TOMI Environmental Solutions, Inc.
For the period ended Jun 30, 2026. Filed Aug 14, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2026 · Filed Aug 14, 2026
TOMZ$2.15-1.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-03-31; filed 2026-05-08.
0001654954-26-004626
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-06-30; filed 2026-08-14.
0001654954-26-007620
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 87 previous paragraphs and 98 current paragraphs.
52 unchanged; 28 reworded; 18 added; 6 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 11 previous and 15 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (18)
Current report
Our intellectual property portfolio is a key strategic asset supporting our global market position. We hold or have pending over 45 utility or design patents worldwide, protecting both the methods and systems underlying our SteraMist® BIT™ platform, with U.S. patents extending through 2038. Recent additions include patents for backpack decontamination units, mobile carts, and enhanced applicator technology in the United States, alongside protections in diverse other countries including Singapore, Korea, Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Romania, Slovenia, Sweden, Brazil, Mexico, United Kingdom, Israel, Japan and Australia. We continue to advance protections for further inventive enhancements to our technologies, including computer-automated biosecurity systems for decontamination of buildings in the United States, Japan and Europe; enhanced applicator technologies in the United States, Europe, China, Australia, and Korea; and food decontamination technology in the United States. In particular, we have recently obtained a Japanese patent protecting our inventive computer-automated biosecurity systems; and we have also obtained allowances for patents protecting our enhanced applicator technologies and systems in the United States. We are continuing to file new applications this year both in the United States and internationally for inventive technologies that lead in the biosecurity and decontamination fields.
Current report
We hold more than 30 design patents for decontamination devices, covering applicators, chambers, carts, and surface-mounted systems, across major global markets including the United States, China, Japan, Korea, and the United Kingdom. In addition, we maintain over 200 trademarks registered or pending in multiple classes across the globe, covering chemical formulations, sterilization equipment, services, and training.
Current report
In the second quarter of 2026, four key metrics delivered sustainable growth trends: BIT Solution sales, mobile equipment, single applicators—where TOMI’s patented iHP intellectual property resides—and support services, including qualification, acceptance testing, and training programs. The increases in applicator sales and support services stem directly from initiatives introduced in late 2024 and early 2025, further validating the Company’s strategic focus.
Current report
This growth clearly demonstrates that customers are expanding their deployment of our patented cold plasma technology. The applicator is a critical component that enables iHP to be utilized—whether paired with a mobile delivery system or installed in a permanent or semi-permanent configuration.
Current report
We only began emphasizing this strategy less than two years ago, and it builds on our consumable-driven model. In many ways, the applicator functions as a second “razor” in a razor-and-blade framework: it carries a longer replacement cycle than pure consumables such as BIT Solution, yet it has a significantly shorter sales cycle than full capital equipment when integrated accordingly. This allows TOMI to capture meaningful revenue and margin today while simultaneously locking in long-term, recurring BIT Solution demand.
Current report
Gross margin increased to 61.7% during the three months ended June 30, 2026, compared to 50% in the prior quarter and 65.7% in Q2 2025. Growth in recurring high-margin BIT Solution consumable and applicator sales continues to support long-term margin strength. Operating expenses decreased $180,000 or 10%, to $1.63 million compared to $1.81 million in the second quarter of 2025, reflecting disciplined cost management across selling, professional, and general and administrative costs.
Current report
During the second quarter of 2026, we delivered first set of iHP decontamination chambers for use on medical devices marking an important milestone for the Company. This chamber integration is an advancement in our technology platform and enables us to formally advance for our 510(k)-submission process with the U.S. Food and Drug Administration.
Current report
During the quarter, we further strengthened our registration portfolio increasing approvals to eleven countries between the European Union and United Kingdom, and continued progress toward NSF certification for Biosafety Cabinet decontamination. The Company delivered and installed another fully automated custom system in the United Kingdom – the second pharmaceutical company in the region to implement our CES product line. We expect our UK partner announced earlier in the year, Total Clean Air or TCA, to drive further adoption in the near term across markets.
Current report
In the healthcare sector, we have seen growing adoption of iHP technology by Special Pathogen Units throughout the first half of 2026, with additional opportunities developing for the second half of the year. These units, which manage high-consequence infectious diseases, require rapid, validated, and comprehensive decontamination of rooms, equipment, and personal protective equipment.
