August 9, 2011 writer

TSO3 Announces Financial Results for Q2 2011

Highlights of Q2 2011 and activities of recent weeks:

• Appointed new Vice President Finance and Chief Financial Officer;
• Initiated shipments and installation of 3M™ Optreoz™ 125-Z Sterilizers to customer locations;
• Grew backlog in excess of half a million dollars at quarter’s end;
• Filed new submission for clearance in the United States market;
• Progressed towards design freeze of new and smaller product intended for the Operating Room Sub-Sterile Area;
• Amended initial Agreement with 3M™ to include new product.

Quebec City, August 9, 2011 – TSO3 Inc. (“TSO3”) (TSX: TOS) an innovator in sterilization technology for medical devices in healthcare settings, posted its highest quarterly revenues in its second quarter of 2011. For the period ending June 30, 2011, the Company posted revenues of $703,000 from the sales of 3M™ Optreoz™ 125-Z Sterilizers, accessories, consumables and service contracts, as well as license revenues. This amount also includes sales of supplies and service contracts on first generation sterilizers (125L). These revenues compare to Q2 2010 revenues of $545,604, for the sale of 3M™ Optreoz™ Sterilizers, accessories, supplies and service contracts to 3M™ for training purposes. For the six-month period ended June 30, 2011, revenues amounted to $892,554 compared to $733,878 for the same period in 2010. The difference is explained by higher sales of private labelled 3M™ Optreoz Sterilizers and Accessories as a result of initial 3M™ commercial activity.

The Company recorded a net loss of $2,115,784 for the second quarter of 2011, or $0.04 per share, compared to a net loss of $1,929,389 or $0.03 for the same period in 2010. Higher research and development expenditures totaling $1,093,637 were largely responsible for this increase in the net loss. For the first six-month period of 2011, the Company recorded a net loss of $3,995,794 or $0.07, compared to $3,985,945 for the same period in 2010, or also $0.07.

“In the second quarter, we initiated shipment of 3M™ Optreoz™ 125-Z Sterilizers to customer locations and as we transitioned into third quarter, our backlog sat at over half a million dollars and growing”, said R.M. (Ric) Rumble President and CEO of TSO3. “Customer satisfaction is being closely monitored by 3M™ in these early accounts. I am pleased to say that end user Customers are reporting excellent results from the use of our low temperature sterilization solution that delivers high and cost-effective throughput of their high demand medical devices.  Customers are also reporting loading configurations that include multiple complex flexible endoscopes – a first in the industry”, added Mr. Rumble. “As planned and announced in previous communications, in second quarter we filed our new submission for United States clearance and we remain confident in our ability to obtain this required clearance to access the US market”.

Q2 2011 Conference Call

TSO3 will host a telephone Conference Call today, August 9, 2011 at 9:00 a.m. (ET). Analysts and Institutional Investors are invited to participate to the call. The numbers to dial for access are 514 807 8791 (Montréal area), 416 644-3426 (Toronto area) or the Toll-Free number 1 800 732-1073. Other interested parties may listen to the live Webcast of the Conference Call accessible via CNW’s Website at: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3620980. The Webcast will be archived for 90 days.

RESULTS ANALYSIS

In the following paragraphs, the Company analyzes the variances between periods ended June 30, 2011 and 2010.

TOTAL REVENUES

Sales

In Q2 2011, sales amounted to $650,788, resulting from the sale of sterilizers, supplies, accessories, service contracts, training and after-sales service, compared to $494,353 in Q2 2010.

For the six-month period ended June 30, 2011, sales amounted to $787,416 compared to $638,581 for the same period in 2010. Higher sales of accessories, services contracts, training and after-sales service explain this increase.

License Revenues

For the second quarter of 2011, the Company recorded an amount of $52,569 as license revenues compared to $51,251 in 2010.  These revenues are related to the commercial agreement signed with 3M™ and are equal to the amortization of the sums received from 3M™ following the achievement of milestones. They are now presented separately in the statement of loss and comprehensive loss.

