TOMI Environmental Solutions, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone fourth-quarter report. Comparisons are with fiscal 2018. TOMI sells, licenses and services SteraMist disinfection and decontamination products based on its BIT technology.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $6.347 million | $5.585 million |
| Gross profit / margin | $3.914 million / 61.7% | $3.117 million / 55.8% |
| Operating expenses | $5.997 million | $6.188 million |
| Operating loss | ($2.083 million) | ($3.070 million) |
| Net loss | ($2.298 million) | ($3.230 million) |
| Basic and diluted loss per share | ($0.02) | ($0.03) |
| Cash used in operating activities | $814,000 | $1.767 million |
| Cash used in investing activities | $293,000 | $628,000 |
| Cash and cash equivalents, year-end | $897,000 | $2.005 million |
- Product revenue was $4.999 million, up 7%; service and training revenue was $1.348 million, up 44%. U.S. revenue increased 19% to $5.002 million, while international revenue declined to $1.345 million from $1.388 million.
- Gross margin improved primarily due to customer and product mix and an inventory reserve recorded in 2018. Operating expenses fell about 3%; lower R&D spending was partly offset by higher selling expenses.
- Year-end total assets were $8.225 million, total liabilities $7.336 million and shareholders’ equity $890,000. Cash declined by approximately $1.108 million during 2019.
- At year-end, $5.0 million of convertible notes was outstanding and classified as current. Management reported working capital of $3.734 million excluding the notes and negative $1.266 million including them. Operating lease liabilities totaled approximately $1.106 million.
Changes, outlook and risks
- Revenue reached a company record, increasing 14% year over year. Management attributed growth to large equipment orders, repeat solution sales and increased service engagements. Hospital-healthcare revenue grew 120%; Life Sciences revenue grew 4%, with the comparison affected by a nonrecurring custom unit sale in 2018.
- Management said customer adoption and equipment purchases can take time, but described the sales pipeline as strong and expected more predictable sales as customers progress through adoption. It anticipated continued hospital-healthcare growth in 2020 and stated existing cash and expected operating receipts should meet requirements for the following 12 months, while warning that financing may still be needed and is not assured.
- Significant subsequent event: In March 2020, $4.5 million of notes converted into 8,333,333 common shares at $0.54 per share, and the remaining $500,000 was repaid. The filing says this mitigated going-concern uncertainty. Common shares outstanding were 133.5 million as of March 24, 2020, versus 124.7 million at year-end 2019.
- COVID-19: The 2019 financial statements do not include pandemic-related 2020 sales. Management reported substantially all inventory sold in first-quarter 2020, demand/backlog for 91 additional units, increased solution reorders and service demand, and additional hiring. It expected demand to continue during 2020 but could not estimate the pandemic’s full operational impact; supply-chain capacity and working-capital needs remain relevant uncertainties.
- Key risks include continued losses and potential need for capital; reliance on third-party manufacturers and suppliers; competition and uncertain market adoption; regulatory requirements; international and intellectual-property risks; product liability; and volatile, thinly traded OTCQB shares. Three customers represented 37% of year-end receivables, and one vendor represented 40% of accounts payable and 72% of 2019 cost of sales.
- The company reported no material legal proceedings or off-balance-sheet arrangements. The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal controls.
Important facts for investors to verify
- Whether post-year-end COVID-related demand converted into shipped orders, recognized revenue, collected cash and sustainable margins, and whether inventory and supplier capacity can support it.
- The effects of the $4.5 million debt conversion and $500,000 repayment on liquidity, dilution and future interest costs; also reconcile subsequent share-count changes and outstanding warrants/options.
- Cash runway and working-capital needs, including the effects of receivables collection, inventory replenishment and the lease obligations.
- Customer and supplier concentration, and whether revenue growth and the improved gross margin can continue as product adoption develops.
- Regulatory status and evidence supporting expansion plans, particularly direct food applications, which the filing describes as pending approval.