August 7, 2013 writer

TSO3 ANNOUNCES FINANCIAL RESULTS FOR SECOND QUARTER 2013

TSO3 ANNOUNCES FINANCIAL RESULTS FOR SECOND QUARTER 2013
AND UPDATES ON ACTIVITIES

Highlights of Second Quarter and recent weeks:

• US Regulatory Agency confirmed they will continue to review the STERIZONE® 125L+ Sterilizer file under the 510(k) process.
• TSO3 initiated process to assess the range of strategic alternatives available to the Company, with the assistance of Desjardins Capital Markets, as a means to maximize shareholders’ value once regulatory clearance has been achieved.
• Settled dispute with the 3M Company through mediation process.
• Advanced development of the STERIZONE® 80L Sterilizer, designed to address the need for a smaller-sized device (OR Sub-Sterile Area) at a lower price point.

Quebec City, August 7, 2013 – TSO3 Inc. (“TSO3”) (TSX: TOS) an innovator in low temperature sterilization technology for medical devices in healthcare settings, today reported its financial results for the second quarter of 2013, ended June 30, 2013.

In Q2-2013, revenues amounted to $37,000, as compared to $1,948,000 in Q2-2012. The decrease in revenues in 2013 is the result of the termination of the distribution agreement with the 3M Company in June 2012. Until June 2012, there were sales activities and TSO3 was also recognizing license revenue over the expected initial term of its agreement with the 3M Company by amortizing the payments it had received under that agreement. In June 2012, as a result of the termination of the 3M agreement, all unamortized license fees were recognized as revenue. Therefore, in Q2-2013, there was no license revenue while in Q2-2012, license revenue amounted to $1,638,000.

This also contributed to the difference in loss between the two periods, along with the cost of settling the terminated agreement with 3M in the recent quarter. In Q2-2013, the Company experienced a loss of $3,806,000 ($0.05 per share), as compared to $526,000 ($0.01 per share) in 2012.

“During the quarter and subsequent to its close, a great deal of progress has been made regarding regulatory clearance for the sale of the STERIZONE® 125L+ Sterilizer in the United-States. After a meeting with the US Regulatory Agency, we were satisfied with their decision to pursue review of our file through the 510(k) process, which is a well-defined process based on a predicate device”, stated R.M. (Ric) Rumble, CEO of TSO3.

“With our dispute with the 3M Company settled, we are pleased to now offer clinical and technical services, as well as consumable products directly to the Canadian users and ensure optimal uptime and use of their sterilizers” said Mr. Rumble. “With the dispute behind us, we can now concentrate on strategic alternatives aiming to maximize value for shareholders once regulatory approval has been achieved”.

Q2 2013 Conference Call
TSO3 will host a telephone Conference Call today, August 7, 2013 at 10:30 a.m. (ET). Analysts and Institutional Investors are invited to participate in the call. The numbers to dial for access are 514-225-6995 (Montréal area), 416-764-8688 (Toronto area) or the Toll-Free number 1 888 390-0546. Please dial-in with the following identification number to join the conference call: 73712463.
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/detail/1204081/1320503.
The Webcast will be archived for 90 days.

SUMMARY OF RESULTS
Periods ended June 30 (Unaudited, IFRS Basis)

RESULTS ANALYSIS

In the following paragraphs, the Company discusses the variations of certain accounts within the second quarter of 2013 and the second quarter of 2012.

TOTAL REVENUES

Sales

In Q2-2013, sales amounted to $37,255, as compared to $309,824 in Q2-2012. In Q2-2013, 31% of the sales were to the 3M Company as compared to 79% in Q2-2012.  The decrease in sales in 2013 is the result of the termination of the distribution agreement with the 3M Company in June 2012.
License Revenue

Until June 2012, TSO3 was recognizing revenue over the expected initial term of its agreement with the 3M Company by amortizing the payments it had received under that agreement. In June 2012, as a result of the termination of the 3M agreement, all unamortized license payments were recognized as revenue. Therefore, in Q2-2013, there were no license revenue while in Q2-2012, license revenue amounted to $1,638,402.

For the six-month period ended June 30, 2013, no license revenues were recognized while for the same period in 2012, license revenue amounted to $1,690,971.

