performance of services to us. All recipients of awards under the 2016 Plan are required to enter into award agreements with us at the time of the award, and awards under the 2016 Plan are expressly conditioned upon such agreements.

For awards of restricted stock units ("RSUs"), the fair value is determined based on the closing market price of our Common Stock on the grant date. Compensation expense for RSUs is recognized on a straight-line basis over the requisite service (vesting) period.

For the three months ended March 31, 2026, we issued 50,000 shares of common stock out of the 2016 Plan to members of our Board and 33,334 RSUs to Mr. David Vanston, our Chief Financial Officer (see Note 9). As of March 31, 2026, unrecognized stock-based compensation expense related to unvested RSUs was approximately $66,553, which will be recognized over the remaining vesting period through May 30, 2027. There were no shares issued out of the Plan for the three months ended March 31, 2025.

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 months ended March 31, 2026 and 2025.

Advertising and Promotional Expenses

Advertising and promotional costs are expensed in the period they are incurred. For the three months ended March 31, 2026 and 2025, advertising and promotional expenses included in selling expenses were approximately $23,000 and $31,000, respectively.

Research and Development Expenses

Research and development expenses are expensed in the period they are incurred. For the three months ended March 31, 2026 and 2025, research and development expenses were approximately $57,000 and $45,000, respectively.

Business Segments

Pursuant to the guidance in ASC 280, we currently have one reportable business segment due to the fact that we derive our revenue primarily from one product in which 1) The business activities are homogenous in nature, 2) The entire operation faces similar market conditions and risks, 3) There is a high degree of integration in its operations, 4) Internal evaluations of financial results are conducted on a consolidated basis. A breakdown of revenue is presented in “Revenue Recognition” in Note 2 above. See Note 15, Segment Reporting for more details.

Going Concern

For the three months ended March 31, 2026 and 2025, our net loss was approximately $810,000 and $255,000, respectively, and net cash provided by (used in) operations was approximately $296,000 and ($276,000), respectively. As of March 31, 2026, we had approximately $280,000 in cash and cash equivalents, working capital of approximately $394,000, total stockholders' equity of $550, and an accumulated deficit of $58.9 million. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. The consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business; no adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we not continue as a going concern.

Management's Plan to Address Going Concern

Equity Line of Credit and Shelf Registration Statement*** ***

In November 2025, we entered into a $20 million Equity Line of Credit ("ELOC") with Hudson Global Ventures, LLC. Our Form S-3 shelf registration statement became effective on December 8, 2025, under which the Company is registered to offer and sell up to $50,000,000 of securities from time to time. Under the ELOC, we may, at our sole discretion, draw down between $25,000 and $2,000,000 per draw, subject to applicable exchange caps. During the three months ended March 31, 2026, we issued 336,147 shares of Common Stock in exchange for aggregate gross proceeds of $149,413. Management believes this facility provides meaningful near-term liquidity, with capacity to provide up to approximately $4 million in the short term, subject to market conditions. Further details are set out in Note 9 to these consolidated financial statements.

Capital Markets Access

Our effective Form S-3 shelf registration statement provides a registered platform to raise up to $50,000,000 of securities from time to time. We have engaged Bancroft Capital as an investment banking advisor to explore additional financing opportunities, including equity and equity-linked transactions with existing and new investors.

Convertible Note Management

As of March 31, 2026, we had $3,135,000 in total convertible note principal outstanding, with a net carrying value of $2,931,000 after amortized debt issuance costs. We are evaluating options to reduce our outstanding convertible note obligations, including potential conversion into equity or repayment using proceeds from the Hudson Global equity line, either of which would reduce total debt and improve stockholders' equity. Further details of our convertible notes are set out in Note 8 to these consolidated financial statements.

Pipeline Conversion to Revenue

As of March 31, 2026, our total integrated project pipeline (encompassing projects awaiting capital expenditure approval or signed contracts) for our SteraMist Integrated System (SIS), Hybrid, or Custom Engineered System (CES) products stood at approximately $4.3 million across 13 customers, an increase from the $3 million November 2025 integration project pipeline. Notable during the quarter, we secured a $440,000 annual purchase order for recurring decontamination services with a leading global medical technology company, providing quarterly professional iHP decontamination services for critical cleanroom and laboratory environments. These figures represent potential future revenue and are not committed orders or guarantees of future performance. Conversion of this pipeline is a primary driver of our 2026 liquidity plan. Our sales backlog as of March 31, 2026 was approximately $1.7 million, reflecting continued near-term revenue visibility from automated integrated systems and our recurring consumables and service revenue base.

