TSO3: Financial Results for Fiscal Year 2007 and Update on Sales Activities



    Ticker Symbol: TSX: TOS
    Shares Outstanding: 47 863 402

    QUEBEC CITY, March 28 /CNW Telbec/ - TSO3 Inc. (TSX: TOS) today announced
its financial results for the fiscal year ended December 31, 2007.
    The Company recorded, for the period ended December 31, 2007, a net loss
of $7,912,490 or $0.17 per share, compared to a net loss of $7,477,443, or
$0.20 per share in 2006.
    "In 2007, TSO3 experienced notable firsts, such as the sale of a second
sterilizer to an existing customer, the first two-unit sale to a hospital, as
well as the exchange of a recently acquired high-capacity sterilizer from a
competitor for a 125L Ozone Sterilizer. The successes have also been numerous
in terms of visibility and credibility, notably on the front of safety for the
environment, for which our product is increasingly recognized. Today, we
benefit from the positive testimonials of innovative clients from nearly
30 hospitals throughout North America: a major asset which support on sales
efforts", indicated Jocelyn Vézina, CEO at TSO3 Inc.
    "In parallel, we must adjust to market demands and respond to new
challenges. The recent months have allowed us to realize there is a growing
need among the clientele for the sterilization of flexible endoscopic
instruments. We were already aware of this opportunity and proactive on the
R&D front, but today we must accelerate the work necessary to guarantee the
compatibility of this type of endoscope with our process. The new reality we
face slows our sales for 2008. Therefore, our objective in the short term is
to focus our sales efforts on customers that have shown an immediate need for
our product, while ensuring sales in the pipeline for 2009", he added.

    TSO3 will update on sales activities in more details during its
conference call planned this morning, Friday March 28, at 10:30 a.m. (ET).
Analysts and institutional investors are invited to participate in the
conference call. Numbers to dial for access are (514) 807-8791 (Montreal
area), (416) 644-3416 (Toronto area) or the toll-free number 1 800 733-7560.
    Other Interested parties may listen to the live webcast of the conference
call accessible via TSO3's Website at: www.tso3.com. The webcast will be
archived for 90 days.

    
      2007 Overview

    - TSO3 announces 16 additional sales in 2007, for a total of 26 units in
      North America.

    - TSO3 becomes a member of Hospitals for a Healthy Environment (H2E) -
      recently renamed "Practice Greenhealth" - an international association
      that brings together several hundred hospitals as well as certified
      suppliers that are proving their environmental excellence.

    - TSO3 closes a $23 million bought deal.

    - TSO3 implements a stock purchase plan for its employees.

    - TSO3 raises $4 million through purchase warrants.

    - TSO3 distinguishes itself as a company that offers an environmentally
      responsible product and is awarded a "Venture Green" mention at the
      major OHA HealthAchieve 2007 exhibition held in Toronto.


    SUMMARY OF OPERATING RESULTS
    ----------------------------

    Fiscal years ended December 31
    (in thousands of dollars
    except loss/share)
    -------------------------------------------------------------------------
                                                  2007       2006       2005
    -------------------------------------------------------------------------
    Sales                                      $ 1,731    $ 1,070      $ 172

    Operating Expenses                         $ 1,892    $ 1,643      $ 994

    Marketing                                  $ 4,189    $ 3,185    $ 1,873

    Research and Development                   $ 1,782    $ 1,682    $ 1,878

    Administrative                             $ 3,228    $ 3,090    $ 2,378

    Financial Fees                                $ 17       $ 18       $ 14

    Other Revenues                             $ 1,465    $ 1,071      $ 530

    Net Loss                                   $ 7,912    $ 7,477    $ 6,435

    Net Loss Per Share                          $ 0.17     $ 0.20     $ 0.19
    -------------------------------------------------------------------------
    Weighted Average Number of Shares
     Outstanding (in thousands)                 45,321     36,560     33,824
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    SALES