NET LOSS

In Q2-2013, the Company experienced a loss of $3,805,874 ($0.05 per share), as compared to $526,428 ($0.01 per share) in 2012.  The increase in the loss is explained by two non-recurring  items, these are  (1) the recognition as revenue in June 2012 of the unamortized license payments received by 3M, and (2) the $1,923,398 settlement cost with the 3M Company incurred in June 2013.

In the first half of 2013, the net lost was $5,905,746 ($0.08 per share), as compared to $2,535,276 ($0.04 per share) for the same period in 2012.

EXPENSES

Supply Chain

Supply Chain expenses include all expenses incurred in connection with (1) the outsourcing services provided by the Supply Chain Department to all departments, (2) production, (3) related quality control and assurance, and (4) shipping.

For the three-month period ended June 30, 2013, the Supply Chain expenses amounted to $276,760, as compared to $370,882 for the same period in 2012. The variation is due to the reduction in sales which has led to reduced sourcing activities.

In the first half of 2013, Supply Chain expenses amounted to $531,451, as compared to $1,210,479 for the same period in 2012.  Again, the variation is due to the reduction in sales which has led to reduced sourcing activities.

Customer Support and Communications

For the quarter ended June 30, 2013, the customer support and communication expenses amounted to $133,821, or substantially the same as the $129,287 expense incurred during the same period in 2012.

For the six-month period ended June 30, 2013, these expenses amounted to $258,492 as compared to $265,930 for the corresponding period in 2012.

Research and Development

Starting in Q2-2012, there has been a reallocation of research and development resources away from new product development and towards work related to the filings with the US regulatory agency. Further to the refiling of its 510(k) submission in January 2013, the Company re-emphasized work related to new products development.

For the quarter ended June 30, 2013, research and development expenses were $833,117, as compared to the amount of $1,019,737, incurred during the second quarter of 2012. However, the composition of the expenses changed as there were (1) fewer experiments and compatibility studies in 2013 than in 2012, but (2) more work in 2013 than in 2012 in connection with the optimization of the new products and the protection of the Company’s intellectual property.

For the six-month period ended June 30, 2013, these expenses amounted to $1,844,060 as compared to $2,041,202 in 2012.

Administrative

For the quarter ended June 30, 2013, the administrative expenses amounted to $736,638, as compared to $986,652 during the second quarter of 2012. Several items were smaller in 2013; the largest decreases were in the professional fees and the incentive-based compensation.

For the six-month period ended June 30, 2013, these expenses amounted to $1,553,806, as compared to $1,804,100 for the corresponding period in 2012.  The variation from 2012 to 2013 is primarily due to the variation in the second quarter.

Settlement Cost

In the quarter ended June 30, 2013, the Company recorded a $1,923,398 cost in connection with the settlement that it reached with the 3M Company.  TSO3 has always maintained, and still maintains, that both parties had the right to terminate the distribution agreement signed in December 2009.  However, the 3M Company was disputing that right and a protracted litigation would have caused the Company to incur legal expenses and may have impacted its ability to obtain the right terms with a potential strategic partner.  Therefore, the Company decided to incur the Settlement Cost in order to achieve a definitive conclusion of any dispute over the terminated agreement.

The Settlement Cost was a one-time payment of USD$2,000,000 (C$2,110,000) partially offset by the return of inventory held by the 3M Company worth $202,797 and increased by the write-off of certain receivables in the amount of $16,195.

Financial Income

For the quarter ended June 30, 2013, financial income totaled  $56,704, as compared to $38,894 in 2012.

For the six-month period ended June 30, 2013, these revenues amounted to $96,130, as compared to $71,914 for the corresponding period in 2012.

Differences in investment amounts and interest rates explain the variation from 2012 to 2013.

Second Quarter Disclosure

The 2013 Second Quarter Report is available on TSO3’s website at the following address https://www.tso3.com/en/investors/financial_reporting/quarterly_reports/ 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 solutions to other low temperature sterilization processes currently used in hospitals. For more information about TSO3, visit the Company’s Web site at www.tso3.com

The statements in this release and oral statements made by representatives of TSO3 relating to matters that are not historical facts (including, without limitation, 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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