TSO3 discloses fourth quarter and full year 2014 fiscal results

Ticker:  TSX – TOS
Shares Outstanding: 82,599,656

QUEBEC CITY, March 18, 2015 /CNW Telbec/ - TSO3 Inc. ("TSO3") an innovator in sterilization technology for medical devices in healthcare settings, today reported sales for the fiscal year ended December 31, 2014 amounted to $432,987, as compared to $254,370 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. 

"2014 proved to be the year a key milestone, obtaining Food and Drug Administration 510(k) clearance, occurred. While it took the entire year, the Company did receive clearance for a first-of-its-kind sterilizer under the new Product Code PJJ. This new code points to a two or more sterilant sterilizer, in the case of TSO3's STERIZONE® VP4 Sterilizer, a device using hydrogen peroxide and ozone.  The claims which accompany the clearance far surpass that of the predicate devices in terms or load flexibility, configuration and size. We truly offer the best throughput resulting in lower cost," mentioned R.M. (Ric) Rumble, President and CEO.

"Subsequent to the regulatory clearance and year-end, the Company conducted a round of financing and signed its first commercial agreement with Getinge Infection Control. Activities surrounding the commercialization of the product, including hiring selected skill sets, have occurred and the Company is now looking to reinforce its operations in anticipation of increased volume," 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/1491631/1661233.

The Webcast will be archived for 90 days.

Fourth Quarter and Fiscal 2014 Results Disclosure

The 2014 Annual Report is available on the TSO3 Web site at the following address: http://www.tso3.com/en/investors/financial_reporting/annual_reports/ and full Y14 disclosure will be available shortly on SEDAR (www.sedar.com).


 

Summary of Results

Years ended December 31 (Audited, IFRS Basis)





2014

$

2013

$

Sales

432,987

254,370

Expenses




Supply Chain

1,118,498

1,064,957


Customer Support and Communications

301,763

524,817


Research and Development

2,333,113

3,502,505


Administrative

2,720,249

2 721 811


Settlement Cost

-

1,864,127


Financial Income

(113,488)

(183,687)


Financial Costs

20,841

30,009

Total Expenses

6,380,976

9,524,539

Net Loss before Income Taxes

5,947,989

9,270,169

Income Taxes

-

-

Net Loss and Comprehensive Loss attributable to Shareholders

5,947,989

9,270,169

Basic and Diluted Net Loss per Share

0.08

0.13

Weighted Average Number of Outstanding Shares

73,123,794

71,739,270

 

Results Analysis

In the following paragraphs, the Company discusses the variations of certain accounts within the annual periods ended December 31, 2014 and 2013.

SALES

The Company, since June 2012, 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 was obtained. Sales, since then, have primarily consisted of consumables and services and were made mostly in connection with the STERIZONE® 125L+ Sterilizer. 

For the 2014 fiscal year, sales amounted to $432,987, as compared to $254,370 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. 

WRITE-OFFS

Further to its decision to discontinue the support of its first generation sterilizer, the 125L ozone-only sterilizer that it had marketed until 2008, and to retire that technology from its portfolio of active technologies, the Company wrote-off all inventory, fixed assets related to that technology.  This resulted in the write-off of assets with a net book value of $293,994.

The Company also wrote-off $56,010 in parts and consumable inventory as well as $91,889 in sterilizers included in its fixed assets. In 2013, write-offs totaled $144,376 and were essentially in connection with expired consumable supplies and slow-moving part inventories .

NET LOSS

In fiscal year 2014, the Company experienced a loss of $5,947,989 ($0.08 per share), as compared to $9,270,169 ($0.13 per share) in 2013. The year-to-year variations are reflecting operating issues as well as one-time items related to R&D tax credits, the write-off of assets related to the discontinued first-generation ozone-only 125L sterilizer, and the cost incurred in 2013 in connection with the settlement of the dispute with the 3M Company over the termination of the distribution agreement.

When adjusting the results to exclude the R&D tax credits, the write-off of assets related to the first-generation sterilizer and the settlement cost for the dispute with the 3M Company, the net loss is $6,224,482 ($0.09 per share), as compared to $7,695,170 ($0.11 per share) in 2013. Most of that reduction is the result of the collective dismissal announced by the Company in January 2014, and the corresponding reduction in activities.

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 fiscal year ended December 31, 2014, the Supply Chain expenses amounted to $1,118,498, as compared to $1,064,957 in 2013. The variation is largerly the result of the write-off of $133,767 in inventory for the production and maintenance of the discontinued ozone-only 125L sterilizer. Excluding those write-offs, the Supply Chain expenses were $984,731 in 2014, or about the same as in 2013, reflecting the fact that the increase in costs caused by higher sales was offset by the reduction in overhead and payroll that resulted from the cost reduction programs implemented by the Company.           

Customer Support and Communications

For the fiscal year ended December 31, 2014, the Customer Support and Communications expenses amounted to $301,763, as compared to $524,817 in 2013. The smaller amount in 2014 is due to (1) a reduction in headcount further to the collective dismissal announced in 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 fiscal year ended December 31, 2014, Research and Development (R&D) expenses were $2,333,113, as compared to $3,502,505 in 2013. The year-to-year variation is explained by three items: (1) the write-off of $91,889 for sterilizers dismantled or otherwise made inoperable in connection with regulatory and compliance activities; (2) the variation in the recognition of R&D tax credits, and (3) a lower activity as a result of the moratorium placed on development activities other than those targeting the regulatory clearance in the US and the compliance with other clearances obtained by the Company.