Cost Management

We reduced total operating expenses by $248,000, or 15%, during the three months ended March 31, 2026 compared to the same prior year period. We continue to actively manage controllable costs while preserving the technical and commercial capacity required to execute on our pipeline.

Customer Deposit Policy

Our customer deposit policy, implemented during 2025, requires deposits on equipment orders ahead of fulfilment. This policy reduces working capital exposure and is expected to generate incremental operating cash flow benefits in 2026 as it becomes fully embedded across our order intake process.

While management believes the actions described above provide a reasonable basis to address the going concern conditions, there can be no assurance that we will successfully implement this plan, that our pipeline will convert to revenue on the anticipated timeline, or that additional capital will be available on terms acceptable to us. If we are unable to execute this plan, we may be required to delay, reduce, or eliminate certain operations, which could materially adversely affect our business, financial condition, and results of operations.

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In November 2024, FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). In January 2025, ASU No. 2025-01 was issued to clarify the effective date for all public business entities. The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements. Early adoption is also permitted. This ASU will likely result in the required additional disclosures being included in our consolidated financial statements once adopted. We are currently evaluating the provisions of this ASU.

In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The ASU clarifies interim disclosure requirements and the applicability of Topic 270. The objective of the amendments is to provide further clarity about the current interim disclosure requirements. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Adoption of this ASU can be applied either a prospective or a retrospective approach. Early adoption is permitted. We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements.

In December 2025, the FASB issued ASU No. 2025-12, Codification Improvements. The ASU addresses thirty-three items, representing the changes to the Codification that (1) clarify, (2) correct errors, or (3) make minor improvements. Generally, the amendments in this Update are not intended to result in significant changes for most entities. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2026. The adoption method of this ASU may vary, on an issue-by-issue basis. Early adoption is permitted. We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements.

Recently adopted accounting pronouncements

In December 2023, FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Company adopted ASU 2023-09, applied on a prospective basis as of January 1, 2025, because the ASU affects disclosures only, adoption did not affect our consolidated financial statements.

On July 4, 2025, the U.S. H.R.1, an act to provide for reconciliation pursuant to title II of H. Con. Res. 14. (the “OBBBA”) was enacted. The OBBBA introduces multiple tax law and other legislative changes, including modifications to income tax provisions such as domestic research and development expenses, capital expenditures, and U.S. taxation of international earnings; the repeal or acceleration of the sunset of certain tax credits under the 2022 Inflation Reduction Act and elimination of certain penalties for violations of certain regulatory credit programs. We have recognized the effects of the OBBBA provisions in our financial results to the extent they are applicable to the year ended December 31, 2025. We will continue to evaluate the impact of these provisions on our 2026 and subsequent consolidated financial statements.

In July 2025, FASB issued ASU No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments in this update provide a practical expedient permitting an entity to assume that conditions at the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current classified accounts receivable and contract assets. This update is effective for annual periods beginning after December 15, 2025, including interim periods within those fiscal years. Adoption of this ASU can be applied prospectively for reporting periods after its effective date. We adopted ASU 2025-05 in the first quarter of 2026 on a prospective basis and did not elect the practical expedient. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements or on the allowance for credit losses as of March 31, 2026.

NOTE 3. INVENTORIES

Inventories consist of the following:

The movements of inventory reserve were as follows:

NOTE 4. VENDOR DEPOSITS

At March** **31, 2026, and December 31, 2025, we maintained vendor deposits of $247,476 and $161,597, respectively, for open purchase orders for inventory.

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at:

For the three months ended March 31, 2026 and 2025, depreciation was $44,827 and $61,744, respectively. For the three months ended March 31, 2026, and 2025, amortization of tenant improvement allowance was $9,798 in both periods and was recorded as lease expense and included within general and administrative expense on the consolidated statement of operations.

NOTE 6. INTANGIBLE ASSETS

Intangible assets consist of patents and trademarks related to our Binary Ionization Technology. We amortize the patents over the estimated remaining lives of the related patents. The trademarks have an indefinite life. Amortization expense was $8,041 and $6,798 for the three months ended March 31, 2026 and 2025, respectively.