    For the fiscal year ended December 31, 2007, Sales increased $661,278
(61.8%) to reach $1,731,017 compared to $1,069,739 for the same period in
2006. During this fiscal year, the Company announced the sale of sixteen 125L
Ozone Sterilizers with accessories compared to the sales of eight units with
accessories for the preceding fiscal year. According to our revenue
recognition policy, the Company recognizes revenues when ownership of the unit
has been transferred to the purchaser, upon shipment. Given this definition,
11 of the 16 aforementioned transactions were recognized as sales for the
fiscal year. The other five agreements will be recognized as revenues upon
shipment of the sterilizers. The recognition of the sale of the last five
sterilizers represents an amount of $874,366.

    OPERATING

    For the fiscal year ended December 31, 2007, Operating expenses increased
$248,552 (15.1%) to reach $1,891,668 compared to $1,643,116 in 2006. Operating
expenses are related to the Production and After-Sale Service Department as
well as the costs of manufacturing the devices. Having sold more devices
during 2007, the variance between the two periods is explained by an increase
in the cost of goods sold.

    MARKETING

    For the fiscal year ended December 31, 2007, Sales and Marketing expenses
increased to $1,004,470 (31.5%) to reach $4,189,403 compared to $3,184,933 in
2006. The variance between these two periods is explained by an increase
related to salaries, sales expenses, trade shows and commissions paid to sales
managers as a result of the expansion of the Sales & Marketing team. On the
other hand, costs related to bonuses and recruiting professionals decreased
during the fiscal year 2007.

    RESEARCH AND DEVELOPMENT ACTIVITIES

    For the fiscal year ended December 31, 2007, the Company continued its
research and development efforts as per its budget. For the fiscal year 2007,
R&D expenses before tax credits increased $99,840 (5.9%) to reach $1,782,253
compared to $1,682,413 in 2006. The increase between these two fiscal years is
explained by an increase in material purchases and expenses in work on the
inactivation of prions.

    ADMINISTRATION

    For the fiscal year ended December 31, 2007, Administration expenses
increased $137,635 (4.5%) to reach $3,228,206 compared to $3,090,571 for the
corresponding period in 2006. This increase is mainly attributed to an
increase in Stock-based Compensation, professional fees, salary and fringe
benefits. On the other hand, expenses related to bonuses decreased during the
fiscal year 2007.

    OTHER REVENUES

    For the fiscal year ended December 31, 2007, other revenues increased
$393,676 (36.7%) to reach $1,465,153 compared to $1,071,477 in 2006. The
increase is explained primarily by an increase in investment revenues. On the
other hand, the Company encountered a loss on exchange rate as well as a
decrease in R&D tax credits during the fiscal year 2007.

    NET LOSS

    The Company recorded for the period ended December 31, 2007 a net loss of
$7,912,490 or $0.17 per share, compared to a net loss of $7,477,443, or
$0.20 per share in 2006.


    FINANCIAL POSITION
    ------------------

    As at December 31 (in thousands of dollars)
    -------------------------------------------------------------------------
                                                  2007       2006       2005
    -------------------------------------------------------------------------
    Liquid Assets (Cash, Cash Equivalents
     and Temporary Investments)               $ 26,205   $  7,309   $ 14,595

    Accounts Receivable                       $    975   $    811   $    344

    Inventories                               $  2,996   $  3,388   $  3,303

    Property, Plant and Equipment             $    508   $    391   $    416

    Intangible Assets                         $  3,664   $  3,712   $  3,832

    Deferred Revenues                         $    146   $     76   $    962

    Share Capital and Contributed Surplus     $ 80,682   $ 52,149   $ 50,657

    Shareholders' Equity                      $ 33,041   $ 14,624   $ 20,610
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIQUID ASSETS AND FINANCIAL SITUATION

    The Company preserved an adequate position of liquidity during 2007. As of
December 31, 2007, cash, temporary investments and accounts receivable
amounted to $27,180,185 compared to $8,119,901 as of December 31, 2006.

