Greetings. Welcome to the TOMI Environmental Solutions Incorporated Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, a question-and-answer session will follow the formal presentation. [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. You may begin.

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 of the Board, Dr. Halden Shane; TOMI's Chief Operating Officer, E.J. Shane; and TOMI's Chief Financial Officer, Nick Jennings. Dr. Shane will provide an overview of recent business highlights, E.J. will report on the Company's growth and latest trends, and Nick will review the financial performance for the most recent quarter before addressing any questions you may have. A telephone replay of today's call will be available through August 28, 2023, the details of which are included in the Company's press release which was issued today. A webcast replay will also be available at TOMI's website, www.tomimist.com. Please note that information contained within this presentation is relevant only to the day of which it was recorded, August 14, 2023. And we're, therefore, advised that time-sensitive information may no longer be accurate at the time of any replay. 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 any 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. In addition, TOMI will discuss certain non-GAAP financial measures during this call. The Company uses non-GAAP measures because it believes they provide useful information about the operating performance that could be considered by investors in conjunction with the GAAP measures. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release dated August 14, 2023. I will now turn the call over to TOMI's Chairman and Chief Executive Officer, Dr. Halden Shane. Please go ahead.

Thank you, John, and good afternoon everybody. Thank you for joining and spending a portion of your summer with us this afternoon or evening or even morning depending upon where you're located. The financial results for the second quarter are some of the best we've seen since 2020 as we made a small profit on an EBITDA basis and broke even from the EPS perspective on our statement of operations. The improved results were driven by increased sales, strong gross profit, and prudent management of our operating expenses. We grew consolidated net revenue for the quarter of 2023 over the same quarter of 2022 by 90% which proved a nice boost to our financial results for the second quarter. Our revenue for the six months ended June 30, 2023, was up 16% over the same prior year period. During the second quarter, our SteraMist product revenue grew by 100% compared to the second quarter of last year, and our iHP service revenue was up 55%. On a sequential basis, our consolidated net revenue for the second quarter grew by 75% when measured against our reported revenue for the first quarter of 2023. The growth in revenue was largely attributable to strong growth in our product and service revenue as well as our team's ability to execute and deliver to iHP SteraMist Custom Engineered Systems, better known as CES in the second quarter. In the quarter, we realized a slight net loss of $89,000, which represents a 90% quarter-over-quarter improvement. Our loss from operations in the second quarter of 2023 improved by 93%, compared to the reported operating loss incurred in the first quarter of 2023. Our earnings per share for the second quarter of 2023 was zero per basic and diluted share, which represents a 4% loss per basic share…

Thank you, Dr. Shane, and good afternoon everyone. I appreciate the opportunity to share TOMI's progress, growth trends, and upcoming developments on today's call. I will begin by providing updates on some matters discussed during our previous call. The collaboration with the German Biotechnology Company, which is set to lead to several orders for our CES, continues to be very active. Our long-term partner, universal Disinfection, continues to foster this partnership directly with TOMI. In addition to their continued brand expansion of iHP SteraMist across areas in Europe. We anticipate the closure of some large orders within this calendar year for a few of these opportunities. Consistent with our previous communications, it is once again worth noting that the scheduling for our larger orders, especially the custom units, remains flexible and in response to customer timelines. However, it's crucial to emphasize that our pipeline remains robust and very promising. As anticipated during our last call, we concluded the second quarter by successfully installing additional systems, bringing our count to 14 installed SteraMist custom-engineered systems. Our recently installed projects remain to undergo qualification and are set to be operational by the close of the first quarter of 2024. Naturally, this timeline is contingent upon the operational readiness of the end user's production facilities leading to variable revenues from bit solutions and associated services moving forward. Our collaboration with the prominent indoor farming solutions enterprise continues as we actively engage in their comprehensive qualification procedures, which now include partnering up with the USDA. Upon securing final approval, we intend to publicly reveal this partner and or organization dedicated to extending SteraMist utilization across all upcoming facilities. Notably, this indoor farming entity has initiated construction on new structures and allocated resources for the expansion of SteraMist applications. This development stands as a pivotal…

Thank you, E.J., and hello everyone. I'll provide a brief overview of our financial results for the second quarter 2023, compared to the same prior year period. For the three months ended June 30, 2023, compared to June 30, 2022, our consolidated net revenue was $2,775,000 compared to $1,458,000, representing an increase of 1,317,000 or 90%. Consolidated gross profit was 61%, compared to 63%. The decline in our gross profit was due to our product mix and sales. The consolidating operating loss was $89,000, compared to $863,000, representing a decrease of $774,000 or 90%. The decline in our loss from operations was attributable to higher sales and gross profit in the current year period. Our consolidated net loss was $89,000 or $0.00 per basic and diluted share compared to $862,000 or $0.04 per basic share. Adjusted EBITDA was approximately $2,000, compared to a loss of $780,000. A table reconciling adjusted EBITDA to the appropriate GAAP financial measure is included with today's press release. Moving on to the balance sheet, as of June 30, 2023, our cash and cash equivalents were approximately $1.6 million, working capital was $7.8 million, and shareholder's equity was $10.4 million. Now I'd like to turn the call back over to Dr. Halden Shane.

Thank you, Nick. Thank you all for joining us today and for your unwavering support as investors and followers of our company. We believe our second quarter results have us back on track and have given us a lot of momentum heading into the second half of 2023. At this point in time, we believe that we may obtain profitability in the fourth quarter and beyond. Thank you for your time and your support. And don't forget to review our new website at www.steramist.com. Operator open to questions, please.

