Greetings. Welcome to the TOMI Environmental Solutions, Inc. Third Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please note that 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 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. The telephone replay of today’s call will be available through November 28, 2023, the details of which are included in the company’s press release dated November 14. 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 date of which it was recorded, November 14, 2023. You are therefore revised 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 may 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 call – after the date of this call. In addition, TOMI will discuss certain non-GAAP financial measures during this call. The company’s use of non-GAAP measures – uses non-GAAP measures because it believes they provide useful information about the operating performance that should 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 November 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 from the West Coast of the United States. Thank you all for joining to discuss some key achievements of our third quarter 2023 performance. During the third quarter of 2023, our strategic focus on expanding our sales channels and business development persisted worldwide, along with collaborative efforts from key current and new customers. Simultaneously, we diversified our product line to accommodate to the evolving needs of our market segments, leveraging the advanced capabilities of our SteraMist technology. Finally, our launch of our SteraMist Transport System and the SteraMist Integration System, known as the SIS, seems to be the answer to the automation requests that many industries are looking for to replace their old VHP decontamination technology. We are now sure SteraMist is in the right place at the right time, and E.J. will discuss this in some detail shortly. Revenue declined during the quarter due to the timing of customer orders and the related revenue recognition. That said, our revenue was up 5% for the 9-month period, and we are optimistic about our high-margin business model and its ability to drive future sustained profitability as we scale the business. Subsequent to the close of the third quarter of 2023, we agreed to sell and issue convertible notes in a private placement in one or more closings up to an aggregate principal amount of $5 million. As of November 7, 2023, we sold and issued an aggregate of 2.6 million to a group of institutional and accredited investors, most of whom are new investors in the company’s securities. The note contains no restrictive covenants or restrictions that may impose burdens or limitations on our operations. We intend to use the net proceeds from this offering for working capital, expansion of our existing Frederick facility and…

Thank you, Dr. Shane, and good afternoon, everyone. Our current pipeline and backlog remains healthy. We are encouraged by long-term disinfection and decontamination trends in aseptic manufacturing in the biopharmaceutical sector and general worldwide pandemic preparedness. Within the biopharmaceutical industry, aseptic manufacturing is undergoing several noteworthy developments. The emphasis on maintaining sterile environments in the production process is more critical than ever. There is a continuous integration of advanced technologies, such as automation, to enhance the aseptic manufacturing process, ensuring precision and minimizing human interventions. Stringent regulatory standards persist, demanding adherence to strict guidelines to ensure product safety and efficacy. Biopharmaceutical companies are increasingly adopting a global approach, establishing facilities in strategic locations to meet growing global demand. There is a notable shift towards the adoption of single-use systems, offering increased flexibility, reduced contamination risk and quicker changeovers between production runs. Companies are engaging in collaborations and partnerships to leverage shared expertise and resources to allow for continuous manufacturing processes, providing for more efficient and streamlined productions, reducing the time and resources required for manufacturing cycles. Overall, the landscape of aseptic manufacturing with the biopharmaceutical sector is dynamic, driven by technological advancements, regulatory considerations and the evolving needs of the global healthcare markets. We believe the competitive advantages to TOMI’s iHP SteraMist technology is well aligned with these prevailing trends within the biopharmaceutical sector. Furthermore, our expanded range of SteraMist products and applications, combined with recent partnerships, is poised to reinforce this alignment. These developments aim to enhance awareness among facilities, ensuring iHP technology caters effectively to evolving industry needs. Our partner in Germany, Universal Disinfection, has significantly expanded their list of opportunities in recent months across a variety of market segments, but mainly biopharm. They maintain a positive outlook on the collaboration with the German biotechnology company referenced during…

Thank you, E.J., and good afternoon, everyone. I’ll provide a brief overview of our financial results for the third quarter of 2023 compared to the same prior year period. For the 3 months ended September 30, 2023 compared to September 30, 2022, our consolidated net revenue was $1.047 million, compared to $1.76 million. Consolidated gross profit was 55% compared to 61%. The decline in our gross profit was due to our product mix and sales. The consolidated operating loss was $901,000 compared to $654,000. Our consolidated net loss was $901,000 or $0.05 per basic and diluted share compared to $653,000 or $0.03 per basic share. Adjusted EBITDA was a loss of $807,000 compared to a loss of $571,000. A table reconciling adjusted EBITDA to the appropriate GAAP financial measure is included in today’s press release. Moving on to the balance sheet. As of September 30, 2023, our cash and cash equivalents were approximately $1.4 million, working capital was $6.9 million and shareholders’ equity was $9.5 million. Now I’d like to turn the call back over to Dr. Halden Shane.

Thank you, Nick. As I hope you have garnered from our remarks, a key strategic shift in our business this year has been the establishment of a robust partner and reseller network to more efficiently expose our product to the right customers. A few years ago, I tried to establish Vice Presidents of Sales to head up each vertical, and this was just a mistake and cost us valuable time. That being said, we learned from it, and E.J. and the team have done an amazing great job building a sales and distribution network that can help us scale TOMI to be a much larger company. It is my belief that we are poised to move through to profitability in the fourth quarter. And if we execute, we should be able to drive sustained profitability going forward. Thank you all for joining us today and for the unwavering support as investors and followers of our company. A big thank you to our team around the world who has laid the foundation for our company to become the world’s leader in the disinfection decontamination space. It is the right time in place to unseat the competition, vaporized hydrogen peroxide, whose technology is at least 33 to 53 years old. We now open the Q&A part of the call. Operator, let’s open the call to questions, please.

[Operator Instructions] And our first questioner is Frank Lewis [ph] with Adams Street Capital.

