TOMI Environmental Solutions, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. The unaudited filing describes TOMI as an environmental decontamination and infectious-disease-control company, selling, servicing and licensing products including SteraMist hydrogen-peroxide technology. The statements are prepared on a going-concern basis.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $39,165 | $65,229; down about 40% |
| Gross profit and margin | $5,795; 14.8% | $33,486; 51.3% |
| Operating loss | $189,636 | $53,013 |
| Net loss | $192,693 | $92,475 |
| Operating cash flow | $(52,739) | $(76,118) |
| Capital expenditures | $21,700 | $25,346 |
Operating expenses were $195,431, including $109,129 in professional fees and $86,302 in other general and administrative costs. Q1 2012 included a $43,900 debt-extinguishment gain; Q1 2013 had $3,057 of interest expense and no reported debt-discount amortization or convertible-debt finance charges. Basic and diluted loss per share was reported as $(0.00); weighted-average common shares were 75,493,465 versus 64,851,482.
At March 31, cash and cash equivalents were $23,903, down from $73,424 at year-end. Current assets were $3,441,800 and current liabilities $3,519,945, giving a $78,145 working-capital deficit. The $3,318,978 of restricted escrow funds was matched by an escrow liability and was not available operating cash. Stockholders’ equity was deficient by $17,750. The balance sheet included $8,907 in officer loans payable on demand at 5% interest; the filing reports no other period-end debt balance.
Material changes and business developments
- Management attributed the revenue decline to reduced sales while TOMI and L-3 Applied Technologies negotiated the transfer of the SteraMist intellectual property and related assets. The transfer closed after quarter-end.
- Operating loss increased by $136,623, which management attributed to higher general and administrative expense and professional fees, as well as the prior-year debt-extinguishment gain.
- Common shares issued and outstanding were 75,569,569 at March 31, compared with 75,455,585 at December 31. During Q1, TOMI sold 76,625 shares for $19,999 and issued 37,359 shares valued at $6,037 for services.
- In April, TOMI raised $4.125 million gross through 165 units of 10% senior secured callable convertible notes and warrants; net proceeds were $3,629,100 after $495,900 of offering expenses. The notes mature July 31, 2015, are convertible initially at $0.29 per share, and are secured by specified company assets. TOMI also issued 825,000 placement-agent warrants.
- On April 15, TOMI acquired L-3’s Binary Ionization Technology and related patents and assets for $3.5 million, funded from the offering proceeds. The acquired assets secure the notes.
Outlook, risks and other disclosures
The filing provides no quantified revenue or earnings guidance. Management said it intends to fund operations through licensing and sales arrangements, equity issuance, and convertible financing, and aims to expand product sales and business alliances. It described a significant and urgent need for capital and stated that substantial doubt exists about TOMI’s ability to continue as a going concern. It warned that additional financing may not be available on acceptable terms, could dilute existing shareholders, and that failure to generate cash or raise sufficient capital could force the company to curtail or cease operations.
Management reported no contractual obligations, off-balance-sheet arrangements, market-risk disclosures, or material legal proceedings. It stated that disclosure and internal controls were effective for the quarter and that no control changes were made. The filing describes an environmental advisory agreement involving an initial $15,000 retainer and 250,000 options; additional cash and option payments depend on milestones that had not been achieved by March 31.
Investor facts to verify
- Whether post-quarter financing and the asset acquisition provide sufficient usable liquidity, including the effect of note interest, security pledges, and conversion or warrant dilution.
- How quickly the acquired SteraMist technology and assets can support sales, margins, and cash flow after the supplier transition.
- The filing’s option disclosures: one note states 80,000 options outstanding at March 31, while the option activity table reports 330,000.
- Whether TOMI can address its going-concern warning despite the restricted escrow balance and its small quarter-end cash position.