TOMI Environmental Solutions, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; comparisons are with FY 2011. The filing describes TOMI as an early-stage provider of indoor decontamination products and services, principally SteraMist hydrogen-peroxide aerosol technology, alongside UV ozone and UVGI products. Its stated markets include healthcare, remediation, food safety, hospitality, and other commercial settings.
Financial performance and position
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $564,142 | $208,399 |
| Gross profit | $222,012 | $71,240 |
| Gross margin | 39.4% | 34.2% |
| Operating loss | $(1,450,810) | $(788,436) |
| Net loss | $(1,750,407) | $(826,510) |
| Basic and diluted loss per share | $(0.02) | $(0.01) |
| Cash used in operations | $(386,195) | $(329,323) |
Revenue rose about 171%, which management attributed mainly to initial Latin American penetration and repeat hospital sales following 2011 trials. Gross margin improved, but losses widened as general and administrative expense increased to $1,439,357 from $656,866. FY 2012 also included $69,439 of intangible-asset impairment and $299,597 of total other expense, including debt-discount amortization, interest, and related-party finance charges.
At December 31, 2012, cash was $73,424, accounts receivable $215,657, and current assets $294,481. Current liabilities were $234,475, for working capital of approximately $60,006. Total assets were $342,887, total liabilities $234,475, and stockholders’ equity $108,412, compared with a $271,182 deficiency in 2011. The balance sheet reported no notes payable at year-end; loans payable to the CEO were $3,988. Accounts receivable rose from zero, so collections are important to liquidity.
Financing provided $508,054 in cash, including $445,000 from common-stock sales and $100,000 of convertible-note proceeds, while the company also repaid $100,000 of convertible notes. Cash increased from zero to $73,424. Common shares outstanding increased from 64,629,033 at year-end 2011 to 75,455,585 at year-end 2012. The company reported 8,475,000 warrants outstanding at year-end.
Changes, outlook, and notable items
- Management reported initial Latin American sales under a February 2012 distribution agreement, repeat orders, and a Panama hospital pilot followed by engagement to expand the program to multiple hospitals. TOMI also reported ongoing U.S. hospital use and testing at two other hospitals; these are not presented as quantified revenue commitments.
- The company reported a $69,439 impairment that reduced its intellectual property and trademarks’ carrying value to zero. A vendor forgave $43,900 of debt in exchange for test equipment with no book value.
- Related-party and equity compensation were significant: the CEO received shares in settlement of loans and accrued compensation, and 3.5 million warrants for services; two consultants received 4 million warrants. Stock and warrant issuances contributed materially to noncash expenses and dilution.
- No quantified revenue, earnings, or cash-flow guidance was provided. Management’s plans rely on licensing and product sales, product development, and additional equity or debt financing. The filing gives no assurance those plans will deliver profitability or adequate liquidity.
- The independent auditor’s report raised substantial doubt about TOMI’s ability to continue as a going concern, citing recurring losses and negative operating cash flow. The financial statements contain no adjustments for a possible failure to continue as a going concern.
- Key risks include dependence on the CEO, limited staffing, competition from better-resourced companies, reliance on product acceptance and license/equipment-package sales, and the possibility that the hydrogen-peroxide aerosol manufacturer could terminate distribution rights if sales milestones are not met. The filing reports no material legal proceedings, contractual obligations, or off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the $215,657 year-end receivable is collectible and when it converts to cash, given the company’s $386,195 operating cash outflow.
- Current liquidity and financing availability, including the terms and dilution of any subsequent equity or convertible-debt funding.
- Progress against distribution-agreement sales milestones and the status and enforceability of TOMI’s SteraMist distribution rights.
- Whether reported pilot programs, hospital testing, and international expansion have produced repeatable commercial sales and sustainable margins.
- The potential dilution and expense impact of the 8,475,000 warrants, outstanding options, and future share-based compensation.
- Current operating performance and going-concern status after December 31, 2012; the filing provides historical results, not quantified forward guidance.