TOMI Environmental Solutions, Inc. (TOMZ) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of TOMI Environmental Solutions, Inc. It is 10:00 Pacific Time. And on behalf of the Board of Directors of the company, I call the meeting to order. I am Dr. Halden Shane, Chief Executive Officer and Chairman of the Board of the company. I will be acting as Chairman of this meeting; and Nick Jennings, our Chief Financial Officer, will act as Secretary of this meeting. I will now introduce the other directors and offices of the company who are virtually present. Attending today are other directors, Dr. Lim Boh Soon; Mr. Walter Johnsen Mr. Harold W. Paul; and Ms. Kelly J. Anderson. Ben Lafazan of Wolinetz, Lafazan & Company, P.C., the company's independent registered public accounting firm, is also attending this meeting and will be available to respond to appropriate questions. The Board of Directors has appointed Stacy Aqui from Continental Stock Transfer & Trust to act as inspector of elections. Ms. Aqui has taken her oath as inspector of elections, and the oath will be filed with the minutes of this meeting. The polls for voting are currently open, and you may vote for proposals, which are to be presented and discussed today online at any time during this meeting until the polls are closed. Any shareholder who's previously given his or her proxy need not vote unless he or she desires to revoke the proxy and vote today at this meeting. Shares represented by proxy, where no vote is specified, will be voted in accordance with the recommendations of the Board of Directors. If you did not vote by proxy or if you wish to change your vote, you may vote at any time while the polls are open. Agenda and rules of procedure. If you have not yet received copies of the agenda or the rules of procedure applicable to this annual meeting, we may direct you to find such materials on the meeting website. To conduct an orderly meeting, we ask that all participants read and abide by the rules of the procedure for this meeting. We welcome you to the Annual Meeting of Shareholders. The meeting of TOMI Environmental Solutions, Inc., the company in fairness to all shareholders attending the meeting and in interest of having a fair, orderly and constructive meeting, the following procedures will apply. I will now read Rules 1 and 2 from the rules of procedure. 1, the business of the meeting will follow the order shown on the agenda; 2, if the shareholder is a question about one of the agenda matters that is to be voted on at the meeting and set forth in the company's 2020 proxy statement, the question may be submitted in the field provided in the web portal at or before the time of the matters are presented for consideration at the meeting. We will answer questions on any matters set forth in the company's 2020 proxy statement to be voted on by the shareholders at the meeting before voting is closed. During this period, the company will not permit questions that are not relevant or pertinent to the agenda matter that's being discussed, as determined by the Chairman of the meeting in his responsible judgment. The Board of Directors set November 13, 2020, as the record date for this annual meeting of shareholders. We have at this meeting a record of our shareholders as of that date. Mr. Jennings will now present the affidavit of mailing of the notice of meeting and report on existence of a quorum for this meeting.

I present the affidavit of mailing of Continental Stock Transfer & Trust, which states the notice of meeting and accompanying proxy materials and annual report were mailed on December 3, 2020 to the shareholders of record as of November 13, 2020. As of the close of business on November 13, 2020, the company had outstanding 16,824,763 shares of capital stock entitled to vote outstanding, each of which is entitled to 1 vote. 12,537,006 shares of such voting stock, which is greater than 1/2 of the company's total voting stock, are represented virtually or by proxy at today's meeting. Thus, a quorum is present, the meeting is duly constituted and the business of the meeting may proceed.

The report on the existence of a quorum is accepted, and I direct that the affidavit of mailing be made part of the minutes of this meeting. Because holders of the majority of the shares entitled to vote at this meeting are virtually present or by proxy, I declare that this meeting is duly convened for purpose of transacting such business as may properly come before it. I will now discuss each matter to be acted on at this meeting. At the conclusion of discussion of all items, we will take the vote. There are 4 items of business on today's agenda: one, the election of the company's Class III directors; two, the ratification of appointment of Wolinetz, Lafazan & Company, P.C. as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020; three, the approval of an amendment of the company's 2016 equity incentive plan to increase the maximum number of shares of common stock authorized for issuance thereunder by 1,375,000 shares from 625,000 shares to 2 million shares; and four, an advisory vote on the compensation of our named executive officers; additionally, any other business as may properly come before this meeting and any adjournment, therefore, may be transacted. Mr. Jennings, were there any other shareholder nominations or proposals for business from this meeting that were timely and properly filed with the company?