Current report
In the Food Safety market, we have been granted a new unconditional registration for AgriMist, TOMI’s fourth Environmental Protection Association (EPA) label registration. This expanded label significantly broadens our approved use sites to include a wide range of food safety applications.
Current report
TOMI continues to expand its presence in the defense sector, having recently received approvals from defense contractors in Korea and defense agencies in Canada. While confidentiality agreements limit the disclosure of specific details, these relationships represent multi-year efforts with significant long-term potential with a very detailed strategic plan and specific to these two accounts we have been in contact with for years.
Current report
In addition, TOMI has authorized a local representative to distribute for the Defense Logistics Agency (DLA), which manages the global defense supply chain for the U.S. military services and allied partners. This partnership, established in the second quarter, is expected to streamline and accelerate government procurement of SteraMist iHP technology.
Current report
SteraMist was named Disinfection and Decontamination Products Company of the Year for 2026 by Medical Tech Outlook, representing a back-to-back global award for the brand.
Current report
Agreement and Plan of Merger with Carbonium Core, Inc.
Current report
On June 28, 2026, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Carbonium Core, Inc., a Delaware corporation (“Carbonium”), and TOMZ Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), pursuant to which Merger Sub will merge with and into Carbonium (the “Merger”), with Carbonium continuing as the surviving corporation and becoming a wholly owned subsidiary of the Company.
Current report
Under the terms of the Merger Agreement, at the closing of the Merger (the “Closing”), Carbonium stockholders will receive (i) shares of the Company’s common stock equal to 19.99% of the Company’s outstanding common stock immediately prior to the Closing and (ii) shares of a newly designated Series C Preferred Stock, in each case allocated pro rata based on their respective ownership of Carbonium. Upon conversion of the Series C Preferred Stock, the former Carbonium stockholders will hold no less than 90% of the Company’s capital stock on a fully converted basis. Following the Closing, the Company will seek any shareholder approval required under Nasdaq Listing Rule 5635 for the conversion of the Series C Preferred Stock into common stock, as well as shareholder approval for a change of the Company’s name to “Carbonium Core, Inc.” The Series C Preferred Stock may not be converted into common stock in excess of the limitations imposed by Nasdaq Listing Rule 5635 unless and until the required shareholder approval has been obtained.
Current report
The Merger Agreement also contemplates a financing transaction to be completed prior to the Closing that will result in gross proceeds to the Company of not less than $10.0 million, and completion of such financing is a condition to the Closing. Following the Closing, the Company is required to seek shareholder approval for the conversion of the Series C Preferred Stock into shares of the Company’s common stock to the extent required under Nasdaq Listing Rule 5635, as well as approval of a change in the Company’s name to “Carbonium Core, Inc.” The Closing is expected to occur during the third quarter of 2026 and remains subject to the completion of the financing transaction, the receipt of required approvals and the satisfaction or waiver of the other conditions set forth in the Merger Agreement. For more information regarding the Merger Agreement and the transactions contemplated thereby, refer to the Company’s Current Report on Form 8-K filed with the SEC on June 29, 2026.
Current report
The approximately $0.8 million increase in working capital during the six months ended June 30, 2026 was primarily attributable to net proceeds of approximately $1.9 million received under the Company’s Equity Line of Credit, partially offset by the net loss incurred during the period and cash used in operating activities of approximately $1.3 million. Accounts receivable increased by approximately $1.2 million, primarily reflecting increased sales activity during the second quarter of 2026. Cash and cash equivalents increased by approximately $234,000 and inventories decreased by approximately $114,000. Accounts payable and accrued expenses increased by approximately $788,000, primarily reflecting higher business activity levels, increased accrued payroll and purchases, and professional fees associated with the Company’s strategic and financing initiatives.
Removed paragraphs (6)
Previous report
Our integrated project pipeline, encompassing SIS, Hybrid, and CES projects awaiting approval or unsigned contract, grew to approximately $4.3 million across 13 customers, an increase from the November 2025 $3 million integration sales pipeline. Notably, we secured a $440,000 annual purchase order for recurring decontamination services with a leading global medical technology company, reflecting the growing contribution of our high-margin iHP Corporate Service business.
Previous report
Since 2024, BIT solution sales have shown steady annual growth of 21% from 2024 to 2025. This momentum has been maintained into the current quarter. Management expects BIT Solution sales to exceed 2025 levels, which management believes could support progress toward the Company's future profitability. Applicator sales in the current quarter exceeded total full-year 2025 applicator sales, representing a 139% year-over-year increase, reflecting growing adoption of our razor/blade consumable model.
