TOMI Environmental Solutions, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. TOMI sells, services and licenses its SteraMist disinfection and decontamination products, based on its Binary Ionization Technology platform.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $1.458 million | $1.466 million | $3.767 million | $3.539 million |
| Gross profit | $921,000 | $942,000 | $2.342 million | $2.177 million |
| Gross margin | 63.1% | 64.2% | 62.2% | 61.5% |
| Operating expenses | $1.784 million | $2.135 million | $3.865 million | $4.881 million |
| Operating loss | $(863,000) | $(1.193) million | $(1.523) million | $(2.704) million |
| Net loss | $(862,000) | $(778,000) | $(1.522) million | $(2.289) million |
| Loss per share, basic and diluted | $(0.04) | $(0.05) | $(0.08) | $(0.14) |
- Q2 revenue was essentially flat year over year. First-half revenue rose 6%; product revenue increased 13% to $3.020 million, while service and training revenue fell 14% to $747,000.
- Operating expenses declined 16% in Q2 and 21% in the first half. Selling expense rose, while general and administrative, research and development, and consulting costs fell.
- Q2 net loss increased year over year despite a smaller operating loss, as Q2 2021 included a $414,583 debt-extinguishment gain. First-half 2021 also included that gain.
- Cash used in operating activities was $451,000 for the first half, versus $2.512 million in 2021. Investing activities used $66,000; financing activities provided no cash. Cash declined to $4.800 million from $5.317 million at year-end.
Financial position and liquidity
- At June 30, cash was $4.800 million, current assets $12.358 million, current liabilities $2.433 million, working capital $9.925 million, and shareholders’ equity $12.425 million. The current ratio was approximately 5.1, calculated from reported balances.
- The balance sheet reports no conventional borrowings. Total liabilities were $3.245 million, including $908,676 of operating lease liabilities ($97,385 current and $811,291 long-term).
- Customer deposits rose to $606,984 from $6,000 at year-end; management describes these primarily as down payments on future Custom Engineered Systems orders.
Outlook, commentary and risks
- Management reported $5.6 million of orders received in the first half and expected approximately $2.3 million of that amount to be recognized in Q3 and Q4 2022. It cited additional CES and service orders and said it believed it could exceed its original 2022 budget and analyst expectations; no specific formal revenue or earnings guidance was provided.
- Management expects CES installations to support future equipment and recurring solution sales. It also intends to increase product-development and capital and operating expenditures and expand commercial service capacity.
- Management said it believes existing cash and expected operating cash flows will be sufficient for operating, working-capital and capital-expenditure needs over the next 12 months. Results remain subject to order timing, sales cycles and installation lead times, customer budgets, and demand uncertainty as pandemic-related disinfection spending changes.
- COVID-19 initially increased demand, but TOMI reported reduced demand during 2021 as customers resumed operations and reallocated spending. The company says the effect on the remainder of 2022 is difficult to predict.
- Three customers accounted for 32% of first-half revenue; one customer represented 29% of Q2 revenue. One vendor accounted for approximately 45% of accounts payable at June 30, and two vendors accounted for 66% of first-half cost of sales.
- Disclosure controls were deemed ineffective at the reasonable-assurance level due to a previously identified material weakness in internal control over financial reporting, involving accounts receivable and bad-debt reserves. Remediation was ongoing; management expected completion before year-end 2022 but gave no assurance.
- Management reported no material pending legal matter or product-liability claims. The company has a fully reserved deferred-tax position and reported no income-tax provision for the periods shown.
Most important facts to verify
- Whether the reported $5.6 million order pipeline converts to deliveries and recognized revenue on the stated schedule, and whether the expected $2.3 million is realized in the second half.
- How cash burn, operating costs and planned spending evolve, and whether cash remains sufficient as management expects.
- Progress and testing of controls remediation, especially receivables and bad-debt reserve procedures.
- Customer and supplier concentration, and the potential effect of losing or delaying business with major counterparties.
- Share-count disclosures: the balance sheet reports 16,761,513 common shares at December 31, 2021, while the equity statement reports 19,680,955 at January 1, 2022 and the balance-sheet par value implies a different count. Confirm the correct comparative share count and related dilution. Outstanding warrants and options also represent potential dilution.
- Several MD&A figures appear inconsistent with the financial statements, including the prior-year Q2 net loss in its comparison table. Reconcile those narrative figures to the reported statements before relying on them.