TOMI Environmental Solutions, Inc.

time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, John Nesbitt of IMS. Sir, the floor is yours.

Thank you for joining us today for TOMI Environmental Solutions Investor Update Call. On today's call is TOMI's Chief Executive Officer and Chairman of the Board, Dr. Halden Shane, TOMI's Chief Operating Officer, E.J. Shane, and and Tomi's Chief Financial Officer, Joe Rezepka. Dr. Shane will provide an overview of recent business highlights. EJ will report on future plans. Joe will provide the financials, and all will be available for the Q&A. A telephone replay of today's call will be available through August 15, 2024, the details of which are included in the company's press release, dated August 1, 2024. A webcast replay will also be available on Tomi's website, www.steramist.com. Please note that information contained within this presentation is relevant only to the date which it was recorded, August 1st, 2024, and you are therefore advised that time-sensitive information may no longer be accurate at the time of any replay. Certain written or oral statements made by management of TOME may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be evaluated I'm sorry, should be evaluated in light of important risk factors that could cause actual results to differ materially from our anticipated results. The information provided in this conference call is based upon the facts and circumstances known at this time. The company takes no obligation to update these forward-looking statements after the date of this call. In addition, Tomi will discuss certain non-GAAP financial measures during this call. The company uses non-GAAP measures because it believes they provide useful information about operating performance that should be considered by investors in conjunction with the GAAP measures. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings relief stated August 1, 2024. I will now turn the call over to Tomi's chairman and CEO, Dr. Holden Shane. Please go ahead.

Thank you, John, and good afternoon, everyone, and thank you for joining us today to discuss TOME Environmental Solutions second quarter 2024 financial results. Today, I am pleased to announce that TOME has achieved significant milestone by returning to profitability in quarter two of 2024. This achievement is a testament to the resilience and dedication of our team, the support of key long-term partners, as well as the strength of our business model. Our revenue for the quarter exceeded $3 million, representing a 170% sequential increase compared to the previous quarter. This growth was primarily driven by strong demand for our mobile equipment, which accounted for over 60% of our total revenue, an indicator we have not seen since the 2022 year. BitSolution sales increased by approximately 171% over the first quarter. We also saw strong international sales. The second quarter marks a record-breaking performance, suppressing our previous high since the outlier year of 2020. Building on this momentum, we have secured approximately $5.6 million in sales year-to-date. This figure combines recognized and reported revenue, delivered orders for Q3 and open bookings for the remainder of the year. We have nearly matched the total number of mobile equipment sales realized through the entire calendar year of 2023. Additionally, we have four active custom installation orders currently underway in our manufacturing production and validation service lines, with more projects expected to close soon. These trends position us for continued growth and solidify a strong foundation for the balance of the year. In addition to increased sales of our mobile equipment, our strong financial performance this quarter was driven by several key other factors. First, we partnered with EMAQ, who purchased over $1 million of equipment to be used for SteriMIST IHP service. Second, we delivered two custom integrations, a fully installed custom engineered system and a hybrid system to customers this quarter. Third, we continue to expand our global footprint with new customers in Canada, Mexico, Philippines, and the UAE. And lastly, our focus on cost reduction initiatives have yielded positive results improving our profitability and allowing us to invest in growth opportunities. We maintained an active focus on digital marketing initiatives and business development plans with existing customers to optimize our budget. We reduced our participation in trade shows and redirected resources towards more effective lead generation strategies, such as referrals and references. In addition, Tommy will discuss certain non-GAAP.

Thank you, Dr. Shane.

Good afternoon, everyone. I will provide a brief overview of our financial results for the second quarter of 2024 compared to the same prior year period. That'd be for the three months ended June 30th, 2024, compared to June 30th, 2023. Our consolidated debt revenue was $3,013,000 compared to $2,775,000, increasing approximately 9%. Consolidated gross profit was 61.5% compared to 61.3%. The increase in our gross profit was due to our products mix and sales. The consolidated operating profit was $121,000 compared to an $89,000 loss in the prior year, representing an increase of $211,000 or 237%. The increase in our profit was attributable to higher sales and gross profit in the current year period. Our consolidated net profit was $30,000 or $0 per basic and diluted share, compared to a net loss of $89,000 or $0.06 per basic share. Moving on to the balance sheet. As of June 30, 2024, our cash and casual equivalents were approximately $709,000, working capital was $6.8 million, and shareholders' equity was $7.3 million. Now I'll turn the call over to E.J. Sain to provide insight on the current company activities. E.J.

