TOMI Environmental Solutions, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; the supplied text does not provide a standalone fourth-quarter income statement. TOMI sells, services and licenses SteraMist disinfection and decontamination products, based on its hydrogen-peroxide Binary Ionization Technology. The company attributes the year’s growth primarily to COVID-19-related demand.
Financial results and position
| Metric | FY2020 / year-end | FY2019 / prior year-end |
|---|---|---|
| Revenue | $25.03 million | $6.35 million |
| Gross profit; gross margin | $15.04 million; 60.1% | $3.91 million; 61.7% |
| Operating expenses | $10.53 million | $6.00 million |
| Operating income (loss) | $4.51 million | $(2.08) million |
| Net income (loss) | $4.39 million | $(2.30) million |
| Basic / diluted EPS | $0.27 / $0.23 | $(0.15) / $(0.15) |
| Operating cash flow | $4.58 million | $(0.81) million |
| Cash and cash equivalents | $5.20 million | $0.90 million |
| Working capital | $11.50 million | $(1.27) million including convertible notes; $3.73 million excluding them |
| Total shareholders’ equity | $13.20 million | $0.89 million |
Revenue increased 294% year over year. Product revenue rose 360% to $22.97 million; service and training revenue increased 53% to $2.06 million. U.S. revenue was $18.37 million and international revenue was $6.66 million. Gross margin declined 1.6 percentage points, which management attributed to sales mix. Research and development expense was $455,000, up 33%.
Cash used in investing was $401,000; cash provided by financing was $124,000. The company reported $410,700 of PPP borrowing, alongside $214,000 of proceeds from warrant and option exercises and $500,000 repayment of convertible-note principal. The remaining $4.5 million of convertible-note principal was converted into 1,041,667 common shares in March 2020. At year-end, the balance sheet showed no convertible notes, a $410,700 loan payable, and $1.03 million of operating-lease liabilities.
Material changes and unusual items
- COVID-19 demand drove the first reported annual profit after a $2.30 million loss in 2019. The company reported approximately 250 new customers during 2020 and substantial growth in product and solution orders.
- Operating expenses rose 76% to $10.53 million. Equity compensation was $3.13 million versus $114,000 in 2019, largely reflecting warrants issued to executives and consultants; CEO warrant compensation accounted for approximately $2.84 million.
- Accounts receivable reached $3.72 million from $1.49 million, and inventory rose to $3.78 million from $2.32 million. The cash-flow statement includes a $280,000 increase in the doubtful-account reserve; the filing reports bad-debt expense of $332,027 for 2020.
- The company completed a 1-for-8 reverse stock split in September 2020 and began Nasdaq trading in October. Common shares outstanding were 16.76 million at year-end; the filing cites approximately 2.2 million potentially dilutive securities at December 31, 2020.
Outlook, management commentary and risks
Management set a 2021 revenue goal of approximately $40 million, conditional on customers returning to work and demand persisting. It also budgeted to sell 2,000 SteraPack backpack units in 2021 and described planned launches of new products, including SteraPack, SteraBot and a decontamination chamber. These are targets and plans, not guaranteed results. Management expects higher capital and operating spending for product development and expansion.
Management cautions that the sharp 2020 profit increase may not be sustainable if pandemic-driven demand fades. Other material risks include customer concentration in the SteraMist product family, lack of long-term customer purchase commitments, reliance on a limited number of third-party manufacturers and suppliers, inventory and demand-forecasting uncertainty, competition, regulatory approvals and labeling, and execution risks from rapid growth. The company said COVID-19 also disrupted customer access, operations and regulatory review. Applications involving a 1% food-safety label and FDA authorization for PPE reprocessing remained pending or delayed. The company stated that existing cash and expected operating cash flows should meet requirements for the next twelve months.
The filing reports no legal proceeding believed to have a material adverse effect and no off-balance-sheet arrangements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor’s report identified revenue recognition as a critical audit matter, reflecting judgment around performance obligations, contract terms and timing.
Important facts for investors to verify
- Whether the $40 million 2021 revenue goal and forecast product launches translated into reported results, and how much demand persisted after pandemic-related purchasing.
- Revenue quality and cash conversion, including collections on the higher accounts-receivable balance, customer deposits and the doubtful-account reserve.
- Gross-margin trends, sales mix, supplier pricing and manufacturing capacity, given third-party manufacturing reliance and concentration in cost of sales.
- PPP loan forgiveness or repayment status; the filing reports the $410,700 loan payable but does not establish its subsequent disposition.
- Potential dilution from warrants, options and preferred shares, as well as the effect of executive equity awards and the expanded equity plan.
- Reconcile EPS disclosures: the audited statements report FY2020 diluted EPS of $0.23, while a later note contains an inconsistent $0.24 figure.