TOMI Environmental Solutions Inc Aktie

Good day, everyone, and welcome to the TOMI Environmental Solutions, Inc. First Quarter 2026 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, John Nesbett of IMS Investor Relations. Sir, the floor is yours.

Thank you for joining us today for the Tomi Environmental Solutions Investor Update Conference Call. On today's call is TOMI's Chief Executive Officer and Chairman, Dr. Halden Shane; E.J. Shane, our Chief Operating Officer; and our Chief Financial Officer, David Vanston, A telephone replay of today's call will be available through May 15, the details of which are included in the company's press release. A webcast rep will also be available on Tony's website, www.steramist.com. Certain written and oral statements made by management of TOMI may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements 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. Please refer to our filings with the Securities and Exchange Commission for a discussion of these risk factors. The company undertakes no obligation to update these forward-looking statements after the date of this call. I will now turn the call over to Tony's Chief Executive Officer and Chairman of the Board, Dr. Halden Shane. Please go ahead.

Thank you, John, and thank you all for joining us today. Q1 2026 marked a healthy start to the year, highlighted by a pivotal strategic development for TOMI. Our first quarter results demonstrated significant momentum across key metrics. Revenue increased by 5% year-over-year and 67% sequentially. from Q4 of 2025. Notably, applicator sales in Q1 alone surpassed our total applicator sales for the entire year of 2025, representing a remarkable 139% year-over-year growth. .

This success underscores the effectiveness of our razor, razor blade consumable model as we expand our installed base. Additionally, Bit Solutions sales have consistently grown by 21% annually since 2024 and remained above the 2025 levels in Q1 of 2026. We also achieved a 15% reduction in operating expenses compared to Q1 of 2025, while maintaining our full capacity. The company also generated positive operating cash flow of $296,000, which is a $572,000 improvement over the same period last year.

A notable trend this year is strengthening and dynamic nature of our integrated project pipeline, which continues to demonstrate meaningful momentum. This is the pipeline the company has highlighted since November of 2025 and which evolves as we advance or complete contracts. The expansion of this pipeline aligns closely with growth in our backlog, and we are disclosing only opportunities that suppliers have indicated are near signing.

These opportunities tend to involve longer sales cycles. While near-term closings are communicated as they firm up, they do not represent our entire potential opportunity. The trend is reflected in our backlog of orders. At year-end of 2025, TOMI reported $1.6 million in backlog, which grew by $0.5 million by the close of Q1 2026 and is currently at $2.2 million. This steady backlog expansion underscores the strength of our automated integrated system and the many service offerings we implemented.

Critically, backlog growth continues even as we fulfill existing orders, illustrating demand and execution across sales. At the end of quarter 1, TOMI received 440,000 annual purchase orders for recurring decontamination services with a leading global medical technology company. This contract involves quarterly professional iHP decontamination services for critical clean room and laboratory environments, aligning perfectly with our strategy to build a high-margin repeatable revenue model in addition to increasing the backlog order number.

In Q1, we achieved several of the notable milestones, a private East Coast research university purchased and installed a SteraMist hybrid system for high-level decontamination of reusable medical equipment. We also sold a custom engineered system in the U.K. to an international pharmaceutical manufacturer, which was integrated into total Clean Air's modular clean room platform and we established total Clean Air as our preferred European partner for SteriMist-IHP technology when the U.K. health and safety executive granted regulatory authorization for a bit solution and serious IHP products.

The food safety sector is gaining real traction. We launched an important case study that demonstrated up to 95% reduction in sanitization testing costs for an egg food manufacturer. Our long-standing partner, disinfect care, secured a service contract at a major Mexican dairy facility where rigorous testing highlighted sterisIHP's efficacy while preserving private quality.

Further, the end user is looking to expand its use of stories IHP in Mexico to its other facilities. There are other positive food safety tests that the company has received to be discussed at a later date. This is all exciting stuff for us.

Regulatory advancements have also played a critical role in our progress in February. We received official authorization from the U.K. health and safety executive for our bid solution and stereos IHP products for use in Great Britain and Northern Ireland. In March, we secured product authorization from the Dutch regulatory authority, making our first product approval within an EU member state and facilitating a streamlined recognition pathway across the EU.

And this past week, we received notification of further approvals in Germany Belgium, Denmark and Hungary. We anticipate many other regulatory wins in the near future. On April 30, 2026. We executed a nonbinding letter of intent to merge with Carmbonium Inc, a U.S.-based producer of nuclear grade graphite for advanced reactor technologies and AI data center infrastructure. Carbone and core boost a vertical integrated production platform and exclusive purification technology developed with Oak Ridge National Laboratory.

This merger targets a specialty market currently dominated by foreign supply, coinciding with increasing domestic demand for non-Chinese origin graphite due to new U.S. [indiscernible] regulations and federal support for advanced nuclear energy.

To be clear, with this transaction, our country will become the leader in Generation 4 nuclear reactors class of advanced nuclear systems designed to offer significantly improved safety, efficacy and sustainability compared to current commercial plans. These reactors are characterized by their ability to operate at [indiscernible] a much higher temperature, gas cooled reactor, pebble bed module, recognizes the world's first operational generation 4 reactor.

These systems aim to overcome limitations of current technology by producing more fuel than they consume and ensuring that severe accidents resulting in radioactive relief are physically impossible. Under the terms of the LOI, Carboni an Core would become a wholly owned subsidiary of TOMI. Former stockholders would receive TOMI common stock equal to 19.99% of shares outstanding prior to the merger, along with shares of a newly created series of convertible preferred stock, implying an enterprise valuation of $120 million.

We aim to finalize definitive agreements by May 30, 2026 with a 45-day exclusivity period in place. The strategic rationale for this transaction is compelling, It aims to diversify TOMI's business by merging a domestic platform focused on advanced nuclei grade graphite, graphene and lithium materials with our existing SteriMyste contamination business. This integration has the potential to unlock significant long-term value for our shareholders while enhancing and expanding the SteraMist brand.

Please note that the LOI is nonbinding and the completion of the transaction is subject to definitive agreement, due diligence and customary closing conditions, including stockholder approval. I'll now turn the call over to our Chief Financial Officer, David Vanston, for a review of our Q1 financial results.

Thank you, Dr. Shane. Our complete financial statements are in our Form 10-Q filed with the SEC and in today's press release. I will walk you through the key metrics for the 3 months ended March 31, 2026. compared to the same period in 2025. Revenue for Q1 26 was $1.6 million, a 5% increase from $1.5 million in Q2 '25 and a 67% sequential increase over Q4 '25. Product revenue increased $300,000 or 31% driven by higher equipment and CES related sales.

Service revenue decreased by $234,000 or 41%, reflecting the timing of decontamination project completions and service engagements in the period, which management views as temporary. Gross profit was $832,000 or approximately 50% of revenue compared to $952,000 or approximately 6% of revenue in Q1 '25. The decrease in profit margins reflects strategic price discounts to drive equipment adoption and an unfavorable product mix shift towards lower-margin equipment sales. Management views these factors as temporary as growth in high recurring margin BT solution consumables and applicaales, is expected to support margin recovery in future periods.

Total operating expenses were $1.48 million, a reduction of $248,000 or 15% and compared to $1.7 million in Q1 2025, reflecting lower general and administrative, selling, professional and consulting costs across the board. The loss from operations was $626,000, an improvement of $128,000 compared to a loss of $754,000 in Q1 25. The net loss was $811,000 or $0.04 a share per basic and diluted compared to a net loss of $256,000 or $0.01 per share in Q1 '25.

It is important to note that Q1 25 net loss included a nonrecurring employee retention credit of $535,000 and related interest of $83,000. Excluding these onetime items, Q1 '25 adjusted net loss would have been approximately 874%, making Q2 [ '21 ] a meaningful year-over-year operating improvement. -- cash flows. Our net cash provided by operating activities was $296,000 for Q1 26, an improvement of $572,000 and from the 276,000 used in Q1 '25, primarily driven by improved working capital management and growth in deferred revenue from customer deposits.

Net cash used in investment activities was $5,000. The net cash and financing activities was $98,000, reflecting $192,000 in repayments on the agile capital sale of future receipts agreement. Partially offset by 94,000 in net e-lock proceeds. We ended the Q1 with cash of $280,000 and working capital of approximately $394,000 compared to a cash of $88,000 and working capital of $1 million at year-end '25. The $630,000 decline in working capital reflects the net loss incurred during the period. Accounts receivable increased by $73,000 on higher revenue and inventories remained relatively flat. On the liability side, our accounts payable and accrued expenses increased by $993,000 and deferred revenue increased by 177,000, reflecting our deposit policy on customer orders.

Our accumulated deficit as of March 31, 2026, is $58.9 million. During Q1, we raised $149,000 in gross proceeds through the issuance of 336147 shares of common stock under our $20 million equity line of credit. I encourage investors to review our Form 10-Q in full, including the Risk Factors and notes to financial statements. I will now turn the call over to our Chief Operating Officer, E.J. Shane, for an update on what we expect in the next upcoming months and the rest of the year.

Thank you, David, and good afternoon, everyone. As Dr. Shane referenced, applicator sales increased at 139% year-over-year. This is a strong signal that customers are expanding their appointment of our patented cold plasma technology. The applicator is a critical component that enables our IHP to be used more broadly. This growth is a game changer. It shows customers are increasing their utilization of our tech. Customers who already own mobile fogging systems are expanding their use of IHP across additional areas within their facilities by acquiring more applicators, permanent or semi-permanent driving higher sales of bit solution, our consumable product.

The Serums Integrated System Platform, or SIS, hybrid and our original Custom Engineered System, or CES, are essential to our integration pipeline. Collectively, it is these offerings that are expected to significantly boost Fit solution revenues. Our current immediate integration sales and pipeline is currently at $4 million across 14 customers and 7 separate orders received with the remaining projects awaiting capital approvals.

This is an update that reflects changes since our last call. Some customers have been removed due to completed sales in quarter 1, while 3 new customers have been added and 2 additional contracts have been secured. The 7 orders mentioned are all in various stages of manufacturing and delivery, which will impact revenue time lines. The full company sales pipeline opportunities for all our offerings from mobile off-the-shelf capital equipment, automated integrated custom designs and IHP corporate service deployment is projected to be between $22 million and $33 million.

This is the complete opportunity list. It includes interested parties who have received quotes or planned implementation and/or installations of IHP technology across all our industries. States are not yet set, but these are parties have expressed strong interest in Steris IHP.

Of this list, $9 million is categorized as active, approved or anticipated for purchase this year based on customer requests or the progression of the sales process. $4 million is allocated to automated integration orders, an additional $5 million is attributed to mobile off-the-shelf capital equipment, support service contracts and IHP corporate deployment.

Based on the latest reports and trends that I just referenced, TOMI generated approximately $1.7 million in revenue in quarter 1, currently holds the backlog of $2.2 million. This includes only some of our integration automation pipeline, which stands at a total of $4 million. with a potential $5 million in mobile equipment sales. Conservatively, we anticipate $2 million in consumables and other smaller revenue streams. Taken together, this yields a credible path for Tomy to achieve its projected 2026 revenue target.

Our strong base of high-quality, large customer base has been the key driver for these trends. These customers have helped in this potential growth through referrals, relocating projects and expanding SteraMist iHP adoption at their new facilities as well as expanding usage after initial purchases. A concrete example is Merck. Currently has approximately $1.2 million in open estimates across 5 different locations. While Merck is not included in the near-term numbers I cited earlier, due to their longer decision cycles, they remain an active partner and are captured in the full opportunity pipeline. Additionally, 1 of our first large pharmaceutical clients is approaching a decision on their CES proposal, which could represent the largest such installation to date and an uplift to future revenues for TOMI.

On January 6, we announced that a private East Coast research university purchased and installed a SteraMist hybrid system. In this past week, we just received notification that we won a second award with them. And for my last example, the third site in Berlin, Germany is set to begin trials in June for an eye health customer that we onboarded in quarter 1 of last year. This customer is also utilizing an open monthly bit solution order. -- aligning perfectly with our business model.

Furthermore, none of this reflects opportunities tied to additional regulatory requirements. Our efforts regarding food contact notification with the United States Food and Drug Administration NSF Standards Department for Biological Safety Cabinets, the FDA 510(k) medical devices and further European Union registrations, all of which hold substantial potential based on the current market demands. On May 1, we officially opened a task group with NSS, cleaning and sterilizing the biological safety cabinet sector. We want to be added to their informational NXG so that our partners are deploying Stermus-IHP to outperform legacy decontamination methods, including sporins, formaldehyde and BHP.

Ultimately, our goal is to enable the service providers worldwide to compete effectively by incorporating IHP into their offerings for BSCs, which allows them to complete more treatments in a single day compared to the older technologies referenced. The food safety sector remains promising. The progress will depend on ongoing regulatory developments. For example, Nestle's planned expansion is contingent on obtaining additional international registrations beyond the European Union and on updating EU registration requirements to include an alternate class. We are engaging with 3 large customers who have expressed strong interest in our [indiscernible] for baby formula to deploy IHP technology.