Approximate future amortization is as follows (rounded to nearest thousand):

NOTE 7. LEASES

In April 2018, we entered into a 10-year lease agreement for a new 9,000-square-foot facility that contains office, warehouse, lab and research and development space in Frederick, Maryland. The lease agreement commenced in December 2018 when the property was ready for occupancy. The agreement provided for annual rent of $143,460, an escalation clause that increases the rent 3% year over year, a landlord tenant improvement allowance of $405,000 and additional landlord work as discussed in the lease agreement. We took occupancy of the property on December 17, 2018, and the lease was amended in June 2019 to provide for a 4-month rent holiday and a commencement date of April 1, 2019. A 7% discount rate was determined using our incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

The balances for our operating lease where we are the lessee are presented as follows within our condensed consolidated balance sheet:

The components of lease expense are as follows and are included within general and administrative expense on our condensed consolidated statement of operations.

Supplemental cash flow information related to leases where we are the lessee is as follows:

Other information related to leases where we are the lessee is as follows:

As of March** **31, 2026, the maturities of our operating lease liability are as follows:

NOTE 8. CONVERTIBLE DEBT

As of March 31, 2026, the Company has two series of convertible promissory notes outstanding under separate Securities Purchase Agreements entered into in 2023 and 2025, respectively. The aggregate outstanding principal of both series is $3,135,000, carried as a long-term liability on the Consolidated Balance Sheet. Each series is described separately below.

2023 Notes

During October and November 2023, we entered into a Securities Purchase Agreement (the “2023 SPA”) with certain accredited investors (collectively, the “Investors”) pursuant to which we agreed to sell and issue to the Investors in a private placement transaction (the “Private Placement”) in one or more closings up to an aggregate principal amount of $5,000,000 of Convertible Notes (the “2023 Notes”). As of March 31, 2026, we issued and sold an aggregate of $2,600,000 of 2023 Notes to certain Investors pursuant to the 2023 SPA, convertible into an aggregate of 2,080,000 shares of Common Stock at a conversion price of $1.25 per share.

The 2023 Notes mature and are due on the fifth anniversary of the issuance date in October and November of 2028. The 2023 Notes bear simple interest at a rate of 12% per annum, payable in equal monthly installments. The 2023 Notes are convertible into shares of our Common Stock at the option of the holder at a fixed conversion price of $1.25 per share. In addition, we may require the Investors to convert the 2023 Notes at the $1.25 per share conversion price at any time after 90 days from the issue date if the Common Stock has a closing bid price of $1.55 per share or higher on any twenty (20) trading days within a thirty (30) day consecutive trading period, or if a "fundamental change" occurs (as defined in the 2023 SPA). For the avoidance of doubt, $1.55 is the stock price threshold that triggers the Company's mandatory conversion right and is not itself a conversion price; the notes always convert at $1.25 per share. The 2023 Notes are unsecured and senior to other indebtedness subject to certain exceptions.

2025 Notes

During 2025, we entered into Securities Purchase Agreements (the "2025 SPA") with certain accredited investors pursuant to which we agreed to sell and issue to the Investors in a private placement transaction in one or more closings up to an aggregate principal amount of $3,000,000 of Convertible Notes (the "2025 Notes"). Pursuant to the 2025 SPA and as of March 31, 2026, we sold and issued convertible promissory notes initially convertible into an aggregate of 428,000 shares of Common Stock at a conversion price of $1.25 per share in exchange for aggregate gross proceeds of $535,000. As of March 31, 2026, approximately $2,465,000 remains available for issuance under the 2025 SPA, subject to the terms and conditions thereof. The 2025 Notes mature and are due on the fifth anniversary of the respective issuance dates in 2030. The 2025 Notes bear simple interest at a rate of 12% per annum, payable in equal monthly installments. The 2025 Notes are convertible into shares of our Common Stock at the option of the holder at a fixed conversion price of $1.25 per share. In addition, we may require the Investors to convert the 2025 Notes at the $1.25 per share conversion price at any time after 90 days from the issue date if the Common Stock has a closing bid price of $1.55 per share or higher on any twenty (20) trading days within a thirty (30) day consecutive trading period, or if a "fundamental change" occurs (as defined in the 2025 SPA). For the avoidance of doubt, $1.55 is the stock price threshold that triggers the Company's mandatory conversion right and is not itself a conversion price; the notes always convert at $1.25 per share. The 2025 Notes are unsecured and senior to other indebtedness subject to certain exceptions.

