TSO3 discloses fourth quarter and full year 2013 fiscal results
Quebec City, March 19, 2014 – TSO3 Inc. (“TSO3”) an innovator in sterilization technology for medical devices in healthcare settings, today reported sales for the fiscal year ended December 31, 2013 totaling $254,370, as compared to $1,162,922 in 2012. Lower revenues in 2013 result from the termination by the Company of its distribution agreement with the 3M Company. Consequently, 2013 revenues were limited to the sale of consumables and the provision of service for the installed base of sterilizers primarily in non US markets. Throughout the year, the Company focused its efforts on securing the required regulatory clearance to market its products in the United States.
For the fiscal year 2013, the Company experienced a loss of $9,270,169 ($0.13 per share), as compared to $5,795,598 ($0.09 per share) in 2012. This increase of $3,474,571 is primarily due to non-recurring items related to the termination of its distribution agreement with the 3M Company.
“For the year 2013, the Company kept its primary focus on proceeding through the US regulatory process in order to obtain clearance in that market,” stated R.M. (Ric) Rumble, President and CEO. “We adopted a modified regulatory strategy early in the year, as we reduced the number of cycles for that market in order to simplify our filing.”
The Company and the US Regulatory Authorities also engaged in a number of face–to-face and teleconference meetings as well as exchanged written communications on the file. Subsequent to the end of the year, the Company was notified in writing that the 510(k) approach was appropriate and, further to information that had been supplied in the fourth quarter to the US Regulatory Authorities, additional guidance was provided to include in a fresh submission.
“Work is underway to respond to the guidance that was supplied. As previously stated, we aim to complete this work in the first quarter 2014 and we will file as soon as the results are integrated into the enhanced file”, Mr. Rumble said. “During the year, the Company initiated a review of its strategic options which includes a variety of go-to-market strategies. While progress has been made in this initiative, bringing a final recommendation forward is somewhat dependent on obtaining the 510(k) clearance for the US market. Subsequent to year-end, the Company conducted a collective dismissal impacting approximately 30% of its employee base. This action was taken to preserve resources for the pursuit of the US clearance,” concluded Mr. Rumble.
Conference call details
TSO3 will host a conference call this morning at 10:30 a.m. (EDT). Analysts and institutional investors are invited to participate. 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. Other interested parties may listen to the live Webcast of the Conference Call accessible via the TSO3 Web site at: http://www.newswire.ca/en/webcast/detail/1314033/1450713. The Webcast will be archived for 90 days.
Fourth Quarter and Fiscal 2013 Results Disclosure
The 2013 Annual Report is available on the TSO3 Web site at the following address: https://www.tso3.com/en/investors/financial_reporting/annual_reports/ and full Y13 disclosure will be available shortly on SEDAR (www.sedar.com).
|SUMMARY OF RESULTS|
In the following paragraphs, the Company discusses the variations of certain accounts within the 12-month periods ended December 31, 2013 and 2012.
For the 2013 fiscal year, sales amounted to $254,370, as compared to $1,162,922 in 2012. Since June 2012 when TSO3 terminated its distribution agreement with the 3M Company, 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.
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 twelve-month period ended December 31, 2013 were primarily the result of the recognition, in June 2012, of the unamortized balance of $1,585,833 in deferred license revenues.
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 fiscal year ended December 31, 2013, the Supply Chain expenses amounted to $1,064,957, as compared to $1,801,735 in 2012. The variation is primarily due to a reduction in the sourcing activities as a result of lower sales since mid-Q2-2012 and a reduction of staffing due to attrition.
Customer Support and Communications
For the fiscal year ended December 31, 2013, the customer support and communication expenses amounted to $524,817, as compared to $639,766 expense incurred in 2012. The decrease is primarily due to reduced customer support activities during fiscal 2013.
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 Authorities. Further to the refiling of its 510(k) submission in January 2013, the Company re-emphasized work related to new products development.
For the fiscal year ended December 31, 2013, research and development expenses were $3,502,505, as compared to $2,877,203 in 2012. This increase is due to the fact that the Company recognized $930,987 in R&D investment tax credits in fiscal 2012, as compared to $289,128 in fiscal 2013. Excluding these tax credits, the R&D expenditures were $3,791,633 in 2013, or virtually the same as the amount of $3,808,190 incurred in 2012. The small variation between 2013 and 2012 is the result of offsetting variations, the largest ones being an increase in costs incurred in connection to the protection of the Company’s intellectual property, and a decrease in expenditures related to new product prototypes. The R&D tax credits recognized in 2012 included $603,521 related to the recording of un-booked R&D tax credits for the years 2008 to 2011 as a result of subsequent additional claims made by the Company.
For the fiscal year 2013, the administrative expenses amounted to $2,721,811, as compared to $3,476,843 in 2012. Several items were smaller in 2013. The largest variations were the decrease in professional fees largely due to the settlement of the dispute with the 3M Company and the reduction of incentive-based compensation due to the elimination of bonuses in 2013.
The Company has recorded a $1,864,127 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) partly 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 to $262,068 at year-end on the basis of refurbishment expenditures incurred, and their prospective use.
As at December 31, 2013, cash, cash equivalents and short-term investments amounted to $9,608,531, as compared to $12,807,190 as at December 31, 2012. The variation is primarily due to the cash absorbed by operations during fiscal 2013, which includes the US$2,000,000 cash payment to the 3M Company which was partly offset by the proceeds from the stock issue closed on March 4, 2013.
On December 31, 2013, the accounts receivable were $1,165,666, comparatively with $1,029,265 on December 31, 2012. Substantially all of the receivables on those dates were made up of amounts recoverable from governments for research and development tax credits and input tax credits for sale taxes.
As at December 31, 2013, inventories amounted to $1,407,411, as compared with $1,216,721 on December 31, 2012.
On June 30, 2013, the Company entered into a Settlement Agreement with the 3M Company in order to reach a definitive conclusion on their dispute over the distribution agreement terminated by TSO3 on June 15, 2012. As part of that agreement, the Company has paid an amount of US$ 2,000,000 to the 3M Company. That amount included payment for inventory held by the 3M Company and returned to TSO3 as part of the Settlement Agreement. The inventory restocked by the Company included a net amount of $161,176 recorded as raw materials, $80,879 of sterilizers recorded as work in progress and $20,013 in supplies and accessories accounted for in finished goods inventory.
During 2013, the Company transferred sterilizers worth $128,015 ($247,980 in 2012) from its finished goods inventory to its property, plant and equipment to utilize them as part of its research and development activities. Finally, in 2013, primarily in connection with impaired or slow moving raw material inventories, the Company wrote-off inventories worth $140,941, as compared to $72,088 in 2012.
Other variations in inventory include (1) a marginal increase in raw materials inventory as a result of receiving raw materials ordered prior to the termination of the 3M Agreement, and (2) the use of raw materials in connection with service contracts and for work in progress in the assembly of sterilizers.
As at December 31, 2013, current and non-current deferred revenues amounted to $91,905, as compared to $103,035 as at December 31, 2012.
Deferred revenues represent the prepaid portion of service contracts on the installed base of STERIZONE® 125L+ sterilizers and on the 125L Ozone Sterilizers commercialized by the Company up to 2009.
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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