For the six-month period ended June 30, 2011, these revenues amounted to $105,138 as compared with $95,297 for the same period in the previous year.

Operating

In Q2 2011, the operating expenses amounted to $740,757 compared to $587,732 in Q2 2010.  This variance is directly related to higher sales, increase of direct and indirect salaries and increase in after-sales service costs. The manufacturing of new generation units and assistance given to 3M™ for product launch and installation of sterilizers constituted the majority of activities during the second quarter of 2011.

For the six-month period ended June 30, 2011, these expenses amounted to $1,065,825 compared to $928,224. The increase between those two periods is also explained by higher sales, direct and indirect salaries and after-sales service costs.

Sales and Marketing

For the second quarter of 2011, the sales and marketing expenses amounted to $133,917 compared to $298,151 in 2010.  This variance is due to a decrease in salaries, fringe benefits and traveling expenses since these activities are now under the responsibility of 3M™. Conversely, costs related to website have increased between the two quarters due to the work undertaken earlier this year for the complete redesign of the Company’s website.

For the six-month period ended June 30, 2011, these expenses amounted to $292,656 compared to $611,194. The same reasons described above explain the variance.

Research and Development

For the quarter ended June 2011, the research and development expenses, which included a R&D tax credit of $50,000 ($71,000 in 2010), amounted to $1,093,637 compared to $817,017 in 2010.  This variance is due to an increase in salaries, severance expenses, professional fees, regulatory fees and advisors fees. The work undertaken to develop a new sterilizer designated for the OR Sub-Sterile Area combined with the optimization work on the 3M™ Optreoz™ 125-Z sterilizer required the hiring of new resources and the use of subcontractors.

For the six-month period ended June 30, 2011, these expenses amounted to $1,943,343 compared to $1,522,072. This variance is explained as described above and also by material purchases higher in 2011.
Administrative

In Q2 2011, the administrative expenses amounted to $883,479 compared to $730,020 in Q2 2010.  Salaries and fringe benefits were lower than in 2010 due to the vacancy of Vice President Finance and Chief Financial Officer position. Conversely, stock-based compensation, traveling, training, stock exchange fees and computer expenses were higher than 2010.

For the six-month period ended June 30, 2011, these expenses amounted to $1,679,528 as compared with $1,633,932 for the same period in the previous year.

Financial Expenses

For the quarter ended June 2011, the financial expenses, which include primarily bank charges and foreign exchange gain or loss, amounted to $6,671 compared to $71,621. The decrease is explained by a lower loss on foreign exchange in 2011.

For the six-month period ended June 30, 2011, these expenses amounted to $12,202 compared to $39,759 in 2010 and the variance explanation is the same as the one of the second quarter 2011.

Liquid Assets

As of June 30, 2011, cash, cash equivalents and temporary investments amounted to $14,506,386 as compared to $19,120,007 as of December 31, 2010. This decrease reflects the absorption of cash by the operations and the increase in working capital resulting from increased sales.

Second Quarter Disclosure

The Second Quarter Report can be found in the TSO3 library at the following address https://www.tso3.com/en/library/ and full Q2 disclosure will shortly be available on SEDAR (www.sedar.com).

About TSO3

TSO3, founded in Québec City in 1998, specializes in the research and development of innovative, high-performance medical instrument sterilization technology with high commercial potential.  TSO3 designs products for sterile processing areas in the hospital environment and offers an advantageous replacement solution to other low-temperature sterilization processes currently used in hospitals.

The statements in this release and oral statements made by representatives of TSO3 relating to matters that are not historical facts (including, without limitation, to those regarding the timing or outcome of any financing undertaken by TSO3) are forward-looking statements that involve certain risks, uncertainties and hypotheses, including, but not limited to, 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.

The TSX has neither approved nor disapproved the information contained herein and accepts no responsibility for it.

 

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