Interest expense on the 2023 Notes was $78,000 for each of the three months ended March 31, 2026 and 2025. Interest expense on the 2025 Notes was $16,050 and $2,850 for the three months ended March 31, 2026 and 2025, respectively (2025 reflected partial-year accrual from the respective issuance dates). Total interest expense on convertible notes for the three months ended March 31, 2026 and 2025 was $94,050 and $80,850, respectively.

Registration Rights

In connection with each of the 2023 SPA and the 2025 SPA, we entered into registration rights agreements with the respective Investors pursuant to which we agreed to register for resale the shares of Common Stock issuable upon conversion of the respective Notes. As of March 31, 2026, we have not filed a resale registration statement covering these shares. We are evaluating the timing and method of fulfilling our registration obligations under each agreement. Failure to satisfy our registration obligations within the timeframes specified in the respective registration rights agreements could result in the payment of liquidated damages or other penalties to the Investors, the amount of which we are unable to estimate at this time.

Debt Issuance Costs and Interest

Amortization of deferred financing costs was $18,323 and $16,271 for the three months ended March 31, 2026 and 2025, respectively, which have been included with interest expense on the statement of operations and is being amortized on a straight-line basis over the life of the notes. Annual cash interest payable on the aggregate outstanding principal of $3,135,000 at 12% per annum is approximately $376,200, payable in equal monthly installments.

Convertible notes consist of the following at:

NOTE 9. SHAREHOLDERS’ EQUITY

Our Board of Directors (the “Board”) may, without further action by our shareholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of preferred stock in series and at the time of issuance, determine the rights, preferences and limitations of each series. The holders of such preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding up by us before any payment is made to the holders of our common stock. Furthermore, the Board could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock.

Convertible Series A Preferred Stock

Our authorized Convertible Series A Preferred Stock, $0.01 par value, consists of 1,000,000 shares. As of March 31, 2026 and December 31, 2025, there were 63,750 shares issued and outstanding. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock.

Convertible Series B Preferred Stock

Our authorized Convertible Series B Preferred Stock, $1,000 stated value, 7.5% cumulative dividend, consists of 4,000 shares. As of March 31, 2026 and December 31, 2025, there were no shares issued and outstanding, respectively. Each share of Convertible Series B Preferred Stock may be converted (at the holder’s election) into two hundred shares of our common stock.

Common Stock

During the three months ended March 31, 2026, we issued 50,000 shares of Common Stock valued at approximately $40,000 to three members of our Board pursuant to our equity incentive plan - 30,000 shares related to the first quarter of 2026 and 20,000 shares which were accrued during the fourth quarter of 2025 (See Note 11 – Director Compensation).

Equity Purchase Agreement — Hudson Global Ventures, LLC

On November 5, 2025, the Company entered into an Equity Purchase Agreement (the "Purchase Agreement") with Hudson Global Ventures, LLC ("Hudson Global"), pursuant to which the Company has the right, but not the obligation, to sell to Hudson Global up to $20,000,000 of shares of Common Stock over a 24-month Commitment Period. The terms and conditions of the Purchase Agreement, including pricing, the Exchange Cap, and the Commitment Shares, are described in Note 10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2025.

During the three months ended March 31, 2026, pursuant to the ELOC, we issued 336,147 shares of Common Stock in exchange for aggregate gross proceeds of $149,413. We recorded a receivable of $48,034 for proceeds not yet received as of quarter end related to shares issued under the ELOC, which was included within prepaid expenses on our condensed consolidated balance sheet. The shares were issued pursuant to the Form S-3 registration statement (File No. 333-291563) and the prospectus supplement dated December 11, 2025. The Company intends to use the proceeds for working capital and general corporate purposes.

Stock Options

The following table summarizes stock options outstanding as of March 31, 2026:

Options outstanding and exercisable by price range as of March 31, 2026 were as follows:

Restricted Stock Units (RSUs)

The following table summarizes RSU activity for the three months ended March 31, 2026:

As of March 31, 2026, there were 66,666 unvested RSUs outstanding with a weighted average grant date fair value of $0.9983 per share. The remaining unrecognized stock-based compensation expense related to unvested RSUs was approximately $66,553 as of March 31, 2026, which will be recognized over the remaining vesting period through May 30, 2027.

