TOMI Environmental Solutions, Inc. — 2021 Form 10-K
Business context and reporting period. TOMI sells and services SteraMist products, using its Binary Ionization Technology to apply ionized hydrogen peroxide for disinfection and decontamination. Its markets include healthcare, life sciences, service networks, food safety and commercial customers. This annual report covers the fiscal year ended December 31, 2021, compared with 2020.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $7.754 million | $25.028 million |
| Gross profit / margin | $4.587 million / 59.2% | $15.043 million / 60.1% |
| Operating expenses | $9.511 million | $10.534 million |
| Operating income (loss) | ($4.924 million) | $4.509 million |
| Net income (loss) | ($4.435 million) | $4.391 million |
| Basic and diluted EPS | ($0.25) | $0.27 basic; $0.23 diluted |
| Cash from (used in) operations | ($3.824 million) | $4.578 million |
| Cash and cash equivalents at year-end | $5.317 million | $5.199 million |
| Working capital | $11.077 million | $11.503 million |
| Shareholders’ equity | $13.595 million | $13.203 million |
Revenue fell 69% year over year, primarily reflecting the unusually high COVID-related demand in early 2020 and subsequent reductions in customer activity and orders. Product revenue was $6.179 million and service and training revenue was $1.575 million. Despite the annual decline, management reported 22% higher total revenue in 2021 than in 2019, with solution revenue up 48% and recurring solution orders up 63% versus 2019.
Gross margin eased by 0.9 percentage points, which the company attributed to a less favorable sales mix after the prior year’s unusually strong solution sales. Operating expenses declined about 10%; 2020 included $3.131 million of non-cash equity compensation, compared with $18,000 in 2021. The 2021 net loss included a $415,000 gain from forgiveness of the company’s PPP loan.
Cash used in investing was $639,000; financing provided $4.582 million, largely from a September registered direct offering. The offering issued 2,869,442 common shares and associated warrants. Year-end loan payable was zero following PPP forgiveness. Reported liabilities included operating lease obligations of approximately $953,000, of which $92,000 was current. The company said existing cash and expected operating cash flows should meet operating, working-capital and capital-expenditure needs for the next 12 months; it also said it had no plans for additional debt or equity financing.
Material changes, outlook and risks
- Demand and sales pipeline: Management cited reopening customers and a revenue increase of 20% in the second half of 2021 compared with the first half. It expects 2022 revenue to increase, citing new products, customer expansion, solution sales and Custom Engineered Systems (CES). This is management’s expectation, not quantified formal guidance.
- Orders and projects: The filing reported approximately $1.307 million of CES orders and accepted proposals expected to be recognized in 2022. Project timing, customer procurement and installation schedules could affect when revenue is recorded.
- Supply chain: Delays and shortages—including batteries and molds from China and domestic solution bottles—affected delivery timelines and delayed the SteraPak launch and some customer projects. Management expected delays and shortages to continue into 2022.
- Receivables and controls: The allowance for doubtful accounts was $1.678 million, or 47% of gross receivables; bad-debt expense was $1.606 million in 2021. Management identified a material weakness in controls over bad-debt reserves, including review and segregation of duties, and concluded internal control over financial reporting and disclosure controls were ineffective at year-end. A remediation plan was underway. The auditor issued an unqualified opinion on the financial statements but did not express an opinion on internal control.
- Business and execution risks: Revenue depends heavily on the SteraMist brand, and customer arrangements generally do not require minimum purchases or provide long-term commitments. Other risks include competition, reliance on third-party manufacturers, regulatory approvals and compliance, international operations, and the possibility that pandemic-driven demand will not recur.
- Regulatory and product development: The EPA registered a 0.35% hydrogen peroxide BIT solution in 2021. The company was still pursuing an additional 1% registration for direct food application; approval timing was uncertain. Management also described development plans for Select Plus and Transport CES products.
- Other notable items: The company raised $4.582 million net through its September offering, increasing common shares outstanding to 19.681 million at year-end from 16.762 million. Potential share issuance from outstanding warrants, options and convertible preferred stock creates dilution risk. No material legal proceedings were reported.
Important facts for investors to verify
- Whether 2022 revenue growth and the approximately $1.307 million CES pipeline convert to delivered projects and recognized revenue.
- Subsequent cash collections, customer credit quality and the adequacy of the $1.678 million bad-debt allowance, given the material weakness and the concentration of 42% of gross receivables among three customers.
- Whether supply-chain constraints, customer reopening and recurring solution orders support improved operating cash flow and reduce reliance on external financing.
- Progress in remediating financial-reporting controls and whether the company reports effective controls in later filings.
- Warrant and option exercise terms and the resulting potential dilution, alongside the company’s year-end cash, lease obligations and stated 12-month liquidity outlook.
- Timing and status of outstanding regulatory submissions, including the proposed 1% label for direct food application.