No.

Then the business of this meeting is limited to the 4 matters on the agenda. The first item of business today is the election of the company's Class III directors. The 2 nominees were the most votes for votes were will be elected to hold office until the company's 2023 Annual Meeting of Shareholders, and each will serve until his or her respective successor is duly elected and qualified or his or her early resignation or removal. The Board of Directors nominated each of Halden S. Shane and Harold W. Paul for reelection as the company's Class III directors. Information concerning each nominee's principal occupation, service with the company and other matters, which may be of interest, are contained in the proxy statement. No nominations may be made at this meeting. So therefore, I declare nominations to be closed. The second matter being submitted to the shareholders for action is the ratification of the appointment of the Audit Committee of the Board of Directors of Wolinetz, Lafazan & Company, P.C. as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020. The votes cast at this meeting favoring the matter must exceed the votes cast opposing the matter in order to ratify the appointment of Wolinetz, Lafazan & Company, P.C. I now upon -- call upon MS. Kelly Anderson, Chairperson of the Audit Committee for the recommendation of the Board of Directors in this regard.

The Board of Directors recommends that shareholders vote for the approval of the appointment of Wolinetz, Lafazan & Company, P.C. as the company's independent registered public accounting firm for the fiscal year ended December 31, 2020.

The third matter being submitted to the shareholders is the approval of the amendment and restatement of the company's 2016 equity incentive plan to increase the maximum number of shares of common stock authorized for issuance thereunder by 1,375,000 shares from 625,000 shares to 2 million shares. The vote cast at this meeting favoring the matter must exceed the votes cast opposing the matter in order to approve the amendment and reinstate the company's 2016 equity incentive plan. I now call upon Mr. Harold Paul, a member of the compensation committee, for the recommendation of the Board of Directors in this regard.

The Board of Directors recommends that the shareholders vote for the approval of the amendment and restatement of the company's 2016 equity incentive plan.

The fourth matter being submitted to the shareholders is an advisory vote to approve executive compensation. While this is a nonbinding advisory vote, the Board of Directors will give due consideration to the choice that receives the most votes at this meeting. I now call upon Mr. Harold Paul, a member of the compensation committee, for the recommendation of the Board of Directors in this regard.

The Board of Directors recommends that shareholders vote for the approval of the company's executive compensation.

Because no further business is scheduled to come before the shareholders, I will now address any relevant questions that have been asked regarding the previously discussed proposals. Without any further questions, I now direct that shareholders wish to vote on the 4 matters submitted to the shareholders for a vote and who have not yet to do so either virtually today or by proxy to please vote now as the polls will be closing momentarily. [Voting]

I now declare the polls closed for the matters voted upon at this meeting as of 10:13:36 A.M. on December 30, 2020. The inspector of elections will now tally all votes. Once we have definitive results, the meeting will resume. Has the inspector of elections tallied all votes and have they been counted? Will the secretary of the meeting please report the results of the voting?