Thank you, Joe, and good afternoon, everyone. This quarter's results are a direct testament to the strategic initiatives we have been implementing. demonstrating their effectiveness in driving growth and market penetration. These strategic moves are constantly strengthening our sales pipeline and backlog, positioning us for a sustained growth, and we remain optimistic for the second half of the year. As a result of our efforts to build relationships and increase awareness of scientific studies which validate our technology and test our latest application methods, we have seen a notable increase in demand for Sterimus IHP. And more importantly, we are beginning to grow our market share with strong momentum. Our efforts to expand our market presence will yield substantial returns in the long term. I would like to touch upon the four key initiatives, our sales pipeline for the Custom Engineered System, or CES, the progress made regarding the launch of Stereomus Integrated Systems, or our SIS, performance of IHP service revenue, and the impact of our worldwide distribution network on mobile equipment sales and the plans ahead. For this call, I will begin with our IHP Service Revenue Initiative. As stated, there is a significant shift in the decontamination service market as a leading competitor dropped out of the market early this year, presenting us with a substantial amount of opportunities to grow our market share, particularly in the life sciences sector. Currently, for year to date, we have recorded almost $1 million in service revenue alone. Additionally, as Dr. Shane reported, We formalized a partnership with EMAQ to head our West Coast IHP services. The collaboration with EMAQ into our service offerings will significantly expand our geographic reach and operational efficiency. By handling the volume of West Coast IHP service requests, EMAQ allows us to optimize our resources and focus on higher profit margin opportunities. This strategic partnership not only ensures customer satisfaction, but also drives increased sales of capital equipment by those who receive our services. We are also pleased to announce that EMAQ comes with a newly secured three-year contract with a major pharmaceutical company. The agreement between Tomi and EMAQ not only contributed $1 million for sales for quarter two, but it will generate approximately $60,000 in annual bit solution sales for Tomi moving forward. It also expands the utilization of our IHB technology within a globally recognized organization. To date, we currently have an in-house sales pipeline amounting to approximately $700,000 for our IHP services. Moreover, our enhanced validation packages are gaining traction within the life sciences sector. By offering a comprehensive suite of services, which includes validation, we are able to accelerate equipment operation and solidify our position as a preferred partner over other third-party consultants for these services. A full comprehensive validation package service starts at $30,000 for a standard full room area fogging. All of these services typically offer clear revenue forecasts. As a follow-up to our previous call, I am pleased to report that one of the two anticipated CES contracts is now confirmed and is in the design phase. This brings our total current active CESs to four. We remain optimistic about closing the second contract this year, which is projected for a Q2 2025 installation. Additionally, we anticipate four more CES contracts in the near future with deliverables at different times. While the CES sales cycles are typically lengthy, our persistence is paying off, as reflected by the CES contracts closed this year. We are currently negotiating approximately 50 potential deals, many of which we have been cultivating over the past few years. The difference now is many of these deals are maturing, and we anticipate a more consistent closing rate. Our Staramus integration system, or the SIS product line, is demonstrating a strong launch. As a reminder, the SIS is our enclosure-based CES solution, which offers a shorter sales cycle and streamlined purchasing process compared to the traditional CES orders, while still generating the valuable validation service revenue I just mentioned. Our proprietary Starobox is gaining significant traction as well, and we are actively collaborating with key enclosure manufacturers to establish long-term partnerships. Of the four manufacturers reported, one is selling and integrating our cold plasma applicators, two remain in the design phase, and the fourth is about to undergo cycle testing. While this has been a substantial undertaking, we anticipate returns once these partnerships are fully established. A critical component of our SIS launch is our standalone system, which was introduced at Interfx earlier this year and received praise. Finalizing the delivery system, we are now in full production and have a robust pipeline of potential customers. This versatile system offers significant flexibility for decontamination protocols, catering to both enclosures and smaller rooms while maintaining strict adherence to GMP and Annex I guidelines. We are confident about the entry of this specific delivery system to our market base. While TOME's IHP services, CES, and SIS offerings I just mentioned are primarily focused around our life sciences division, we are also strategically investing in our other divisions, food safety, healthcare, and commercial. Notably, our TOME Service Network, or TSN, is being integrated into the commercial division moving forward. To drive company growth and expand our market presence, we are excited to announce the launch of the Sterimus Pro Certified, or SPC program, open to all customer segments globally. This initiative offers significant opportunities for revenue growth and increased market penetration by enhancing our proactive approach to worldwide disinfection. The SPC program, an educational platform mainly for our service providers and healthcare facility departments, aims to expedite the adoption of our technology and resources. By positioning the SPC program as a key component for our growth strategy, we are confident it will expand our market footprint. TOMI is consistently broadening its DRMS presence and client base within the food industry, challenging traditional methods and introducing innovative disinfection procedures. TOMI penetrated the coffee industry by bringing on Mayorga Coffee and a few others, and onboarded clients such as Lakeview Farms and Crank & Boom in the dip, desserts, and ice cream industry. Tomi has also integrated Sterimus into standard operating procedures in the egg white food manufacturing, pet food production and packaging, meat production, and agribusiness sectors of the market. The Steripack is their preferred product for becoming accustomed with IHP technology. To further demonstrate the effectiveness of Staramus in the food industry, Tomi is excited to announce collaborative efforts with several major establishments on new studies that explore the broader applications and benefits that IHP has to offer. We are working with a production company in Spain directly applying IHP on spices such as pepper, thyme, paprika, and peppercorns to reduce salmonella. A multinational corporation in food and beverage processing is operating IHP at two of their international sites, and preliminary results show no contamination after treatment with IHP. We are hopeful that continued use will lead to company-wide acceptance. These studies have also created further opportunities through introduction to their suppliers. A third new initiative is one with a leader in consumer goods production of health, hygiene, and nutrition products. Tomi is developing a specialized application of spraying their conveyor belts, simplifying the decontamination of packaged items against salmonella and listeria. Our key distributors are actively expanding their market presence, and we continue to provide them support. Our distribution network has been instrumental in the successful launch of our SIS product line, contributing significantly to both the integration and standalone system sales pipeline. We are also actively exploring new partnership opportunities in South Africa, Japan, Puerto Rico, and Indonesia to further expand our global reach. In conclusion, We are pleased with our progress across all business segments. Our IHP service continues to expand. CES and SIS product lines are gaining the traction they deserve, and the SPC program is poised to drive further growth. The foundation built throughout the past few years with our customer relationships and partnerships is propelling us forward. We are optimistic about a strong 2024 close. I will now turn the call back to Dr. Shane for closure.