Previous report
Our iHP technology continued to gain market recognition across pharmaceutical, biotech, food safety, and international markets during the quarter. Key first quarter 2026 developments included regulatory authorization in Great Britain and Northern Ireland from the UK Health and Safety Executive, our first EU member state product authorization from the Dutch regulatory authority, a strategic partnership with Total Clean Air as our Preferred European Partner across the UK and EU, expanded Canadian operations through our distribution partner, and a new food safety case study demonstrating up to 95% reduction in sanitation testing costs.
Previous report
Operating expenses decreased $248,000, or 15%, to $1.5 million, reflecting disciplined cost management across professional fees, selling expenses, and general and administrative costs.
Previous report
Other income (expense) decreased $683,000 compared to three months ended March 31, 2025, reflecting the absence of the one-time Employee Retention Credit benefit of $535,000 and related interest of $83,000 recognized in the prior year period, with no comparable activity in the current quarter. Interest expense increased $65,000 reflecting higher outstanding debt balances on our convertible notes and the Agile Capital sale of future receipts agreement.
Previous report
The $630,000 decline in working capital from $1.0 million to $394,000 reflects the net loss incurred during the period and the Company's ongoing capital requirements. On the asset side, accounts receivable increased $73,000 on higher revenue, cash increased $192,000, and inventories remained relatively flat. On the liability side, accounts payable and accrued expenses increased $993,000, and deferred revenue increased $177,000 reflecting our deposit policy on customer orders.
Reworded paragraphs (28)
Previous wording
The first quarter of 2026 delivered improved financial results, with revenue of approximately $1.65 million reflecting a 5% increase over the first quarter of 2025 and a 67% sequential increase over the fourth quarter of 2025. Growth was primarily driven by increased equipment and CES-related sales to commercial service provider customers, partially offset by lower service revenue reflecting project completion timing. Total revenue and sales order backlog was $3.4 million as of March 31, 2026, providing strong visibility into near-term revenue conversion.
Current wording
The second quarter of 2026 delivered improved financial results, with revenue of approximately $2.25 million reflecting a 118% increase over the second quarter of 2025 and a 36% sequential increase over the first quarter of 2026. Growth was primarily driven by increased equipment, CES-related sales, and commercial service provider customers, partially offset by lower service revenue reflecting project completion timing. Total sales order backlog was $2.2 million as of June 30, 2026 (and has since expanded to $2.6 million), providing strong visibility into near-term revenue conversion.
Previous wording
The following overview summarizes key factors affecting the Company’s financial performance for the quarter ended March 31, 2026 compared to the Company’s Consolidated Balance Sheet as of December 31, 2025 and should be read in conjunction with the selected financial metrics presented below.
Current wording
The following overview summarizes key factors affecting the Company’s financial performance for the three and six months ended June 30, 2026 compared to the Company’s Consolidated Balance Sheet as of December 31, 2025 and should be read in conjunction with the selected financial metrics presented below.
Previous wording
The following table summarizes selected financial metrics based on the Company’s Consolidated Statement of Operations for the three months ended March 31, 2026 compared to March 31, 2025 and provides a high-level overview of the Company’s operating performance.
Current wording
The following tables summarize selected financial metrics based on the Company’s Consolidated Statement of Operations for the three and six months ended June 30, 2026 compared to June 30, 2025 and provides a high-level overview of the Company’s operating performance.
Previous wording
The following discussion should be read in conjunction with our consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. The following table presents our results of operations for the three months ended March 31, 2026, and 2025, together with the changes between the periods. The discussion below addresses the significant factors contributing to the changes in our results of operations.
Current wording
The following discussion should be read in conjunction with our consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. The following table presents our results of operations for the three and six months ended June 30, 2026, and 2025, together with the changes between the periods. The discussion below addresses the significant factors contributing to the changes in our results of operations.
Previous wording
Revenue increased $77,000, or 5%, to $1.65 million for the three months ended March 31, 2026 compared to $1.58 million in the prior year period. Product revenue increased $311,000 (31%), driven by higher equipment and CES-related sales. Service revenue decreased $234,000 (41%), reflecting the timing of decontamination project completions and service engagements in the period.
