TSO3 ANNOUNCES FINANCIAL RESULTS FOR THE THIRD QUARTER OF 2013
AND UPDATES ON ACTIVITIES
Highlights of Third Quarter and recent weeks
• Multiple communications with the US Regulatory Agency in support of the ongoing review.
• Initiated limited commercial activity while assuming full technical support of its Canadian customers.
• Filed for additional patent coverage.
• Conducted first exhibit of the STERIZONE® 80L Sterilizer during the annual meeting of the Association québécoise en retraitement des dispositifs Médicaux (AQRDM).
Québec City, November 11, 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 third quarter of 2013, ended September 30, 2013.
In Q3-2013, revenues amounted to $42,854 as compared to $66,236 in Q3-2012. Since the termination of the distribution agreement with the 3M Company on June 15, 2012, the Company has concentrated its efforts on securing the required regulatory clearance to market its products in the United States. Sales in 2013 are made from sales of consumable supplies and services in connection with the installed base of sterilizers.
In the third quarter of 2013, the Company experienced a loss of $1,949,233 ($0.03 per share), as compared to $2,160,348 ($0.03 per share) in 2012.
During the quarter, new concerns surfaced when the US lawmakers elected to shut-down the government over a budget dispute. “Many worried the shut-down would cause additional delays in obtaining regulatory clearance”, stated R.M. (Ric) Rumble, CEO of TSO3. “While the shut-down resulted in lower staffing levels, progress albeit at a slower pace on our file continued. Communication is once again as it was prior to the shut-down and we believe further progress is being made. Our goal was to obtain the clearance in 2013 and we continue to apply our efforts in that direction.
“During the quarter, TSO3 assumed full technical support for its Canadian customers. The Company assumed service contracts formerly held by the 3M Company. In addition, new multi-year service contracts were signed during this period. “With this customer transition effort now in full swing, the Company is once again supporting quotes for new equipment in both established and new accounts. Marketing efforts still have a limited scope at this time but we are evaluating their expansion” continued Mr. Rumble.
TSO3 is also pleased to announce that the Company moved to expand its Intellectual Property position by filing for additional patent coverage on methods to further improve compatibility under differing load conditions for surgical instruments and accessories while maintaining sterile efficacy. These innovations have been part of the STERIZONE 80L® Sterilizer’s development efforts. “This sterilizer was exhibited for the first time on October 17th and 18th in Boucherville and it received very warm reception” concluded Mr. Rumble.
Q3-2013 Conference Call
TSO3 will host a telephone Conference Call today, November 11, 2013 at 10:30 a.m. (EST). 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: 93863627.
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/1250057/1377359.
The Webcast will be archived for 90 days.
SUMMARY OF RESULTS
Periods ended September 30 (Unaudited, IFRS Basis)
In the following paragraphs, the Company discusses the variations of certain accounts within the third quarter of 2013 and the third quarter of 2012.
In Q3-2013, sales amounted to $42,854, as compared to $66,236 in Q3-2012. Since the termination of the distribution agreement with the 3M Company on June 15, 2012, the Company has concentrated its efforts on securing the required regulatory clearance to market its products in the United States. Sales in 2013 are made of sales of consumable supplies and services in connection with the installed base of sterilizers.
For the nine-month period ended September 30, 2013, sales were $156,168, as compared with $1,103,782 during the same period in 2012. The higher sales in 2012 were achieved in the first two quarters of 2012 when the Company was shipping sterilizers in connection with its upgrade program and was still making sales to the 3M Company.
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, since the end of the second quarter of 2012, there was no license revenue.
The $1,690,971 license revenues earned during the nine-month period ended September 30, 2012 were primarily the result of the recognition, in June 2012, of the unamortized balance of $1,585,833 in deferred license revenues.
In Q3-2013, the Company experienced a loss of $1,949,233 ($0.03 per share), as compared to $2,160,348 ($0.03 per share) in Q3-2012. The decrease in the loss is primarily due to lower supply chain and research and development expenses.
In the nine-month period of 2013, the net loss was $7,854,979 ($0.11 per share), as compared to $4,695,624 ($0.07 per share) for the same period in 2012. The increase in the loss is explained by two non-recurring items: (1) the recognition as revenue in June 2012 of $1,585,833 in unamortized license payments received in connection with the distribution agreement, and (2) the $1,854,029 settlement cost with the 3M Company incurred in June 2013.
When the nine-month loss is adjusted to remove the impact of these two items related to the termination of the 3M Agreement, the adjusted loss is $6,000,950 ($0.08 per share) in 2013, down from $6,281,454 ($0,10 per share) in 2012.
Supply Chain expenses include all expenses incurred in connection with (1) the outsourcing services provided by the Supply Chain Department to all departments, (2) the production costs, (3) the related quality control and assurance expenses, and (4) the shipping expenses.
For the three-month period ended September 30, 2013, the Supply Chain expenses amounted to $207,604, as compared to $320,714 for the same period in 2012. The variation is primarily due to delays in replacing departing personnel.
In the nine-month period of 2013, Supply Chain expenses amounted to $739,055, as compared to $1,531,193 for the same period in 2012. This reduction in expenses is primarily due to the reduction in sales which has led to reduced sourcing activities.
Customer Support and Communications
For the quarter ended September 30, 2013, the customer support and communication expenses amounted to $171,474, as compared to $150,944 expense incurred during the same period in 2012. This increase reflects the customer transition plan whose implementation was initiated in Q3-2013.
For the nine-month period ended September 30, 2013, these expenses amounted to $429,966, as compared to $471,596 for the corresponding period in 2012. The decrease was primarily the result of fewer technical support activities since the termination of the distribution agreement with the 3M Company.
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 September 30, 2013, research and development expenses were $949,075, as compared to the amount of $1,020,923, incurred during the third quarter of 2012. For the nine-month period ended September 30, 2013, these expenses amounted to $2,793,135, as compared to $3,062,125 in 2012.
Those reductions were primarily due to (1) fewer experiments and compatibility studies in 2013 than in 2012, and (2) refundable tax credits provisioned in 2013 while there were no such provision made in 2012. At the same time, other expenditures were increasing as a result of additional work performed in 2013 in connection with the optimization of the new products and the protection of the Company’s intellectual property.
For the quarter ended September 30, 2013, the administrative expenses amounted to $763,743, or about the same as the $779,313 expenses incurred during the third quarter of 2012.
For the nine-month period ended September 30, 2013, these expenses amounted to $2,317,549, as compared to $2,528,691 for the corresponding period in 2012. Several items were smaller in 2013; the largest decreases were in the professional fees and the incentive-based compensation.
The Company has recorded a $1,854,029 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 and increased by the write-off of certain receivables in the amount of $16,195. The Company originally valued the returned inventory at $202,797 but re-assessed it by $69,369 to $272,166 during Q3-2013 once the items received and some of the refurbishment expenditures incurred.
For the quarter ended September 30, 2013, financial income totaled $47,143, as compared to $57,979 in 2012.
For the nine-month period ended September 30, 2013, these revenues amounted to $143,273, as compared to $129,893 for the corresponding period in 2012.
Differences in investment amounts and interest rates explain the variation from 2012 to 2013.
Third Quarter Disclosure
The 2013 Third Quarter Report is available on TSO3’s website at the following address https://www.tso3.com/en/investors/financial_reporting/quarterly_reports/ and full Q3 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 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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