Stock Warrants

The following table summarizes the outstanding common stock warrants as of March 31, 2026:

Warrants outstanding and exercisable by price range as of March 31, 2026 were as follows:

There were no unvested warrants outstanding as of March 31, 2026.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Legal Contingencies

We may become a party to litigation in the normal course of business. In the opinion of management, there are no legal matters involving us that would have a material adverse effect upon our financial condition, results of operations or cash flows. In addition, from time to time, we may have to file claims against parties that infringe on our intellectual property.

Product Liability

As of March 31, 2026, and December 31, 2025, there were no claims against us for product liability.

NOTE 11. CONTRACTS AND AGREEMENTS

Director Compensation

During the three months ended March 31, 2026, director agreements for non-employee members of our Board consisted of an annual cash fee of $20,000 ($5,000 per quarter) and issuance of 40,000 shares per annum of Common Stock (10,000 per quarter).

During the three months ended March 31, 2025, our previous director agreements for non-employee members of our Board consisted of an annual cash fee of $48,000 ($12,000 per quarter), with the exception of the audit committee chairperson, whose annual cash fee was $54,600 ($13,650 per quarter). Non-employee Director compensation also included an annual issuance of 20,000 shares of Common Stock.

Agreement for the Purchase and Sale of Future Receipts

Effective November 18, 2025, we entered into an agreement with Agile Capital Funding, LLC ("Agile") pursuant to which we sold to Agile 15% of the proceeds of each future sale made by us (the "Future Receipts") until Agile has received an aggregate of $447,300 (the "Purchased Amount"). As consideration for the Purchased Amount, Agile paid us a purchase price of $315,000, less an origination fee of $15,000, for net proceeds of $300,000. Although the agreement was structured as a sale of future receipts, we determined that the arrangement has the economic characteristics of a borrowing and have accordingly accounted for it as debt under ASC 470-10-25.

The $132,300 excess of the Purchased Amount over the gross proceeds received has been recorded as a debt discount presented as a direct reduction of the carrying value of the liability on the Consolidated Balance Sheet and is being amortized as interest expense over the expected repayment period on a pro rata basis of monthly receipts. Weekly payments of $15,975, commencing December 3, 2025, are debited from our bank account and reconciled monthly against 15% of actual Future Receipts for the period.

The agreement is secured by a security interest in all of our present and future accounts receivable, evidenced by a UCC-1 financing statement, supported by a corporate guaranty of performance. The agreement contains a covenant prohibiting us from entering into any additional financing arrangements relating to our future receipts or accepting any cash advance from any other funding source while any balance remains outstanding. The agreement provides for prepayment in whole at our option at specified payoff amounts, with credit applied for payments already made.

As of March 31, 2026 and December 31, 2025, the gross remaining balance under the agreement was $175,725 and $367,425, respectively. After deducting the debt discount of $59,868, the net carrying value of $115,857 was classified as a current liability on the Consolidated Balance Sheet as of March 31, 2026, with monthly repayments of approximately $69,225 continuing into 2026 until the Purchased Amount is satisfied. During the three months ended March 31, 2026, we recognized $53,323 of interest expense related to this arrangement, included in the Consolidated Statements of Operations.

NOTE 12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at:

(1) Included within payroll and related costs is the accrual of earned but unpaid compensation to certain executive officers. As a cash conservation measure, certain members of executive management have not been paid their earned compensation in cash during the year. These obligations are fully accrued in accordance with ASC 710 and remain payable in accordance with the terms of the applicable employment arrangements. The Company intends to satisfy these obligations as operating cash flow permits. For further information regarding the compensation arrangements with the Company's named executive officers, including the portion of salary earned but not paid in cash during fiscal 2025, see the Summary Compensation Table and related footnotes in Part III, Item 11 of the Company’s Form 10-K, as filed on March 31, 2026.

NOTE 13. INCOME TAXES

For the three months ended March 31, 2026, and 2025, 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 FASB ASC Topic 740, Income Taxes. As of March 31, 2026, and December 31, 2025, we recorded valuation allowances of $9,946,000 and $9,719,000, respectively, for the portion of deferred tax assets that we do not expect to 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 100% valuation allowance is required against U.S. deferred tax assets.