In parallel, we are conducting internal testing on derived ingredients for a current customer who already owns our handheld devices. and exploring a scaled deployment. This testing phase aims to validate performance and readiness for a broader rollout. Last month, we attended Interfax in New York City, one of the premier trade shows in the pharmaceutical, biotechnology and medical device industries. And at the show, we finalized the sale of a prominent American healthcare company, renowned for its innovative medications and premix ready-to-use formulations. In summary, we maintain that with a broader and more diverse range of SteraMist delivery systems, this growing integration pipeline, expanded support services designed to accelerate IHP qualification.

And ongoing referrals and expansions from our existing customer base, that Tomi is well positioned to shift revenue mix positively and enhance profitability. I thank you all for your time and attention, and I hope this provides a clear sense of the progress and initiatives that we are pursuing. I will now turn the call back to our CEO, Dr. Halden Shane.

Thank you, A.J. So as a special note, I want to talk about the United States of America is very hungry for rare earth minerals and materials that are mined and/or synthetically produced in America. The synthetic production of nuclear-grade graphite and the conversions of these technologies, whether it be nuclear-grade graphite, graphene or lithium present a transformative opportunity to address critical global challenges. TOMI's future is in an advancement of Ortigas systems AI-powered robotics, or SteraBot register, of course, and specialized disinfection drone technology manufactured with lightweight strong graphing shelves and plenty of battery power will enable proactive solutions for logical stability, logistics efficacy and public safety. -- a special concern of mine is the honeybee industry. It is in dire straits. The association is seeing a lot of viral losses now, not just from the formed wing virus or DWV.

But real losses and fees because of what the industry refers to as dead outs. -- where the home gets a virus and kills all the Bs -- since 2007, there has been an 80% decline in the populations. It could be devastating because it's not just concerning the DWD virus and its variants, but additional viruses. -- such as chronic be paralysis and Israeli acute paralysis. The IHP Micro miss can reach the entirety of the home, including the nooks and crannies without leaving any damage to the wax currently the only available product in the market to alleviate these viruses is very expensive gamma irradiation process.

The comes are very expensive, thus keep is on to dispose of the cone or use gamma irradiation. And IHP disinfecting drone would certainly help save the pollinators of the world and ultimately, the world. This is what we do innovating for a safer world. Thank you all, and thank my small team for all the great work that they do. So looking ahead, Tomy enters Q2 of 2026 and with strong commercial momentum and expanding recurring revenue base and a transformative strategic transaction underway.

Our focused strategy for the balance of the second quarter is to advance the Cambonium core transaction towards definitive agreement and closing. -- drive recurring revenue growth through increased bit solution sales, open order policies and expanded IHP Corporation service contracts and strengthen balance sheet flexibility through our e-lock and additional financing initiatives.

With that, operator, please open the call to any questions.

[Operator Instructions] Your first question is coming from Amit Dayal from H.C. Wainwright.

Thank you. Good afternoon, everyone, and great to see all the developments underway at the company. My first question was on the gross margin side. It was a little bit softer, I guess, because of some discounts on offerings. Just wanted to see how this will bounce back? And would you potentially need to continue providing those discounts at least for the hardware side of things to get initial orders with customers going? .

No. I know they will bounce back, and we don't plan on providing these types of discounts again. .

Okay. Understood. And then the pipeline looks pretty robust, at least $4 million in sort of certain orders, it looks like sequentially, do you think we should expect revenues to grow from here through 2026? Or should we expect some lumpiness in how revenue is recognized?

No. Most definitely, we should see growth through 2026 and into '27 and beyond. .

Okay. Any traction from these recent news flow around antivirus, et cetera. Has there been any follow-up with companies or customers from those developments for you guys?

Not at the moment, but as you know, I mean, the antivirus is -- it's not close to us as where the ship is located -- the interesting part about this is that they've let a lot of people off the ship and there's usually like an 8-week period before you test positive for this. So we're prepared and ready to help and assist in any way. But at the moment, we haven't heard from anyone and we can get our equipment into the area quick enough to help the ship because, first of all, I mean, all the passages, most of them have been just embarked.

Okay. Understood. Just last 1 from me on this transaction with Carbonium. How is the diligence going so far? And do we have the expertise to sort of properly investigate the technology these folks are offering? And then just a follow-up on that 1 is, will this be sort of a development stage entity you are acquiring? And how much more investments do you think it would need if you were to close the deal to progress that company to commercialization? .

There's a lot of questions. Yes, it's in its early stages. We are performing a committee in the early part of next week to help with the due diligence. And again, we're aiming towards getting a definitive agreement and doing our due diligence. We're aware of the technology and its ability and with Oak Ridge and some I don't want to get too ahead of Carboni and release certain things, but we're pretty secure that this will go forward. And -- as far as investments, that's something that needs to be determined. We haven't quite yet come out with any numbers like that, and you can understand this is just the very early stages of this potential merger.

Your next question is coming from Todd Felte from StoneX Wealth Management. .

Congratulations on a good quarter and on the Carbone merger. I know I'm excited to see how that progresses. I did have 2 questions on it. The first is after the merger is approved and closed, I know there was a 19.9% shares of common stock that are going to them in addition to the convertible preferred if all that convertible preferred was converted to common at $1, what would be the total shares outstanding?

It's a good question. Probably somewhere in the neighborhood of $30 $2 million, maybe $31 million. We haven't really done the back pro forma on that yet, but I would have to say that would be the amount.

Okay. And then second of all, I listened to a television interview that you had done with Sandor, the Head of Carbonium, and he was projecting revenues in 2028 of billion to $1.5 billion. Is that correct? Or did I hear that wrong?

No. You heard that correct. This is a huge industry. And they have the ability to capture it from the synthetic nuclear graphite end. And again, I don't want to get ahead of the curve with him, but what he said is $1.4 billion, $1.5 billion .

Okay? And finally, outside of getting shareholder approval, are there any other major opcoes assuming that your committee checks out on all the due diligence? Are there any other major obstacles on getting this to the closing line?

There shouldn't be. Again, it's a deal. It's early, and you never know what obstacles get thrown at you, but we're hoping there aren't, and we're able to complete this in a relatively timely manner. .

[Operator Instructions]

Your next question is coming from John Nelson. Congrats on the quarter and progress being made on the TOMI business and also the potential from the Carbonium merger for the combined company.

Thank you, John. First question is I saw the slide show from your 8-K on Carbonium core, and they're projecting profitability, I believe, next year according to the slides. Is that -- am I correct on that?

That's what I understand. .

Yes, which would be phenomenal for them to get out of the gate this fast and stone and be profitable almost immediately. So anyway, thanks for confirming that. The other thing was in the slides was an independent valuation -- do you know who did that independent valuation evaluation of the -- of CarboniumCore? It was done by professional valuation service.

I don't know if I can I'd rather not publicly say until they approve it, but it was a very large 47 page evaluation. -- and covered everything that we would want to see in it. So -- going forward...

Yes. Do you think that they can -- after -- if you complete the merger, do you think they can release that or you can release that as a share holders? .

Yes. Yes, I would think we would be able to once this happens. Yes. .

Excellent. The other questions relate to the Home business. The -- on the honeybee industry, you talked extensively about the concerns and how SteraMist can remedy significant amount of problems that the industry is facing, how do you plan to go after that market?

Well, currently, I think I've mentioned this on prior calls, I have been trying to contact the association. I end up joining the association and I follow everything that goes on in it. We recently, our marketing department reached out to an administrator, and they would like to do a study, so now I'm really excited that we got their attention. And hopefully, they'll be able to do this study fairly quickly. I know the industry is in dire straits to eliminate the effects of all these viruses, which are going ahead and causing death to the deals, which I mean, I don't think we want our kids to grow up in a world that doesn't have pollinators.

Yes. We definitely need it. So I was curious as to how quickly a study might be able to be accomplished and I would think that the behind come people, it would be extremely happy to get something that would help preserve their lives.

Yes. I mean I think the real answer that they've been going with in the past is very expensive. And I think, an irradiation it gives you a new high, I guess, but most Beekeepers have that type of money where our solution would be fairly inexpensive for them to eliminate the nights, the viruses in the cone and to go ahead and protect it going forward. So -- that would be great to have this technology, which was innovative for the beginning to be able to protect the honeybee population around the world. .

Definitely. Then do you have any specific goals as to timing, to reach either profitability or positive cash flow over the next...

Yes. I think within this year, we'll be profitable.

Okay. Good. .

And then you mentioned in a previous press release the -- going after the robo taxi market. And do you see that as being addressed by a just this service handheld units? Or do you think that there might be a possibility of actually kind of installing fixed unit within the cab that could dispense serum is on a regular basis after every ride, for example?

Yes, I think the I think it's too early. What our plan is initially is to mold our backpack using the existing humanoid-type robotics and we know we can handle the software adaptation of it and go ahead and put our applicator in the left-hand replace the hand and put the applicator in there or trigger the hand to push the applicator and have the right hand to move objects or to move doors or open things and things like that.

So I think that's going to be the fastest to market -- there are a lot of companies, not just Tesla and not just Waymo, but there are 5 or 6 companies worldwide that are starting to put out robo taxis. And as the world evolves, this seems this autonomous vehicle seems like something that's going to be around forever. So they do have to clean them, and our technology would be the fastest and quickest way to get that done. As far as an installation, I don't know if the cost is going to be practical for them. It certainly would work for us. And they would need some time between each ride to disinfect or decontaminate the space -- and I don't know if their model is set up to wait because I'm in West Hollywood L.A. area, and I use Waymo a lot, and they're always running 2 or 3 minutes late. -- because they're dropping someone off. So it's possible that they could maybe if we could get the time down to, let's say, three minutes or five minutes that they could sterilize them between the routes. I mean, it's anything possible to...

Okay. And I'm -- with regards to use of SteraMist in closed spaces. The -- it would seem like Steris would be perfect for decontamination of airlines and cruise ships and even military vessels. -- because of the risk of contamination infection. Is there -- is it just that, that market takes -- what kind of explanation do you have for the time lines of penetrating those kinds of enormous markets. .

So I think we'd have to be a much bigger company and to get grant writers to write grants for the markets, especially now, they're building ships under the current administration, and it would be an ideal time to start implementing the technology you're putting in into ships I'm not sure what the stress test would be to see what stays in place in rough waters versus smooth waters and things like that.

So I mean it's all possible, and I foresee in the future this is happening, same way with aircraft. What I'm really more excited about is unmanned aircraft. As we all know and we see in the military budget, there's $70 billion being put aside for drones when the technology started when I bought it from the defense contractor and the initial data project, it was for the use of unmanned plans that were returned to earth or return to ground or return to ship. And that's what it was used for. So with the drone market blowing up like it has all over the world, this is the product to be used for the disinfection decontamination of unmanned aircraft around the world.

Are you working with any particular companies, even if you can name them at this time regarding...

Not at this time that I'm aware of. And I don't know if we can sit, A.J., do you have more unclassified answer to that?

SP-8 Not at this time, Mr. Shao, I don't -- sorry, update.

Thank you. Appreciate it. And let's see, is there anything else that has changed as far as the applicators or the equipment in terms or any new ways to use Cerumist either in commercial or retail type settings.

I'll let Jay answer it. I just tried it on my dog and he stopped barking, so that was positive. .

Yes. No, -- there's no -- there's not been any changes to the applicators itself. We just changed the way in terms of how we sold it with the integration projects and the stand-alone system. So there's multiple different versions of the applicators that we can now offer regardless of the industry you're referring to. So that's been helpful. yes.

Okay. That was a good one. Thank you.

Thank you. We've reached our allotted time for Q&A. I'll now hand the conference back to management for closing remarks.

Well, I just want to thank everybody. for joining and for continuing the voyage with us and this amazing product in this amazing world. Have a great day, wherever you might be. Thank you.

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

Good day, and welcome to the TOMI Environmental Solutions, Inc. 2025 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Zach Nevas from IMS Investor Relations. Zach, the floor is yours.

Thank you for joining us today for the TOMI Environmental Solutions Investor Update Conference Call. On today's call is TOMI's CEO and Chairman, Dr. Halden Shane; E.J. Shane, our Chief Operating Officer; and our Chief Financial Officer, David Vanston. A telephone replay of today's call will be available until April 7, 2026, the details of which are included in the company's press release dated March 31, 2026. A webcast replay will also be available at TOMI's website, www.steramist.com.

Certain written and oral statements made by TOMI may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements should be evaluated in light of important risk factors that could cause our actual results to differ materially from anticipated results.

The information provided in this conference call is based on the facts and circumstances known at this time. Please refer to our filings with the SEC, including our 10-K for the year ended December 31, 2025, for a discussion of these risk factors. The company undertakes no obligation to update these forward-looking statements after the date of this call.

I will now turn the call over to TOMI's CEO and Chairman of the Board, Dr. Halden Shane.

