Dear shareholders,

The Company entered this year with a focus on selling and installing sterilizers, managing cash and further developing positive direct customer relationships. The Company took steps in prior quarters to redirect its spend, focusing on building its commercialization strength, most notably hiring and training a dedicated capital equipment sales force to support the introduction of the product line in North America.

In the last six months, the Company received orders or commitments for 35 sterilizers, with 14 coming in the first quarter of 2019. We are encouraged by this pace and our 10 experienced salespeople remain focused on rapidly placing the 230 sterilizers we repurchased from our former distributor. We are now tracking opportunities representing over 450 sterilizers in our sales pipeline.

In the first quarter of 2019, the Company shipped nine additional sterilizers and ended the quarter with a total of 75 installed units. These installations are directly contributing to our high margin recurring revenues as planned. I am pleased to say that our efforts at creating a positive direct customer experience are gaining traction. Since assuming the direct field support for our product line, the Company’s field service organization has signed numerous equipment maintenance agreements which currently exceed a total value of over $750,000, with a number of addition contracts currently under negotiation. These service contracts directly contribute to the recurring revenue streams associated with our customers.

Sales of our sterilizers are driven by brand recognition, product claims, pricing, regulatory trends and access to group purchasing contracts among other things. The Company has been developing its brand in part through journal advertisements but has focused its primary spend on trade-show presence both at national and regional levels where end-user decision makers and influencers look for new and innovative technology. These investments have led to quality sales leads.

We have also invested in our contracting efforts with Integrated Delivery Networks (IDN’s) and Group Purchasing Organizations (GPOs). Contracting with these organizations can provide increased customer access and additional credibility to our product line and Company. The Company has recently received favorable feedback from GPO organizations that gives us reason to believe that our efforts in this area are beginning to bear fruit. The Company has reached the contracting phase with these GPOs, which we feel demonstrates the recognition of our technology and that our investments are being appropriately applied. We are equally pleased with developing discussions with selected IDN’s who purchase directly for their healthcare groups. This said, the Company continues to be aggressive with pricing and placement programs in order to drive rapid installation of our technology.

In the past few months there has been significant discussions and movements involving industry standard setting bodies concerning proposed new practices and approaches to mitigating patient-to-patient contamination caused by ineffectively treated complex medical devices. Regulators have recently gone so far as stating that existing processes are insufficient and “improvements are necessary”. In particular, regulators have specifically referenced duodenoscopes and indicated that additional measures such as sterilization should be considered by medical facilities. TSO3 supports terminal sterilization of all surgical and diagnostics instrumentation that might enter the blood stream and our ability to effectively and efficiently sterilize short flexible compatible scopes competes favorably with competitive low temperature sterilization systems. We remain however, the only label-claim device for the terminal sterilization of long complex multi-channeled devices (see our claims at www.tso3.com). In collaboration with healthcare institutions, selected flexible endoscope OEM’s and third-party repair facilities, we continue to work to increase the use-life of long, multi-channeled flexible devices. We believe that we are seeing the initial signs of a change in healthcare practice as we are aware that ten facilities have now adopted at least a practice of sterilizing their known or suspected high-risk cases utilizing our innovative technology; and the interest is growing.

We are seeing increased evidence of product adoption and we are directly contributing to the industry dialogue to improve the standard of healthcare practice. We are measuring and monitoring sales and marketing programs with the goal of applying our resources to the best opportunities and we are working with other organizations who can assist us, and our mutual customers gather the greatest benefit when utilizing our technology. We continue to expect the year 2019 to be a year in which actions deliver results and create a sustainable change in the practice of healthcare reprocessing.

 

Richard M. Rumble
President and Chief Executive Officer