TSO3 announces financial results for Q3 2009 and updates on negotiations with 3M

    Stock symbol: TSX: TOS
    Outstanding shares: 47,863,402

    Highlights of Q3 2009 and recent weeks:

    - Progressed in due diligence and negotiations with 3M toward signing a
      channel partner agreement within the agreed upon 90 day period;

    - Completed new cycle development and initiated data collection to
      support filings with regulatory agencies in Canada, United States and
      Europe;

    - Filed patent applications to extend protection for new cycles;

    - John H. Stroger Hospital of Cook County announced in press release
      adoption of STERIZONE(R) technology. Benefits cited include cost-
      effective and eco-friendliness;

    - Continued interaction with US regulatory agency supporting request for
      expanded claims of sterile efficacy for multi-channel flexible
      endoscopes.

QUEBEC CITY, Nov. 11 /CNW Telbec/ - TSO3 Inc. ("TSO3") (TSX: TOS) posted revenues of $126,162 on the sales of consumables and service for the third quarter ended September 30, 2009. There were no new shipments of sterilizers in third quarter. This compares with $725,257 for the same period prior year in which sterilizers, consumables and field service were sold. Year to date 2009, the Company has generated revenues of $1,170,276 compared to prior year to date of $1,853,854. The Company's net loss during the third quarter of 2009 was $2,287,711 or $0.05 per share, whereas it was $1,848,859 or $0.04 per share during the same period last year. Year to date the net loss for the Company is $6,538,518 compared to $6,736,423 for the same period last year.

"The third quarter was negatively impacted by frozen budgets in targeted hospitals, which resulted in delayed purchases", said R.M. (Ric) Rumble, CEO at TSO3. "With signs that budgets are slowly being released, we believe these pieces of targeted business will mature into purchase orders over the next months and quarters".

On September 2, 2009, TSO3 entered into a 90 days exclusive negotiation period with 3M, for the distribution of the STERIZONE(R) 125L Sterilizer, including the new cycles, through 3M's Global Infection Prevention Division. As is customary in such arrangements, 3M has conducted a significant amount of due diligence covering TSO3's technology, as well as the Company's regulatory and operating systems. "Significant resources have been applied from both 3M and TSO3 over the recent weeks. The teams are working to complete the due diligence and business plans required to support a fair and lasting agreement", commented Mr. Rumble. "In parallel with these meetings, discussions as to the timing and sequence of product introductions continue to take place, focused on markets where we expect timely regulatory clearances. Even though we cannot guarantee a positive outcome in regards to the conclusion of an agreement, within the 90 days and potentially at all, all parties continue to work well together towards apparent common goals".

New Cycles

During the quarter, the Company completed development of three additional cycles and began the work documenting their effectiveness for the purpose of filing for regulatory clearance in Canada, the United States and Europe. Filing with the agencies is expected to occur before year end.

The new cycles offer increased speed and material compatibility. Specifically two of the three cycles are completed in under an hour, while the third cycle takes only 100 minutes. All cycles offer large load capacity, are eco-friendly and safe for users and patients. The cycles allow the lowest cost per sterilized instrument.

During the quarter, TSO3 reported the pursuit of additional Intellectual Property protection by filing for additional patents related to these new cycles.

Gaining Customer Support

TSO3's STERIZONE(R) sterilization technology was recently featured in a press release (http://www.cookcountyhealth.net/Documents/News/instrument_sterilization(2).doc), from the John H. Stroger, Jr. Hospital of Cook County (part of the Cook County Health & Hospitals System - CCHHS). Stroger acquired two STERIZONE(R) 125L Sterilizers earlier this year and is now promoting the technology's value as a green and cost-effective sterilization alternative.

The Stroger Hospital is a 1.2 million square feet healthcare center (the equivalent of 25 football stadiums), nationally known for its expertise and breadth of service. "We found the TSO3 STERIZONE(R) 125L Sterilizer to be a compelling alternative to EtO and the best fit to our operational needs because it is efficient, safe, environmentally friendly and will significantly reduce sterilization costs - an important consideration for a publicly funded hospital such as Stroger," said CCHHS CEO Mr. Bill Foley.