Thank you, Zach, and thank you for joining us for our 2025 earnings report today. I am pleased to share our full year 2025 results and more importantly, our perspective on where TOMI Environmental Solutions is headed. While 2025 was a year that tested our patience, it was also a year that validated our technology, deepened our customer relationships and positioned us to execute on a meaningful revenue opportunity in 2026 and beyond. I want to walk you through the highlights with optimism I generally feel as I review the progress our team has made.

The SteraMist Integration System, which is our SIS platform, achieved its first commercial installation at a leading CDMO in June of 2025. The milestone proved our concept and by year-end, we had 4 fully operational SIS enclosure installations. We closed the year with a signed purchase contract of $500,000 for a global biopharmaceutical leader in December for integration into sterile manufacturing pass-through fill boxes. In the same month, a leading cell and gene therapy manufacturer adopted SteraMist iHP for a commercial scale pharmaceutical facility, a landmark win in one of the fastest-growing sectors of life sciences manufacturing.

We were selected by NASA Johnson Space Center for a biosecurity operation, and they have continued to express satisfaction with our technology's performance. We deployed critical resources to support wildfire recovery efforts in the California communities, demonstrating both our civic commitment and our operational agility. We secured a bid from a leading university in Rhode Island for our CES technology. That project has been completed and awaits factoring testing.

In the eye health sector, one of our most prominent new platinum customers onboarded in Q1 2025 has grown to 2 active facilities, each using 5 SteraMist machines for sterilization procedures. A third site in Berlin, Germany is set to commence trials in June of 2026. This customer also operates under an open monthly BIT Solution order, exactly the recurring revenue model we are building.

Our OEM partnership strategy is gaining serious momentum. Relationships with PBSC, ESCO and Steelco are embedding iHP directly into clean room enclosures, pass-through hatches and biosafety cabinets at the point of manufacture, creating a scalable distribution channel that expands our reach without proportionately increasing our direct sales cost.

We successfully completed our first collaboration project with partner PBSC, the iHP pass-through, which exceeded decontamination cycle speed expectations and generated strong customer feedback. We have already begun a second PBSC project. We expanded into the agriculture industry through our partnership with Algafeed, who has committed to acquiring additional handheld units before the end of 2026 in food safety. The FDA's late 2025 approval of hydrogen peroxide as a direct food additive for multiple uses, including as an antimicrobial and bleaching agent is a watershed regulatory moment for us. We are now engaged with significant partners, including Danone and Nestle and are actively winning bids, both directly and through service providers.

SteraMist iHP is demonstrating real-world efficacy across a wide range of food processing environments. We are actively pursuing a food contract notification or FCN and have identified 2 specific opportunities to enhance our efforts on a tailored FCN for powdered infant formula, which comes at the request of an existing customer. Additionally, we are awaiting approval of our -4 label from the EPA for our cannabis industry and other requested markets in our Food Safety division. We also plan to submit a -5 EPA label based on the studies conducted with Plum Island as previously announced. A landmark USDA study confirmed BITs efficacy against the formed wing virus for agricultural biosecurity in honeybees.

In 2025, SteraMist was honored with the Disinfection Decontamination Products Company of the Year Award by MedTech Outlook. We achieved compliance, recognition across 3 safety vendor management platforms and are in the process of adding a fourth to support 2 ongoing integration projects at a well-known Baltimore hospital.

Our customer service team is actively transitioning our larger base to open order policies for support service offerings and BIT Solution orders. The backlog of our orders for support services is up 16%, and BIT Solution is up 24% in the first quarter of 2026 compared to the same period last year, providing early and compelling indicators of increasing recurring revenue trajectory we are building.

To our long-term supporters of our technology and company, we are pleased to announce that we're finally receiving approvals from the HSE and the BPR submissions, we are now officially recognized in the United Kingdom, including Wales and Northern Ireland as well as in the Netherlands. The recent approval in the Netherlands strengthens our confidence that other EU countries will soon follow suit.

Our heart monitoring device project is nearing completion and is scheduled for factory testing next month. We are preparing to introduce our iHP device to the U.S. markets through the appropriate regulatory pathways, including the FDA 510(k) premarket notification process once testing is finalized. The success of receiving the FDA 510(k) means that we'll finally be able to go after the entire ethylene oxide sterilization market. The global ethylene oxide market was a $5.29 billion market last year. Key growth factors is a rising demand for sterilized medical consumables and improved healthcare infrastructure, particularly for hospital, labs and surgery centers. Our technology is protected by more than 30 utility and design patents through 2038, and is deployed in over 40 countries.

We are entering 2026 with operational momentum, growing recurring revenue and expanding global customer base and a clear strategy to drive sustainable growth. Our focus remains on execution, converting our pipeline into recognized revenue while continuing to advance the technology platform that makes all of this possible. The pipeline that we have is the strongest we've ever had. Our first quarter 2026 revenue is greater than our first quarter of 2025. I will discuss some details in my conclusion today, but our entire opportunity book for integration projects remains at $16 million. The entire SteraMist iHP opportunity book is currently at $20 million. However, first, I will now hand the call over to our Chief Financial Officer, David Vanston, who will provide an overview of the financial results for the full year ended December 31, 2025, compared to the same period in 2024. David?

Thank you, Dr. Shane. I will now walk you through our full year '25 financial results. Our complete audited financial statements are included in the Form 10-K we filed with the SEC and in today's press release. Revenue for the year ended December 31, 2025, was $5.6 million compared to $7.7 million in '24. The decline was driven primarily by the timing of customer equipment purchases. Service revenue remained relatively stable year-over-year, which we view as an indicator of the durability of our installed base. Gross margin improved to approximately 55%, up from 46% in '24, reflecting lower cost of sales and a reduction of inventory reserves compared to the prior year.

Total operating expenses were $6.9 million, down approximately 10% from '24, reflecting disciplined cost management. The net loss was $3.7 million or $0.19 per share, an improvement from a net loss of $4.5 million or $0.22 per share in 2024. We ended the year with approximately $88,000 in cash. Working capital was approximately $1 million, and we used $1.2 million in operating cash during '25, an improvement from $1.4 million in '24. We have taken steps to address our liquidity position, including a $535,000 convertible note raise during '25, a $20 million equity line of credit with Hudson Global Ventures entered into November '25, from which we have made our first draw approximately $94,000 in February '26. We've done an effective S3 shelf registration for up to $50 million, and we've engaged Bancroft Capital to explore additional financing options. I encourage investors to review our Form 10-K in full.

I will now turn our call over to our Chief Operating Officer, Shane to discuss upcoming business highlights.

Thank you, David. As Dr. Shane highlighted earlier in the call, we are actively focusing on open BIT Solution orders and annual service offerings, leading to a higher open sales book metric. This initiative stems from our growth in personnel and operations, along with our enhanced comprehensive training program that prioritizes continuous recertification. This strategy not only elevates customer standards for implementation and safety, but also has the potential to drive additional revenue and foster deeper product adoption in the future.

The sales performance of support services and BIT Solutions sales are expected to exceed 2025 levels as evidenced by the increase of 16% in the backlog of orders for TOMI Support Services and an increase of 24% in BIT Solution backlog of orders for the first quarter of 2026 compared to the same period last year.

Dr. Shane also provided updated information on 2025 announcements for just a handful of customers. This includes anticipated orders from our aquaculture customer, a completed Custom Engineered System, or CES, for the Rhode Island University, 2 iHP chambers for the biopharmaceutical partner, a second order with our partner in Malaysia, and a third location in Berlin, Germany for the eye health company, which we expect will proceed with the same standard operating procedures as the first 2 sites.

We anticipate approximately $3 million in sales among these 5 customers and the trends in support services and BIT Solutions sales for 2026. It's important to note that this projected $3 million in revenue includes approximately $920,000 that overlaps with the $3 million integration pipeline announced on November 26, 2025. When factoring in our iHP deployment services, which generates over $1 million consistently, we can confidently state $6 million in revenue just among 5 customers and 3 revenue streams for 2026.

To date, approximately $800,000 has been recognized from the November 2025 $3 million integration pipeline. This amount originates from 10 distinct customer orders. Of these 10, 7 customers have formally placed the order. We anticipate final approvals from the remaining 3 accounts, and we have added 4 more integration projects moving towards CapEx approvals since the November announcement, which is anticipated to contribute another $2.3 million to our active immediate integration project pipeline.

Our East Coast distributor, ARES Scientific, has been instrumental in securing multiple university wins for our SIS platform. We're actively collaborating with VWR, Avantor, engaging with all case managers and overhauling marketing initiatives with them. We are prioritizing the ongoing education and engagement of our international partners, investing in them to promote their own long-term customer base instead of expanding into new regions. This strategic focus, coupled with recent regulatory approvals, is expected to support our growth and positively influence our revenue. For example, we have successfully received HSE approval and announced a preferred partnership with Total Clean Air, or TCA in the United Kingdom, where we recently completed factory testing on a custom engineered project that they brought to us. TCA has also invested in mobile equipment in quarter 1, 2026 to support their demonstration and service deployment capabilities.

The food safety sector is also beginning to gain momentum, and we're receiving valuable referrals and case studies from our current clients. This industry uses our SteraPak product or requires custom applications, indicating that we are still in the early stages of realizing significant revenue. Additionally, there remains much work to be done on the regulatory front. For example, Nestle's pending expansion waits for other international registrations outside the ones received in the European Union. One of the most exciting developments comes from our long-standing relationship with Disinfectant Care, which has secured a service contract at a major dairy facility in Mexico. Following customer-specific testing and studies conducted on site, SteraMist iHP not only demonstrated its efficacy, but also showed the preservation of cheese quality, a key finding that strengthens our credibility and served as a valuable referral for other new customers.

In summary, we are now making strides across a diverse range of sectors in the food industry. We are used in cheese, eggs, coffee, ice cream, consumer packaged goods, cannabis, nutrition, vertical farming, pet food, food ingredient suppliers, refrigerated foods and specialty ingredient suppliers. This is broadening of our market presence positions us well in the industry.

Another significant area of focus for us, which we believe is expected to see returns in 2026 is the biological safety cabinet or BSC industry, particularly regarding our service providers and the SIS stand-alone system. We have developed the necessary accessories and protocols for treating all classes of cabinets, a progress required as we prepare for NSF approvals this summer. Currently, we have certified service providers utilizing our SteraMist iHP technology, including [ Triumvirate ] and MarathonLS on the East Coast as well as HEPA in Canada.

On April 2, we conducted a key demonstration with one of the most recognized providers in the industry who operates multiple locations across the United States. Triumvirate hosted a webinar this quarter where they showcased how iHP technology outperforms key competitors in the market, including Spor-Klenz, Formaldehyde, and Vaporized Hydrogen Peroxide. This webinar was well attended attracting approximately 250 participants.

Ultimately, our goal is to enable these service providers to compete effectively by incorporating iHP technology into their offerings for BSCs. They appreciate this innovation because it allows them to complete more treatments in a single day compared to older technologies.

In addition, we maintain a robust intellectual property portfolio, CE and UL listings and are preparing to pursue USP 1072 material efficacy, which will expedite our sales process in the life sciences market. Furthermore, we are committed and continued to conduct customer-specific studies that help us secure contracts and maintain the client roster we hold, such as those highlighted today.

I will now return the call back to our CEO, Dr. Halden Shane.

Thank you, EJ. I want to take a moment, maybe even more of a moment and express deep appreciation to the majority of our shareholders who supported us and have believed in our mission through our highs and lows. You are the majority and our long-term investors. Thank you for supporting our team and most importantly, believing in our technology and products. I believe at the start, we all knew this was not going to be easy because we're creating a new standard in many industries, and it's very hard to accomplish being undercapitalized makes it even harder. But we are on the verge of accomplishing the impossible.

To the handful of naysayers, we believe we'll be able to earn your support, and we continue to execute a deliberate strategy to expand our operations and improve our financial performance. If not, then maybe it's the wrong company or you need to see a professional.

It was a tough year for us from the financial perspective, but we remain focused the whole time on the future. In my eyes, there are no excuses, but were definitely roadblocks. Those roadblocks included DOGE, tariffs, working capital and recently the war. We chose to become the standard in the pharmaceutical, life science and university vivarium market. Unfortunately, some of the negatives of becoming a standard in that market is the perfect storm that occurred in 2025. Like there was panic buying behind the 2020 COVID, there was a lack of buying in the 2025 due to the reasons I stated above.

Just recently received an e-mail from a major university that everybody knows on the West Coast of the United States. They were putting off a purchase until the end of 2026. The reason they had to postpone the purchase was because of DOGE, tariffs and political uncertainty, including the war. Also, that person stated there was an uncertainty maybe about her job. But no matter, we are a team, and we can overcome situations like that. And I can assure it's all temporary. The university will purchase this year even if it's a new professional in that job position.