    INVENTORIES

    As of December 31, 2007, current assets showed inventory valued at
$2,996,409 compared to $3,387,837 as of December 31, 2006. These amounts were
attributable to the cost of producing sterilizers for the commercial launch.
The variance between the two periods is explained by a decrease in inventory.

    SHARE CAPITAL AND CONTRIBUTED SURPLUS

    As of December 31, 2007, share capital and contributed surplus amounted to
$80,681,660 compared to $52,148,977 as of December 31, 2006. The increase
between the two periods is mainly due to the issue of stock during a financing
realized in 2007 where the Company issued 9,200,000 units at a price of
$2.50 each. Furthermore, 1,633,000 warrants issued in a previous financing
were exercised during the fiscal year 2007 at a price of $2.50.

    REQUIRED CAPITAL PAYMENTS AND CONTRACTUAL COMMITMENTS
    -----------------------------------------------------

    Required capital payments and the various contractual commitments in the
    coming fiscal year are as follows:
    -------------------------------------------------------------------------
                            2008       2009       2010       2011       2012
    -------------------------------------------------------------------------
    R&D Contract       $  97,389   $      -   $      -    $     -    $     -
    Operating leases
     and service
     contracts           123,783     46,710     40,839      3,333          -
    -------------------------------------------------------------------------
    Total              $ 221,172   $ 46,710   $ 40,839    $ 3,333    $     -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    REVENUES RECOGNITION

    The Company generates revenue mainly from the sale of ozone sterilization
units, parts and instruments related to these units and contracts for the
after-sale service and maintenance of these units. The Company is generally
committed under revenue arrangements to multiple deliverables that include
delivery of units, installation, maintenance, consulting and after-sale
service. The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the price to the buyer is fixed or
determinable and collection is reasonably assured.
    Revenue from revenue arrangements with multiple deliverables are divided
into separate units of accounting when the Company has reliable evidence. When
revenue cannot be determined, it is deferred and calculated using the
straight-line method over the term of the contract.
    Revenue related to units sold, parts and instruments related to those
units, installation and consulting services are recognized once the services
are provided and the client accepts the services received. Maintenance and
after-sale service contracts are calculated using the straight-line method
over the term of the contract.

    RISK FACTORS
    ------------

    RISKS RELATED TO OPERATING ACTIVITIES

    The Company's activities entail certain risks and uncertainties inherent
to the industry in which it operates. However, management has implemented a
risk-reduction strategy that addresses:

    RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

    TSO3 must carry out the majority of its sales outside of Quebec and
Canada, either in the United States or in Europe. The necessity of marketing
on an international scale puts the Company in a position of direct competition
with firms that possess networks and resources greater than its own. Nothing
guarantees that the marketing campaigns implemented by the Company for
international markets, alone or with strategic alliances, will be successful.
The operations of TSO3 at an international level could be negatively affected
by factors such as Canadian and United States foreign trade policies,
investments and taxes, foreign exchange rate controls and fluctuations,
political instability and increased payment periods. One or more of these
factors could have a significantly negative effect on the financial situation
and results of the Company.

    COMPATIBILITY, BIOCOMPATIBILITY AND RESEARCH AND DEVELOPMENT PROJECTS

    All sterilization processes can affect medical instruments or alter their
key properties over a period of time. Taking into consideration the nature of
the devices to be sterilized and the oxidative effects on devices in contact
with ozone, TSO3 limits to a minimum the frequency and duration that the
devices are exposed to ozone. Nevertheless, oxidization can produce several
effects, depending on the material. In order to fully establish the true
commercial value of its sterilization process, the Company must demonstrate
the compatibility of its technology with a wide range of medical instruments.
Even though the tests and studies undertaken to date by TSO3 have shown that
its ozone sterilization process is compatible with the majority of medical
instruments currently used in the hospital environment, the Company must
maintain ongoing studies in this respect. Besides, the Company can not
guarantee the success of its different R&D projects.

