November 5, 2014 writer

TSO3 ANNOUNCES FINANCIAL RESULTS FOR THIRD QUARTER 2014

Quebec City, November 5, 2014 – 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 (Q3) ended September 30, 2014.

In Q3-2014, sales amounted to $98,545, as compared to $42,854 in the third quarter in 2013. For the nine-month period ended September 30, 2014, sales were $312,481, as compared to $156,168 for the same period in 2013. The higher sales in 2014 reflect a higher utilization by the users of the installed base of sterilizers leading to increased sales of consumables, as well as an increase in maintenance and compatibility testing services.

“During the quarter the Company updated on progress towards obtaining regulatory clearance for the STERIZONE® sterilization system, which includes the Sterilizer and its accessories in the US market” stated R.M. (Ric) Rumble, president and CEO. “As stated, this progress is tangible, which lead us to increase the depth of discussions with channel partners while at the same time we shore up our operations in preparation for launch” concluded Mr. Rumble. 

Q3 2014 Conference Call

TSO3 will host a telephone Conference Call today, November 5, 2014 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: 74091908.

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/1424506/1582364

The Webcast will be archived for 90 days.

 

RESULTS ANALYSIS

In the following paragraphs, the Company discusses the variations of certain accounts between the third quarters of 2014 and 2013 and between the nine-month periods ended September 30, 2014 and September 30, 2013.

SALES

Since June 2012, when TSO3 terminated its distribution agreement with the 3M Company, TSO3 has concentrated its efforts on securing the required regulatory clearance to market its products in the United States and has delayed developing sales until that clearance is obtained. Since June 2012, sales have primarily consisted of consumables and services and were made mostly in connection with the STERIZONE® 125L+ Sterilizers.

In Q3-2014, sales amounted to $98,545, as compared to $42,854 in the third quarter in 2013. For the nine-month period ended September 30, 2014, sales were $312,481, as compared to $156,168 for the same period in 2013. The higher sales in 2014 reflect a higher utilization by the users of the installed base of sterilizers leading to increased sales of consumables, as well as an increase in maintenance and compatibility testing services.

The increase in the revenue from maintenance services is the result of the assumption by the Company, as of June 30, 2013, of multi-year service contracts that 3M Company had signed with hospitals prior to the settlement of the dispute over the termination rights of the 3M distribution agreement.

On a year-to-year basis, the 2014 increase in revenue mostly occurred in the second and third quarters due to a contract for compatibility testing services and because the Company was beginning to be entitled to the revenue from the 3M service contracts at their annual renewal dates.

NET LOSS

In the third quarter of 2014, the Company experienced a loss of $1,426,845 ($0.02 per share), as compared to $1,949,233 ($0.03 per share) in Q3-2013. For the nine-month period ended September 30, 2014, the net loss was $4,312,366 ($0.06 per share), as compared to $7,854,979 ($0.11 per share) for the same period in 2013. The year-to-year variations are reflecting operating issues as well as onetime items related to R&D tax credits and the Settlement Cost incurred to eliminate litigation risks in connection with the termination of the distribution agreement with the 3M Company.

When adjusting the results to exclude the R&D tax credits and the Settlement Cost, the net loss in the third quarter of 2014 was $1,451,173 ($0.02 per share), as compared to $2,031,117 ($0.03 per share) for the same period in 2013. Similarly, the adjusted loss in the nine-month period ended September 30, 2014 was $4,733,300 ($0.06 per share), as compared to $6,119,405 ($0.09 per share) for the same period of 2013. Most of the reduction in the loss in 2014 occurred in the second and third quarters and was primarily due to the cost savings resulting from the collective dismissal announced on January 15, 2014. This cost reduction measure entailed severance payments and lay-offs spread until the end of the first quarter of 2014 and, hence, started to have a material impact on the expenses only beginning with the second quarter of 2014.

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) the production costs, (3) the related quality control and assurance expenses, and (4) the shipping expenses. 

For the three-month period ended September 30, 2014 the Supply Chain expenses amounted to $246,283, as compared to $207,604 for the same period in 2013. For the nine-month period ended September 30, 2014, these expenses amounted to $707,246, as compared to $739,055 for the same period in 2013.

The variation between the Q3-2014 and Q3-2013 is the result of an increase in costs caused by higher sales which was more than offsetting the reduction in overhead and payroll. For the year-to-date, the variation was in the other direction because the cost savings in 2014 were higher than the increase in costs caused by higher sales.

Customer Support and Communications

For the quarter ended September 30, 2014, the Customer Support and Communications expenses amounted to $61,853, as compared to $171,474 for the same period in 2013. For the nine-month period ended September 30, 2014, these expenses amounted to $234,292, as compared to $429,966 for the same period in 2013. For both periods, the smaller amount in 2014 is due to (1) a reduction in headcount further to the collective dismissal of January 2014, and (2) a decrease in the unallocated customer technical support costs as a result of a higher volume of maintenance services as the corresponding costs were reallocated to Supply Chain.

Research and Development

For the quarter ended September 30, 2014, Research and Development (R&D) expenses were $667,219, as compared to $949,075 for the same period in 2013. For the nine-month period ended September 30, 2014, these expenses were $1,789,756, as compared to $2,793,135 for the same period in 2013. However, the year-to-year basis comparisons are somewhat being distorted by the discontinuity in the recognition of R&D tax credits.

When R&D tax credits are being excluded, the R&D expenses have decreased from $2,911,590 in the first nine months of 2013 to $2,210,690 in the same period of 2014, or a year-to-year decrease of $700,900. Most of that decrease occurred in the second and third quarters of 2014. The bulk of the reduction occurred in salaries and benefits and is a direct result of the collective dismissal of January 2014 which started generating cost savings beginning in Q2-2014.

Administrative

For the quarter ended September 30, the Administrative expenses amounted to $570,656, as compared to $763,743 for the third quarter of 2013. For the nine-month period ended September 30, 2014, these expenses amounted to $1,968,929, as compared to $2,317,549 in the same period in 2013. Several items were smaller in 2014 as a result of general compressions of expenses, but the largest variations were the decrease in salaries and benefits and in professional fees, the latter largely due to the settlement of the dispute with the 3M Company in June 2013.

Settlement Cost

For the nine-month period ended September 30, 2013, the Company had recorded a $1,854,029 cost in connection with the settlement that it reached with the 3M Company over the termination rights of the distribution agreement signed in December 2009. TSO3 has always maintained, and still maintains, that both parties had the right to terminate that distribution agreement. However, the 3M Company was disputing that right and a protracted litigation may 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.

Liquid Assets

As at September 30, 2014, cash, cash equivalents and short-term investments amounted to $6,947,341, as compared to $9,608,531 as at December 31, 2013. The variation is due to the cash absorbed by operations which was well in excess of the proceeds from the exercise of warrants in Q3-2014.

Third Quarter Disclosure

The 2014 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).

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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