TSO3 ANNOUNCES FINANCIAL RESULTS FOR SECOND QUARTER 2012
Highlights of second quarter 2012 and activities of recent weeks:
- Submitted new 510(k) to proceed with United States (US) regulatory clearance for the STERIZONE® 125L+ Sterilizer;
- Initiated further experiments to support the US regulatory filing at the Agency’s request;
- Terminated agreement with channel partner 3M for the exclusive supply, distribution, license and service of the new STERIZONE® products – 3M has commenced dispute of TSO3’s right to terminate agreement;
- Signed non-binding letter of intent with Getinge Infection Control (GETINGE), a division of worldwide Getinge AB for the purpose of negotiating a new commercial agreement for the worldwide distribution and service of TSO3’s products;
- Continued work on the new Operating Room (OR) Sub-Sterile Area Sterilizer (STERIZONE® 80L); commercialisation pushed to Q2-2013.
Quebec City, August 9, 2012 – TSO3 Inc. (“TSO3”) (TSX: TOS) an innovator in low temperature sterilization technology for medical devices in healthcare settings, today announced that the Company posted sales of $309,824 for the second quarter of 2012, as compared to $650,788 for the same quarter of 2011.
During the first six months of 2012, sales to the 3M Company were approximately 69% lower than during the last six months of 2011. The Company attributes the low sales volume to 3M Company during the last two quarters as being caused by the delays in obtaining regulatory clearance for the sale of the products in the United States.
As a result of TSO3 terminating the distribution agreement with 3M Company on June 15, 2012, unamortized deferred license revenues of $1,585,833 were recognized as revenue for the quarter. Therefore, total license revenues for Q2-2012 were $1,638,402 compared to $52,569 for the same quarter last year.
The full recognition of the previously unamortized license revenues positively impacted the net loss for the quarter. Net loss for the quarter was $526,428, or $0.01 per share, compared to a net loss of $2,115,784 or $0.04 for the same period in 2011.
“We had a disappointing second quarter in terms of sales, shipping fewer sterilizers to already cleared markets outside of the United States”, said R.M. (Ric) Rumble President and CEO of TSO3. “Despite our continued dedicated efforts to obtain US Regulatory Clearance, we believe that lack of such clearance impacted worldwide sales through our former channel partner”, commented Mr. Rumble. “In April 2012, we submitted a new filing with the US regulatory authorities, which has since led us to conduct further experiments to support our submission. Obtaining US regulatory clearance remains our top priority and we maintain dialog with the Agency, as well as our efforts to obtain regulatory clearance for the sale of the products in the US”.
“In the meantime, we have reallocated certain resources from the OR Sterilizer development project to address the regulatory requests, which has impacted our timeline on that project. We estimate that our target for initial commercial activity by year end, has now been pushed to Q2 2013”, added Mr. Rumble.
“After terminating the agreement with the 3M Company, we entered into non-exclusive discussions seeking a new distribution agreement. While discussions with 3M were not successful, we progressed in our discussions with GETINGE, a well established global leader in healthcare capital equipment sales and service, and recently announced the signing of a letter of intent. Although we cannot guarantee that an agreement will be reached with GETINGE, we are pleased with our discussions so far and look forward to an agreement allowing both Companies to fully benefit from the worldwide market opportunity”, concluded Mr. Rumble.
Q2 2012 Conference Call
TSO3 will host a telephone Conference Call today, August 9, 2012 at 10:30 a.m. (ET). Analysts and Institutional Investors are invited to participate in the call. The numbers to dial for access are 514-807-9895 (Montréal area), 647-427-7450 (Toronto area) or the Toll-Free number 1 888 231-8191. Please dial-in with the following identification number to join the conference call: 16553707.
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/1014055/1095715
The Webcast will be archived for 90 days.
SUMMARY OF RESULTS
Periods ended June 30
(Unaudited, IFRS Basis)
In the following paragraphs, the Company analyzes the variations between periods ended June 30, 2012 and 2011.
In the second quarter of 2012, sales amounted to $309,824, as compared to $650,788 for the same quarter of 2011. In Q2-2011, 47% of the sales, or $306,533, were to the 3M Company who had launched the 3M™ Optreoz™ 125-Z Sterilizer in June 2011.
In Q2-2012, sales to the 3M Company were $245,627, or 20% lower than in Q2-2011 and 24% lower than in Q1-2012. The Company attributes the relatively low volume of sales to the 3M Company in Q2-2012 as being mainly caused by the delays in obtaining clearance for the marketing of the 3M™ Optreoz™ 125-Z Sterilizer in the United States.
