TOMI Environmental Solutions, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The interim financial statements are unaudited. TOMI sells and services SteraMist disinfection and decontamination products using its Binary Ionization Technology platform.
Financial results
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $1.114 million | $1.582 million; down 30% |
| Gross profit and margin | $671,000; approximately 60% | $941,000; approximately 59% |
| Operating expenses | $1.897 million | $2.129 million |
| Operating loss | $1.226 million | $1.188 million |
| Net loss / diluted loss per share | $1.310 million / $0.07 | $1.187 million / $0.06 |
| Cash used in operations | $1.178 million | $1.363 million |
| Cash and cash equivalents | $1.093 million at March 31 | $2.339 million at December 31, 2023 |
| Working capital | $6.571 million at March 31 | $7.903 million at December 31, 2023 |
Product revenue fell to $743,000 from $1.276 million, primarily due to order timing and revenue recognition. Service and training revenue increased to $371,000 from $306,000. U.S. revenue declined to $662,000 from $1.128 million; international revenue was nearly unchanged at $452,000.
Investing activities used $95,000, mainly for property and equipment; financing activities provided $27,500 from option exercises. Cash decreased by $1.246 million during the quarter. The company reported current assets of $8.527 million and current liabilities of $1.956 million.
Debt, liquidity and capital
Convertible notes have $2.6 million principal outstanding, bear 12% simple annual interest payable monthly, and mature in 2028. They are unsecured and senior to other indebtedness subject to exceptions, and are convertible at $1.25 per share, subject to a stated $1.55 cap. The balance-sheet carrying amount, net of unamortized financing costs, was $2.314 million. Q1 interest expense was $94,000.
Management states that, absent other action, additional liquidity may be needed to continue operations over the next 12 months. It says substantial doubt about the company’s ability to continue as a going concern is alleviated by plans to manage costs, raise equity or debt capital, and increase sales and other funding. The filing also says management expects cash, together with amounts expected from operations, to meet requirements for the next 12 months. These statements depend on execution of the plans and assumptions; financing availability is not assured.
Changes, outlook and notable items
- Management attributes the year-over-year revenue decline to the timing of customer orders and recognition, rather than identifying a specific lost customer or market exit. Operating expenses decreased by $232,000, but the operating loss widened by $38,000; higher interest expense contributed to the larger net loss.
- Management reported a quarter-end sales backlog of approximately $900,000, expected primarily to be recognized in Q2 and Q3 2024. It described a growing domestic and international pipeline and anticipates top-line growth for the remainder of 2024 and into 2025. This is management’s outlook, not quantified formal guidance.
- The company signed an approximately $600,000 custom-engineered system contract, with installation expected by the end of Q3 2024. Two previously delivered systems at a pharmaceutical customer were qualified, with go-live expected by Q4 2024; management cited estimated annual solution revenue of $250,000 once they begin operation.
- TOMI said the Department of Homeland Security included its technology in a budget overview for purchasing 16 systems for approximately $2 million. The filing does not establish that this is a completed purchase order. TOMI also submitted an application in May 2024 for a potential $3 million Department of Defense grant related to ethylene oxide mitigation; an award is not assured.
- Customer concentration increased: two customers represented 37% of Q1 revenue, compared with 26% a year earlier. Three customers accounted for 41% of gross receivables at quarter-end. One vendor represented approximately 50% of accounts payable.
- After quarter-end, on May 14, 2024, Joseph Frank Rzepka Jr. became CFO, replacing Nick Jennings, who retired from the role and remained as a part-time consultant.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material pending legal proceedings and no product-liability claims at quarter-end.
Key investor verification points
- Whether the $900,000 backlog converts to recognized revenue on the expected Q2–Q3 timetable, and whether anticipated pipeline opportunities become firm orders.
- Cash runway and financing needs if operating losses continue; availability and terms of potential equity or debt financing.
- Cash interest and conversion or dilution implications of the 12% convertible notes, alongside approximately 5.5 million potentially dilutive securities excluded from diluted loss per share as anti-dilutive.
- Status and contractual certainty of the DHS-related system purchase, the DoD grant application, the $600,000 installation, and the expected $250,000 annual solution sales.
- Exposure to major customers and suppliers, and the collectability of receivables given customer concentration.
Source note: The MD&A contains one inconsistent revenue-decrease figure; the financial statements and detailed revenue comparison show a decline of $468,000, which is consistent with revenue of $1.114 million versus $1.582 million.