Company: TOMZ
Filing Date: 2025-04-14
Form Type: 10-K
Source: 0001654954-25-004233
Chunk: 93

Company: TOMI Environmental Solutions, Inc.
Filing Date: 2025-04-14
Form: 10-K
Item: Item 1
Chunk 93
---
 which supports the adjustments and assumptions made by management in determining the allowance.

Inventory – Valuation associated with excess and obsolete (E&O) inventory

As further described in Note 2 to the consolidated financial statements, inventory is stated at the lower of cost or net realizable value. At the balance sheet date, the Company evaluated inventories for excess quantities and obsolescence (E&O) and included an inventory reserve against its inventory balances. As of December 31, 2024, the inventory reserve was $1.1 million, or approximately 24% of total inventory. To estimate the amount of inventory that may be in excess or obsolete, the Company reviews inventory quantities on hand as well as historical and projected sales volumes. The Company’s model assumes that inventory will be distributed on a first-in-first-out basis. Due to the nature of the inventory and the levels of inventory purchased in prior years, as well as recent sales trends, estimating the amount of inventory that is in excess or potentially obsolete involves significant judgments and estimates.

Given the significant judgments associated with evaluating the valuation of E&O inventory, auditing the reasonableness of management’s estimates and assumptions involved especially subjective judgment and an increased extent of effort, therefore we identified the estimates used to determine the valuation of the E&O inventory as a critical audit matter.

 F-3Table of Contents

To the Board of Directors and

Stockholders of TOMI Environmental Solutions, Inc. 

Our audit procedures related to the Company’s valuation of E&O inventory included the following:

·Evaluating the design and implementation of controls over the E&O inventory valuation.  ·Obtaining the Company’s E&O calculation and testing the mathematical accuracy.  ·Inquiring of the Company’s employees outside of the accounting department and evaluating other areas of the audit to identify business, product, or industry changes that may impact the inputs in the inventory E&O calculation.  ·Evaluating management’s future projections by comparing to current and historical sales trends.  ·Assessing the reasonableness of the assumptions used in the E&O calculation by developing an independent expectation and comparing our independent expectation to the results of the Company’s calculation.

Going Concern

As described in Note 2 to the consolidated financial statements, the Company has recurring losses from operations, negative cash flows from operations, a retained deficit, and as of December 31, 2024, has approximately $665,000 of cash. The ability of the Company to continue