October 4, 2018

To the Shareholders of TSO3

Dear Shareholders,

2018 has been a year of change for TSO3.  That change has included a substantial variation in the value of the Company. This letter is intended to give you some insight into the current strategies and tactics underway.  Through our mission to provide a sterile device for every patient, we are working tirelessly to transform the market of sterilization for the benefit of healthcare facility customers and their patients, as well as to increase shareholder value, for maximum potential inherent in our technology.

Central Sterile Market

New Commercialization Plan

On August 1st 2018, after months of negotiations with our former distributor, we elected to end the exclusive distribution relationship with Getinge Infection Control AB. As part of the termination agreement:

  • Inventory. TSO3 completed the repurchase of its former distributor’s inventory of 230 STERIZONE VP4 Sterilizers.
  • Business. TSO3 acquired all of our former distributor’s customers and backlog customers – customers that had issued a purchase order to our former distributor but had not yet received a sterilizer – as well as their book of business for low temperature sterilizers quoted in the U.S. and Canada.  With the transition of these customers and opportunities, TSO3 is accelerating sales and installations.
  • End-users Support. TSO3 has become the sole commercial contact with all STERIZONE VP4 Sterilizer end users for capital and consumables sales, installation and service.

TSO3 is still in its early stages of commercialization.  Through the efforts of TSO3 this year, both during the transition and for the two months since the termination of the relationship with our former distributor, we are beginning to see improvement in shipments and quoting activity.

Brand Awareness Activities

We have taken immediate actions to improve our brand awareness.  We attended four national U.S. trade shows: AORN, APIC, SGNA and IAHCSMM.  TSO3 also sponsored a panel of users and experts at IAHCSMM that incorporated customer experiences with our technology.  Product ads appeared in numerous trade journals, including Gastroenterology and Endoscopy News, Infection Control Today, Healthcare Purchasing News, Communique, Health Facilities Management and EndoPro Magazine.

Since August 1st 2018, TSO3 has directly or together with our independent sales agents, attended five additional regional shows in the U.S. and will exhibit in at least three more regional shows in the U.S. and two upcoming Canadian congresses.  Four journal ads were placed in September, and eight more are planned through the end of the year.  A scientific manuscript authored by the Company has been accepted for publication in an upcoming edition of the American Journal of Infection Control.

In September, the Company expanded its portfolio with the distribution of a compact oxygen concentrator—a purpose-built, plug-and-play unit to support the STERIZONE VP4 Sterilizer.  It is about the size of a file storage box and can sit on the floor or be mounted on the sterilizer or the wall and is significantly less expensive than the oxygen concentrators sold by our former distributor.

TSO3 is blessed with a collection of exceptional initial adopters. These customers have been interviewed by trade magazines, presented at domestic and international meetings and submitted papers for publication based on their positive experience using our technology.  We continue to work with our customers as they showcase their real-world experiences on the podium, in the press, and on site in their hospitals as they host visitors interested in our technology. TSO3 will add links to their publications on our website as they become available.

Sales and Service

As we build brand awareness and execute an aggressive sales strategy, we must build the sales and service team to support the growing demand.  TSO3 may also rely on the assistance of other organizations with established relationships in TSO3’s market.  Accordingly, TSO3 has recently signed and trained three independent sales organizations that have established relationships with our targeted prospects:

TSO3 is also expanding our technical service coverage to support customers with excellent service and support.  In addition to our existing team of direct service technicians, we have established a network of seven independent service organizations.  This collective team has committed to deliver 4-hour telephone support and 24-hour on-site support to our customers throughout the United States and Canada.

GI Market Opportunity

In addition to the activity above in the central sterilization market, there is an emerging, large and unmet need in the gastrointestinal (GI) market, where we believe we can leverage our innovative technology to sterilize long, flexible, multi-channel endoscopes, including duodenoscopes, colonoscopes and gastroscopes (see claims at TSO3.com). TSO3’s STERIZONE VP4 Sterilizer is the only terminal sterilization system cleared by the FDA and validated to sterilize these devices.  In the four months since our FDA clearance in May 2018, we have assisted four healthcare systems to adopt our technology for this application and we are working with multiple additional systems interested in implementing our technology.  Changing the standard of care in the GI market is a slow process, but one we believe can provide significant value to our shareholders over time.

In short, the Company has

  • 238 STERIZONE VP4 Sterilizers in inventory
  • Over 50 STERIZONE VP4 Sterilizers have been sold and installed. If units ordered or shipped but not yet installed are included, this number exceeds 80.
  • A growing pipeline of opportunities (200+ units quoted) exceeding the Company’s inventory of units. These quotes include traditional capital purchase offers as well as flexible purchasing options for customers.

 

In closing, we have tremendous activity underway. Long-term, I believe our path will be similar to many companies in our position:  we will prove our value proposition through increasing marketing share.  All of the Company’s activities and resources are focused on generating revenue from the Company’s technology developed to date.  To do this, we need to stay focused, continue to provide outstanding customer service for our customers, and protect our growing business from competitors.

I look forward to providing you with an additional update during our third quarter financial results conference call in November 2018.

I thank you for your continued support.

 

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.