Blended, thank you EJ and Joe. As we reflect on our accomplishments this quarter, it is clear that Tomie is well positioned for sustained growth and continued market expansion. Our return to profitability in this quarter, strong revenue growth, and strategic initiatives underscore our ability to adapt and thrive in a dynamic market environment. Given our relatively small size, Our historical results have been lumpy. This is not lost on us. We are laser focused on capturing the very real market opportunities in front of us and scaling the business to drive more sustained revenue growth. Realize the power of our razor razor blade model with growing high margin bid sales and delivering to shareholders consistent and growing profitability. The team has made great progress laying the groundwork for this, and we saw some of the fruits of our strategy come through in the quarter. We are on the way to building a much larger and more valuable business for stakeholders. Since the founding of this business, I have never been more excited about the prospects for TOMI. Thank you for your continued support and confidence in TOMI Environmental Solutions. Operator, let's open two calls.

questions certainly everyone at this time be conducting a question and answer session if you have any questions or comments please press star one on your phone at this time we do ask that while posing your question please pick up your handset if you're listening on speakerphone to provide optimum sound quality once again if you have any questions or comments please press star one on your phone your first question is coming from amit dial from hc wainwright your line is live Thank you. Good afternoon, everyone.

So with respect to sort of, you know, the mobile equipment sales, just want to see how you get visibility for this segment. You know, do you get orders during the quarter that you can fulfill or are these part of your pipeline and, you know, these orders are placed in advance and then you fulfill those orders accordingly?

AJ, you want to take that?

Yes, of course. On the mobile equipment sales, it is more of an immediate delivery for all our handheld and full room area fogging. The order comes in and we're able to deliver those immediately to our customers.

Understood. So in that context, I'm just trying to get the sense of how much inventory you need to keep and whether the balance sheet at this point supports all of these initiatives that you have going on to match orders that come in on the spot and you kind of fulfill those accordingly.

I'm sorry, you broke out a little bit on our end.

No, I got it. So we have an inventory a little over $4 million, and it's composed mostly of equipment that would be mobile.

