TOMI Environmental Solutions, Inc. — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Financial statements are unaudited and presented in U.S. dollars. TOMI sells and licenses environmental decontamination products and technologies, including hydrogen peroxide aerosol, UV ozone and UVGI systems.
Financial results
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $218,473 | $10,514 | $283,702 | $158,488 |
| Gross profit | $91,510 | $5,577 | $124,996 | $48,429 |
| Gross margin | 41.9% | 53.0% | 44.1% | 30.6% |
| Operating loss | $(31,504) | $(125,271) | $(84,517) | $(510,998) |
| Net loss | $(48,252) | $(129,943) | $(140,727) | $(518,862) |
Q2 revenue increased substantially, which management attributed to market acceptance of SteraMist. First-half growth was attributed primarily to repeat and higher sales to hospitals and the remediation industry. First-half general and administrative expense fell to $142,529 from $455,141, chiefly due to lower CEO compensation and business-model-related operating costs. First-half results included $23,995 of convertible-debt finance charges and $16,606 of debt-discount amortization. A vendor’s $43,900 debt forgiveness in exchange for test equipment with no book value was recorded as a debt-extinguishment gain.
Cash flow, liquidity and capital
- First-half operating cash used was $205,183, versus $197,610 in the prior-year period; investing cash used was $45,972, versus $1,969.
- Financing provided $274,196, including $130,000 from common-stock sales, $100,000 from a convertible note and $47,662 in related-party loans. Cash at June 30 was $23,041, compared with no cash at December 31, 2011.
- At June 30, current assets were $205,137 and current liabilities were $433,127, producing a $227,990 working-capital deficit. Stockholders’ deficiency was $90,000. Total assets were $343,127 and total liabilities were $433,127.
- Current liabilities included $129,130 owed to the CEO and a convertible debenture with a net carrying value of $18,209. The notes described in the filing were $175,000 in aggregate principal and bore 10% interest.
- Management reported approximately $136,700 cash as of July 31. In July, the $100,000 note was repaid and the $75,000 note converted into 1.5 million common shares; the company also sold 2,187,500 shares for $175,000.
- Common shares issued and outstanding rose to 68,912,997 at June 30 from 64,629,033 at year-end; 72,750,497 were outstanding on August 1.
Outlook, risks and notable items
- Going concern: The company reported recurring operating cash outflows, limited revenue, a first-half loss, working-capital and stockholders’ deficits, and stated these conditions raise substantial doubt about its ability to continue as a going concern. It expects to seek liquidity through licensing, debt and equity financing; availability and acceptable terms are not assured, and additional equity or convertible financing could dilute shareholders.
- Business outlook: Management’s objectives include expanding sales in North, Central and South America and the Far East, developing or acquiring complementary remediation products, and pursuing alliances and research. No quantitative revenue or earnings guidance was provided.
- Post-quarter debt charges: The company stated it expects to recognize $90,709 of unamortized discount as expense in Q3 following repayment of the $100,000 note, and $66,082 following conversion of the $75,000 note.
- Other disclosures: The filing reported no material legal proceedings, contractual obligations, off-balance-sheet arrangements or market-risk disclosures. Management stated disclosure and internal controls were effective for the quarter and that no control changes were made.
Investor facts to verify
- Whether the July financing and reported July 31 cash are sufficient to meet near-term obligations, given the stated going-concern uncertainty.
- The timing and earnings impact of the $156,791 in post-quarter debt-discount expense, and the final accounting for the note conversion and repayment.
- Revenue quality and sustainability, including repeat hospital sales, distribution arrangements and SteraMist customer adoption.
- Potential dilution from common-stock issuance, convertible securities, warrants and any additional capital raising.
- Ability to improve operating cash flow and gross margins while funding planned growth.