TOMI Environmental Solutions, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The condensed financial statements are unaudited. TOMI sells and services SteraMist disinfection and decontamination products using its Binary Ionization Technology platform.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $2.775 million | $1.458 million | $4.357 million | $3.767 million |
| Gross profit | $1.700 million | $0.921 million | $2.642 million | $2.342 million |
| Gross margin | 61% | 63% | 61% | 62% |
| Operating loss | $89,000 | $863,000 | $1.277 million | $1.523 million |
| Net loss | $89,000 | $862,000 | $1.276 million | $1.522 million |
| Net loss per share, basic and diluted | $(0.00) | $(0.04) | $(0.06) | $(0.08) |
For the six months ended June 30, 2023, operating cash flow was negative $2.198 million, investing cash flow was negative $94,000, and financing cash flow was zero. Cash fell to $1.574 million from $3.867 million at year-end 2022. Working capital was $7.763 million, down from $8.844 million. Total assets were $13.346 million and total liabilities were $2.964 million. The filing reports no interest-bearing debt; liabilities include $811,000 in operating lease obligations.
Changes versus comparable periods
- Q2 revenue increased 90% year over year; management also reported 75% sequential growth from Q1 2023. Six-month revenue grew 16%.
- Q2 product revenue rose 100% and service and training revenue rose 55%. For the six-month period, product revenue increased 17% and service revenue 8%.
- U.S. revenue increased 116% in Q2 and 38% for the six-month period. International revenue declined 31% and 41%, respectively, attributed to distributor order timing and onboarding.
- Gross margin declined two percentage points in Q2 and one point for the six-month period, which the company attributed to sales mix.
- Operating losses narrowed year over year, but cash used in operations increased substantially from $451,000 to $2.198 million for the six-month period, primarily reflecting lower accounts payable and deferred revenue.
Outlook, commentary, and risks
- Management said it may attain profitability in Q4 2023 and believes cash and expected operating cash flows will cover requirements for the next 12 months. These are expectations, not formal financial guidance.
- Management cited demand for Custom Engineered Systems (CES), new sales and distribution relationships, and product development as growth opportunities. The company reported 15 CES orders since launch and Q2 customer sales backlog of approximately $486,000, including $146,000 received as a cash deposit.
- Three customers represented 57% of Q2 revenue; two customers represented 30% of six-month revenue. One customer accounted for 13% of gross receivables at June 30, 2023. Two vendors represented about 50% of accounts payable and 77% of Q2 cost of sales.
- Key uncertainties include continued operating cash burn, revenue and distributor-order timing, reduced international sales, customer concentration, dependence on a limited number of suppliers, and the possibility that additional financing may be unavailable or dilute shareholders. The company notes that demand for disinfection products shifted after the pandemic and that future pandemic effects are difficult to predict.
- The company reported no material legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether subsequent results support management’s expectation of Q4 2023 profitability and its 12-month liquidity assessment.
- Conversion of CES orders and backlog into recognized revenue, cash deposits, and recurring solution sales.
- Cash-flow and working-capital trends, particularly the impact of receivables, payables, and deferred revenue.
- Customer and vendor concentration, international distributor progress, and the effect of product mix on gross margins.
- Potential dilution from financing needs and outstanding warrants, options, and convertible preferred stock.