As described in Note 2,Summary of Significant Accounting Policies, the Company previously adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, for the fiscal year ended December 31, 2025 applied on a prospective basis as of January 1, 2025. For full disclosures regarding our Net Operating Loss carryforwards and rate reconciliations, please refer to our Annual Report on Form 10-K, as filed on March 31, 2026.

NOTE 14. CUSTOMER CONCENTRATION

The Company monitors customer concentration by identifying customers whose accounts receivable balances individually represent 10% or more of accounts receivable at the balance sheet date, and customers whose revenue for the fiscal year individually represents 10% or more of total revenue. The following sets forth the Company's significant customer concentrations for the periods presented.

Accounts Receivable Concentration

As of March 31, 2026, two customers accounted for approximately 37% of the Company's gross accounts receivable. As of December 31, 2025, two customers accounted for approximately 40% of the Company's gross accounts receivable.

Revenue Concentration

For the three months ended March 31, 2026, two customers accounted for approximately 33% of the Company's revenue. For the three months ended March 31, 2025, one customer accounted for approximately 10% of the Company's revenue. The increase in the concentration percentage was mainly due to a distributor that was onboarded during the first quarter of 2026 and additional CES-related projects undertaken this period.

The Company does not have any long-term purchase commitments with any of its significant customers, and there can be no assurance that these customers will continue to purchase the Company's products and services at historical levels or at all. The loss of, or a significant reduction in purchases by, any one of these customers could have a material adverse effect on the Company's revenue and results of operations. See Item 1A, Risk Factors, from our recently filed Form 10-K for further discussion of risks related to customer concentration and the absence of long-term customer contracts.

NOTE 15. SEGMENT REPORTING

The Company operates and is managed as a single operating and reportable segment pursuant to ASC 280. Our Chief Executive Officer is the chief operating decision maker ("CODM") and is responsible for allocating resources and assessing performance across the organization.

The Company derives its revenue primarily from the sale of equipment and services based on its proprietary BIT technology, both domestically and internationally. A disaggregation of revenue is presented in Note 2, Summary of Significant Accounting Policies, under Revenue Recognition.

There have been no changes to the Company's segment structure during the three months ended March 31, 2026. For further information, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 31, 2026.

NOTE 16. SUBSEQUENT EVENTS

On April 17, 2026, the Company submitted a put notice to Hudson Global pursuant to the ELOC. Pursuant to that notice, Hudson Global purchased 60,802 shares of Common Stock for aggregate gross proceeds to the Company of $26,224.

On April 21, 2026, the Company issued an aggregate of 30,000 shares of Common Stock to three members of its Board of Directors pursuant to the 2016 Equity Incentive Plan, comprising 10,000 shares to each director, valued at approximately $0.55 per share based on the closing price of the Common Stock on the respective date of issuance, for aggregate non-cash compensation of approximately $16,500.

On April 23, 2026, the Company submitted a put notice to Hudson Global pursuant to the ELOC. Pursuant to that notice, Hudson Global purchased 162,977 shares of Common Stock for aggregate gross proceeds to the Company of $72,338.

On April 27, 2026, the Company submitted a put notice to Hudson Global pursuant to the ELOC. Pursuant to that notice, Hudson Global purchased 750,000 shares of Common Stock for aggregate gross proceeds to the Company of $321,217.

On April 30, 2026, the Company executed a non-binding letter of intent (the "LOI") to merge with Carbonium Core, Inc. ("Carbonium Core"), a U.S.-based producer of nuclear-grade graphite for advanced reactor technologies (the “Proposed Transaction”). Under the terms of the LOI, TOMI would provide all-stock consideration consisting of newly issued shares of Common Stock equal to 19.99% of the Company's outstanding shares immediately prior to the merger, and shares of a newly created Series B Convertible Preferred Stock convertible into TOMI Common Stock upon stockholder approval, together implying an enterprise valuation of Carbonium Core of $120 million. The merger is subject to execution of definitive agreements and customary closing conditions, including stockholder approval under Nasdaq rules, with a targeted closing in the second quarter of 2026. There can be no assurance that the Proposed Transaction will be completed.

Further details of the ELOC facility and the Company’s director compensation arrangements are set out in Note 9 to these condensed consolidated financial statements.