10-K: TOMI Environmental Solutions Reports Increased Revenue but Faces Going Concern Uncertainty in 2024 10-K Filing

TOMI Environmental Solutions reports a 5% increase in annual revenue for 2024, but acknowledges substantial doubt about its ability to continue as a going concern due to recurring losses and limited cash reserves.

Summary

• TOMI Environmental Solutions, Inc. reported a 5% increase in net revenue for the year ended December 31, 2024, reaching $7.739 million compared to $7.355 million in 2023.
• The increase in revenue was attributed to higher sales of SteraMist products and mobile equipment, as well as increased iHP service revenue.
• The company experienced a net loss of $4.477 million in 2024, compared to a net loss of $3.403 million in 2023.
• Cost of sales increased by $1.117 million to $4.182 million in 2024, primarily due to an adjustment to the inventory reserve of $1.005 million.
• General and administrative expenses increased by $552,000 to $5.123 million in 2024, mainly due to an increase to our reserve for expected credit losses in the amount of $959,000.
• The company acknowledges substantial doubt about its ability to continue as a going concern due to recurring losses from operations and limited cash reserves of $665,000 as of December 31, 2024.
• TOMI intends to fund ongoing activities through current cash, cash generated from operations, and additional capital raises.
• The company is actively pursuing various financing transactions, including equity and debt offerings.
• TOMI is working on seven different custom projects, valued at approximately $3.7 million, and has secured contracts for three more SIS offerings this year, totaling approximately $575,000 in sales.
• The company is expanding its relationships with Original Equipment Manufacturers (OEMs) to offer a comprehensive range of iHP solutions for customers requiring enclosures for controlled environments.

Sentiment

Score: 4

Explanation: While the company reports increased revenue, the significant net loss, going concern uncertainty, and material weaknesses in internal controls indicate a negative outlook. The potential for future growth is overshadowed by immediate financial challenges.

Positives

• The company increased its year-over-year annual revenue by 5% in 2024.
• TOMI secured significant agreements and new partnerships to enhance its ability to distribute SteraMist products and services globally.
• The iHP Corporate Service revenue increased by 41% in Quarter 1 2025 compared to Quarter 1 2024.
• EMAQ Group, Inc. purchased twenty (20) SteraMist Environment Systems, generating $1,180,280 in revenue which was recognized in the second quarter of 2024.
• TOMI is working on seven different custom projects, valued at approximately $3.7 million, and has secured contracts for three more SIS offerings this year, totaling approximately $575,000 in sales.
• The company is expanding its relationships with Original Equipment Manufacturers (OEMs) to offer a comprehensive range of iHP solutions for customers requiring enclosures for controlled environments.
• TOMI is conducting numerous feasibility studies with both small and large companies in the food safety marketplace.
• The company introduced the SteraMist Pro Certified (SPC) program to promote proactive disinfection and decontamination practices.
• The company is supporting partners and clients preparing for emerging public health threats as concerns grow over Respiratory Syncytial Virus (RSV), Human Metapneumovirus (HMPV), and the highly pathogenic Avian Influenza (H5N1).

Negatives

• The company experienced a net loss of $4.477 million in 2024, compared to a net loss of $3.403 million in 2023.
• Cost of sales increased by $1.117 million to $4.182 million in 2024, primarily due to an adjustment to the inventory reserve of $1.005 million.
• General and administrative expenses increased by $552,000 to $5.123 million in 2024, mainly due to an increase to our reserve for expected credit losses in the amount of $959,000.
• The company acknowledges substantial doubt about its ability to continue as a going concern due to recurring losses from operations and limited cash reserves of $665,000 as of December 31, 2024.
• The company concluded that its disclosure controls and procedures were not effective as of December 31, 2024.
• The company concluded that its internal control over financial reporting was not effective as of December 31, 2024.
• There are limited resources within the finance and accounting departments with sufficient knowledge and experience in applying U.S. GAAP, including but not limited to developing appropriate accounting estimates, reserves, and allowances in a timely manner and to maintain proper segregation of duties.
• Policies and procedures with respect to the review, supervision and monitoring of our accounting and SEC reporting functions were either not designed and in place or not operating effectively.