Okay, perfect. Thank you. And then, you know, with respect to the food safety opportunity, you know, you highlighted a whole spectrum of potential customers. Is there any particular, you know, segment within sort of, you know, that

industry like grocery chains or more closer to the agricultural value chain that you are seeing you know faster adoption for this I don't know faster I think they're all in play I think anything from grocery markets to transportation of groceries to market to storage of produce and and various other foods along with the use of it in the production line. And it's endless as far as the potential possibilities of what our product can do in the food safety end. And as we all know, because of the high costs of food that we're currently all experiencing, it becomes more in demand each day, especially in the preservation of, you know, storage and transportation of food.

I understand. It all makes sense. And then you highlighted sort of the lumpiness in the past with all of these initiatives now in play, the sales pipeline sort of now starting to come through. Should we expect, at least for the remainder of 2024, sequential improvements? I don't know if we have that level of visibility, but just trying to get a sense of how the next two quarters might shape up for you?

Well, we're very encouraged with what we have in our pipeline and what we have on the drawing boards for units, especially custom units. So it's hard and, you know, I don't want to get put in this box again, but I mean, I think we're going to have a really strong second half of this year and we see it going further into 2025 and 2026.

Understood. And this last one for me, you know, with all of the, you know, bird flu related headlines over the last quarter, has that helped, you know, create a bit more awareness about your products and just more visibility in the industry?

I think the professionals in the industry are slowly becoming more aware of the product and we're getting a lot of questions about but I'm not too sure the general public yet is over the emotional and stress results of the pandemic. You know, we're hearing different things about this specific bird flu and how it relates to human passage, but it is moving on into other animal kingdoms, including, you know, squirrels and raccoons and things that you usually don't hear about. So it's here, and it's going to only potentially increase the product usage going forward in the right situations.

Understood. That's all I have, guys.

Thank you so much.

Thank you so much, Mitch, for your questions.

Thank you. Your next question is coming from Jack Longo from Longo Capital Management. Your line is live.

All right, thanks for taking the question. Could you guys talk a little bit more about the growth in bid solution sales? Obviously, this was a higher margin portion of the business, saw good performance in the quarter. So could you kind of just, you know, talk a bit more about how this plays into the model as business scales?

Sure. So, I mean, you know, the concept and the model for the company is raise a razor blade or print a printer cartridge. And The more razors we get out and the more printers we get out, the more utilization of those cartridges or blades. So I think that we're starting to see some return on some of these large units that we've put in within the last couple of years. They've spent a long time through the validation process, and now they're starting to utilize them on a consistent basis. And I think this will be good for financial projections going forward, and obviously the more equipment we get out there, the greater usage, and because they are a high margin to the company, it's going to make much better profitability going forward. So more pieces of equipment, more solution, the greater profit.

Got it. Sounds good. Thank you. That's all from me.

Okay, thank you for the question.

Thank you. Once again, everyone, if you have any questions or comments, please press star, then one on your phone. Your next question is coming from John Nelson. Your line is live.

Hi. Congrats to you and Halton and the team on reaching profitability. I'm very impressed with the results to date. Thank you. Thank you for that. First question is on the ethylene oxide market. I know you've applied for a DOD grant. Is there any progress on that?

No, the grant was given to, you know, we're fighting up against VHP-type people, and they're on the committee. So we didn't make it on this grant, not because we're not better and quicker, but it's just the politics. However, it is opening up various avenues of companies that are using it privately, and I think we'll be able to... effectively use our product much quicker than this grant.

Yes, I've seen articles on a growing number of lawsuits from the release of gas during production, storage, and transport. So I was kind of curious if you were getting any more inquiries on the substitution for Steramist for ethylene oxide.

I think everybody is concerned, and especially since the EPA is marketing it as a carcinogenic material, I think that in the future there should be a lot more interest. The problem that I see initially is, and it just was part of the grant, was we couldn't give a substitute for ethylene oxide. They wouldn't allow that. So what they wanted was just somebody to come in after they use the ethylene oxide to mitigate it. Okay. But they spend millions of dollars on these sterilizers in buildings in large, you know, hundreds of thousands of square feet, and they don't want to throw out their equipment, even though we could retrofit our product into it, which I'm hoping that some of these private companies realize that in the future.

Okay. And, Dr. Shane, if I may add?

Sure. Okay.

So, John, also for your knowledge, the company I referenced that we're working with on conducting the studies with spice production, their main goal is to replace ETO. And we're gathering the formal studies to be able to share that with the public and move forward with other facilities in doing so.

Excellent. Thank you. My second question is related to I know one of your – projects in recent years was the ambulance market. Can you tell me if there's any progress being made on penetrating that?

