TSO₃: Third Quarter 2004 Financial Results

November 12, 2004

Québec City, November 12, 2004 – TSO3 Inc. (TSX: TOS) announced today its financial results for the third quarter of 2004. The Company recorded a net loss of $1,418,982 or $0.04 per share, for the third quarter of 2004, compared to a restated net loss of $1,385,810 or $0.05 per share for the same period in 2003.

“Or work on compatibility over the last few months bares fruit: our ozone sterilization process has no more material effect on the medical and surgical devices tested than other sterilization methods have,” said Jocelyn Vézina, CEO of TSO3. “Upon these results all our referral sites have decided to move forward and to use the ozone sterilizers on a regular basis.”

Thus, the Company has respected the 6 to 9 months delay announced in March 2004 required to accelerate validating the compatibility of the most frequently used minimally invasive surgical instruments – instruments made of heat-sensitive materials - with its ozone sterilization process. 

Summary of the activities for the quarter

In the meantime, the Company announced that Ann Hewitt has been named Vice President, Sales and Marketing for TSO3. “Ms. Hewitt is a key element of our marketing offensive – especially in the U.S., where she is in home territory. Ann Hewitt has extensive experience in marketing, sales and management in the health field, as well as specific experience in bringing new sterilization products and innovative technologies to market in the US, which represents 40% of the world sterilization market. At STERIS Corporation - currently the major sterilization company in North America - she played a key role in the success and rapid growth of the American company, where sales soared from US$8 million to US$800 million during the eight years she was there.

“As for our technology’s potential to meet other sterilization challenges, we firmly believe that our ozone sterilizer can eliminate prions, the infectious protein that causes Creutzfeldt-Jakob disease, the human version of mad cow disease,” stated Jocelyn Vézina. TSO3’s scientific team assigned to this project is currently focused on designing new protocols that will be used for the next phase of testing. “Our intention is to prove beyond any doubt that our ozone sterilization process is the solution to this problem and, ultimately, to many others.”

Analysis of Financial Situation and Operating Results

The following information must be read in conjunction with the financial statements and accompanying notes.

Work on Compatibility

The compatibility testing program for instruments has been a major concern for TSO3 since the Company’s inception in 1998. After its foundation, one of the first things the company did, on December 8, 1998, was to commission a material compatibility study from the Polytechnique de Montréal, and on August 20, 1999, a biocompatibility study from STS DuoTek, New York.  While these studies were underway, the TSO3 team identified major instrument and packaging companies. TSO3 management approached these manufacturers to try to convince them to collaborate with the Company on a compatibility testing program.

Between 1998, the year TSO3 was founded, and September 2003, i.e. prior to approval from the regulatory agencies, the Company signed only six collaboration agreements with major manufacturers of target instruments, and also met with several refusals. Of course, TSO3 was a small research company at the time, and its sterilization process had not yet been approved.

However, approval from these regulatory agencies caused the number of collaboration agreements to skyrocket. In September 2003, less than three months after receiving FDA certification, the Company signed eighteen additional agreements with other instrument manufacturers, and 40 more with their suppliers and subcontractors.   These collaboration agreements enabled TSO3 to start various trials, exposing these manufacturers’ instruments to TSO3’s ozone sterilization process.

However, in March 2004, the Company requested a further 6-9 months to continue with and speed up the compatibility validation for the microsurgery instruments most often sterilized with its ozone sterilization process. To speed up the work, it hired two new internal resources and an international expert.

Compatibility tests for microsurgery instruments require, in many cases, more than 100 sterilization cycles.  Each ozone sterilization cycle lasts approximately four hours, not including the handling time required for sterilization or to evaluate the effects of the process on the instruments. TSO3 tested the most popular instrument brands, and developed products to protect them and prolong their lifespans. These solutions could become the property of TSO3, which is examining their commercial potential.  Thus far, stepping up the work has yielded results. Our work has allowed us to conclude that the ozone sterilization process does not reduce the lifespan of the tested instruments any more than current sterilization methods. This will enable the 125L to be installed at U.S. referral sites. These results were also validated by three independent bodies (ISO – Independent Service Organization), which will henceforth enable TSO3 to guarantee users of the 125L that the instruments are compatible and that they can be safely sterilized with ozone.

Canadian Pilot Sites

TSO3 entered into agreements in 2002 and 2003 with the following hospital centres:

* McGill University Hospital Centre  - Montréal Neurological Hospital

* Sacré-Coeur Hospital of Montréal

* Centre hospitalier universitaire de Québec  - Saint-François d’Assise Hospital

* Centre hospitalier de l’Université de Montréal  - Notre-Dame Hospital

* Vancouver General Hospital

* Sunnybrook and Women’s College Health Science Centre of Toronto

Currently, the sterilizers are installed in five Canadian hospitals with an installation at Sunnybrook and Women’s College Health Science Centre of Toronto scheduled for this present quarter.

These hospitals have agreed to make their sterilization department facilities and equipment available for the project. Various tests are presently done to demonstrate the compatibility of the Company’s sterilization process with a broad range of medical instruments. These tests also aim to showcase for hospitals the potential savings resulting from a sizeable reduction in direct and indirect operating costs.

American Referral Sites

The Company plans to obtain market recognition of its innovative technology by promoting the use of its 125L Ozone Sterilizer in several prestigious United States hospitals. The Company has already signed agreements, in October and December 2003, with two of the best known U.S. hospital networks - Cleveland Clinic Foundation and Spectrum Health.  On May 5, 2004, the Company announced the signing of five additional agreements with referral sites in the United States, including four with major hospitals and one with an industrial customer. 

TSO3 recently delivered the second sterilizer to a pilot site in the United States, with the first in the U.S. already in operation. TSO3 will proceed with the installation of more units in American hospitals over the coming months.

To view the entire press release and to get complete data, visit the following address : http://www.cnw.ca/fr/releases/archive/November2004/12/c2147.html