I did a review of our stock over the last 10 years. I choose certain points because it was approximately when we received our hospital health care EPA registration and had marketing in place. The key metrics are pretty amazing. In 2014, revenue was about $2.2 million. Our stock price was $2.16. Our major clients was a Panamanian hospital and a group in Mexico trying to sell to Mexican hospitals. In 2020, we had a banner year. Unfortunately, it was due to the pandemic. We did $25 million, demonstrated that we're capable of handling that volume of business. It did take away from the focus on the life science industry, pharmaceuticals, et cetera, but most of that was temporary panic buying. Our stock price was $4.57. In 2024, our revenue was approximately $7.7 million. Our client list was pretty impressive compared to 2014, and our stock price ended up at $1.05. The next year, 2025, our sales was $5.6 million. The sales that we could recognize as revenue, obviously, as you know, the sales were much higher, as we stated, provided in our pipeline with open significant orders for the first time moving across into 2026.

As stated previously, we were confronted with tariffs, DOGE, political uncertainty. We closed the year with a stock price of $0.78. Now we're in 2026. It looks like our first quarter, which includes recognized revenue and open orders, could be $3 million or higher. Not sure how this ends up playing out later today. But for sure, we're beating our first quarter 2025 revenue in the first quarter of 2026.

Our stock price is around $0.55. We estimate our revenue for this year will be around $12 million, bearing any unknowns. In 2020, we did a reverse split. Today, that $0.55 comes out to be about $0.0688 pre-split.

So here's a short list of our current clients. Pfizer, Merck, Thermo Fisher, Fresenius Kabi, [ Allogene ], Boehringer Ingelheim, Catalent, CSL, [ Seqirus ], ITH Pharmaceuticals, Nestle Purina, Mead Johnson, [ Ziegler ], Simplot, Perdue AgriBusiness, Kindred Health, Mercy Health, Novant Health, St. Jude Children, Gila River Health Care, FDA, USDA, CDC, NIH, DHS, USAMRIID, [ Armitron ], ESCO, [ Telestar ], ServiceMaster, First Onsite, Avantor, Tecumseh. In retrospect, do you think a company like TOMI with that list is worth $0.0688 only?

My point here is our stock price was $2.14 when we had 2 customers, 1 in Panama and 1 in Mexico. I remember a statement from a very successful person, Warren Buffett, "be greedy when others are fearful." That statement couldn't be true today about our company.

I choose to run this company making a decision that many CEOs will never make. And that's because it hurts before it pays. I stop relying on easy sales and onetime equipment and build something from a more potent recurring control over how customers operate. The shift does not show up cleanly on quarterly charts. It shows up as a service revenue climbs and consumables replace capital purchases. Our customers stop buying, they start attending. That is where the game changes. We are not growing very fast, but we are growing very smart.

Our company has moved from episodic revenue to embedded revenue before a deal closes, the relationship reset. Not every deployment creates a tail, more usage, more replacement, more service. This is not a product business anymore. It's a system. Recurring revenue isn't about stability. It's about control. Most executives say they want predictable revenue. What they actually want is predictable revenue without sacrifice. We took the hit upfront. Volatility increased, revenue looked uneven. Margins had to be rebuilt. But underneath the engine changed. Short-term policy facility is often the price of long-term dominance. Instead of building expensive infrastructure scale globally, we use distribution channels and partnerships to expand and reach without expanding costs. International revenue became a large slice of the pie without dragging down the balance sheet. That's not expansion. That's leverage we used.

Scale without cost is the cleanest form of growth. At the same time, we wanted the business towards higher-margin solutions and service -- services. That's our razor-razor blade model, not louder, not last year, just better economics.

The following current numbers could possibly change, but the point I want to make is that at this moment, our economics, of course, is first based on sales of equipment revenue, but our scaling and cleanest form of growth is solution sales, support service and iHP in-house service.

Quarter 1 of 2025, we did $299,000 change in solution sales. In quarter 1 of 2026, at this moment, our solution sales are $429,413. As far as support services in quarter 1 of 2025, we had 73,279. Currently, in the first quarter of 2026, we have 253,390. In support services, these are such things as training, certifications, qualifications, validation cycle developments, installations, et cetera.

And the third part, iHP service. In the first quarter of 2025, we had $439,386. Currently, with invoice and open orders, we have a total of $729,440. Margins improved, mix improved, the business became more resilient without announcing it. We were able to figure out how to achieve success by having money actually compound. Do you keep chasing revenue to reset every quarter? Or do you endure short-term pain to build revenue that compounds without permission. That decision defines whether you're playing offense or playing survival. We didn't eliminate risk. We repositioned it. In doing so, we created something more valuable than growth. We created dependency in a world chasing speed. We chose structure and structure wins.

I can't take the credit for all this writing. I want to thank [ Joel Block ] for understanding how we have created this company and understanding the suffering we've gone through.

Once again, I want to thank everyone for their long-term commitment and support and for a small team of 20 working endlessly to achieve all the goals. I also want to thank our creditors who've been super as we go through the stage of growth. At the end, the warriors that have helped us achieve success.

Also, I'd like everybody to pray for our brave soldiers that are in difficult situation. To all that are listening, we're excited about what's ahead.

Operator, let's open the call to questions.

[Operator Instructions] And the first question today will be from [ Carl Wright from Lonetown Capital ].

So first question, could you provide some more insight into the global opportunities you mentioned in the quarter?

Yes. Hi, Carl. Certainly. So the first of the EU registrations on the submission we did came in, so we expect many other EU states to follow suit within the next upcoming months. And with that, we have been positioned with current relationships and distributors from Poland, Germany, Netherlands that have been around our technology and really educated to be able to take on the opportunities that have been waiting for just that registration. So just as the U.K. did once the HSE came through earlier in this quarter with bringing on TCA and quickly being able to fulfill our first custom engineered system, I see that happening with the other regions in the EU.

Got it. And then congratulations on bringing down operating expenses by 10%. Could you provide a little more color about how we should think about operating expenses in the business just going forward?

Sure. David, go ahead.

Sure. I think the -- again, as Dr. Shane mentioned earlier, as we grow, we will have to invest into our operating expenses, but we already have leverage in it. So we do not expect to see a significant jump in our operating expenses. You should -- if you're going to model it, you would model it as a percentage of revenue growth. But I would say it would slightly decrease as we grow as a percentage.

[Operator Instructions] The next question is coming from John Nelson. John is a private investor.

Several questions. First one, I'm one of those long-term investors that...

I know you are.

Is -- confident that over the years you're going to deliver. So thank you. Thank you for your...

And I thank you for your help.

First question is, you mentioned in the press release in '25 versus '24 revenues, customers deferring, capital expenditure, projects due to uncertain economic environment with the impact of tariffs and Middle East crisis. Are you seeing any signs of -- and you must be seeing some signs of it improving because of your first quarter comments. But are you seeing any of those customers that were deferring CapEx projects starting to move on them?

We are.

Okay. And then the BIT Solution revenues for '25 versus '24. Can you provide any details on the comparisons there?

Sure. Are you talking '24 versus '25 or '25 versus '26?

No, '24 versus -- '25 versus '24.

Okay. EJ?

Yes. There's an increase in the solution between '24 and '25, and we're seeing that continue into '26. A lot of it has to go in with Dr. Shan's closing and this moved into open orders. And this came in tandem. About 1.5 years ago, we mentioned a big push on different support services. And having us be able to go on site and speed up the use of our technology and qualify different areas, we're able to predict how much solution they're going to be able to use. So that, in essence, is now finally starting to pay off with them purchasing the orders that they need in advance and just get into more of an auto shipment. So that's the goal, and it's starting to come into play. It started at the end of 2025, and it's moving into this year as well. So that's the big difference. And the 2, why it's referenced in the script that way is because they go in hand. Our support services and our BIT Solution are definitely together in trends.

Okay. And then are most of your customers in '25 using more -- significantly more BIT Solution than they did the prior year?

Yes, definitely. I mean there's always some fluidity to it because you'll have our service provider shift -- if there's -- the fires produced a lot of solution in Q1, different decommissioning of buildings if they get large -- large service contracts, then this definitely increases our solution. So that's a little harder to predict. But when we're able to go in and qualify different spaces or similar to the eye health company where we know how and exactly where they're using the equipment, that's a little easier. But the Q1 of last year certainly was due to some emergency use. So there's definitely an increase in solution.

Okay. And then on -- can you provide any more detail as far as how the application would be used to deal with the wing syndrome for honeybees?

So we do -- we have the study, and we've done a few other lab type studies, and it's definitely a good use, and we're looking and are still speaking with a local university on trying to get live use case. Once we're able to reestablish that and actual application use, it will proceed from there.

So John, I've reached out to the associations, the honeybee associations, domestic, globally. I've reached out to the Board, and I've yet to get a reply and with overwhelming evidence of what we can do and how we can help the pollinators around the world. And right now I'm reaching out to the Department of Agriculture to see if they can help or at least get this technology in front of somebody that wants to make a change.

Okay. And then you had mentioned briefly the use for treating marijuana plants?

Right.

Is it mites -- or is it for the powdery mildew?

It's for powdery mildew funguses on the plants. We have an EPA label we're trying to get from the EPA just for that. Is that - 4, EJ?

Yes, that's correct.

Okay. And -- but currently, you're not getting any revenues yet from that particular type of usage, correct, because of the need for the EPA label?

I think, EJ, you can answer that. I think there were some...

There's a handful of customers. With them, it's scaling up. And right now, they're doing a lot of handheld treatments, but we do have a good partner that is promoting our product and even some international interest on the treatment. But we do have some wide use, which is great, and that usually is the first step.

Okay. Good. And then one thing that I've been curious about is and whether you've explored or thought about exploring it is uses of SteraMist in the military. And I was thinking about it with regards to the Middle East crisis with all of the Navy ships and the -- in the Gulf and how people are crowded together. It's got to be a potential breathing around for germs and potential infections transfer. So has that -- have you explored that at all or ever talked to the Navy about possible usage of SteraMist?

So the Navy has been -- are they still a customer, EJ?

No. Well, are they -- if they are a customer, that's new to me, but have you explored uses with it? And if you have, what response have you gotten from the military?

I think we're a little too small and overwhelmed with everything to go after that at the moment. But I believe there was a testing center that the Navy was involved with. It's a great idea and especially with the new COVID variant that seems to be running around and came from the Netherlands to the U.S., I'm sure that you're right of the close proximity on these ships, they do need to get a disinfectant. And I think this is something that we're going to go look into immediately.

And we have completed some request for information on the grant government site for military vehicles and how to best implement SteraMist. So they are creating information that way, but that does take quite a bit of time. But we do complete those on a regular basis to get the [indiscernible] out there.

Okay. And I don't know if there is a particular certification required, but I was thinking the same thing about SteraMist application possibilities for military hospitals or the VA, which, as we know, has a number of problems with infectious disease transfers.

I think they're waiting for me to answer, John.

Sorry, I don't -- not anything specific. I think [ almost ] to that. We do have a closed service provider been into military housing, but too early to speak about.

Okay. And my -- one of my final questions was going to be on scale up. If you do get a significant amount of new orders, how easy or difficult that would be for you?

Well, it's -- again, we probably need to raise some capital to scale up significantly. The 20 people we have do a hell of a job as a team. We were able to handle COVID pretty much with the same amount of employees, and we did really well. So I think we could handle the immediate scale up depending upon the equipment, but we definitely need to go ahead and increase the size of the company going forward in lots of divisions.

Okay. Good. And then last question was a number of -- have you actually total them up as far as the number of new customers added net in '25 versus '24?

I haven't -- David, EJ, have any of you done that?

No.

Not based on new customers, no. Definitely -- individual orders between the years, but...

I think we'll do that, John, and I'll talk about it on the call coming up soon in 6 weeks.

Okay. I mean you definitely have listed a number of new names that I hadn't heard on previous calls. So -- but I was just curious about...

Yes, I know. And I left out half of them, too, but it was impossible to go through them all. It's just frustrating to see what happens to the stock and what occurs with the difference. So the point, I think, was well made, and we'll see what goes on.

Okay. And then as far -- you've done an excellent job of adding significant distributors, both domestically and internationally. Do you -- is that still a significant part of efforts going forward to add even more distributors?

Absolutely. We're in talks right now with many.

There are no other questions at this time. I would now like to turn the call back to Dr. Halden Shane for closing remarks.

Okay. I just want to thank everybody again and wish everybody a happy Passover and happy Easter. Thank you, operator.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.

You too. Thank you.

Good afternoon, and welcome to the TOMI Environmental Solutions, Inc. Third Quarter 2020 Financial Results Conference Call. [Operator Instructions]. Please note, this conference is being recorded.

I will now turn the conference over to your host, Mr. John Nesbett of IMS Investor Relations. Sir, the floor is yours.

Good afternoon, and thank you for joining us today for the TOMI Environmental Solutions Investor Update Conference Call.

On today's call is TOMI's Chief Executive Officer and Chairman, Dr. Halden Shane; E. J. Shane, our Chief Operating Officer; and our Chief Financial Officer, David Vanston.