Current wording
For the three months ended June 30, 2026, revenue was $2,247,000 compared to $1,031,000 in the prior period, an increase of $1,216,000, or 118%. For the six months ended June 30, 2026, revenue was $3,901,000 compared to $2,608,000 in the prior period, an increase of $1,293,000, or 50%. Product revenue increased $1,516,000 (92%), driven by higher equipment and CES-related sales. Service revenue decreased $223,000 (23%), reflecting the timing of decontamination project completions and service engagements in the period.
Previous wording
Domestic revenue increased $58,000 (5%), driven by higher equipment and CES-related sales. International revenue increased $19,000 (5%), reflecting the onboarding of new customers in the UK.
Current wording
Domestic revenue increased $1,141,000 (57%), driven by higher equipment and CES-related sales. International revenue increased $152,000 (26%), reflecting the onboarding of new customers in the UK.
Previous wording
Gross margin decreased from 60% in the three months ended March 31, 2025 to 50% in the current quarter. This decrease reflects strategic price discounts to drive equipment adoption and an unfavorable product mix shift, as equipment and CES-related sales comprised a higher proportion of total revenue compared to the prior year period. Management views these factors as temporary, as growth in recurring high-margin BIT Solution consumable sales is expected to support margin recovery in future periods.
Current wording
Gross margin decreased from 65.7% to 61.6% and from 62.5% to 56.8% for the three and six months ended June 30, 2026, respectively, compared to the prior period. The decrease reflects strategic price discounts to drive equipment adoption. Management views these factors as temporary, as growth in recurring high-margin BIT Solution consumable sales is expected to support margin recovery in future periods.
Previous wording
Total operating expenses decreased $248,000 to $1.5 million in the current quarter from $1.7 million in the three months ended March 31, 2025. The decrease was primarily driven by lower general and administrative expenses of $136,000, reflecting reduced credit loss expense, and lower selling expenses of $49,000, due to reduced sales commissions and advertising spend, and lower professional and consulting fees of $59,000 combined, reflecting tighter controls over legal and advisory costs. While management continues to actively manage costs, revenue growth remains the primary driver of the Company's path to profitability.
Current wording
Total operating expenses decreased $180,000 and $428,000 for the three and six months ended June 30, 2026 compared to the prior year period. The decrease was primarily driven by lower general and administrative expenses of $375,000 and $519,000, respectively, reflecting reduced credit loss expense, offset by an increase in professional fees due to various transactions undertaken in the current period, including our recent plan of merger, stock split and Schedule 14C filings. While management continues to actively manage costs, revenue growth remains the primary driver of the Company’s path to profitability.
Previous wording
As of March 31, 2026, we had cash and cash equivalents of $280,000 and working capital of approximately $394,000, compared to cash of $88,000 and working capital of $1.0 million at December 31, 2025. For the three months ended March 31, 2026, we incurred a net loss of approximately $810,000. Our accumulated deficit as of March 31, 2026 is $58.9 million.
Current wording
As of June 30, 2026, we had cash and cash equivalents of approximately $322,000 and working capital of approximately $1.8 million, compared to cash and cash equivalents of approximately $88,000 and working capital of approximately $1.0 million at December 31, 2025. For the six months ended June 30, 2026, we incurred a net loss of approximately $1,193,000. Our accumulated deficit as of June 30, 2026 was approximately $59.2 million.
Previous wording
These conditions raise substantial doubt about our ability to continue as a going concern within the next twelve months after the date these financial statements are issued. The consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty. See Note 2 to our consolidated financial statements for further discussion of the going concern assessment.
Current wording
These conditions raise substantial doubt about our ability to continue as a going concern within the next twelve months after the date these financial statements are issued. The condensed consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty. See Note 2 to our condensed consolidated financial statements for further discussion of the going concern assessment.
Previous wording
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.
Current wording
During the six months ended June 30, 2026, pursuant to the ELOC, we issued 1,345,642 shares of Common Stock and received aggregate net proceeds of $1,919,744. 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.
Previous wording
For a full discussion of management's plan to address the going concern conditions, including the ELOC, shelf registration, convertible note management, pipeline conversion and cost management initiatives, refer to Note 2 to our condensed consolidated financial statements.
Current wording
For a full discussion of management’s plan to address the going concern conditions, including the ELOC, shelf registration, stock split, merger, convertible note management, pipeline conversion and cost management initiatives, refer to Note 2 to our condensed consolidated financial statements.
