Business Context and Reporting Period
TOMI Environmental Solutions, Inc. is a global decontamination and infectious disease control company providing green energy-efficient solutions, including Hydrogen Peroxide aerosols and UVGI products. This Form 10-Q covers the quarterly period ended March 31, 2012. The company is classified as a smaller reporting company and a shell company is not applicable. As of May 15, 2012, there were 68,612,997 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Net Revenues | $65,229 | $147,974 |
| Gross Profit | $33,486 | $42,852 |
| Net Loss | $(92,475) | $(388,919) |
| Loss per Share (Basic/Diluted) | $(0.00) | $(0.01) |
| Cash and Cash Equivalents (End of Period) | $62,510 | $34,639 |
| Total Assets | $205,993 | $125,881 (Dec 31, 2011) |
| Total Liabilities | $359,617 | $397,063 (Dec 31, 2011) |
| Stockholders' Deficiency | $(153,624) | $(271,182) (Dec 31, 2011) |
| Working Capital Deficiency | $(273,159) | N/A |
Debt and Liquidity: The company holds a Convertible Debenture Payable (net of discount) of $7,874 and Loans Payable to an Officer of $113,908. Net cash used in operating activities was $(76,118), while net cash provided by financing activities was $163,974, driven by proceeds from convertible notes ($100,000) and common stock sales ($35,000).
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased by approximately 56% to $65,229 from $147,974 in the prior year quarter. Management attributes this to a strategic shift from ozone generating equipment to hydrogen peroxide aerosols and a focus change from air remediation to full-service decontamination.
- Improved Operating Loss: The loss from operations improved significantly to $(53,013) from $(385,727) in the prior year. This was primarily due to a reduction in general and administrative expenses, specifically the elimination of management and consulting fees.
- Debt Extinguishment: The company recorded a gain of $43,900 from the forgiveness of indebtedness by a vendor in exchange for test equipment with no carrying value.
- Financing Activity: The company raised capital through the sale of a $100,000 convertible promissory note and $35,000 in common stock sales during the quarter.
Outlook, Risks, and Management Commentary
Going Concern: The filing explicitly states that the company's existence is dependent on management's ability to develop profitable operations and resolve liquidity problems. The company has a stockholders' deficiency of $153,624 and a working capital deficiency of $273,159. There is substantial doubt about the company's ability to continue as a going concern.
Capital Strategy: Management plans to fund operations through licensing arrangements, debt financing, and sales of common stock and convertible notes. There is no assurance that additional funds will be available on acceptable terms.
Business Developments: The company entered a Sales and Distribution Agreement for Latin America and the Caribbean in February 2012, resulting in its first sale in Panama in April 2012. It continues to pursue alliances for disaster relief and infectious disease control.
Risks: Risks include the inability to generate cash flow from operations, the potential for significant dilution from future equity financings, and the need to raise capital to avoid curtailing operations.
Investor Verification Checklist
- Liquidity Status: Verify the company's ability to meet the $273,159 working capital deficiency and fund operations without immediate additional financing.
- Convertible Debt Terms: Review the terms of the $175,000 in convertible notes issued in late 2011 and early 2012, specifically the conversion price adjustments and potential dilution.
- Revenue Sustainability: Assess whether the strategic shift to hydrogen peroxide products will stabilize or grow revenue, given the 56% decline in the current quarter.
- Related Party Transactions: Note the $113,908 loan payable to the CEO and $25,000 in accrued officer compensation.
- Subsequent Events: Confirm the impact of the April 2012 sale of 2,230,769 shares for $95,000 on the capital structure.