TOMI Environmental Solutions, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual filing, not a standalone fourth-quarter report; separate Q4 financial results are not provided in the filing text. TOMI develops, sells, licenses, and services SteraMist disinfection and decontamination products based on its hydrogen-peroxide BIT technology.
Financial performance and position
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Revenue | $5.585 million | $4.994 million | +12% |
| Gross profit | $3.117 million | $3.066 million | +2% |
| Gross margin | 55.8% | 61.4% | Down 5.6 percentage points |
| Operating expenses | $6.188 million | $6.510 million | −5% |
| Loss from operations | $(3.070) million | $(3.444) million | Improved |
| Net loss | $(3.230) million | $(3.640) million | Improved |
| Basic and diluted loss per share | $(0.03) | $(0.03) | Unchanged as reported |
| Cash used in operating activities | $(1.767) million | $(2.432) million | Use decreased |
- Product revenue was $4.652 million and service and training revenue was $0.933 million. U.S. revenue rose to $4.197 million from $3.495 million; international revenue declined to $1.388 million from $1.499 million.
- Cost of sales increased 28% to $2.467 million. Management attributed the lower gross margin to sales mix and a $100,000 inventory reserve recorded in 2018.
- Research and development spending more than doubled to $916,000. Selling expense rose 8% to $1.360 million, while professional fees fell to $330,000 from $877,000, largely because 2017 included costs related to a lawsuit that was settled.
- Cash and cash equivalents were $2.005 million at year-end, versus $4.550 million; working capital was $5.544 million, versus $9.073 million. Total assets were $10.080 million and shareholders’ equity was $2.995 million.
- Capital expenditures and other investing cash outflows were $628,000, mainly associated with the new facility. Cash declined by $2.545 million during the year.
- Convertible notes had $5.0 million principal outstanding and a $4.982 million net carrying value at year-end. The notes bear 4% interest and ordinarily convert at $0.54 per share. In March 2019, holders extended the $5.0 million maturity to April 3, 2020; if unpaid after the specified notice period, holders may convert at $0.11 per share.
Changes, outlook, and material considerations
- Growth reflected equipment orders from new customers and repeat solution purchases. TOMI reported 65 new customers and 85 machines sold in 2018; recurring BIT solution sales increased 14% year over year.
- Management expanded sales and staffing, launched the E-Z SteraMist Disinfection Cart and other product offerings, increased R&D and marketing, and moved operations into a new 9,000-square-foot facility. The new lease is for ten years; reported annual rent is approximately $143,000 before escalations and applicable lease terms.
- Management said available cash and expected operating receipts should fund operations, working capital, and capital expenditures for the next 12 months. This is not a guarantee: the company remained loss-making and cash-consuming, and it warned that further financing may be needed and may not be available on acceptable terms.
- Growth initiatives include expanding sales and distribution, regulatory registrations, the TOMI Service Network, and food-safety applications. Direct food and crop applications require regulatory approvals; the filing gives no quantified revenue or earnings guidance.
- Notable items affecting reported results included a $150,000 gain from redeeming $300,000 principal of convertible debt for $150,000 cash, and $57,000 of induced conversion costs related to converting $700,000 principal and accrued interest into shares. A $100,000 inventory reserve also affected cost of sales.
- Key risks include ongoing losses and financing needs; potential shareholder dilution from warrants, options, and convertible notes; dependence on third-party manufacturers and suppliers; customer and vendor concentration; competition; regulatory and market-acceptance uncertainty; and product-liability and intellectual-property risks. Two customers represented 37% of year-end receivables, and one customer generated 13% of 2018 revenue. One vendor accounted for 70% of cost of sales.
- The company reported no material legal proceedings, no off-balance-sheet arrangements, and no product-liability claims at year-end. 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-control effectiveness.
Important facts for investors to verify
- Whether revenue growth can continue and improve margins, particularly given the 2018 gross-margin decline and reliance on equipment sales and repeat solution orders.
- Cash burn and financing runway, including the terms and repayment or conversion outcome of the $5.0 million notes due April 3, 2020.
- Potential dilution from outstanding securities: the filing reports 26.6 million warrants and 320,000 options at year-end, in addition to debt-conversion and preferred-stock shares; the notes could convert into 45.5 million common shares at $0.11 if the stated conditions apply.
- Customer and supplier concentration, collectability of receivables, and the basis for the inventory reserve.
- Progress and required approvals for food-safety and other expansion initiatives, as well as evidence supporting expected customer adoption and commercial returns.