We have been informed by the inspector of elections that the ballots have been counted and the following 2 persons have received the most votes by the shareholders of the company's voting stock virtually present at the meeting or by proxy, Halden S. Shane and Harold W. Paul. Accordingly, each of Mr. Shane and Paul have been elected as a Class III Director of the company to serve for a term expiring on the date of the company's 2023 Annual Meeting of Shareholders and until his or her respective successor is duly elected and qualified or his or her earlier resignation or removal. I have been further advised that the votes cast at the meeting in favor of the ratification of the appointment of Wolinetz, Lafazan & Company, P.C. to act as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020, exceeded the votes cast opposing the matter. And that, accordingly, the ratification of the appointment of Wolinetz, Lafazan & Company, P.C. has been approved. I have been further advised that the votes cast at the meeting in favor of the approval of the -- of an amendment to the company's 2016 equity incentive plan to increase the maximum number of shares of common stock authorized for issuance thereunder by 1,375,000 shares from 625,000 shares to 2 million shares. And that, accordingly, the amendment to the company's 2016 equity incentive plan has been approved. Finally, I have been further advised that the votes cast at the meeting to approve the company's executive compensation exceeded the votes cast opposing the matter. The Board of Directors will give due consideration to such choice. Ms. Aqui, the inspector of elections, will furnish a written report of the final vote count with respect to the matters voted on today. And Mr. Jennings, the Secretary of the meeting, will also include the report in the minutes of the meeting. Thank you for virtually attending today's meeting. The meeting is adjourned. For those still listening, I want to wish you Merry Christmas, Happy Hanaka, Happy Kwanza Day, Boxing Day, et cetera, and most important, healthy New Year. I will be giving a short presentation on PowerPoint for anybody that would like to listen. Slide 1 talks about our company overview. Safe harbor, Slide 2 and the company's vision is to innovate for a safer world. Our goals have always been to create a healthier world through design, development and global deployment of state-in-the-art SteraMist products lines and services. We provide state-of-the-art disinfection and decontamination. The reason we're different is because we use a proprietary delivery hardware and a specialized low percentage hydrogen peroxide solution. We're considered the gold standard in technology. We create a fog in a mist that's effective 6 log kill, which is fast acting, does not damage materials and does not create human health issues. We're headquartered in Frederick, Maryland, and we have 5 divisions within our company, hospital health care, life sciences, a service network made up of professional restoration emergency response personnel, food safety and a commercial division. We're uplisted to NASDAQ in 2020 under the ticker symbol TOMZ. Our trailing revenue was $23.2 million, growing and profitable. We employed approximately 23 employees and fully diluted market cap as of 12/28/2020 was $71 million. Our investment highlights were a large and growing market. The market of decontamination is valued about $19 billion and a CAGR of 6.7%. We're highly differentiated technology developed by DARPA initially for anthrax spores. We use a low percentage hydrogen peroxide, capable of delivering a 6-log kill in seconds without compromising anything, human health instruments, et cetera. Global customer base is extensive and growing, which includes hospital, health care facilities, laboratories, bio lab, state institutions, schools, aerospace and many more. Our service network is well-established in 48 states and multiple Canadian provinces. And we have a strong accelerating international demand in Asia, Europe, Middle East. Highly attractive business model, strong financial performance and seasoned management team. History of the company. Next slide, company's history. We acquired the BIT technology in 2013 from L3. It was until the mid of 2017 that we really received our full EPA label as a hospital health care disinfectant. In fact, it is the first only hospital health care technology and solution. 2019, we deployed a full room system in Pfizer, and we're well positioned to aid to fight against COVID-19, COVID-20 and COVID-21, et cetera. We exceeded $20 million in revenue in the first 9 months in 2020, and we announced our initial commercialization of a robust product. We're expected to announce our first food safety contract shortly in 2021, and we expected to receive our EUA for reprocessing of N95 mask disinfection. And in 2021, towards the end of the first quarter, we're going to commercialize a backpack. Market opportunity. Next slide talks about what we have in the market, addressable market and what the CAGR is of that market. The next slide talks about our technology ionized low percentage hydrogen peroxide. We destroy proteins, carbohydrates, lipids on contact via oxidation. This results in the killing of bacterial, bacterial spores, mold spores, including inactivation of viruses. Reacts with chemical agents, breaks their double bond, same thing with weaponized biological agents. It's how the technology was first developed was weaponized anthrax. The byproducts of ionized hydrogen peroxide are only oxygen and water, and water is in the form of humidity. That's why it's so safe and far safer than any of the other conventional methods. The technology is unique as it's the only 1 that converts 7.8% hydrogen peroxide after passing through a cold plasma arc. This arc is carried in the form of a mist or a fog, and it moves like a gas, which is extremely important. You can picture this opening a drawer and it moves, open a cabinet, it moves into that area, and it will decontaminate everything upon contact. It damages pathological organisms through oxidation of proteins, carbohydrates and lipids. Cellular disruption and dysfunction, and that's how you decontaminate. The next slide talks about our technology. 