Previous wording
Our outstanding debt consists of $3,135,000 in convertible notes at 12% per annum, maturing 2028–2030, and a $175,725 remaining balance under the Agile Capital sale of future receipts agreement. Full terms are disclosed in Note 8 to our condensed consolidated financial statements.
Current wording
Our outstanding debt consists of $3,135,000 in convertible notes at 12% per annum, maturing 2028–2030. Full terms are disclosed in Note 8 to our condensed consolidated financial statements.
Previous wording
A breakdown of our statement of cash flows for the three months ended March 31, 2026 and 2025 is provided below:
Current wording
A breakdown of our statement of cash flows for the six months ended June 30, 2026 and 2025 is provided below:
Previous wording
Net cash provided by (used in) operating activities was $296,000 for the three months ended March 31, 2026, an improvement of $572,000, from $(276,000) in the prior year period, primarily driven by an increase in accounts payable and accrued expenses, partially offset by the net loss of approximately $810,000.
Current wording
Net cash (used in) operating activities was ($1,299,000) for the six months ended June 30, 2026, compared to ($463,000) in the prior year period, primarily driven by an increase in accounts payable and accrued expenses, partially offset by the net loss of approximately $1,193,000.
Previous wording
Net cash (used in) investing activities was $5,000 for the three months ended March 31, 2026, consisting of equipment purchases.
Current wording
Net cash (used in) investing activities was ($19,000) for the six months ended June 30, 2026, consisting of equipment purchases and a new patent granted in Japan. Net cash (used in) investing activities was ($67,000) for the six months ended June 30, 2025, consisting of equipment purchases and various international patents and trademarks.
Previous wording
Net cash (used in) financing activities was $98,000 for the three months ended March 31, 2026, compared to net cash provided of $285,000 in the prior year period. In the prior year period, $285,000 was raised through convertible note issuances. For the three months ended March 31, 2026, net financing activities reflected repayments of $192,000 on the sale of future receipts agreement with Agile, partially offset by $94,000 in net ELOC proceeds, consisting of gross ELOC proceeds of $149,413, less $48,034 not yet received at quarter end and $7,250 in clearing costs expensed in operating activities.
Current wording
Net cash provided by financing activities was $1,552,000 for the six months ended June 30, 2026, compared to $435,000 in the prior year period which was raised through convertible note issuances. For the six months ended June 30, 2026, net financing activities reflected ELOC proceeds of $1,919,744 net of issuance costs offset by repayments of $367,000 on the sale of future receipts agreement with Agile Capital.
Previous wording
The assessment of our ability to continue as a going concern is the most significant judgment reflected in our financial statements for the three months ended March 31, 2026. Under ASC 205-40, management is required to evaluate whether there is substantial doubt about the Company's ability to continue as a going concern within one year after the date the financial statements are issued. This evaluation requires management to consider all available information about the future, including the Company's projected cash flows, planned capital raising activities, anticipated operating improvements, and the probability and timing of successfully executing those plans.
Current wording
The assessment of our ability to continue as a going concern is the most significant judgment reflected in our financial statements for the six months ended June 30, 2026. Under ASC 205-40, management is required to evaluate whether there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. This evaluation requires management to consider all available information about the future, including the Company’s projected cash flows, planned capital raising activities, anticipated operating improvements, and the probability and timing of successfully executing those plans.
Previous wording
For the three months ended March 31, 2026, we recorded a net loss of approximately $810,000. As of March 31, 2026, we had approximately $280,000 of cash and cash equivalents and an accumulated deficit of approximately $58.9 million. Based on these conditions, management concluded that substantial doubt exists about our ability to continue as a going concern within one year after the issuance of these financial statements. Management's conclusion is based on projected cash flows that assume successful execution of our capital raising plans, including continued drawdowns under our convertible note facilities and the potential utilization of the $20 million ELOC with Hudson Global Ventures, LLC entered into in November 2025, as well as anticipated revenue growth from our active commercial pipeline. If our assumptions regarding capital availability, revenue timing or operating costs prove incorrect, the Company's liquidity position could deteriorate more rapidly than projected, and there can be no assurance that the going concern doubt will be resolved within the anticipated timeframe. See Note 2 to the consolidated financial statements for further discussion.
