TOMI Environmental Solutions, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. TOMI sells and services SteraMist disinfection and decontamination products using its Binary Ionization Technology platform.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2.20 million | $4.29 million | $5.74 million | $21.37 million |
| Gross profit / margin | $1.31 million / 59.6% | $2.84 million / 66.0% | $3.49 million / 60.8% | $12.89 million / 60.3% |
| Operating income (loss) | $(0.49) million | $1.10 million | $(3.19) million | $7.41 million |
| Net income (loss) | $(0.49) million | $1.02 million | $(2.78) million | $7.30 million |
| Net income (loss) per diluted share | $(0.03) | $0.05 | $(0.17) | $0.40 |
Quarterly revenue rose 50% from Q2 2021 ($1.47 million), but was down 49% year over year. Nine-month revenue declined 73%. Product revenue fell 55% in Q3 and 78% for the nine months; service and training revenue fell 11% and 22%, respectively. Management attributed the comparison chiefly to the extraordinary COVID-related demand surge in 2020 and subsequent customer closures, reduced operations, and delayed sales activity. Q3 gross margin also declined, which management attributed to product mix, including less high-margin solution sales than in the prior-year quarter.
Operating expenses were $1.80 million in Q3, up 4% year over year, and $6.68 million for nine months, up 22%. Nine-month increases included selling and marketing, R&D, and general and administrative costs. The nine-month net loss includes a $414,583 gain from forgiveness of the company’s PPP loan; the loan and related interest were forgiven in May 2021.
Cash, liquidity, debt, and capital
- At September 30, 2021, cash was approximately $5.66 million, working capital $12.89 million, and shareholders’ equity $15.24 million. Current liabilities were $1.95 million.
- Cash used in operating activities was $3.82 million for the first nine months, compared with $4.94 million provided in the prior-year period. Investing activities used $0.29 million; financing provided $4.58 million, principally from the September stock offering.
- The company reported no loan payable at quarter-end. Operating lease liabilities totaled $0.97 million, including $0.09 million current and $0.89 million long-term.
- The September registered direct offering issued 2,869,442 common shares and raised net proceeds of $4.58 million. It also included 1,434,721 immediately exercisable five-year warrants at $1.68 per share, plus 172,167 placement-agent warrants at $2.18. Shares outstanding were approximately 19.68 million as of November 10, 2021.
- Inventory increased to $4.79 million from $3.78 million at year-end 2020. The allowance for doubtful accounts rose to $750,000 from $390,000; nine-month bad-debt expense was approximately $511,000.
Outlook, developments, and risks
- Management gave no numerical financial guidance. It said it expected revenue to increase in Q4 2021 and into 2022, citing the SteraPak launch, the Amazon sales channel, and demand for life-sciences custom-engineered systems. These expectations are forward-looking and not assured.
- The company launched SteraPak in Q3 and continued development of SteraMist Select Plus and Transport CES products. It also reported an order from a top-five biopharmaceutical company and a European pharmaceutical custom-engineered-system project, with some project revenue expected in late 2021.
- Management plans increased product development, sales and marketing, and production investment. It said cash and expected operating funds should cover operating, working-capital, and capital-expenditure needs for the next twelve months, while noting financing availability and terms are uncertain.
- Key business risks include unpredictable post-pandemic demand, lengthy sales cycles, customer and distributor order timing, regulatory approval delays, and the possibility of continued operating losses and cash use. Two customers represented 29% of Q3 revenue; no customer represented 10% or more of nine-month 2021 revenue. Two customers accounted for 25% of receivables at quarter-end.
- Management reported no material legal proceedings or material changes to previously disclosed risk factors. Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the anticipated Q4 2021 and 2022 revenue recovery materialized, and the extent to which it depends on SteraPak, Amazon, and large life-sciences projects.
- Whether operating cash burn and receivables quality improve; particularly monitor the increased bad-debt allowance and inventory build.
- The impact of the September share issuance and warrants on dilution, including potential future warrant exercises.
- Whether gross margins hold as product mix changes and the company invests in sales, marketing, R&D, and manufacturing capacity.
- The timing and commercial significance of pending or newly introduced products, customer projects, and regulatory approvals.