6-log. I'm going to spend a second just talking about this because other disinfectants that everybody knows has labels that has 3 log, which is 99.9, count the 9s or 4 log which is 99.99, 4 9s. And those are the majority of all EPA registered disinfectants. We create a 6-log kill, which is 6 9s, and that's on all challenged pathogens, including the gold standard of sterilization, which is geo vasilas staphylococcus spores. We kill within seconds. As you noticed in those petri dishes, you'll see there's 0 after we're finished compared to standard sanitization and disinfection, plus we're exclusive of toxic chemicals. So this is interesting because some of the shareholders have been asking about, well, what about the vaccine? What about when COVID-19 ends or COVID-20, whatever we're going to call it going forward. COVID is never going to end. It's going to be around. There's going to be vaccines. It's going to be like the flu. You're going to be getting booster shots every year, probably there'll be a different variation of it. The important thing to understand about our technology, why it's superior, is there's about, I don't know, 62,000 vertebrate species in the world and each each one harbors maybe 58 viruses, which means there's about over 3,600,000 viruses. Well, we kill them all. There hasn't been any pathogen we haven't been able to tackle. So as far as being COVID-19, yes, we are, but we're also COVID going forward and any other virus that should come out. There are 4 things, 4 categories I put these pathogens in: viruses, fungi, bacteria and then spores. And the hardest to kill are the spores. There's 30,000 bacteria species, I'm sure we kill them all. There's probably 500 in your mouth. There's over 1 million fungal, and I'm sure we kill all their spores. But most important is we kill the bacterial spores. These are the ones that survive very stressful conditions for years, sometimes hundreds of years in the vegetative cell, and then they produce this layer, and we break that layer. And that's what's key and important to us over every other product. Some do. Next slide, you can see why choose TOMI? Here's 3 competitors. But you can see they all break spores. They kill spores like we do, but their high percentage hydrogen peroxide or they contain low percentage hydrogen peroxide and silver. Time, corrosiveness and the fact that we create a radical that is aerosolized, that's the difference. We do it in less time, we're noncorrosive and we're faster. Next slide. EPA registrations intellectual properties. We're registered as a hospital health care disinfectant as a general use, multiple use disinfected. We're also registered with the FDA as a medical device. We have specific registrations with -- for staph, Pseudomonas, MRSA, Salmonella, influenza, C.diff, Norovirus and we've been tested against EPA standards for geo vasilas staphylococcus spores, just to name a few. We're registered in over 50 states, 20 countries, EPA registrations and list [ K.L.G.M ] and recently List N for SARS CoV-2, which, is COVID-19. 32 granted patents and 50 patent applications worldwide. Our products consist of a portable surface unit that has a 5 second per square foot spray. That's as quick as counting to 5. We decontamination all high-touch surfaces, and we have an environment system that's used for air and surface versus the surface unit that's mostly for surface. Next slide. Our next-generation of products is going to consist of a SteraPack and a robot, both in production. We also won -- and we know about the pathogens because we were selected out of 1,500 proposals to go ahead and decontaminate the outbreak in West Africa for Ebola. We won an award for $565,000, which is granted by USAID and the CDC, Office of the President. And we created a custom product out of that. This is a SteraMist chamber. Our divisions, again, consists of hospital, healthcare, life sciences, our service network, food safety and commercial. Slide you should be seeing says TOMI divisions. Our markets are different. But overall, next slide, hospital health care. You can see we don't interfere with any electronics. We have quick room turnover, few of our selected customers, and we want to continue as the gold standard in this marketplace. Some of our more recent case studies from COVID-19. As you can see, our emergency preparedness programs and hospital health care studies are listed there. Next slide. Slide we should be on is markets and life sciences. Again, we help in treating and decontaminating clean rooms for the production of vaccines, therapeutics and other pharmaceutical products. It does not damage, get 6-log kill. It's effective against the world's most difficult pathogens and our only byproduct is oxygen and humidity. We're going to continue again here to sell more into this strategy and established a gold standard and because we have less effective and harmful alternatives out there, and we are the best. Next slide. As a customer case study for Pfizer, you can see that we can build this