In September 2011, the Company launched an upgrade program whereby users of the 125L Ozone Sterilizers could trade-in their sterilizers to acquire, at a discounted price, 3M™ Optreoz™ 125-Z Sterilizers. As a result of that well adopted program, Q4-2011 and Q1-2012 sales were positively impacted. In Q2-2012, after the program had ended, the smaller installed base of 125L Ozone Sterilizers generated fewer consumables and service revenues to TSO3 with the consequence that sales to clients other than 3M decreased to minimal levels.
For the first half of 2012, sales amounted to $1,037,546, as compared to $787,416 for the same period in 2011. In spite of lower quarterly sales in Q2-2012, sales in the first half of 2012 were higher than the corresponding period in 2011. This increase is a result of the upgrade program which helped generate total sales of $727,722 in Q1-2012, as compared to $136,628 in Q1-2011.
In Q2-2012, license revenue amounted to $1,638,402, as compared to $52,569 in Q2-2011. The increase in license revenue is the result of the recognition as revenue of the $1,585,833 unamortized deferred license revenue from the 3M commercial agreement which was terminated by the Company on June 15, 2012.
For the six-month period ended June 30, 2012, license revenue amounted to $1,690,971, as compared to $105,138 for the same period in 2011. The increase from 2011 to 2012 is also due to the recognition as income of the unamortized deferred license revenue from 3M.
Operating expenses include all of the expenses incurred in connection with the supply chain department. In Q2-2012, operating expenses amounted to $370,882, as compared to $633,889 in Q2-2011.
The decrease in operating expenses between Q2-2012 and Q2-2011 was the result of lower sales and, to a lesser extent, the capitalization of a sterilizer, as explained below under the heading “Fixed Assets”.
In the first half of 2012, operating expenses amounted to $1,210,479, as compared to $878,653 in the corresponding period in 2011. Again the variation in operating expenses was primarily due to the increase in sales.
Customer Support and Communications
Beginning in 2012, TSO3 has regrouped all activities related to corporate communications, customer service and technical assistance, including support to 3M’s sales and marketing activities.
Expenses incurred for these activities amounted to $129,287 for the second quarter of 2012. In Q2-2011, the corresponding amount was $240,785 and was made up of (1) $106,868 of expenses originally reported as part of operating expenses, (2) investor relations expenses formerly reported under administrative expenses and (3) expenses primarily incurred in connection with marketing activities conducted by TSO3 prior to the commercial launch by 3M.
The cost for customer support activities and corporate communications was lower in Q2-2012 than in Q2-2011 due to less technical support expenses.
For the six-month period ended June 30, 2012, these expenses amounted to $320,652, as compared to $479,828 for the corresponding period in 2011. In 2011, TSO3 was responsible for marketing and sales activities. In 2012, the responsibility was entirely 3M’s, which explains the decrease in sales and marketing expenses in 2012.
Research and Development
For the quarter ended June 30, 2012, research and development expenditures amounted to $1,019,737, as compared to $1,093,637 for the same period in 2011.
For the six-month period ended June 30, 2012, these expenses amounted to $2,041,202, as compared to $1,943,343 in 2011.
Expenses were higher in Q1-2012 than in Q1-2011, but lower in Q2-2012 than in Q2-2011. This reflects a reallocation of resources in Q2-2012 away from new product development and towards work related to the 510(k) filings with the US regulatory agency and, to a lesser extent, lower investment tax credits in 2012.
In the second quarter of 2012, the administrative expenses amounted to $986,652, as compared to $883,726 in the same quarter of 2011.
For the six-month period ended June 30, 2012, these expenses amounted to $1,749,378, as compared to $1,679,528 for the corresponding period in 2011.
Variations are mainly due to an increase in incentive-based compensation and in stock exchange listing fees resulting from the April 24, 2012 equity issue.
In Q2-2012, financial revenue amounted to $38,894, as compared to $39,320 in Q2-2011.
For the six-month period ended June 30, 2012, these revenues amounted to $71,914, as compared to $105,206 in 2011.
The difference is primarily due to a lower level of interest-bearing cash and cash equivalents and temporary investments in 2012.
As of June 30, 2012, cash, cash equivalents and temporary investments amounted to $16,499,112, as compared to $11,384,373 as at December 31, 2011. This increase primarily reflects the net cash proceeds of $8,152,193 from the equity issue completed on April 24, 2012 and the absorption of cash used by the operations.
Second Quarter Disclosure
The 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).
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.
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, 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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