Current wording
For the six months ended June 30, 2026, we recorded a net loss of approximately $1,193,000. As of June 30, 2026, we had approximately $322,000 of cash and cash equivalents and an accumulated deficit of approximately $59.2 million. Based on these conditions, management concluded that substantial doubt exists about our ability to continue as a going concern within one year after the issuance of these financial statements. Management’s conclusion is based on projected cash flows that assume successful execution of our capital raising plans, including continued drawdowns under our convertible note facilities and the potential utilization of the $20 million ELOC with Hudson Global Ventures, LLC entered into in November 2025, as well as anticipated revenue growth from our active commercial pipeline. If our assumptions regarding capital availability, revenue timing or operating costs prove incorrect, the Company’s liquidity position could deteriorate more rapidly than projected, and there can be no assurance that the going concern doubt will be resolved within the anticipated timeframe. See Note 2 to the consolidated financial statements for further discussion.
Previous wording
We also record estimated allowances for sales returns, determined by 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.
Current wording
We also record estimated allowances for sales returns, determined by using a specific identification method based on subsequent return activity and historical averages. As of June 30, 2026 and December 31, 2025, we recorded allowances of $76,621 and $47,844, respectively.
Previous wording
As of March 31, 2026 and December 31, 2025, deferred revenue totaled approximately $601,000 and $424,000, respectively, representing contracted amounts for which performance obligations had not yet been satisfied. 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.
Current wording
As of June 30, 2026 and December 31, 2025, deferred revenue totaled approximately $431,000 and $424,000, respectively, representing contracted amounts for which performance obligations had not yet been satisfied. 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.
Previous wording
As of March 31, 2026, net accounts receivable totaled $761,789 compared to $689,153 as of December 31, 2025. The increase reflects higher revenue levels in the current period. Management exercises judgment in determining the appropriate allowance for credit losses, and changes in the creditworthiness of our customers, deterioration in economic conditions, or the loss of a significant customer relationship could result in allowance adjustments that materially affect our results of operations in a given period.
Current wording
As of June 30, 2026, net accounts receivable totaled $1,890,105 compared to $689,153 as of December 31, 2025. The increase reflects higher revenue levels in the current period. Management exercises judgment in determining the appropriate allowance for credit losses, and changes in the creditworthiness of our customers, deterioration in economic conditions, or the loss of a significant customer relationship could result in allowance adjustments that materially affect our results of operations in a given period.
Previous wording
As of March 31, 2026 and December 31, 2025, our reserve for obsolete inventory was $500,000. Inventories, net of reserves, remained relatively flat at approximately $2.9 million as of March 31, 2026 and December 31, 2025, reflecting disciplined inventory management. If actual demand for our products differs materially from our forecasts, or if changes in our product offerings render existing inventory obsolete, additional write-downs may be required.
Current wording
As of June 30, 2026 and December 31, 2025, our recorded reserve for obsolete inventory was $500,000 and $500,000, respectively. The carrying reserve of $500,000 as of June 30, 2026 reflects historical accounting treatment and estimation methodologies established in prior fiscal periods under ASC 330 and SEC Staff Accounting Bulletin (SAB) Topic 5.BB. Under SAB Topic 5.BB, an inventory write-down establishes a new cost basis that cannot subsequently be written back up, regardless of subsequent operational improvements or changes in forward demand expectations. While the recorded allowance of $500,000 is maintained on the Condensed Consolidated Balance Sheet to satisfy GAAP accounting requirements regarding prior cost-basis adjustments, management continuously evaluates the underlying economic exposure of its inventory population. Based on recent operational developments—including year-to-date unit depletion, internal conversion of equipment to active customer configurations, and expanding commercial pipeline conversion—The Company will derecognize the associated carrying reserves as underlying inventory units are sold, consumed, or otherwise disposed of in the ordinary course of business. If actual demand for our products differs materially from our forecasts, or if future changes in our product offerings render existing inventory obsolete, additional write-downs may be required.
Previous wording
We noted no long-lived asset impairment charges for the three months ended March 31, 2026 and 2025. Management's impairment analysis considered the going concern conditions described above and concluded that projected undiscounted cash flows, based on our current operating plan and capital raising assumptions, continue to support the carrying values of our long-lived assets. Changes in our revenue outlook, discount rates or other key assumptions could result in impairment charges in future periods.
Current wording
We noted no long-lived asset impairment charges for the three and six months ended June 30, 2026 and 2025. Management’s impairment analysis considered the going concern conditions described above and concluded that projected undiscounted cash flows, based on our current operating plan and capital raising assumptions, continue to support the carrying values of our long-lived assets. Changes in our revenue outlook, discount rates or other key assumptions could result in impairment charges in future periods.