Hi, thanks for taking the question. How should we think about revenue mix this year by end market? And have we seen a particular shift over the last few years?

Thank you. Nick, do you want to take that?

Sure. In terms of a breakdown of that, really, we continue to see growth in life science in that vertical as it’s the most mature. And food safety is developing quickly so – in terms of markets. And really, if you were to break it further down into how we generate revenue through equipment, solution and service, if you have been following along, you can see the Custom Engineered Systems or the collaboration projects we have with certain companies provide a lot of optimism for us because these are great things we are getting into.

Got it. Thank you.

Yes. I think also the CES and the SIS systems will be what drives the company going forward in that specific vertical.

Got it. Great. Thank you. That’s it for me.

Thank you.

[Operator Instructions] We will now hear from John Nelson, private investor.

Hi. Dr. Shane, thank you. And I have several questions. The first one is, you mentioned at the end of your statements that you expect to be profitable in the fourth quarter. And if that were the case, it must – or it should mean that you are expecting a significant increase in revenue from this last quarter, is that correct?

We are hoping that that is correct.

Okay. And what areas might – would you think would be driving that increased revenue?

Well, I think it’s the interest in the CESs and the SIS systems that we have out there, and our new transportation system, mostly from the life sciences, along with the addition of the onboarding, the education of these new partners that we have taken on who have significant pipelines in the sales end of all verticals.

Good. Thank you. The next question is related to the convertible debt deal that you did. Is there anything in the documents that prevents the participants from shorting your stock?

Yes, there is. There are a couple of documents that restrict sales and also restrict shorting of the stock. So, we are covered from that standpoint. Thank you.

Excellent. Great. And next question, is there any – can you give us any update on the ethylene oxide replacement market?

Not really. It’s still – these regulatory agencies are still creating a foundation for who is going to be able to use ethylene oxide and who isn’t. At the moment, it seems it’s just large facilities that they are restricting because of OSHA and some employees regular standards. But it’s going to be a while, John, and I think that this will go out to all users of ethylene oxide once the regulatory agencies start condensing and specifically hitting uses of it. We think our product is the – we know it’s the replacement, and we think that it won’t be too long until it’s used in the food safety industry for the ripening and for prevention of food borne diseases in the fruits and vegetables.

Okay. Thank you. Fentanyl [ph] has been in the news a lot, concerning a number of people. Is there anything new on the neutralization regarding use of SteraMist?

So, we are hoping – you have read that, I am sure the press release that the Ami did, in relationship to other toxoids, and we are hoping that they will do a similar study on fentanyl. As we all know, or we all should know, it’s a significant problem throughout the United States, and it’s affecting educational systems, affecting police. And I personally believe, because it’s an organic compound, we will be able to alter the structure of that compound with the use of SteraMist in closed areas, which is the most concern for people. And we are pursuing it. We are pursuing also some studies with individuals that know how to do the right studies and collect the right data. So, we are on track to hopefully have something in 2024. I am not sure what part of it but within – by 2024.

Okay. And let’s see, any – also any new developments on – with the FDA as far as SteraMist on food treatment?

We are still working towards that label in this 1%. And we are able to treat it with our 0.35%. We just want to get a little more pathogen kill, and we are still involved in that process. But many food companies are using our regular 7.8% in non-food areas to decontaminate space and equipment.

Okay. And I always ask this, but the UCLA study, anything to report there?

Nothing published yet, as you and I know. But we know the data is good…

Yes. The – my next question is related to – from the installs with the transport system, have you been able to – can you give us any metrics as far as comparison – cost-effective comparison between the use of SteraMist versus the tool or manual cleaning on – that ambulances generally require after usage?

I am going to let E.J. answer that question, primarily involved with the transport system.

Okay.

Of course, so currently, we are still at a soft promotion on the transport. We have a few sold with our partner in Germany, who is working on the next stages with the Red Cross there to install the transports there. We do still are in communication as well with the hospital who is a customer of ours that started the whole transport development, and we are hoping to meet with them before the end of the year. We are also working with the Canadian distributor group, Tecnimont that we released earlier in the year, and they are gaining a lot of traction on the transport with designers of ambulances, in which we are going to work with them on certain mounting devices because that is their specialty. We still have to endure some crash testing that’s required in the region. But once that’s completed, we will be able to establish more of a metric.

Okay. But any preliminary indications as far as a significant cost benefit using the new transport system?

Of course, it goes in line with our technology on the growth of – lack of grossness [ph] of use of iHP with comparison of the main competitor in the industry. So, there is certainly interest and the speed in which we can turn over an ambulance. And that was generated in a case study we have released with the German Red Cross on...

Okay. Alright. Thanks. And my last question is related to, again, back to the convertible debt offering. You had a number of I think, it was 28 investors, and that’s a rather large amount for a deal of size. Can you explain why so many investors in the deal?

Well, I think I have always felt that the more eyeballs we have in our company that understand our technology and that are long-term investors, the better off we will be. Certainly, we raised a small amount of capital, and we could have raised a lot more with 22 investors. But I felt that the company started way back when with a group of investors, and I think now this group fits the criteria of being what we like to have and what we currently have going forward. So, that’s why we did it. It’s obviously a lot more difficult to bring in many one or two just from standpoint, education and paper. But we did it, and with the help of Aegis Capital. They did a terrific job and making sure that all investors, including these new ones, are successful in years ahead going forward.

Okay. It makes sense. That is all the questions I have. I look forward to a profitable fourth quarter. Thank you.

Thank you. Thank you all.

We have reached the end of the question-and-answer session, and I will now turn the call over to management for any closing remarks.

I just want to thank everybody for joining, and I hope everybody has a happy and healthy Christmas.

This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.