Conference Call

TSO3 will host a telephone Conference Call today, November 11, 2009 at 10:30 a.m. (EST). Analysts and Institutional Investors are invited to participate. The numbers to dial for access are 514-807-8791 (Montréal area), 416-915-5762 (Toronto area) or the Toll-Free number 1-800-590-1508. Journalists and other interested parties may listen to the live Webcast of the Conference Call accessible via TSO3's Website at: http://www.tso3.com/en/investors/financial-reports-webcasts.php. The Webcast will be archived for 90 days.

    SUMMARY OF OPERATING RESULTS
    Periods ended September 30, 2009 (Unaudited)
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                                      THIRD QUARTER            NINE MONTHS
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                                    2009        2008        2009        2008
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    SALES                     $  126,162  $  725,257  $1,170,276  $1,853,584
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    EXPENSES
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      Operating                  359,275     704,574   1,530,267   1,864,636
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      Sales & Marketing          524,748     724,311   1,780,369   2,919,073
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      Research & Development     876,118     634,390   2,390,273   1,870,407
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      Administrative             718,322     708,284   2,240,998   2,626,534
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      Financial                    6,488       6,092      16,387      18,309
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                               2,484,951   2,777,651   7,958,294   9,298,959
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    OPERATING LOSS             2,358,789   2,052,394   6,788,018   7,445,375
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      Other Revenues              71,078     203,535     249,500     708,952
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    NET LOSS AND
     COMPREHENSIVE LOSS       $2,287,711  $1,848,859  $6,538,518  $6,736,423
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    BASIC AND DILUTED NET
     LOSS PER SHARE           $     0.05  $     0.04  $     0.14  $     0.14
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    WEIGHTED AVERAGE NUMBER
     OF SHARES OUTSTANDING    47,863,402  47,863,402  47,863,402  47,863,402
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    OPERATING RESULTS ANALYSIS

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Three and nine-month periods ended September 30, 2009, compared to the three and nine-month periods ended September 30, 2008.

Sales

Sales for the three-month period ended September 30, 2009 amounted to $126,162 representing the sale of accessories and services, compared to $725,257 for the same period in 2008 from the sale of five sterilizers, related accessories and services. No sterilizers were sold in the third quarter of 2009. For the nine-month period ended September 30, 2009, sales amounted to $1,170,276, representing the sale of five sterilizers, related accessories and services, compared to $1,853,854 for the sale of 11 sterilizers, related accessories and services from the same period in 2008.

Operating

For the three-month period ended September 30, 2009 operating expenses amounted to $359,275 compared to $704,574 for the same period in 2008. Operating expenses are related to production, manufacturing and after-sales service departments. The variance between the two periods is the result of a decrease in the cost of goods sold, transportation expenses and salaries. Conversely, expenses related to warranties have increased. For the nine-month period ended September 30, 2009, operating expenses amounted to $1,530,267 compared to $1,864,636 for the same period in 2008. The variance between the two periods is also explained by a reduction in the cost of goods sold and transportation expenses. Conversely, installation and Warranty fees experienced an increase between the two periods.

Sales and Marketing

Sales and Marketing expenses amounted to $524,748 for the three-month period ended September 30, 2009, compared to $724,311 for the same period in 2008. The variance between the two periods is due to a decrease in professional services and representation expenses, as well as commissions paid. Conversely, marketing salaries experienced an increase between the two periods, due to the hiring of a new VP Marketing in early 2009. For the nine-month period ended September 30, 2009, Sales and Marketing expenses amounted to $1,780,369 compared to $2,919,073 for the same period in 2008. The variance between the two periods is also the result of a decrease in salaries due to a reduction in the sales workforce, representation expenses and commissions paid. Conversely, marketing salaries also experienced an increase between the two periods.