    DEPENDENCY ON KEY PERSONNEL

    TSO3 believes that its success will continue to depend on its ability to
attract and retain qualified managers and other key personnel. Losing a key
employee could have a major negative impact on TSO3.

    MANAGEMENT OF BUSINESS GROWTH

    Achieving its short-term objectives could launch the Company into a phase
of significant and rapid growth and force it to considerably increase its
personnel, the number of partners, cash flow and operating capacity.

    INTELLECTUAL PROPERTY AND COUNTERFEITING RISKS

    The success of the Company is based on its unique technology. TSO3 relies
on a combination of patents, trade secrets, non-disclosure agreements and
various contractual provisions in order to protect its technology. Nothing
guarantees that these measures will be sufficient to protect any illegal
appropriation or infringement of its technology by a third party.

    COMPETITION RISKS

    The Company's products face intense competition. Many of our competitors
have greater financial resources and marketing capabilities than our own.
TSO3's competitors and potential competitors may succeed in developing
products and processes that are more effective and less expensive to use than
any products or processes the Company may develop or licence, or that may
render TSO3's products or processes obsolete. The high level of competition in
the sterilization industry could force the Company to reduce the price at
which it sells its products or require TSO3 to spend more time and money to
market its products.

    PRODUCT LIABILITY ISSUES

    In the health sector, lawsuits, often claiming substantial damages, are
becoming increasingly common. In particular, in the United States, lawsuits
are filed by patients, employees or beneficiaries against healthcare
providers, as well as authorities operating and managing hospitals in the
private and public sectors. During these proceedings, claimants could allege
and blame the non-sterility of certain instruments or defective functioning of
products sold, installed or derived from TSO3's technology. To address the
problems associated with such lawsuits, the Company is of the opinion that it
has the necessary insurance coverage.

    LIQUIDITY AND FINANCIAL RE

SOURCES Management believes that it will be able to raise the necessary long-term capital to achieve the Company's corporate objectives. However, the availability of these financial resources cannot be guaranteed. VOLATILITY OF SHARE PRICE Company share prices are subject to volatility. Financial and scientific results that differ from analysts' projections may lead to significant variations in the price of Company shares. DISCLOSURE CONTROLS AND PROCEDURES The Chief Executive Officer and the Chief Financial Officer of the Company are responsible for establishing and maintaining the Company's controls and disclosure procedures. They are assisted in this responsibility by the Company's Communication Committee, which is composed of members of Senior Management, the Director of Communications and IR, as well as the Company's legal advisor. As required by Securities Legislation, the CEO and the CFO have conducted an evaluation for the controls and procedures regarding information disclosure and have concluded that these controls and procedures are effective. PROSPECTIVE STATEMENT This document contains certain prospective statements that reflect the Company's current expectations concerning future activities. These prospective statements include risks and uncertainties. Actual results can differ considerably from the results, as previously described in this report, expected by the Company. Investors are advised to consult the Company's quarterly and annual reports, as well as the filing of the Company's annual information form for more details on the risks and uncertainties related to these prospective statements. The reader must not unduly rely upon the Company's prospective statements. The Company is not obliged to update these prospective statements. This Management Report has been prepared as of March 5, 2008. Additional information on the Company is available through regular filing of press releases, quarterly financial statements and the Annual Information Form on the SEDAR website (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 125L Ozone Sterilizer, is designed for sterile processing centers in the hospital environment. In contrast to other methods used, the ozone sterilization process developed and patented by TSO3 meets all standards required by the evolution in sterilization needs, which are: significant costs savings, increased safety for patients and hospital staff, and a "green" environmentally safe process. The Company believes that its technology represents an advantageous replacement solution to other low temperature sterilization processes currently used in hospitals. The 125L Ozone Sterilizer is cleared for commercialization by the US Food and Drug Administration and by Health Canada. TSO3 is in commercialization phase for this first product since 2006. TSO3 currently has more than 72 employees, about half of whom work in the sales and marketing team. 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:

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


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