[Operator Instructions]. And we have our first question from [indiscernible].

Thanks for taking my question. So obviously, the gross margin in your business are very attractive. I was just wondering how should we think about gross margins going forward as you scale the business.

So, as we scale, we should really see our gross margins potentially improve, particularly as we drive more solution sales into the installed base of equipment, which is basically our model, which is a raise, raise blade type model. So that's how I think it's. Again, and we have a relatively high gross margin, and it contributes to our relatively low breakeven point. Thanks for the question.

Our next questionnaire is Todd Felte with AGES Financial Services.

Congratulations on the, uh, return to break even and I look forward to the future quarters of profitability. I had a one question on the ethylene oxide. You had a press release on April 26th, dealing with ethylene oxide exposure, and was just curious as if there's been any progress made. I know that the SteraMist was a viable solution for that.

It is and we're doing work to prove that from a standpoint of medical equipment and medical supplies, that we will be a very valuable alternative to ethylene oxide in sterilization. And again through, we have to go through the regulatory processes for that and currently, we've had some great results with it. So, we look forward to being able to produce sterilization equipment and to market it as such in the very near future.

Okay, that’s great. And one other quick question. I know that you had the U.S. Army validate, the SteraMist technology and you've been getting some test runs with HHS and other government entities. I think you're even going to be used in one of the infectious labs in Africa. Is there any update on either the Army or HHS or any other government contracts or moving forward?

Not at the moment. They don't do things quick enough for me, but they are moving forward. We are working on getting validation for fentanyl in real life. So, I feel that we'll be able to neutralize it. We're just waiting to get the laboratory verification of that, which should again open up a lot of potential doors for us to SteraMist, and unfortunately those fentanyl areas.

[Operator Instructions]. We do hear now from John Nelson, a Private Investor.

Hi, Halden, congratulations on the quarter, and look forward to future profitability of the company. I have several questions. The first one was regarding the prior questionnaire Todd had on U.S. military government contracts. You mentioned fentanyl, neutralization. Could you explain a little bit more about SteraMist role in that?

I believe that, when the laboratory studies come in that we should be able to neutralize fentanyl in all enclosed space, which would open up a lot of avenues for the product. Especially, when you hear on the news what's occurring with police when they come up to a backpack or they open it and they get exposed to some of the toxic fumes of fentanyl. That same problems occurring in classrooms and lockers in high schools and even unfortunately in junior high schools around the country. So, this would be a product once we're able to prove that that could be utilized on scene of any suspicious locker area where fentanyl might be located.

Also, in the prior press release mentioned Technimount System in Canada for EMS? And could you describe any progress with business there?

I'll let E.J. talk about that. She seems to be handling the account. E.J.?

Certainly, Dr. Shane. Yes. So Technimount came on earlier this year and they are warehousing equipment and moving to their pass and surface units and emergency services. They are fully onboarded and trained and attending trade shows and getting the word out of SteraMist in their area. They do seem to be very active just in the correspondence between us on a weekly basis. So, I'm excited to see them progress throughout the year.

Have they made any sales so far or are they still in the process of just kind of rolling it out and marketing it?

I've sold a few, they're in the process of mainly rolling it out and marketing it. It's how we're bringing on our partners with a little more full of an onboarding and getting them educated into the marketplace. But they have attended shows and they come with a very unique customer list already, so they're definitely gaining interest in their current customers.

Okay, thank you. Next question is any progress with the FDA on, I believe it was the 1% solution for produce treatment?

Nothing further than from my last discussion about it, to my knowledge, John.

And then another, I think it was last call, there was, is there have been any progress on penetrating the marijuana markets for treating powdery mildew?

Yes, I believe that we are doing that. E.J. do you have any color to add to that?

Yes. We're actually also putting a move forward on getting our brand familiar with the industry, attending podcasts, and through our, some of our TSM members who are coming up with really good results. Again, it's a new technology to the industry, so it's gaining awareness and traction, but we should see some of this results by the end of the year.

Okay. And just a kind of a sidebar, the wine industry has problems with treating their vines for the same fungus, powdery mildew. Has there been any exploration of seeing whether SteraMist might be valuable for any of the large wineries?

I don't believe we have from a standpoint of feasibility, it's definitely a feasible industry to go after, specifically since they store a lot of this stuff. Even once it's fermented in areas that have a lot of mold and stuff. But from a direct application to the vine, prior to planting, it might be interesting to see how we would do, I know we're continuing to work with the seed companies on eradicating different pathogens from seeds prior to packaging them to sell to retail purchases. So, again, I mean, the applications are endless as you know, for the product. So, we keep up on as much as we can, depending upon, obviously as the size of the company is, as we grow, we'll be able to go into more verticals and do more research in these areas. So that's a good question, John. Thank you.

Okay, thanks. And also, any further updates on the forever shield study?

I knew you going to ask that. So, I try not to mention it on my earnings calls anymore, because I think they're reading it and it's delaying their desire to edit and publish this. So, there's nothing further that I have, but I will be meeting with them, in the early part of September.

Okay, good. And that's it for questioning, but congrats on the Avantor and Vizient partnerships in particular, because, at least in my opinion, needs to get more exposure on SteraMist, and these, those are two big players that will if they're motivated, we'll certainly get the word out.

Thank you, John. And thank you, for your support.

You're welcome.

Okay. As we have reached the end of our question-and-answer session, I would like to turn the floor back over to management for any closing remarks.

Just once again, I thank everybody for joining and hope you have the remaining enjoyable August that you can get. Thank you again.

This does conclude today's conference call, and you may disconnect your lines at this time. Thank you for your participation.