system and this equipment into a room, and it will go everywhere, you can fill that room up with electronics, you can fill it up with products of pharmaceutical bags, and we will decontaminate everything in that space. This is our specialty. This is what we do. And we can build this and program it using the PLCs and NEMA enclosure, placed in the central location, in any room, any building, anywhere that's closed. Next slide. Our service network consists of over 170 partners spanning 48 states and numerous Canadian provinces. We are now expanding internationally with 3 international service and training centers located in the U.K., South Korea and Southeast Asia and the Singapore area. This will create our ability to expand internationally a service network and support network members, broadening the adoption of our technology and helping them to grow their businesses. Next slide, CSN customer case studies. You can see a group of 10 pictures here. This is from COVID-19, and these are TSN members from around the world that either we're doing private aircraft, toy stores, restrooms of large international office buildings, Hyatt Regency, Marriott, in Guam, kitchens, the South Korean rapid transit system, all their machines and all their trains, a large shopping food center, 911 service centers, helicopters and South Korean biological and chemical team bringing the equipment into a building. So you can see there's a lot of applications. Our last market is our commercial market. It's our newest market outside of food, and it's the fastest, most effective disinfection for this market. We do whole room mist, no wipe, no residue, doesn't interfere with art, fabrics, electronics, computer or sensitive instruments. We're going to continue to grow and broaden this to create more tombstones globally and continued R&D additional products to maintain disinfection and decontamination industry. The last case study here is for the Seoul City Metropolitan transit system, and you can see how they're disinfecting the trains, and inside the train. The person in the white Hat and the yellow suit was the Mayor of Seoul. He died shortly after this was taken, in fact, weeks after, unfortunately, unrelated to everything, including COVID. Last market is food safety. Ability to deliver a safe, highly effective disinfection along the supply chain, farms, food and meat packing. We're developing a low-grade hydrogen peroxide solution. We can reduce cross contamination. Proliferation of food borne illnesses created significant issues in the United States and around the world. There's about 600 million cases. And almost 0.5 million deaths from food-related disease or foodborne disease. We're going to continue our customer relations with our large agricultural players, large food manufacturers, brands, et cetera. We've recently added 2 vice presidents in sales to the commercial division and the food safety division, and we're sure they will help and assist. We have numerous papers on the Internet pertaining to our food safety. Slide you should be seeing says life science customer case studies. Food safety. Competition. Manual wipes and bleaches takes a long time. We have a very small micron. This is what's important. Many of you on the call see people with electrostatic sprayers, the microns out of these sprayers are anywhere from 4 microns to 120. We have a particle size as low as 0.5 micron to 3 microns. Most viruses are in that range of 0.5 micron and below, most bacteria are around 1 to 3 microns. So we are able to get around it versus the larger microns, which just wet the surfaces. And we're starting to see that, that some of the clients that were buying these electrostatic sprayers are getting more interested in our product going forward because of the fact we don't overly wet. And manual cleaning creates cross contamination, which we don't. It's an old way of cleaning, going down in the future. Post COVID, post everything, cleaning has to change. And we believe that mechanical cleaning will end up being far superior than old, established hand manual cleaning. Some of the reasons why we're coming out with a robot and some of the reasons why we're coming out with a more mobile backpack device. As far as operations supply chain, we partner with RG Industries in New York, Pennsylvania for our units. We also have planned innovation in [ Baxel ], Australia that is helping us aid in our capacity to serve our international clients and working on our backpack. Also, we have partnered with Arkema, a chemical spin out of Total S.A. headquartered in France. That helps us with the production of our BIT Solution. We expect to have ample capacity to support growth. And you can see where our representatives and distributors are around the world. With that, unless there's questions? Well, I want to thank you all for your continuing support at TOMI. I'll proceed to answer any questions if they are there. As noted in the proxy statement, shareholders can submit questions before and during the annual meeting. We will take some time to answer those questions that are germane to the meeting. Any matter of individual concern they've discussed with the company representative at a convenient time following this meeting. If you wish to ask a question at this meeting,that have not submitted one, please submit such questions virtually over the next few minutes. Alan, do you see any questions?

There are no questions at this time.

Okay. Thank you. All right. This concludes our question-and-answer session. Thank you for your participation and support. Have a wonderful, again, happy and healthy New Year. Thank you all.