Risks

• The company's ability to continue as a going concern is dependent on its ability to generate sufficient cash to fund operations and meet its obligations as they become due.
• The company's stock price is volatile and there is a limited market for its shares.
• The company may not be able to maintain compliance with Nasdaq's listing standards, which could limit shareholders' ability to trade its common stock.
• The company is a smaller reporting company, and the reduced reporting requirements applicable to smaller reporting companies could make its common stock less attractive to investors.
• The company's anti-takeover provisions could prevent or delay a change in control, even if such change in control would be beneficial to its shareholders.
• The concentration of the company's common stock ownership with its executive officers, directors, and affiliates will limit shareholders' ability to influence corporate matters.
• The company may be unable to enforce its intellectual property rights throughout the world.
• The company faces significant competition in its industry, some of which have longer operating histories, more established products, or greater resources than the company has currently.
• The company's long-term growth depends, in part, on its ability to enhance, develop, market, and sell new products, and if it fails to do so, it may be unable to compete effectively.
• The company has a limited management team size, which may reduce its ability to effectively manage its business operations as it grows.
• The company is dependent on its key personnel, the loss of whom could adversely affect its operations, and if it fails to attract and retain the talent required for its business, it could be materially harmed.
• The company's operations, and those of its suppliers, are subject to a variety of business continuity hazards and risks, any of which could interrupt production or operations or otherwise adversely affect its performance and results.
• The company's products are subject to potential product liability claims which, if successful, could have a material adverse effect on its business, financial condition, and results of operations.
• The misuse of the company's products may harm its reputation in the marketplace, result in injuries that lead to product liability suits, or result in costly investigations, fines, or sanctions by regulatory bodies if the company is deemed to have engaged in the promotion of these uses, any of which could be costly to its business.
• The company may seek to grow its business through acquisitions of complementary products or technologies, and the failure to manage acquisitions, or the failure to integrate them with its existing business, could harm its business, financial condition, and operating results.
• If the company is unable to develop and maintain an effective system of internal controls over financial reporting, it may not be able to accurately report its financial results in a timely manner.
• The requirements of being a public company may strain the company's resources, divert management's attention, and affect its ability to attract and retain executive management and qualified board members.
• As a result of disclosure of information, the company's business and financial condition are more visible, which it believes may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, its business and operating results could be adversely affected.

Future Outlook

The company expects to generate more predictable sales quarter over quarter as customers mature through the product and adoption cycle and the sales pipeline converts to revenue. The company is expecting its business opportunities and customer base to continue to expand and grow, which may provide it with additional liquidity to fund its operations. The company continues to consider and pursue various financing transactions such as equity and debt offerings, and it expects to raise additional capital through the sale of convertible debt securities.

Management Comments

• We believe that we possess the best technologies in the world in the disinfection and decontamination space.
• The COVID-19 pandemic along with the needs of the pharmaceutical and vivarium space has provided us with the opportunity and experience to implement a clear strategy to develop and manufacture additional products to add to our portfolio.
• In addition, we continue to move our BIT technology as a standard in disinfection and decontamination globally.
• This should lead to increased market share, profitability, and capability strength.
• Our products are an environmentally friendly solution, and our processes address the concerns of sustainability.
• Customers are requesting and discussing the positive results of our product and the environmentally friendly results compared to the caustic and environmentally unfriendly results of many other disinfectants.
• SteraMist has established a successful track record in fighting pandemics and outbreaks and implementing SteraMist for emergency preparedness is vital.
• The COVID-19 pandemic took the world by surprise, and history has shown that other pandemics and viruses are likely to follow.
• Using a proven and trusted disinfectant for emergency outbreaks and daily for preventative maintenance, such as SteraMist, can alleviate the threat of infections from spreading and could stop a possible outbreak.

Industry Context

The environmental infectious disease control industry is intensely competitive and highly regulated. Competition is intense in all four of our divisions and includes many large and small competitors. The company believes that the principal factors affecting competition in its markets include name recognition, customer familiarity with products, effective marketing, competitive pricing strategies, and the ability to receive referrals based on client confidence in the service.

Comparison to Industry Standards

• TOMI's SteraMist iHP provides a 99.9999% or six-log kill and above kill on all challenged pathogens, surpassing household/industrial cleaners that offer a 99.9% (sanitizing) or three-log kill to 99.99% (disinfection) or four-log kill.
• Comparable competitors include companies that market other hydrogen peroxide-based products, such as Steris Corporation (Steris), Bioquell, Inc. (Bioquell) currently owned by Ecolab, Inc. (Ecolab), and The Clorox Company (Clorox), miscellaneous hydrogen peroxide products various ultraviolet companies and hundreds of quad ammonia-chemical companies.
• TOMI SteraMist prevails when the following is prioritized by a facility and user: Speed, Comprehensive Coverage, No Preconditions, Equipment Safety, Personnel Safety.

Management Changes

Stakeholder Impact

• Shareholders face potential dilution from future equity issuances and uncertainty due to the company's going concern status.
• Employees may be affected by cost-cutting measures and potential restructuring.
• Customers may experience disruptions in service or product availability if the company's financial situation worsens.
• Suppliers may face increased risk of non-payment or delayed payments.
• Creditors face increased risk of default on debt obligations.

Next Steps

• The company plans to expand the resources within the finance and accounting departments with personnel who possess sufficient knowledge and experience in applying U.S. GAAP.
• The company will design and implement additional policies and procedures with respect to the review, supervision and monitoring of its accounting and SEC reporting functions.
• The company will continue to recruit and train personnel with appropriate internal controls, accounting knowledge and experience commensurate with its accounting and reporting requirements, in addition to engaging and utilizing third party consultants and specialists.

Key Dates

Keywords

SteraMist, decontamination, disinfection, iHP, revenue, financial results, going concern, EPA, BIT, loss, financial statements, environmental solutions, healthcare, food safety, life sciences