When the write-offs and the R&D tax credits are being excluded, the R&D expenses have decreased from $3,791,633 in 2013 to $2,811,709 in 2014, or a year-to-year decrease of $979,924. Most of that decrease occurred after the first quarter 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 fiscal year ended December 31, 2014, the Company reported Administrative expenses of $2,720,249, as compared to $2,721,811 in 2013. The 2014 amount included the write-off of $160,225 for patents being abandoned in connection with the first-generation, ozone-only, 125L sterilizer.  Excluding that item, administrative expenses were $2,560,024 in 2014, or $161,187 smaller than in 2013.  Several items were smaller in 2014, including a decrease in salaries and benefits as a result of general compressions in expenses and a reduction in professional fees largely due to the settlement of the dispute with the 3M Company in June 2013.  These cost reduction were however partly offset by an increase in the performance-based compensation which were reduced to nil in 2013.

Settlement Cost

For the fiscal year ended December 31, 2013 the Company had recorded a $1,864,127 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 might have caused the Company to incur legal expenses and might 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 $262,068 in inventory held by the 3M Company and increased by the write-off of certain receivables in the amount of $16,195

Financial Income

For the fiscal year ended December 31, 2014, financial income amounted to $113,488, as compared to $183,687 in 2013.  The decrease is due to smaller amounts of Cash, Cash Equivalents and Investments in 2014.

 

Financial Position Analysis

(Audited, IFRS Basis)





2014

$

Restated

2013

$

Cash and Cash Equivalents

5,973,446

6,637,408

Short-term Investments

-

2,971,123

Accounts Receivable

257,694

1,165,666

Inventories

1,293,503

1,407,411

Property, Plant and Equipment

557,515

1,048,099

Intangibles Assets

2,432,653

2,656,091

Accounts Payable and Accured Liabilities

676,058

578,185

Deferred Revenues

82,019

91,905

Equity

9,859,028

15,269,622

 

Liquid Assets

As at December 31, 2014, cash, cash equivalents and short-term investments amounted to $5,973,446, as compared to $9,608,531 as at December 31, 2013. The variation is largerly due to the cash absorbed by operations which was well in excess of the proceeds from the exercise of warrants and options during 2014.

Accounts Receivable

As at December 31, 2014, the accounts receivable were $257,694, as compared to $1,165,666 as at December 31, 2013. The accounts receivable in December 2014 and December 2013 included respectively $139,145 and $1,072,743 in amounts recoverable from governments for Research and Development tax credits and input tax credits for sale taxes.  The 2013 amount was large because it reflected not only the 2013 recoverable tax credits but also additional claims made by the Company for previous years.  In 2014, the amount of recoverable tax credits decreased substantially due to the collection of amounts recoverable at the end of 2013 and to the reduction in both the amount of eligible expenditures and the rate of investment tax credit on these amounts.

Inventories

As at December 31, 2014, inventories amounted to $1,293,503, as compared to $1,407,411 as at December 31, 2013.

Other than as a consequence of normal usage and turn over, the net variation of $113,908 in inventories during 2014 is the result of (1) the write-off of parts and consumable supplies related to the discontinued ozone-only 125L sterilizer, (2) the write-down of a STERIZONE® 125L+ Sterilizer which can no longer be sold as new because it was used for tests performed for regulatory and conformity purposes, and (3) the write-off of slow moving inventory.

Property, Plant and Equipment

In 2014, the Company added $23,496 to its Property, Plant and Equipment, as compared to $329,396 in 2013. Most of the expenditures in 2014 were for mandatory improvements to its premises, while those in 2013 consisted primarily in sterilizers and medical devices used as part of its research and development activities. During 2014, the Company also wrote-off a net amount of $91,888 as a result of dismantling or making inoperable sterilizers for regulatory and conformity purposes.  Finally, although the Company eliminated all of its ozone-only 125L sterilizers,  this did not result in a net write-off as these sterilizers were already fully depreciated.

About the STERIZONE® VP4 low temperature sterilizer

The STERIZONE® VP4 Sterilizer developed by TSO3 is a dual sterilant, low temperature sterilization system that utilizes vaporized hydrogen peroxide (H2O2) and ozone. Its single cycle can sterilize a large number and wide range of compatible devices, thereby allowing for a cost effective and error-free sterilization process. TSO3's unique Dynamic Sterilant Delivery SystemTM automatically adjusts the quantity of injected sterilant based on the load composition, weight and temperature. With its large 75 lb load capacity and a short cycle time, the STERIZONE® VP4 Sterilizer can enhance throughput and lower sterilization cost. The STERIZONE® VP4 Sterilizer was cleared for commercialization in the United States in December 2014.

More information about the STERIZONE® VP4 Sterilizer is available through TSO3's website, under the Products section: http://www.tso3.com/en/products/sterizone-vp4/

About TSO3

Founded in 1998, TSO3's activities encompass the sale, production, maintenance, research, development and licensing of sterilization processes, related consumable supplies and accessories for heat-sensitive medical devices. The Company designs products for sterile processing areas in the hospital environment that offer an advantageous replacement solution to other low temperature sterilization processes currently used in hospitals. It also offers services related to the maintenance of sterilization equipment and compatibility testing of medical devices with such processes.

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.

 

SOURCE TSO3 Inc.

For further information: R.M. (Ric) Rumble, President and CEO, 418 651-0003, Email: info@tso3.com; Paule De Blois, General Manager, Administration, 418 651-0003, Email: info@tso3.com

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