A telephone replay of today's call will be available through November 28, 2025, the details of which are included in the company's press release issued today. A webcast replay will also be available on TOMI's website at www.steramist.com.

Certain written and oral statements made by management of TOMI may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements should be evaluated in light of important risk factors that could cause our 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. Please refer to our filings with the SEC, including our 10-Q for the quarter ended September 30, 2025 for a discussion of these risk factors.

The company undertakes no obligation to update these forward-looking statements after the date of this call.

I will now turn the call over to Tomi's Chief Executive Officer and Chairman of the Board, Dr. Halden Shane. Please go ahead.

Thank you, John. Good morning, afternoon or evening to everyone listening from around the world. Thank you for joining us for TOMI Environmental Solutions Third Quarter Earnings Call.

Today, we will share our third quarter 2025 results, along with key updates and reasons we believe TOMI is on the cusp of a breakout. After a challenging start of the year, the third quarter marked a decisive turning point. We delivered a 95% sequential revenue increase driven by expanding recurring revenue streams and deeper customer engagement

A key takeaway from our third quarter performance is the increase in capital purchases of our mobile equipment as our service provider partners grew in number. This includes both well-known industry leaders and smaller long-term players who are increasingly recognizing the value of clean tech and the superior advantages of our SteraMist iHP technology.

Our vision remains steadfast: a future where sales of mobile capital equipment, iHP corporate service, our custom integration platforms and, of course, our core BIT Solution business model all grow in tandem.

A new growth engine, recurring revenue, that's the theme. Building on the momentum, our third quarter revenue reached $2 million marking a 95% increase over quarter 2. This growth was driven by strong equipment sales and most notably, recurring BIT Solution sales which have risen 21% year-to-date.

In 2025, we placed significant emphasis on our existing customer base, ensuring implementation, usage and tailored protocol development for customers across all our industries. This focus has positively affected BIT Solution sales, which has seen stable and increased sales in each quarter.

By sustaining this momentum, while ramping up capital equipment sales and successfully closing project bids for our automation solutions will not only achieve our overall growth objectives. But also enhance predictability, which is essential for scaling the business effectively.

Another theme, momentum builds expanding pipeline and backlog. Our sales order backlog was $0.9 million at the quarter end and grew further to $1.3 million by October 31, with approximately $3 million in pending SteraMist Integration Contract expected to close before year-end.

Our active pipeline surpassed $15 million, encompassing both domestic and international customers across the industries we currently serve as well as emerging sectors showing strong interest. These figures are more than just metrics. They signaled the business opportunities we anticipate in the coming quarters and extending into 2027.

Another theme, visionary markets beyond traditional boundaries, we are doubling down on investments in innovation and customer success. Our SteraMist iHP continues to gain industry recognition. This year being named the disinfection and decontamination products company of the year 2025. Our platinum customer roster includes top-tier leaders across every sector we serve, further validating our solutions and positioning TOMI as a trusted partner in global health and safety.

Regulatory developments are opening new markets. The FDA's broadened approval of hydrogen peroxide and our breakthrough demonstration of SteraMist efficacy against Honeybee Colony collapse, position us to serve not only life sciences and health care but also agriculture, food processing and environmental biosafety.

The opportunity before us is vast, expanding the relevance and impact of SteraMist on a global scale.

Strategic execution laying the groundwork for 2026. To maintain and accelerate this momentum, as stated earlier, we are intensifying customer outreach through personalized engagement strategies, deploying targeted marketing campaigns that highlight real-world success stories and forging deeper partnerships with key industry players.

Our SteraMist PRO certified program and learning management system are empowering the market with essential education while onboarding specialized service providers. We are also in the process of updating, improving and adding to our training programs across all delivery systems.

Looking ahead, heading into 2026. TOMI is sharpening its focus on biosecurity advancements that address evolving global challenges from climate-driven health risks to supply chain vulnerabilities. We will prioritize scaling our automation integrations for high efficacy environments. Exploring untapped opportunities in sustainable agricultural and public infrastructure and fostering collaborative R&D with academic and industry partners.

This will empower us to deliver solutions that enhance environmental resilience, safeguard communities worldwide and drive sustainable returns ultimately positioning TOMI as the go-to innovator in a rapidly changing world.

I will now hand the call over to our Chief Financial Officer, David Vanston, who will provide a brief overview of our financial results for the third quarter of 2025 compared to the same period last year. David?

Thank you, Dr. Shane. In the third quarter of 2025, our revenue was $2 million, a decline from $2.5 million in Q3 '24, representing a 24% decrease in sales. This was primarily driven by a timing reduction in the quarter of iHP services sales from a key customer who reorganized its operations. This impact is expected to be temporary, and the customers' operations and related service activity are expected to resume to a normal level in the near future.

Importantly, year-to-date service demand remains robust with close activity and pipeline volume up approximately 35% year-over-year in the life sciences and food safety area. This trend supports our expectation for continued growth in the fourth quarter and beyond.

For the 9 months ended September 30, '25, Solution revenue was $760,000, an increase of 21% year-on-year as early as stated by Dr. Shane compared to the same period in '24. As we continue to drive recurring sales of solution within our customer base. A positive point was our gross profit margins remain strong at 61% as a percentage of sales, for the 3 months ended September 30, 2025 and for the same period last year. The consistency of our gross profit margin underscores the resilience of our product mix and disciplined cost management.

The 3 months ended September 30, '25, we experienced an operating loss of approximately $320,000 compared to an operating income of $149 million in the same period last year. Our net loss for the 3 months ended September 30, 2025, was approximately $450,000 or $0.02 a share compared to a net income of $58,000 or 0 compared to the same period last year.

As of September 30, 2025, our financial position includes cash and cash equivalents of approximately $190,000, working capital of $2.5 million and a share held equity of $2.2 million.

I will now turn the call over to our Chief Operating Officer, E.J. Shane to discuss the upcoming business highlights.

Thank you, David. Our previously announced active projects are currently on schedule for delivery by the end of the year, and we are currently negotiating an additional $3 million in custom and integrated contracts with this expected to close before the year-end. 2025 showcased TOMI's evolution into a trusted technology partner for regulated industries, implementing SteraMist with agencies such as NASA and [indiscernible] alongside repeat orders from global leaders underscores SteraMist's position as a gold standard for contamination control. With major pharma companies investing in the United States onshoring and sectional facilities, TOMI's ideally positioned to capture expanded opportunities in sterile automation systems.

Automated, repeatable and validated decontamination rooms and chambers remain in high demand as the pharmaceutical industry evolves. We believe our iHP technology is emerging as a benchmark for sterile environment as evidenced by its adoption this year with SteraMist Companies. As of the third quarter, the onshoring of pharmaceutical production positions us favorably, specifically in Virginia for the next few years, particularly with major commitments from Merck, Eli Lilly and AstraZeneca, who are establishing new production sites.

As we build on the strong momentum we've shared today, the key question is obvious. How will we keep driving growth in bit solution sales, iHP service, capital equipment and custom integrations. As Dr. Shane noted earlier, our BIT solution gains come from growth in personnel and operations and better training for our current customers. We will keep this going to drive study adoption and stronger reach in key sectors. We are nearly complete on updated training documents rolling out a more comprehensive program that emphasizes ongoing recertification.

This approach not only raises customer standards for implementation and safety, but also may generate additional revenue and deeper product adoption, strengthening TOMI's role as an essential partner. Quarter 3 of 2025 unfolded an essential chapter in TOMI's journey marked by breakthroughs that not only validated our recent innovations, but also directly fit our pipeline of opportunities. It began in July with the installation and commissioning of our SIS-SA for a neighboring pharmaceutical company which falls under our SteraMist Integrated System or SIS platform offerings targeting the pharmaceutical isolator market. A milestone that led to successful integrations into additional enclosures for Virginia Commonwealth University and the University of Miami and a promising wave of future installations with both existing and prospective manufacturing partners.

In the life sciences and manufacturing sectors, we see a powerful shift toward continuous bioprocessing, flexible facilities and AI-enabled operations. These advancements demand be contamination solutions that integrate effortlessly with automation while minimizing downtime, precisely where a custom-engineered system, or CES excels, offering rapid, efficient sterilization to support production and operational efficiency. While our CES remains in demand due to its tailor capabilities, we recognize that its extended time line from initial interest to full commissioning can be expensive.

As the CES pipeline continues to expand, we are strategically prioritizing our hybrids and SIS products, which offer faster close rates and quicker integration and implementation within facilities. This balanced approach ensures that all our custom automated offerings advance at a comparable pace with the hybrid and SIS line serving as the ideal solution for automated integration segment, driving quicker revenue realization than the CES.

Building on our Q3 momentum, August marked a significant step forward on our East Coast distributor, Ares Scientific, who helped us secure a new university client for our SIS platform. solidified our presence in the academic vertical and opening doors to specialized applications and research environments. This progress carried into this week's last conference, where we collaborated closely with Ares on promising upcoming projects and showcased our advanced product lineup alongside our enhanced engineering capabilities and programming end design.

By engaging manufacturers of case washers, decontamination chambers and biological safety cabinets or BSCs, we are expanding our partnership options for future integrations. Strengthening our pipeline with diverse choices while positioning these collaborators as valuable resources to expand the SteraMist iHP brand and technology into high potential sectors such as government agencies, universities and animal research.

Additionally, our discussion today included a new potential representative company for the West Coast as well as opportunities for complementary products that could generate fresh revenue streams by paring seamlessly with our core technology. Stay tuned for updates on these developments as they may diversify our pipeline in heading into next year. In health care, new initiatives like the Joint Commission accreditation 360 program, set to launch in 2026, we open new revenue streams for TOMI as well. The program will create a growing need for verifiable, audible disinfection data, which SteraMist delivers through its advanced logging and reporting features, helping providers meet stringent standards and enhance patient safety.

In quarter 3, we celebrated landmark addition to our roster of customers with a major player in the eye health industry. Bausch & Lomb rapidly adopted our mobile handheld surface units in 2 facilities in under 4 months and committed to open bit solution orders for 2026, promising sustained revenue streams in the sector and need for advanced sterility.

In September, we made significant strides in capital equipment segments by onboarding a specialized service provider focused on health care and mold remediation, quickly followed by sterile and tap purchasing mobile systems with the latter expanding SteraMist line with foggers. We continue to speak with these 3 and other larger franchise service providers for a widespread adoption of SteraMist iHP technology their networks.

Our highly regarded SteraMist certified or SPC program continues to nurture a dynamic environment of partners and customers, enhance the implementation and long-term usage. Large contract cleaning, bioremediation and restoration firms such as [indiscernible] Tech are scaling up their offerings to handle complex, high-margin jobs and biohazard mold and microtoxin cleanup using our advanced technology. This year has brought the transformative shift in our business development approach with initial purchases of 1 or 2 units at select locations inspiring broader rollouts across entire organization. a pattern that is starting to play out successfully in both the life sciences and commercial industry.

To sustain this menu, we continue developing these organic expansions, which is key to scaling our business and of course, its model. A prime example is our growing relationship with Nestle, which is gaining traction, and they have expressed a strong desire to establish our technology as the global standard across their nutritional facilities worldwide. We have already deployed multiple streaks to various branches internationally, setting the stage for substantial reoccurring revenue and further international growth.

We continue to pursue the cannabis market under our Food Safety division and quarter 3 sparked some significant interest domestically and internationally, opening doors to promising new partnership discussions. Our current distributor, Sterile Grill, continues to market and fully gain traction, adding to the referral base and efficacy use data for the market. We have an officially entered a collaboration with Smithers the largest testing lab in the United States, which we expect to yield lead referrals soon and will soon begin a study in Morocco that positions us for entry into the European and African medical cannabis markets. A key quarter 3 highlight pertains to a regulatory change. The FDA's final order amending regulations to permit hydrogen peroxide as a safe disinfectant oxidizer and bleaching agents in food for human consumption, while removing sulfur dioxide restrictions. This ruling is game-changing for SteraMist, validating our bid solutions food grade hydrogen proxie as the sole active ingredient and providing a clear regulatory framework with a competitive edge in the multimillion-dollar food safety market. By expanding applications beyond environmental disinfection to direct food-related protocols such as in the ready-to-eat or RTE industry, where convenience foods like prepackaged meals and salad demand pathogen control, it positions TOMI to capture a significant share across the supply chain. With no residual concerns, due to SteraMist iHP breakdown and to oxygen and humidity. We can now disinfect equipment processing lines and facilities and food present environments to target threats like salmonella, listeria and ecoli. Decontaminate packaging and storage areas for contamination and sanitize transportation vehicles for end-to-end hygiene. This broadens our addressable market and drives revenue growth in high demand sectors. Thank you. And I will return the call over to Dr. Shane for his closing statements.

Thank you, E. J. we remain focused on strengthening our organizational foundation, enhancing our C-suite, management and division leadership, building out our sales and technical teams and expanding our network of global distributors. The third quarter marked a notable period of recovery and reaffirmed the soundness of our strategy. We are seeing steadily improvement financially, operationally and strategically.

