Dear Shareholders,

Today in North America we have 59 sterilizers installed with an additional nine units already shipped to customers and scheduled for installation. In addition, we currently have a backlog of 22 sterilizers meaning that we have received purchase orders (P.O.s) or commitment letters with scheduled delivery dates in the future. TSO3 currently has 90 units which are installed or planned to be installed.

In the third quarter, TSO3 received purchase orders for sterilizers from US and Canadian customers. Subsequent to the end of the quarter, additional business has been awarded.  Some of this business relates to two tenders from provinces in Canada, the first new growth in our Canadian business in two years. Additionally, TSO3 has received commitment for another seven units in the US as a result of our independent sales efforts subsequent to the close of the third quarter. We continue to drive actions that we believe will assist in aggressively placing new sterilizers in key accounts across North America.

In the third quarter, as previously disclosed, TSO3 assumed opportunities representing over 200 units from its former distributor. These included potential customers that have a defined need and a purchase timeline that ranges from 90 days to 12 months. As is the case with such opportunities, some are more likely to produce results than others. Each however have now been transitioned to TSO3’s sales representatives and are being requoted consistent with their expected time to close and are tracked in TSO3’s pipeline.

TSO3 started the year with five sales representatives calling on over approximately 500 accounts that had not been previously prioritized or targeted by our former distributor. Presently, TSO3 has eight sales representatives trained and, in the field, and expected to have a total of 11 in the US and Canada by the end of 2018. In addition to our own dedicated sales team, the Company also has agreements with multiple independent sales and service organizations to facilitate opportunity identification and acquisition and increase our service footprint.  This team is targeting more than 5,000 accounts in the US and Canada.

The Company has established an aggressive goal to gain commitment for all 200+ units in our inventory by year-end 2019. To achieve this goal the Company is employing strategies intended to accelerate sterilizer placement in high use, high visibility hospitals. TSO3 has recently initiated a series of programs that are designed to gain market share and take advantage of the value proposition inherent in its product offering. These new approaches have, in the past weeks, been introduced to our customers through our sales team. These include pay-per-cycle and guaranteed savings proposals. Some of the early success in the fourth quarter has been a result of strategies like these. During the quarter, the Company also implemented a limited trial program in which a sterilizer is placed within a facility to demonstrate real world benefits to the health systems contemplating a purchase. One health system that is participating in the trial program is contemplating the acquisition of multiple sterilizers.  The Company believes that trials may be another opportunity to offer direct comparisons between the benefits of the sterilizer and that of our competition and expects to see increased use of trials as the sales teams settle into their territories.

The Company is also investing in its service capabilities. It currently has seven service technicians on staff, both factory and field based. In addition, it has supplemented this team with seven independent service organizations that can collectively provide established accounts with field service that includes 4-hour telephone support and 24-hour on-site response.

With its additional investments in sales, marketing and technical service, the Company is taking action to control its other expenditures. This shift will enable the Company to focus on sale of the inventory it has in stock, while shifting resources from other areas, such as product development and assembly operations.  At the end of the third quarter of 2018, the Company had $16.1 million in cash, cash equivalents and short-term investments.

The Company has a value proposition that is compelling to hospital systems, namely the Company offers the ability to sterilize the same volume of instruments using fewer sterilization cycles, and fewer sterilizers, all of which contribute to lower cost. The Company continues to advocate for improved healthcare practices through its presence on committees to support enhancements in processing. Recent Association for the Advancement of Medical Instrumentation (AAMI) working group meetings suggest that sterilization of complex devices such as duodenoscopes may become the norm and not the exception. TSO3 is the first in the industry to have FDA cleared claims for terminal sterilization of endoscopes that include duodenoscopes, and is poised to facilitate the adoption of this new healthcare practice.

With direct control over our business and the communications which outline our progress, the Company recognizes that more frequent information is being requested by which to measure this progress. As we move forward, the Company will increase its effort to use its website to highlight customer experiences and sales progress. In addition, the Company will increase the frequency by which it will communicate with investors to aid in information flow.

In summary, in the past 90 days, the Company has assumed full control of its commercial operations, including the installed customer base. It has hired key resources required to support the targeted objective of aggressively accelerating the sale of its sterilizers to healthcare facilities and created a series of programs to incentivize customers to purchase our technology. The Company has set aggressive sales targets and is working multiple channels to meet its goals while we move resources towards the support of a sales-focused organization and simultaneously gauging the re-initiation of production of its sterilizer as our business grows.

 

R.M. (Ric) Rumble

President and CEO

 

The statements in this letter and oral statements made by representatives of TSO3 relating to matters that are not historical facts are forward-looking statements that involve certain risks, uncertainties and hypotheses, including, but not limited to, the limited history of sales or distribution of the Company, the ability of the Company to obtain the required regulatory clearances to market its products, general business and economic conditions, the condition of the financial markets, the ability of TSO3 to obtain financing on favourable terms and other risks and uncertainties. Although TSO3 believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The complete versions of the cautionary note regarding forward-looking statements as well as a description of the relevant assumptions and risk factors likely to affect TSO3’s actual or projected results are included in the Management’s Discussion and Analysis for the year ended December 31, 2017, which is available on the Company’s website. The forward-looking statements contained in this press release are made as of the date hereof, and TSO3 does not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.