Business Context and Reporting Period
Company: TOMI Environmental Solutions, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: TOMI provides green environmental technology solutions for indoor air pollution and infectious disease control. Core products utilize hydroxyl radicals, UV ozone, and UV Germicidal Irradiation (UVGI) to decontaminate air and surfaces in commercial and residential settings. The company exited its development stage in the second quarter of 2009 upon commencing principal operations.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Net Revenues | $499,172 | $10,335 |
| Gross Profit | $298,553 | $10,335 |
| Net Income (Loss) | $14,169,339 | $(22,745,579) |
| Cash and Cash Equivalents | $13,126 | $367,697 |
| Total Assets | $4,712,441 | $881,707 |
| Total Liabilities | $1,685,563 | $922,871 |
| Stockholders' Equity | $3,026,878 | $(41,164) |
| Net Cash Used in Operating Activities | $(414,477) | $(721,061) |
Note: The 2009 Net Income is primarily driven by a non-cash compensatory credit of $18,312,558 related to the amendment of Series A Preferred Stock terms, rather than operational profitability.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased from $10,335 in 2008 to $499,172 in 2009 as the company transitioned from a development stage to active operations.
- Accounting Adjustment: A significant non-cash credit of $18.3 million was recorded in 2009 due to the reduction of the par value and conversion rate of Series A Preferred Stock, reversing a $20.4 million expense recorded in 2008.
- Liquidity: Cash on hand decreased significantly from $367,697 to $13,126, despite a large restricted investment asset of $3.56 million.
- Acquisitions: The company acquired 19% of Advanced Disinfectant Technologies, LLC (Adtec) for 190,000 shares of common stock and entered a licensing agreement with Degmor Industries.
Guidance, Outlook, Risks, and Contingencies
Going Concern Warning
The independent auditors have issued a "going concern" opinion. The company has limited revenues, has not generated positive cash flow from operations, and relies on future equity financing or licensing revenue to meet obligations. There is substantial doubt about the company's ability to continue as a going concern without additional capital.
Outlook and Strategy
Management plans to fund operations through licensing arrangements (e.g., the Degmor agreement), equipment sales, and equity financing. The company is negotiating up to $5 million in equity or debt financing. The strategy focuses on certifying and licensing equipment to the remediation industry, hospitality sector, and hospitals.
Risks
- Capital Availability: No assurance that additional capital will be available on acceptable terms.
- Profitability: No assurance that the business model will achieve profitability or that the market will accept the products.
- Competition: The remediation industry is competitive with low barriers to entry.
- Stock Volatility: Shares trade on the OTCBB with limited liquidity and high volatility.
Subsequent Events
On April 13, 2010, the Board rescinded a February 2009 transaction with Taurus Global Opportunity Fund, canceling Series B stock and 350,000 common shares, and paid holders $3,563,062 from restricted investment proceeds.
Investor Verification Checklist
- Going Concern Status: Verify the company's ability to secure the necessary financing to avoid insolvency, given the auditor's warning.
- Non-Cash Income: Confirm that the reported 2009 net income is not reflective of operational cash generation due to the $18.3 million accounting adjustment.
- Liquidity Position: Assess the availability of the $3.56 million restricted investment and the company's ability to convert it to cash for operations.
- Licensing Revenue: Monitor the execution of the Degmor Industries agreement and the realization of the projected 12.5% revenue share.
- Related Party Transactions: Review the $827,868 in accrued unpaid compensation to the CEO and the terms of the Series A Preferred Stock held by a related party.