Our team is dedicated to driving growth and innovation across all divisions, leveraging our expanding portfolio of products and services. We are encouraged by the opportunities that lie ahead. Our sales backlog remains strong, and the sales strategy implemented at the end of last year is beginning to deliver promising results. We are motivated by the progress in our strategic partnerships and the growing interest from clients seeking to improve their operations with our solutions. With continuous investment in infrastructure, technical expertise and a stronger sales strategy, we believe we are well positioned for a successful fourth quarter with momentum carrying into 2026.

I'd like to highlight a recent strategic milestone that positions us for sustained growth. On November 5, we entered into an equity purchase agreement with Hudson Global Ventures, giving us the flexible right but not the obligation to sell up to $20 million in common stock over a 24-month period. Full details are in our Form 8-K filing. The agreement provides the flexibility for on-demand access to capital without upfront commitments or heavy dilution, helping us fund the strategies, goals and momentum. We have described today, including our business development needs, hiring customer service specialists, technicians and programmers trainers and operational support to accelerate our pace while maintaining our strong reputation with customers across the industries we serve.

It will also enable us to expand on key initiatives, such as advancing R&D, regulatory pursuits and market expansion ensuring we seize opportunities in clean tech and biosecurity while creating long-term value for shareholders. Thank you for your continued support as we unlock TOMI's next era of growth. We're excited about what's ahead. Now operator, let's open the call to questions.

Our first question is coming from Sameer Joshi with H.C. Wainright.

Really good quarter. Congratulations on the nice turnaround and progress. One of the clear things I think you announced was the FDA approval or clearance for the hydrogen peroxide usage. It opens the food RTE and prepackaged as E.J. outlined. What is -- what are your sales and marketing efforts towards this? And have you identified initial targeted customers that you would pursue?

So it's relatively new, this approval. And we foresee that the food industry in itself, both whether it's in processing, storage packaging, transportation, et cetera, can be a key marketing vertical for us. And -- and I'm really excited about it because, especially our type of technology does not have any residue. And it's going to be a game changer. But in order to go ahead and tell you how much and who it's a little too early, I think. And I find that a lot of the food companies themselves are not aware of the change. But things are changing in this industry. They're leaning away from old established disinfection and parasitic acids and things like that and dips, et cetera, that they've been using. And our technology is a definite should be on top of their list as a choice.

Yes. No, it certainly makes sense what you're saying. And I'm sure it will open up a big, big market for you. On the 3Q performance, again, as I said, congrats under nice turnaround. The operating expenses were also contained despite the nice revenue increase. Should we expect these operating expenses at the operating expense level as well as the gross margin level to continue to sort of improve financially?.

So for your model, I think your expenses are going to increase. And I think they're going to be positive in relationship to revenue. David might have something to add to this, if you'd like, David. Yes. I think for the gross margin, I think you may get 1% or 2%, but nothing significant. You've already seen that over the year-on-year, we're holding around the 60% margin. I mean that helps us with the continuing solution sales that come in. So I don't expect our margin to be under too much pressure.

But as Doc pointed out, if we're going to scale up, I would expect PAUSE the revenue line will go up at the same time, but a percentage of the total. The operating expenses as a percentage of our total revenue will not be the company.

Yes, that is what I was driving it because you did outline the R&D efforts and initiatives. So they will increase, but not -- but you will still have leverage and revenues are probably going to increase faster.

Yes. Correct. Got it. Last question. On the international front, I think you did mention Morocco, Africa. What kind of sales effort is in place? Do you have representatives in these countries, how should we think about how the sales are going to be realized?

So we have different distributors in some of these countries that are focused in them. I think that a lot of our global partners, where we mentioned 1 in the food industry on the call earlier. PAUSE -- is going in implementing this in many of their facilities globally. Similar to that, the other types of partners that we have that have global footprint in various countries that are interested in increasing their demand and use for stories going forward?

May I squeeze in one more because I think you had pointed out that your capital equipment sales increased. I think that bodes well for solution sales in coming quarters. Do you have visibility on what kind of solutions sales you will see in the coming quarters?

I don't. We -- again, I think the first half of the year, we had about a 41% -- 40% increase in solution sales over 25And in the third quarter, we were down to about -- I believe it was in the mid-21%. So it averaged down a little bit. I think by the end of the fourth quarter, our recurring sales should pop up again because people wanting to get the solution in by end of year. And I think that's the key to this whole call is we get more technology out there. We do it by manufacturing, but via by also increasing our sales and our sales strategies in these areas and more equipment lead to more solution sales, which is the model that would drive a very successful business going forward.

[Operator Instructions] Our next question is coming from John Nelson, who is a private investor.

and congrats to you and the TOMI team on the enhanced momentum that the company seems to be generating right now. I have continue to steadily add to my stock position since my latest 13G amended filing in July. So I'm very pleased with on your results. And I know the efforts are superlative. Questions. In the -- is there anything updates you can give me on the -- what's going on with servicing are trying to service the military and defense markets?.

I don't have one. Maybe E.J. has something to say about that.

Yes. This past quarter, a lot of our service was directly attributed to one key site. I can't really go into too much detail, but they are looking to replace formaldehyde and have been, and we're working with them. We did quite a few studies with them in Q3. We went there 8 or 9 times and had positive results. I don't expect that one to show a close before the end of the year, but we are definitely expecting it to be a pretty big deal in 2023.

Good. Any updates on the CAR T cell disinfection business. P.J.?

I don't think we have anything. Okay. The -- you mentioned in the press release that you've now onboarded all 3 of the top major service provider companies in health care mold remediation. And I was curious as to any expectations that we should have on rapid versus slow rollout by these parties?

So yes, and I know you've been asking it wasn't ServiceMaster, but bringing on steric intact and the other group was definitely a big deal especially with their quick assessments to add more units pretty quickly thereafter their initial buy. They do have a focus more in biohazard and microtoxin remediation, and we expect to really keep working with them and gain live case studies to be able to bring on the rest of their facilities and then, of course, additional franchises. So I do see a dramatic shift in our service provider ship. I think it's the way we've now outlined the way we train and support them with the program and the learning management system that we offer to them. and we're a little more aggressive in the correspondence and staying up to date with everything they're doing.

So it is proving a good outcome and expect more.

Okay. Great. The PAUSE a lot of attention is being paid and a lot of dollars is going to the data center market, Google just announced the thing we're planning on investing $40 billion in new data centers in Texas. So could you comment at all on any plans to try to penetrate the disinfection market for those types of facilities?

Sure, John. That's one of our reasons that we are expanding and want to expand our sales teams in multiple verticals, and that's one that makes a huge amount. Interest and potentially success for us because they do need disinfections, they're large facilities, and we will handle their materials tremendously. So we are going to work on that. We just do not have the employees at the moment to focus on that.

And that's one of the reasons for capital needs and to increase our existing sales force.

Got it. And besides the data centers in planning stages for being developed, there's also the current existing market and many of them are crypto data centers that are being basically converted to use by the magnificent 7.

That's true.

Last question is the FDA broadening the permitted use of hydrogen peroxide in the food industry. And I was wondering if you could maybe give us a few more details on how your increasing your awareness for that.

We are doing it on social media, and we do have plans to increase it further. Lot, like I said earlier with the call from the analysts, we know who they are that need our product. And sometimes, they don't even know they can use our products. So in smarter education will move at the moment. But I think that also in the medical supply medical sterilization and of medical materials, medical processing, sites that have huge ethylene oxide sterilization our products and grade replacement.

So there's a lot of work, a lot of low picking fruit for us to work at in those areas and those verticals. And as the team gets bigger and moves forward, we will be focused on them.

Okay. And in marketing, are you targeting the companies that have had problems in the past?

E. J.?

Are you targeting companies first that have had problems in the past with infections and.

We are, John. But we did start our initial beginning point was to start with our current database and the correspondence that we have had with food safety customers probably about 1.5 years or 2 that could come on board because prior to the ruling, it was -- had different restrictions for the ETA legal. So we're now in correspondence with those with the new FDA petition and reaching out how to create protocols under that guideline. So we did start with individuals that we were already talking with.

Okay. Good. And then one more that I just thought about is any progress or developments the use of SteraMist for replacing ethylene oxide in the medical instrument sterilization market?

Yes. I mean those kind of in hand with under both accounts in food and in medical device treatment. The other partnerships that we're starting to build in device manufacturing will also lead to that replacement being able to have iHP streamlined into different closures to decontaminate these devices and other large machinery that's used in both industries.

So it's definitely all being high prioritized in discussion.

Ladies and gentlemen, this does conclude our question-and-answer session. So I would like to turn the call back over to Dr. Shane for any closing remarks.

I just want to thank everybody for joining us today and for the continued support, and we will be speaking at our next earnings call. Many thanks. Have a wonderful day or evening, wherever you might be. Thank you, operator. Thank you.

And thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.

Good day, and welcome to the IAC Alpha Virtual Best Ideas for Investment Conference 2025. The next presenting company is TOMI Environmental Solutions. [Operator Instructions]. I'd now like to turn the floor over to today's host, Dr. Halden Shane, CEO and Chairman of TOMI Environmental Solutions. Over to you.

Thank you, and thank you all for joining our presentation from wherever you are in the world. TOMI, as a product [ of ] SteraMist. We are a leading disinfection decontamination product. Our slogan is innovating for a safer world, and we are certainly doing that. The next slide, you see is a forward-looking statement. I'm sure we've seen many of these. And if you want to take a moment and read it, if not, I will go on to Slide 3.

Vision and value proposition. That's where we are. we're faster, we're safer, we're eco-friendly and we're revolutionizing cleaning and disinfection by providing a disruptive, easier and safer way to disinfect. Compared to our competitors, we're much faster, we're safer. There's no residue. The only residue is eco-friendly, oxygen, humidity and our efficacy is broad where we get 6 log and greater pill. Some of our premier clients -- some of our premier clients will demonstrate to you our growing momentum and our sustainable growth. We have an excellent list of clients that are constantly reordering our product and helping with the mission of making sturdiness is standard in the disinfection decontamination space.

As you can see, some of them are Pfizer, Merck, Thermo Fisher, Francis Kabi, NIH, USDA, FDA, NASA, et cetera. This shows you how accepted our product is becoming and how useful it is in many verticals, which I will go into in a moment. What is SteraMist? How does it work? SteraMist takes a very low percentage hydrogen peroxide 7.8%. It takes us peroxide and puts it through a cold plasma arc, which was developed by DARPA it alters the structure of the hydrogen peroxide into hydroxratical, which makes it faster, doesn't require wipe, a rinse and it's portable and it creates a contact to viruses, bacteria, other organisms, including recognized types of materials and causes an oxidative burst, which leads to destruction or death of a bacteria, bacteria spore and/or neutralization of the virus.

Moving right along, DARPA, who has designed this initially for weaponized anthrax. TOMI acquired the patent rights and expanded the registrations worldwide. Where currently, we have 32 granted patents, over 200-plus trademarks registered in 50 states and over 30 countries. The market opportunity is unbelievable. It's billions of dollars in relationship to the biotechnology market, the food and beverage market, commercial services and health care. And this slide will show you a little bit of breakdown of that market and how many trillions of dollars worldwide over a period of years, you can see that's available to be brought in as potential revenue. Currently, the way the company set up, we have 5 divisions. The first is biotechnology or life sciences.

These are the pharmaceuticals or the variants basically laboratories, tissue banks, government, a cold cell and gene therapy food and beverage, anything from manufacturing to packaging, to processing, transportation, grocery stores, meat and poultry vertical farming, honeybee survival which I'll talk to you in a little bit and prepared food. Our commercial services covers everything from hospitality to education, to mass transit aviation any way you can think of a potential use of this product would be covering any vertical that you can really think of. Health care, whether it's in ICU, if it's in just general operating use inside office use for medical devices, nursing homes, EMS, transportation, et cetera.

And it's utilized in surface [ decon ] area decontamination, mold remediation, mill remediation crime scene biohazard and the list really does go on. If you look at the advantages of our product as it stands out among the leader in the disinfection decontamination space, you'll see that we get 6-log kill greater. That's the level of sterilization. A rapid kill in some situations in 5 seconds. The material compatibility compared to our competitors, no way, no mixing, there is no residue, which will be really important in relationships to the Food and Drug Administration.

Submicron particle, we're able to have a small particle to get around the virus or bacteria and to create the option to burst that basically kills enter neutralizes it. Again, as I stated, broad efficacy, it moves like a gas. So if you're treating a room, you open up a draw. Having it, it will go everywhere and just imagine the gas, and that's where it will go and disinfect or decontaminate. It's very cost effective, and it's daily use for preventive measures is outstanding. The business model involves recurring bit solution. It's a razor/razor blade type model, equipment sales, we install a base, and we have a recurring base. The consumables quarter 1 of 2020, versus quarter 1 of 2024 showed an increase of 40% with a gross margin of about 60% we have an integrated platform and OEM partners. These partnerships have been put in place in the last half of last year 2024. They're helping and building our $21 million integration and build in pipeline, shortening of a sales cycle of our equipment.

