TOMI Environmental Solutions, Inc. — Q1 2020 Form 10-Q
Business context and period. The unaudited quarter ended March 31, 2020. TOMI sells and services SteraMist disinfection and decontamination products using its Binary Ionization Technology platform. Results were substantially affected by increased demand related to the COVID-19 pandemic.
Financial results and position
| Metric | Q1 2020 | Q1 2019 / comparator |
|---|---|---|
| Revenue | $7.05 million | $1.25 million; up 463% |
| Gross profit / margin | $4.49 million / 63.6% | $0.76 million / 60.6% |
| Operating income (loss) | $2.66 million | $(0.87) million |
| Net income (loss) | $2.62 million | $(0.93) million |
| Basic and diluted EPS | $0.02 | $(0.01) |
| Cash from (used in) operations | $3.32 million | $(0.65) million |
| Cash and cash equivalents | $3.76 million | $0.90 million at Dec. 31, 2019 |
| Working capital | $6.37 million | $3.73 million excluding notes at Dec. 31, 2019; $(1.27) million including notes |
Product revenue was $6.64 million, versus $1.03 million; service and training revenue was $0.42 million, versus $0.22 million. U.S. revenue was $3.57 million and international revenue $3.48 million. The filing attributes the sharp increase to pandemic-driven demand, particularly from healthcare and the TOMI Service Network (TSN). Operating expenses rose to $1.83 million from $1.63 million. No income tax provision was recorded.
Total assets were $11.95 million at March 31, 2020, compared with $8.23 million at year-end; shareholders’ equity increased to $8.32 million from $0.89 million. The $5.0 million convertible notes outstanding at year-end were eliminated: $4.5 million converted into 8.33 million common shares and $0.5 million was repaid in cash. Lease liabilities were $1.09 million. The quarter’s investing cash outflow was $0.01 million and financing cash outflow was $0.44 million.
Material changes, outlook and risks
- Pandemic-related demand and execution: Management reported 81 new customers in the quarter, increased production capacity and staffing, and said substantially all equipment inventory was sold, with backlog and demand for 91 additional units. It anticipated continued demand but said order frequency and volumes were not yet predictable.
- Liquidity and order terms: TOMI began requiring 50% deposits on most orders and payment in full before delivery on most orders. Customer deposits were $1.02 million at quarter-end; vendor deposits for future inventory orders were $1.27 million. Management said cash and expected operating cash flows should meet operating, working-capital and capital needs for the next 12 months, while noting it may seek alternative financing.
- Supply and concentration risks: One vendor accounted for 89% of cost of sales and 33% of accounts payable. One international customer/distributor represented 31% of quarterly revenue. Management was working to expedite supply and planned to add a second manufacturer; actual continuity and capacity remain important to verify.
- COVID-19 uncertainty: The company reported that it was identified as an essential vendor and that demand had increased, but warned that employee, customer or supplier quarantines and travel restrictions could affect operations. Revenue also depends on sales-cycle timing, distributor orders, market expansion and the global pandemic response.
- Subsequent events: On April 21, 2020, TOMI received a $410,700 PPP loan at 1% interest, with a two-year term and potential forgiveness. Any unforgiven balance is repayable under the note terms. Warrants were also issued to executives in April; 3,116,666 warrants expired in May, leaving 13,912,192 outstanding.
- Other items: Management reported no material legal proceedings or product-liability claims, no off-balance-sheet arrangements, and effective disclosure controls. No specific numerical revenue or earnings guidance was provided.
Most important facts for investors to verify
- Whether the pandemic-driven sales surge and customer backlog convert into repeat orders, and how demand develops after the initial outbreak response.
- Whether production expansion and supplier diversification can support demand, particularly given the disclosed vendor and customer concentrations.
- Cash conversion and working-capital requirements, including collections on the $3.15 million receivable balance and use of customer and vendor deposits.
- The PPP loan’s forgiveness status and repayment obligations, and the effects of equity conversion, warrants and other potential dilution on share count.
- The filing presents diluted weighted-average shares of 144.9 million for Q1 2020, while parts of the notes describe potentially dilutive securities as anti-dilutive; verify the diluted EPS calculation and share treatment.