There is. We continue to work with our group in Technimount in Canada on the EMS. They have quite a few large manufacturers of ambulances where we're trying to be able to become a full turnover package of ambulance and decon system. It's a long-term process, of course. We had to start at the education process, and now we are running the tests and finding ways to work with them in using our transport. So it is in process and still very active.

Okay, great. I have a brother who's a doctor who's talked to a doctor the ambulance crew at his hospital, and they sounded like they were very enthusiastic about some type of product like that being available. So I hope it comes to fruition for your company.

Yeah, it will, John. And if you send any information, we'll be more than glad to have our sales team contact them.

Okay, great. Third question is, you had a big jump in accounts receivable this quarter. Are the receivables turnover cycle fast, slow? Can you give me some kind of indication on that? how soon you expect to, on average, realize the receivables?

I'm going to defer that to Joe. It depends, I think, on the receivable and the market. But, Joe, go ahead.

Yes. I mean, the big spike in revenue was for the large, you know, and receivables due to the large increase in revenue per quarter. And some of those customers had upfront payment terms we've already collected And most of the others are either net 30 or net 60. So we should realize the collection on those receivables this quarter.

Good. Thanks. And let's see. There's been a big recall from Boar's Head in the deli meats. section of the food industry. So I was wondering if you have any specific, you mentioned meatpacking as one market, but have you been focusing at all on that or any, I would think that they would be a good contact for potential business given this, how much it's going to cost them in lawsuits. So just an idea, but can you respond to that?

Well, I mean, we would be good in different areas of that, but the listeria that they're having the recall over is the reason why none of us can find Boar's Head in the deli counter. So I think, I don't know if EJ has any update. Has anybody from Boar's Head reached out to us or have we reached out to them?

They have investigated in us. They were certainly on our website, and we've reached out to a few parties in the company hoping to hear back. But we are on top of it. We heard the same news, and we do have current users on our backpack in the meat production to be able to get on the phone with them as referrals. So we are on top of that.

Okay, very good.

Just be careful with the liver wrist.

Good one. My next question is, you mentioned in the prior quarter transcript and called the biofuel industry was also an area to target and that IHP is known to be the fastest and second strongest oxidizing agent known to mankind. Has there been anything, any new developments in that particular area?

Not yet. We are looking at some grant proposals, which I think we could possibly qualify for. But again, being so busy and being a small company, and there's just so many different applications for this product worldwide, we're starting to handle and take calls from the ones that I think are going to be immediate utilizers and long-term clients. This is a great opportunity in biofuels, and it's going to take a long time and some really good research. And we do have identified a partner that is willing to do the research, and it's just getting the parties together and having that time, which we've been focusing on revenue production.

Okay, good. And data centers, any update there?

The same thing there with the amount of new data centers being built. You know, they're a little hesitant to use a product like this because they don't truly understand the fact that we are non-caustic and we don't damage. But it's going to require some testing on a smaller scale first to make sure and long-term testing. So it's something that And I'm in agreement with you. They all should be interested in utilizing it in the data center industry. It's finding the right partner to attempt it and to try it on a test and to go ahead and validate the positive effects of using a product that's IHB and doesn't have the cost sickness and has phenomenal material compatibility.

Okay, thanks. And then on the SIS products, that's fairly new that at least the market for those kinds of products especially in biological safety and other decontamination chambers seems to be enormous how are you getting the word out on this newer area of your product line? I'm going to let you answer that.

Yes, Dr. Shane. It's truly a very exciting project. We have established relationships with enclosure manufacturers through the multiple shows and just throughout the years. And it's now moving very fast with a lot of them. to kind of turn over this package. And more importantly, once we are able to use their customer base as well in selling enclosures with IHP, it provides us an entry into a wide range of facilities who get familiar with it and then wanting our other systems for other area decons. And that's starting to come to light and more frequently each time. So it's now turning into a turnkey integration and then a quick sale after that. So we have some very familiar, well-recognized partners in the industry.

Okay. Very good. That's all I have. Thanks very much.

Thank you, John. Thank you.

Thanks, John.

Operator?

Thank you. There are no further questions in the queue. I'll now hand the conference back to management for closing remarks. Please go ahead.

I just want to thank everybody once again for joining, and I hope you all, wherever you are in the world, have a pleasant day or evening, and tune in for our next conference call coming up at the end of the quarter. Thank you all. Be safe.

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.