These partnerships will create the ability to have our products have SteraMist, integrated into things like isolators, sterilizers, catches biosafety cabin, its material transfers, RDSs, et cetera, mostly in the life science and the Varian fields. Why SteraMist? We do it all from start to finish and endless markets, consumable business model and demand their preparedness and emergency is and should always be there. Product overview. We have our SteraPark and our surface unit. They are basically the spray some that are portable, 5 seconds per square feet. We have whole room fogging for advanced fogging for both air and surfaces, these are in the environment system, our new stereos transport for ambulances EMS bus and our MVPs.

Also, our custom integration, which is an extreme demand is bogging this enhanced and fully integrated into a room, a building, a system and it involves our serines hybrid custom engineered system for our SteraMist integrated SIS system. We have platform options, whether it be stand-alone for pharmaceutical manufacturing for data centers, supertight, unbelievable applications for this wonderful DARPA created product. This slide here will give you an example of all our units. And not to take up much time, you can pretty much see what they look like and any more details, obviously, we'll be able to answer that later. Razor/Razorblade model, the equipment out there that's basically the razor. The razor blade is a proprietary solution. It comes in 32 ounce, 1 gallon, 5-gallon, 55-gallon drums. It gives us our highest margin. We've had a 40% growth in the first 6 months of 2025 compared to that same period of '24 previously mentioned that.

From concept to commission, designed in-house, deployed services, qualification and validation, we offer 24/7 service for outbreak response and ongoing contracts. Custom integration, we started out with the concept back in 2021. We started to go ahead and create a few of these the -- we closed the pitching in '23. It takes sometimes years to get together with the architects, the engineers and the building owners to go ahead and create the model to build it as it gets in there. As you can see in '24, we launched our SIS, and now you can see that in '24 compared to '25, we already have as many in, as we did in 2024 that are ready to be installed.

Our current pipeline is $15 million of open produces with 7 million in active specific designs happening at this moment. The life science market, they're shifting away from ethylene oxide, ETO. This is going to open up a huge market for us. BSL 4s and 3s are expanding. There was a lot of capital restraints early part of this year and the last part of last year. We're finding now that these restraints are being lifted and the market itself is interested in our product. And there's a high containment labs, especially in North America, Europe and Asia. That's showing that these labs post COVID are ready to go into new equipment, and we're there to fill their needs. an EMA compliance, USP 797 as guidelines.

As a case study is Philips, the medical market is about $27 billion in 2024. Our goal, once again, our goal is to go ahead and use the data coming out of Philips for an FDA Class II medical device for recycling it, disinfecting it, repacking it, replacing manual wiping going into automated stereo systems partnershipping with many people, including ESCO and enclosure since the last part of '24 and the complete of the Philips project and their continued usage and data collection list with our FDA 510(k) submission. This is very. The food safety market is also huge as it's restricting the use of ethylene oxide going to safer, eco-friendly products similar to SteraMist. Couple of case studies, Nestle using this currently, I believe, in 4 of their foodies in Arizona, in Germany, Switzerland, South Africa. We have many more we're expanding into.

Egg Life is another case study that we're using where they purchased a number of them to date. They have a 456% increase in sales. Health care industry can be challenging. COVID really knock them out. Nobody is that interested in new infectious control products. However, we have quite a few health care facilities using our product. And once we're able to handle some capital restraints and hire various people in this industry, we feel we will be back and be a leader in it. But we have some studies where C. diff affects 0.5 million people. Annually, and 30,000 of them will die. And we do have an EPA registration.

Moving rapidly along to Slide 23, Trinity Health, St. Francis, did a case study. It showed basically that the total facility C. diff cases when we began the study was in the teens and after they use it, it was a single case, very impressive. It shortens the amount of time to do a terminal clean in a facility, and we have other studies to show that. Commercial industry, our PR certified. This is a teaching it's biohazards, environmental remediation and other professional remediators. It's ongoing I recommend anyone out there in the biohazard remediation field or emergency preparedness, take our product, make it one of the only Tools and it's tool chest.

And this industry is going to be in the forefront and the lead to helping in preparedness and advancement of outbreaks, whether endemic or pandemic or just a localized outbreak? Revenue growth, as you can see, over pre-COVID levels were at plus 38%. David, do you want to spend a couple of minutes on this.

Yes, absolutely. I think the key to remember is we are a disruptive technology with long lead times. And so we have a lumpy revenue and we're subscale. But if you look at our -- just so everyone is aware that the blue boxes, as I call that, is pre-COVID. So exclude the COVID here. And then the orange or the brown -- orange brown box is after, and you can see that we went from 5.6% to 7.8%, which is 38%. But impressively, we've grown both within the product revenue and the service revenue. Back to you, Doug.

So also the fact it's some really important or Tier 1 customers of our disruptive technology and long lead times. Currently, our pipeline with our integrated mobile and our service is around $21 million. Service and support expansion. As you can see, we have growth in all those areas, specifically our IHP service. It accounts for 70% to 90% of total service revenue. Annually, it's about 1.3 of 1.7 in 2024. And to date, we have support services and 203,000 versus only 105,000 in 2024. So overall stability in our services have gone from $897,000 in 2017 to 1.7 million in 2024 and increasing in 2025. And Sustainable growth drivers, our pipeline year-over-year, sometimes it's seasonal. We're able now to get past our 18 Months, focused expanded product lines and services to address new applications of our technology, accelerating momentum we're seeing across all areas.

And IP has key traction scaling in key markets. We have a clear road map to capitalize on market opportunities. We're executing now with people, increasing our sales team enhancing our KOL network, technically improving our service, expanding our R&D protocols to existing members and clients we're training people. We're improving in our regulatory and an increase in our social marketing, our public relations and expansion in press releases, as we can see with the participation in little seminar here. Our growth drivers and pipeline, again, I'll go over a pipeline $21 million, active design, $7 million for '26 and '27 already. Near term, $5 million and '25, and year-to-date, we've booked about $5 million Return on investment, you can see with about a $12 million breakeven. Gross margins, very nice 62%. Our net income, as you can see, with $12 million is about 2%. Our net income with $18 million is about is about $3.2 million, 18%. Benefits is this razor/razor blade model.

Last slide is increased probability of an outbreak endemic or a pandemic, and you can repaper all over the world. journals, and you'll see that there's a potential impact of economic loss, disruption of global travel and regulatory damages. There's a tenfold increase, at least one of these 13 infectious diseases could end up in a predemic. There's 44 countries right now around the world that are experienced issues. And some of these are MERS, SARS, Ebola, COVID, influenza, Glass of Fever, Middle East and respiratory resistant TB metals. And invasive bacterial infections. So again, with extreme after cations in our capital, we can go ahead and start covering many of these countries that are experiencing these issues even today.

We are focused also in the future on space travel, on servers, AI, we are the answer. SteraMist is the future of disinfecting and decontaminating space all over the world and in all verticals. And I thank you, and we shall look for any questions. So one of the questions is service revenue grew 30% year-over-year. How repeatable is this growth? And what industry driving the most traction. So the most traction we serve in our in-house service revenue. would be in the life sciences, in the pharmaceutical space. They will have to have a disinfection decontamination process every 6 months, depending upon what country they're in and our revenue should continue to grow year-over-year.

And I think that's going to be one of the hallmarks of our analogy going forward as we keep on signing contracts for service revenue $15 million in opportunities, $7 million high priority. What gives you confidence. On conversion time and win rates. Well, majority of these, we've already won, we're in the middle of doing quotes and it takes years sometimes for them to go ahead and accept while we work with their architects and their engineers in designing this technology. So we have a lot of confidence in the conversion of this at this moment. There's another question up here about the efficacy of your system at decontaminate and measles exposed facility. Your ability to ramp up production. We are able to use our backpack, and we can ramp up production pretty quick with that.

Of course, depending upon the amount would be capital dependent upon how much we have to meet a large, large need. Let's refresh this. So some of the really exciting areas we're working on and current projects, I think, is if you take nothing away from this, Think about this. Recently, after we reviewed the U.S. Food and Drug Administration's final rule that they published September 3, which was 90FR42535, and I'm reading this, amending 21 CFR to broaden the produce the hydrogen peroxide as a secondary direct food additive. This was a stumbling block we had until they did this. So now this is going to be opening up the food market and food production because we don't have any trace residues and we will be able to start doing more work in the verticals as food safety, packaging, transportation, storage, packaging, free and post-service indoor vertical growers, including cannabis.

Another great opportunity we have. We all know how important any these are to look and that the colon is under attack worldwide from the night, which is the most danger damaging on EV tests in the world. The mic leads the destruction of the colony, destroys the body of the bee and weakens it. We have some studies. This is going to be a very pronounced economic impact if it's not treated by the bee keeping industry around the world. We can treat the hive and the bees and avoid damage to the hive by destroying the might with series. Another thing to think about is the global medical device market. I gave you a case study on Philips it's $23.78 billion in last year in '24. And it grows at a CAGR of about 10%. We're currently working with Philips, helping them recycle heart monitors the disinfection with a SteraMist allows repacking them so they can be sent to other patients.

It will replace the manual wiping by using an automated serious system, the completion of their project and the continued usage with data collection will assist with us filing our FDA 510(k) submission, which we are extremely excited about, and it's going to open up many avenues and lots of revenue to our growing company. And with that, I would thank you all for listening.

Thank you very much. That does conclude TOMI Environmental Solutions presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.

Good afternoon, welcome to the TOMI Environmental Solutions, Inc. Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, John Nesbett of IMS Investor Relations. John, the floor is yours.

Good afternoon. Thank you for joining us today for the TOMI Environmental Solutions Investor Update Call. On today's call is TOMI's Chief Executive Officer and Chairman of the Board, Dr. Halden Shane; E. J. Shane; TOMI's Chief Operating Officer; and David Vanston, TOMI's Chief Financial Officer. A telephone replay of today's call will be available through August 28, and the details of which are included in the company's press release dated August 14, 2025. A webcast replay will also be available at TOMI's website, www.steramist.com.

Certain written and oral statements made by management of TOMI may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward looking statements should be evaluated in light of important risk factors that could cause our 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 undertakes no obligation to update these forward-looking statements after the date of this call.

I will now turn the call over to TOMI's Chief Executive Officer and Chairman of Board, Dr. Halden Shane. Please go ahead.

Thank you, John, and good afternoon, everyone, and thank you for joining the TOMI Environmental earnings call for the second quarter of 2025. We are making significant advances at TOMI and remain dedicated to achieving in our goals for the year and beyond. With the second quarter behind us, we are encouraged by our recent momentum and believe it positions us well for the third quarter and the remainder of the year. At this time, we remain optimistic about maintaining this positive trajectory in the back half of 2025.

During the second quarter, we completed several key projects that we believe will drive revenue growth. As of August 7, the combined total recognized revenue, deferred revenue and sales order backlog was approximately $4.6 million with active projects on schedule for delivery in 2025. In addition, we are negotiating approximately $2 million in new custom and integrated contracts with bids expected to close prior to year-end.

As of the date of this report, our open opportunities for our 3 product offerings for the Custom Engineered System, as CES, the Hybrid Solutions and SteraMist SIS totaled approximately $15 million of which $7 million are designated as high priority. High priority opportunities are those with which we are actively engaged through ongoing discussions on specifications, submitted formal proposals or pursuits via established contractor relationships. All of this, which EJ, our COO, will talk in more detail shortly.

In the second quarter of 2025, our total recognized and deferred revenue reached approximately $1.8 million. With recognized revenue for the quarter exceeding $1 million, our service revenue from both the iHP service deployments and validation support services grew by an impressive 33% compared to the same period last year and by 46% over the first 6 months. Our iHP corporate service revenue is primarily generated from our long-term customers for the second quarter, along with other clients that has now become a regular contributor ordering from us almost quarterly.

Additionally, we have a new customer with whom we have a pending contract following their upcoming job scheduled for this month, which will be their second order from us this year. Our select clients include many platinum clients. Most of these are ranked in the top 10 list of companies within their specific industry and market.

As the CEO of this company, I am very impressed by this list of platinum customers. That is clearly why we won an award as being the best disinfection decontamination product in the world. To maintain our momentum in BIT Solutions sales, we are committed to expanding our customer outreach through targeted marketing strategies and strategic partnerships. We are also focused on educating the market about the critical importance of proactive disinfection through our SteraMist Pro Certified program and enhancing our training materials within our learning management system.

Year-to-date, we have seen a 40% increase in this solution sales. And we anticipate this growth will continue, especially as we expect repeat orders from customers during the latter half of the year. Years ago, we developed this model, and it is starting to bear its fruits as the solution is our razor blade in relationship to our razor-razorblade model. Our solution is the key to our model and has the highest of margins.

