Business Context and Reporting Period
Company: TOMI Environmental Solutions, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2011
Business Overview: TOMI provides surface and air decontamination and infectious disease control solutions using Hydrogen Peroxide technology, UV Ozone generators, and UVGI products. The company operates subsidiaries in Singapore and China and focuses on commercial, medical, and residential markets.
Key Financial Metrics
| Metric | Q3 2011 | Q3 2010 | 9 Months 2011 | 9 Months 2010 |
|---|---|---|---|---|
| Net Revenues | $42,062 | $16,267 | $200,550 | $305,277 |
| Gross Profit | $10,210 | $15,099 | $58,639 | $175,701 |
| Net Loss | $(124,055) | $208,008 (Income) | $(642,917) | $(997,287) |
| Net Loss Attributable to Common Stockholders | $(121,877) | $205,857 (Income) | $(640,930) | $(999,438) |
| Cash and Cash Equivalents (End of Period) | $15,455 | N/A | $15,455 | N/A |
| Total Assets | $206,440 | N/A | $206,440 | N/A |
| Total Liabilities | $374,065 | N/A | $374,065 | N/A |
| Stockholders' Deficiency | $(167,625) | N/A | $(167,625) | N/A |
Liquidity: The company reported negative working capital of $334,346 as of September 30, 2011. Net cash used in operating activities for the nine months ended September 30, 2011, was $231,819.
Material Changes vs. Prior Period
- Revenue: Q3 2011 revenue increased 158% compared to Q3 2010, driven by higher sales of the SteraMist product. However, nine-month revenue decreased 34% due to a business model shift in 2010 from equipment sales to licensing.
- Profitability: The company swung from a net income of $208,008 in Q3 2010 to a net loss of $124,055 in Q3 2011. The prior year income was significantly influenced by a $902,500 rescission of acquisition and R&D expenses.
- Expenses: General and administrative expenses decreased significantly year-over-year (from $296,255 to $74,842 in Q3) primarily due to a reduction in CEO compensation. Management and consulting fees dropped to zero in 2011 as deferred compensation from prior years was fully amortized.
- Balance Sheet: Total assets decreased from $314,754 (Dec 31, 2010) to $206,440 (Sep 30, 2011). Total liabilities decreased from $1.32 million to $374,065, largely due to the forgiveness of $700,269 in accrued officer compensation by the CEO.
Outlook, Risks, and Management Commentary
- Going Concern: Management explicitly states that the company's existence is dependent on its ability to develop profitable operations and resolve liquidity problems. There is substantial doubt about the company's ability to continue as a going concern.
- Capital Needs: The company has an immediate and urgent need for additional capital. It plans to fund operations through licensing arrangements, debt financing, and sales of common stock or convertible notes.
- Strategic Initiatives: The company is expanding internationally with subsidiaries in Singapore and China and a joint venture with Zera Investments to distribute products in the Middle East and Southeast Asia. Management reports ongoing interest from government officials in Saudi Arabia.
- Risks: Risks include the inability to generate cash flow from operations, failure to raise external capital, and potential dilution of existing stockholders. The filing notes no material legal proceedings as of the filing date.
Investor Verification Checklist
- Liquidity Status: Verify the company's ability to meet obligations given cash reserves of only $15,455 and negative working capital.
- Capital Raising: Confirm if the company has secured the additional funding required to continue operations as stated in the "Going Concern" note.
- Revenue Sustainability: Assess whether the Q3 revenue increase is sustainable or dependent on one-time licensing deals.
- Related Party Transactions: Review the impact of the CEO's forgiveness of $700,269 in debt and the issuance of 14 million shares for accrued compensation on future dilution and governance.
- International Expansion: Validate the progress of the Singapore and China subsidiaries and the joint venture with Zera Investments.