Research and Development

For the third quarter of 2009, Research and Development expenses amounted to $876,118, compared to $634,390 for the same period in 2008. The difference between the two is mainly due to material and instrument purchases in order to accelerate ongoing work on compatibility. The gap between the two periods is also explained by an increase in sub-contracting fees as well as an increase in salaries resulting from the addition of employees in R&D to pursue the development of new cycles and filings with agencies. Conversely, professional fees decreased. For the nine-month period ended September 30, 2009, R&D expenses amounted to $2,390,273 compared to $1,870,407 for the same period in 2008. The variance between the two periods is also due to material and instrument purchases made to accelerate ongoing work on compatibility. The variance is also explained by an increase in salaries resulting from the addition of employees in the R&D department. Conversely, professional fees and fees related to the Scientific Advisory Committee decreased.

Administrative

Administrative expenses amounted to $718,322 for the three-month period ended September 30, 2009, compared to $708,284 for the same period in 2008. The variance between the two periods is explained by a decrease in professional fees, expenses related to the item Stock-based Compensation and representation expenses. Conversely, expenses related to salaries, as well as fees related to the Board of Directors and other committees increased between the two periods. For the nine-month period ended September 30, 2009, administrative expenses amounted to $2,240,998 compared to $2,626,534 for the corresponding period in 2008. The variance between the two periods is mainly explained by a decrease in exceptional charges for severances paid in 2008. The difference is also due to a reduction in professional fees, expenses related to the item Stock-based Compensation and representation expenses. Conversely, expenses related to salaries, as well as fees related to the Board of Directors and other committees increased between the two periods.

Other Revenues

For the three month period ended September 30, 2009, the Company realized other revenues of $71,078 compared to $203,535 for the same period in 2008. The variance between the two periods is due to a decrease in investment revenues as well as an increase in exchange loss. Conversely, R&D tax credits increased between the two periods. For the nine-month period ended September 30, 2009, the Company realized other revenues of $249,500 compared to $708,952 for the corresponding period in 2008. The variance is also explained by a decrease in investment revenues as well as an increase in exchange rate loss. Conversely, R&D tax credits also increased between the two periods.

Net Loss

The Company recorded a net loss of $2,287,711 for the third quarter of 2009, or $0.05 per share compared to a net loss of $1,848,859 for the same period in 2008, or $0.04 per share. For the nine-month period ended September 30, 2009, net loss amounted to $6,538,518, or $0.14 per share, compared to $6,736,423, or $0.14 per share for the corresponding period in 2008.

Liquid Assets and Financial Situation

As of September 30, 2009, cash, cash equivalents and temporary investments amounted to $11,581,759 and accounts receivable amounted to $631,452 for a total of $12,213,211 compared to a total amount of $20,577,225 as of September 30, 2008.

Third Quarter Disclosure

Third Quarter Report is available on TSO3's website at the following address http://www.tso3.com/en/investors/financial-reports-webcasts.php 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. The Company's first product, the TSO3 STERIZONE(R) 125L Sterilizer, is designed for sterile processing centers in the hospital environment. The Company believes that its technology represents an advantageous replacement solution to other low temperature sterilization processes currently used in hospitals.

In contrast to other methods, the ozone sterilization process developed and patented by TSO3 combines attributes that answer market needs for: efficacy, costs savings, increased safety for patients and hospital staff, and a "green" environmentally safe process.

The TSO3 STERIZONE(R) 125L Sterilizer is cleared for commercialization by the US and Canadian regulatory agencies for sterilization of metal and heat sensitive instruments, as well as for devices with diffusion-restricted spaces, such as rigid endoscopes having a single stainless steel channel. In 2009, the Company received clearance from Health Canada for sterilization of additional complex medical instruments, including multi-channel flexible endoscopes.

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.

For further information: Marc Boisjoli, Chief Financial Officer, (418) 651-0003, Ext. 228, mboisjoli@tso3.com; Caroline Côté, Director, Corporate Communications and IR, (418) 651-0003, Ext. 237, ccote@tso3.com; Source: TSO3 Inc.