In the second quarter, we successfully validated the NASA project, which is now operational. We are collaborating with the Space Center on writing a publication and early approval to do so is promising. We remain optimistic about the sales trends for the remainder of the year across our BIT Solution, SteraMist Integrated Systems, SIS platform and our offered services, both deployment and support along with our Custom Engineered System, or CES. The quarter began on a strong note, marked a significant win for our SIS platform, totaling over $180,000 for a university with delivery scheduled for September. Our egg white manufacturing customer from the food industry continue to make device purchases as we welcome new opportunities from a servicing franchise that began purchasing our equipment in the first quarter and continued with additional orders in the second quarter. Notably, 3 of their servicing locations are now utilizing SteraPak, and we are in ongoing discussions to expand in other locations across the United States.

Additionally, the USDA increased its usage of SteraMist in the second quarter, and we concluded the quarter with another SIS collaboration with a material handling equipment supplier in Illinois. The breadth of these orders demonstrate our success in developing strong and varied relationships in multiple industry verticals. And as of June 12, SteraMist was recognized as the Disinfection and Decontamination Products Company of the Year for 2025.

I will now hand the call over to our new Chief Financial Officer, and please officially welcome David Vanston, who will provide a brief overview of our financial results for the second quarter of 2025 compared to the same period last year. David?

Thank you, Dr. Shane. In the second quarter of 2025, our revenue was $1.031 million, a decline from $3 million in quarter 2 '24, representing a 66% decrease in sales. This was primarily driven by customers deferring capital expenditure products projects in our product sales, mainly due to the uncertain economic environment with the impact of announced and implemented tariffs on their supply chains and long-term planning. This is illustrated as this was not a factor in the second quarter of 2024, which had higher sales in mobile equipment of approximately $1 million and our Customer Engineered Systems, or CES of approximately $0.5 million.

As Dr. Shane referenced, the service-based revenue for the 3 months ended June 30, 2025, was $378,000, an increase of 33% over the same period last year. The service-based revenue for the 6 months was $955,000, representing an increase of 299% (sic) [ $299,000 ] or 46% compared to the same period last year. This increase in service revenue was due to increased demand from our current and new life science customers, expansion of services in additional industries being served by our products and more stringent related procedures, resulting in quotes of 35% increase year-over-year, leading to expectations of continuing higher growth in the second half of the year.

For the 3 months ended June 30, '25, our gross margin as a percentage of sales improved to 66%, up from 62% in the same quarter last year. The improved gross margins were attributable to our product mix in sales, including higher sales of solution and service offerings in the 3 months ended June '25, compared to the same period last year. For the 3 months ended June 30, '25, we experienced an operating loss of approximately $1.1 million compared to an operating income of $120,000 in the same period last year.

Our net loss for the 3 months ended June 30, '25 was approximately $1.28 million or $0.06 per basic and diluted share compared to a net income of $30,000 or $0.00 per basic and diluted share in the same period last year. As of June 30, '25, our financial position includes cash and cash equivalents of approximately $569,000, working capital of $2.8 million and shareholders' equity of $2.7 million.

I will now turn over the call to our Chief Operating Officer, EJ Shane, to discuss upcoming business highlights. EJ?

Thank you, David. We have several active projects on schedule for delivery by the end of the year, and we are currently negotiating an additional $2 million in our custom and integrated contracts with bids expected to close before the year-end. In March this year, we announced our first formal OEM partnership with PBSC, a leading manufacturer specializing in high-containment, material decontamination and clean room solutions. This collaboration has proven to enhance our SteraMist Integrated System, or SIS product offerings.

Further, in our last call, I provided an in-depth explanation between the Custom Engineered Systems, or the CES and the SteraMist Integrated System, or SIS. In summary, both offerings consist of custom and integrated solutions that are increasingly becoming more turnkey with each new success. As we continue to collaborate with our established manufacturing partners such as PBSC for the many types of enclosures in this industry, I anticipate a smoother and faster delivery process in the years ahead.

We recently announced a new win for our SIS platform with a university located in Miami. This contract is not with PBSC, instead it represents a second engagement with a different manufacturing partner that previously collaborated with us on a delivery to a university in Virginia earlier this year. This progression demonstrates our expanding partner network and continuing momentum across academic deployments with this strategy. Regarding our pipeline for these 2 product offerings and the hybrid, we continue to see growth.

As of June 30, 2025, bids range from approximately $105,000 to $1.8 million, an increase from the previous call at $800,000, with a total of $7 million in active opportunities for our hybrid, the SIS and CES. We have seen an increase in our service pipeline with the number of quotes for services up approximately 35% year-over-year across both the Life Sciences and Food Safety divisions. This surge in demand will play a crucial role in supporting our future revenue growth.

An example, we renewed a collaboration with the United States Army Medical Research Institute of Infectious Diseases, a premier DoD biomedical research and biodefense facility. This quarter, we have secured a pipeline of 4 weeks' worth of decontamination service engagements. Facing capital equipment constraints, we are jointly developing a scalable solution to fully replace their current archaic methods. U.S. Army operates BSL-3 and BSL-4 facilities and collaborates with military and civilian agencies. Their objective is to implement SteraMist in newer spaces, expanding our addressable market and validating our technology in high-containment environments.

Furthermore, we have observed a shift in the clients held within our service provider network seeking to partner with us. These new partners are strategic and come with growth plans. The SteraMist Pro Certified program and our referral database have significantly contributed to this transformation in our client base. We expect to be onboarding a group with a strong remediation and government background that has already secured a bid in the health care sector.

We are excited to provide support for the substantial project, which will require multiple systems and is set for September of this year. We are also experiencing a surge in opportunities from our distributors, including ARES Distribution on the East Coast, [Advanced Wear] Sciences in the United States and various players in the agricultural sector, all of whom are acquiring new clients that could significantly influence the industry that may have a positive impact on our business operations and sales.

Additionally, our long-term international partners in Germany, the Netherlands and Italy have developed strong pipelines, pending our final EU and U.K. registration approvals over the past few months, the agencies in Europe have taken a more active approach in their reviewing of our submissions. So we have some confidence about the approvals being received very shortly.

Our Food Safety division is expanding significantly in service jobs, and we are currently in discussions with recommendations from our solely organics customer to a new client in the leafy green sector. This new customer is interested installing similar equipment and ideally our latest SteraMist Integrated System or the SIS-SA, as the solely project with one implementation that led to the development of the program behind this new system.

Additionally, we see an upcoming opportunity with a multinational food and drink processing Empire that has previously made smaller purchases of SteraPak. They are now interested in expanding their order with an additional 25 units, and we will keep you updated on this progress. We're also in talks with an avocado produce wholesaler that expressed interest in partnering with us a few years ago, but regulatory hurdles held us back. We're now collaborating with them and the FDA to secure a food contact notification or FCN, which may assist us in the food safety industry to utilize SteraMist iHP. Once approved, we will be able to market our products for food contact applications to facilities that comply with this FDA regulation.

Our existing customers are highly satisfied and actively using our equipment, and we're seeing increasing feedback and willingness to share their positive results. This supports future sales across multiple industries, and we are adopting a more assertive approach within the current framework. Each new customer adds value. One of our key distributor opportunities for this year is a highly regarded company whose parent organization utilizes our iHP corporate service team. They offer a selection of supplies for laboratories, life sciences, safety and facility management, including chemicals, consumables, equipment, instruments, diagnostics and more.

Mobile equipment remains our most challenging segment to forecast. That said, we just secured the second order from a globally recognized leader in eye health this quarter for our SteraMist surface units, as I projected and noted on our last call. We also expect the universities to finalize deals this quarter due to year-end capital spending with several opportunities still in the pipeline for our handheld spray delivery systems. I thank you all, and we'll return the call over to Dr. Shane.

Thank you, EJ. So as we continue to focus on strengthening our infrastructure by enhancing personnel in our C-suite, management and division leaders, sales and technical expertise alongside expanding our network of global distributors. While the second quarter presented its challenges for TOMI, we are fully committed to driving growth and innovation with our dedicated team.

We are focused on expanding all our divisions with many product and service offerings we now offer, and we are optimistic about the opportunities ahead. Our sales backlog is significant and encouraging and the new sales strategy we implemented at the end of last year is demonstrating promising results. We are excited about the strategic partnerships and the increasing interest from our clients looking to enhance their operations with our solution. As we continue to navigate the regulatory landscape, we remain hopeful that upcoming registrations will make a significant impact on our growth path.

We thank our new CFO, David Vanston, for his role in helping us manage personnel constraints and laying the groundwork for further support. With our emphasis on building infrastructure, enhancing our technical expertise and strengthening sales, we are confident that we are on the path to a successful second half of the year. We are constantly adding new interested investors to our company, and I want to take a moment to welcome them all, and I want to thank them for joining our mission of making the world a safer place.

Our IR firm is always available for any investor to send questions, and they will forward them off to management. My takeaways from this quarter is that the solution model is starting to work. Recognized revenue was a bit disappointing, but management is energized to make the second half of the year and beat our budget. The product has been accepted by the largest companies in the world, and we are thrilled about that.

Operator, let's open the call to questions.

[Operator Instructions] Our first question is coming from Zach Thompson of Liberty Management.

So I see that solution sales increased 4% in the first half. Could you give us even at a high level, the margins that you realized in solution sales compared to the rest of the business?

Thank you, Zach. We were very excited about our solution sales, and we are extremely excited about it going forward from what we can see. That's our model and more equipment that we get out there, obviously, solution sales go up. It has high margins, solution sales. And we're very happy about that, and it has shown by increasing our gross margins to 66% this quarter in light of everything else. But thank you so much for that question.

Our next question is coming from John Nelson, who's a private investor.

The Trump strategy in bringing back pharma manufacturing to the United States. Can you talk a little bit about what that kind of opportunity might be for your company?

That's a great question, John. It's amazing to tell you the truth. First of all, the regulatory standards are very high, and we need them all. And with the new plants that they're building, the ones that have been closed that they're taking over and with all the new opportunities for business in America, I think that it's going to open up a whole bunch of opportunities for us going forward. Many of these large companies are aware of our product. And I think that over the next couple of years, we should be getting tremendous orders from them. We're hoping that we're going to be able to get into the ground floor of a lot of these new facilities that they're starting to build and break ground on.

And that's not the only industry. There's many other ones. I mean the whole server industry and the microchip industry and so much more that's going to need a successful decontamination process that's quick and doesn't create a lot of caustic problems with their equipment and doesn't have to be wiped, et cetera, is just opening up a whole avenue of places for us.

Okay. And second question is, are any of the specific customers that had deferred CapEx projects in the second quarter come back and notified you that they're moving ahead with any of these projects?

I believe so. Let me refer that to either David or EJ and let them answer it.

I'll answer part to help you there, John. If you looked at our customer deposits, you'll see that we've got a significant increase. As Dr. Shane pointed out, we have -- our deferred revenue is $700,000. If you -- around the $400,000 range is where our customer deposits. There's at least 2 customers who are going to come back in the Q1 of 2026. I'll hand over to EJ for more details.

I think that's covered, David. But yes, I mean, some of them were also just one-off of them based on terms and delivery were already delivered this quarter in the first month. And yes, we do have the one project that we did a PR on with the university in Boston, which is a custom build-in will be delivered in the quarter 2 of next year. But that's the only large-scale project. The rest are due to set for either this quarter or the beginning of Q4.

Okay. Great. And then, EJ, could you describe a bit more -- with a bit more detail about how SteraMist would be used if you get the FDA approvals that you've been attempting.

Sure, John. There's 2 FDA approvals I'm working with. One is still the 510(k) for medical devices. So that was a big part of last quarter's script, and that's still an ongoing project with the decon chambers we're developing, that are set for delivery in the beginning of Q4. So once we do that and process the data, the 510(k) should be an easier line for receipt.

The reference on today's call for the FCN is primarily based for an easier in to the many opportunities we're seeing in food safety alone. So primarily avocados, seeds, items that aren't necessarily a direct spray on food to eating, right? It's more still items that are protected by some barrier where we would be able to have approval from the facility to spray direct on.

So in the avocado industry, specifically, there's a mold issue and of course, we Salmonella and Listeria in food areas, which we know we have the efficacy on. So all we need is a stamp from the FDA to also approve that based on the studies we already have. So I'm looking for that to help in those opportunities.

Okay. Good. And then any new uses that you've come across or developed for SteraMist?

Yes. I mean we're always doing internal tests, and we have consultants and an individual that focuses on application of new processes. One is spray on flowers to increase the length of time that florists can deliver, and we're seeing promising results there. But after we do our internal test, there's always many other hurdles to overcome to make sure we can enter into those industries. But we do always looking for additional applications.

[Operator Instructions] I'm not seeing anyone else in the queue at the moment. So I will hand back to the management team for closing comments.

Well, again, I just want to thank everybody for listening to the earnings call and for supporting the company like always. And I hope everybody has a -- wherever they are, a splended day or splended evening. And operator, you can disconnect. Thank you.

Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.