TOMI Environmental Solutions, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. TOMI sells and services SteraMist disinfection and decontamination products using its BIT technology. Financial statements are unaudited.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1.47 million | $10.03 million | $3.54 million | $17.08 million |
| Gross profit / margin | $0.94 million / 64.3% | $5.56 million / 55.5% | $2.18 million / 61.5% | $10.05 million / 58.9% |
| Operating income (loss) | $(1.19) million | $3.66 million | $(2.70) million | $6.32 million |
| Net income (loss) | $(0.78) million | $3.66 million | $(2.29) million | $6.28 million |
| Basic EPS | $(0.05) | $0.22 | $(0.14) | $0.39 |
| Cash used in operations | — | $(2.51) million | $5.39 million provided |
Q2 and first-half revenue fell 85% and 79%, respectively, year over year, principally because the first half of 2020 included an exceptional COVID-19-related demand surge. Product revenue declined more sharply than service and training revenue. Gross margin improved, which management attributed to product mix.
At June 30, cash was $2.49 million, working capital was $8.83 million, and total current liabilities were $2.23 million. Total assets were $14.28 million and shareholders’ equity was $11.14 million. The PPP loan was forgiven in May 2021; no loan payable remained at quarter-end. Operating lease liabilities totaled $0.995 million, including $0.086 million current.
Material changes and unusual items
- Operating expenses rose 12% in Q2 and 31% in the first half, despite lower sales. First-half G&A increased 70%, and R&D doubled, reflecting higher staffing and product-development activity.
- A $414,583 gain from forgiveness of the $410,700 PPP loan and related interest partly offset the first-half operating loss. Without that gain, reported net loss would have been greater.
- The company recorded $418,000 of bad-debt expense in the first half; the allowance for doubtful accounts increased to $750,000 from $390,000 at year-end 2020. Inventory rose to $5.18 million from $3.78 million.
- TOMI repurchased a warrant from its CEO for $314,500; the charge was included in first-half G&A. It also issued 50,000 shares to directors for services, valued at $228,000.
Outlook, commentary and risks
- Management expected revenue to increase in the second half of 2021, citing interest in the SteraPak portable product, resumed Life Sciences opportunities, and expected custom-engineered system revenue. SteraPak launched in August, with backlog fulfillment expected to begin in Q3. The filing provides no quantified earnings or revenue guidance.
- Management said it believed cash and expected operating resources would cover operations, working capital and capital expenditures for the next 12 months. However, first-half operating cash use was $2.51 million, cash declined $2.71 million to $2.49 million, and further financing could be needed; equity financing could dilute shareholders.
- Demand remains uncertain as customers reassess disinfection needs following the pandemic. Customer closures, constrained budgets, sales-cycle timing and distributor orders may affect revenue. Management also noted delays in EPA submissions and other testing and approvals.
- Two customers represented 29% of Q2 revenue; three customers represented 42% of accounts receivable at June 30. Two vendors accounted for 58% of accounts payable. Management reported no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether SteraPak orders convert to recurring revenue and whether the expected second-half Life Sciences projects are delivered and recognized on schedule.
- Cash burn and liquidity against management’s 12-month sufficiency statement, particularly if revenue recovery is slower than expected.
- Collectability of receivables, the adequacy of the increased bad-debt allowance, and customer and supplier concentration.
- Actual product margins and operating-cost trends as sales volumes and product mix change.
- Potential dilution from outstanding warrants, options and convertible preferred shares; the filing lists approximately 1.85 million warrant shares, 132,500 option shares and 63,750 preferred conversion shares.