Previous wording
As of March 31, 2026, we had outstanding convertible notes with an aggregate principal balance of approximately $3.1 million, net of amortized debt discount and issuance costs of approximately $200,000, resulting in a carrying value of approximately $2.9 million. Our convertible notes were issued under two separate securities purchase agreements — the 2023 SPA, under which $2.6 million of notes were issued, and the 2025 SPA, under which up to $3.0 million of additional notes may be issued, of which $535,000 had been issued as of March 31, 2026. The notes bear interest at 12% per annum, are convertible at the option of the holder at $1.25 per share and mature on the fifth anniversary of their respective issuance dates.
Current wording
As of June 30, 2026, we had outstanding convertible notes with an aggregate principal balance of approximately $3.1 million, net of amortized debt discount and issuance costs of approximately $186,000, resulting in a carrying value of approximately $2.9 million. Our convertible notes were issued under two separate securities purchase agreements — the 2023 SPA, under which $2.6 million of notes were issued, and the 2025 SPA, under which up to $3.0 million of additional notes may be issued, of which $535,000 had been issued as of June 30, 2026. The notes bear interest at 12% per annum, are convertible at the option of the holder at $3.75 per share and mature on the fifth anniversary of their respective issuance dates.
Previous wording
The conversion features embedded in the 2023 Notes and 2025 Notes are considered clearly and closely related to the host debt instruments and do not require bifurcation under ASC 815. No modifications to the terms of the existing notes occurred during the three months ended March 31, 2026 and 2025.
Current wording
The conversion features embedded in the 2023 Notes and 2025 Notes are considered clearly and closely related to the host debt instruments and do not require bifurcation under ASC 815. No modifications to the terms of the existing notes occurred during the three and six months ended June 30, 2026 and 2025.
Previous wording
During the three months ended March 31, 2026, we recognized approximately $73,000 of stock-based compensation expense, including shares issued to directors and equity compensation expense. Changes in the assumptions used in the Black-Scholes model, or modifications to existing awards, could result in materially different fair value estimates and compensation expense amounts.
Current wording
During the six months ended June 30, 2026, we recognized approximately $90,000 of stock-based compensation expense, including shares issued to directors and equity compensation expense. Changes in the assumptions used in the Black-Scholes model, or modifications to existing awards, could result in materially different fair value estimates and compensation expense amounts.
Previous wording
We recorded no income tax expense or benefit for the three months ended March 31, 2026 and 2025 due to our net operating losses and the maintenance of a full valuation allowance against our net deferred tax assets. As of March 31, 2026, our total valuation allowance was approximately $9,946,000, an increase of approximately $227,000 from $9,719,000 as of December 31, 2025, primarily reflecting additional deferred tax assets arising from current-period losses. As of December 31, 2025, we had available federal net operating loss carryforwards of approximately $28,310,000 and state net operating loss carryforwards of approximately $25,784,000. Net operating losses generated after December 31, 2017 carry forward indefinitely; those generated prior to 2018 expire at various dates through 2037. NOLs generated after 2017 carry forward indefinitely but are limited to offset 80% of taxable income in any given year.
Current wording
We recorded no income tax expense or benefit for the three and six months ended June 30, 2026 and 2025 due to our net operating losses and the maintenance of a full valuation allowance against our net deferred tax assets. As of June 30, 2026, our total valuation allowance was approximately $10,053,000, an increase of approximately $334,000 from $9,719,000 as of December 31, 2025, primarily reflecting additional deferred tax assets arising from current-period losses. As of December 31, 2025, we had available federal net operating loss carryforwards of approximately $28,310,000 and state net operating loss carryforwards of approximately $25,784,000. Net operating losses generated after December 31, 2017 carry forward indefinitely; those generated prior to 2018 expire at various dates through 2037. NOLs generated after 2017 carry forward indefinitely but are limited to offset 80% of taxable income in any given year.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Gross margin decreased from 60% in the three months ended March 31, 2025 to 50% in the current quarter, reflecting strategic price discounts to drive equipment adoption and an unfavorable product mix shift toward lower-margin equipment sales. Management views these factors as temporary, as growth in recurring high-margin BIT Solution consumable sales is expected to support margin recovery.