TSO3: Highpoints and financial results for the fiscal year ended at December 31, 2006



    
    Ticker: TSX - TOS
    Shares Outstanding: 46,232,102

    QUEBEC CITY, March 23 /CNW Telbec/ - TSO3 Inc. (TSX: TOS) announced its
financial results for the fiscal year ended at December 31, 2006.
    For the fiscal year ended December 31, 2006, the Company posted a net loss
of $7.5 million or $0.20 per share, compared to a net loss of $6.4 million or
$0.19 per share for the fiscal year 2005. This slight increase in the net loss
is mainly explained by the intensification of the Company's commercial
activities.
    "The year 2006 was a year of consolidation and action. We have put in
place all the elements necessary for the commercialization of our first
product: the 125L Ozone Sterilizer", said Jocelyn Vézina, CEO of TSO3 Inc.
    "In 2006, we strengthened the relationship with our original clients and
we put in place our own sales force recruiting the best talent. Moreover,
several sales were completed in the last year, and we solidified our growing
base of potentials clients, assuring us a sufficient pipeline for the
realization of our business plan for 2007", he concluded.


    2006 Highpoints Overview

    - After having put in place its own sales and marketing team at the
      beginning of the year, TSO3 strengthened it by recruiting sales
      representatives for the commercialization of the 125L Ozone Sterilizer
      in North America.

    - Eight 125L Ozone sterilizers and associated accessories were sold in
      the United States and Canada.

    - The FDA authorized the utilization of the 125L Ozone Sterilizer for
      sterilizing a significantly broader range of lumened instruments that
      are longer and with smaller interior diameters. Thus, TSO3's technology
      redefines sterilization standards and is put even further ahead of the
      competition.

    - After several years of effort and waiting, TSO3's ozone sterilization
      process is patented in Europe and the United States. This patent covers
      the ozone sterilization method and the process of creating humidity at
      low temperatures - a process exclusive to the Company and necessary for
      effective sterilization.

    - New medical instrument manufacturers endorsed the Company's technology
      and thus confirm the 125L Ozone Sterilizer is safe and compatible with
      their products.


    SUMMARY OF OPERATING RESULTS

    -------------------------------------------------------------------------
    Fiscal years ended December 31                  2006      2005      2004
    (in thousands of dollars except loss/share)
    -------------------------------------------------------------------------
    Sales                                       $  1,070  $    172  $      -

    Operating Expenses                          $  1,643  $    994  $    567

    Marketing                                   $  3,185  $  1,873  $  1,651

    Research and Development (before tax
     credits)                                   $  1,682  $  1,878  $  1,573

    Administrative                              $  3,090  $  2,378  $  2,854

    Financial Fees                              $     18  $     14  $     13

    Other Revenues                              $  1,071  $    530  $    726

    Income Tax                                  $      -  $      -  $     12

    Net Loss                                    $  7,477  $  6,435  $  5,946

    Net Loss Per Share                          $   0.20  $   0.19  $   0.19
    -------------------------------------------------------------------------
    Weighted Average Number of Shares
     Outstanding (in thousands)                   36,560    33,824    31,400
    -------------------------------------------------------------------------


    Sales

    For the fiscal year ended December 31, 2006, Sales amounted to $1,069,739
compared to $171,766 for the same period in 2005. During this fiscal year, the
Company recorded the sale of eight 125L Ozone Sterilizers and accessories
compared to one sale and accessories in 2005.

    Operating

    For the fiscal year ended December 31, 2006, Operating expenses increased
$649,474 (65.4%) to reach $1,643,116 compared to $993,642 in 2005. Operating
expenses are related to the Production and After-Sale Service Department
operations as well as manufacturing the devices. Having sold more devices
during 2006, the variance between the two periods is explained by an increase
in the cost of goods sold, warranty fees, travel and transportation expenses.

    Marketing

    For the fiscal year ended December 31, 2006, Sales and Marketing expenses
increased to $1,312,093 (70%) to reach $3,184,933 compared to $1,872,840 for
the corresponding period in 2005. This increase is explained by the hiring of
new sales managers during the fiscal year 2006. This Department counts
22 employees at the end of fiscal year 2006 compared to 16 at the beginning of
the year. The variance between these two periods is explained by an increase
in the costs related to salaries, bonus, commissions, recruitment, as well as
representation fees. On the other hand, costs related to referral sites have
decreased during the fiscal year 2006.

    Research and Development Activities

    For the fiscal year ended December 31, 2006, the Company continued its
research and development efforts as per its budget. For the fiscal year 2006,
R&D expenses before tax credits realized a decrease of $195,897 (10.4%) to
reach 1,682,413 compared to $1,878,310 for the corresponding period in 2005.
The declines between these two periods is explained by a reduction in material
purchases and expenses related to scientific advisor committees, as well as a
decrease in work on the inactivation of prions. The majority of the prion
research is being funded by the British Government. On the other hand, the
amount paid in salaries, fringe benefits and bonuses during the fiscal year
2006 increased.

    Administration

    For the fiscal year 2006, Administration expenses increased $712,199
(29.9%) to reach $3,090,571 compared to $2,378,372 for the corresponding
period in 2005. This increase is mainly attributed to an increase in
Stock-based Compensation, professional fees, salary and bonus paid. During the
fiscal year 2006, two employees were added to this department.

    Other Revenues

    For the fiscal year ended December 31, 2006, Other revenues increased
$541,264 (102%) to reach $1,071,477 compared to $530,213 in 2005. The increase
is explained primarily by an increase in investment revenues, in R&D income
tax credits, and in government grants. The Company received the $250,000
representing the third installment of payments from IQ Immigrants
Investisseurs Inc.

    Net Loss

    The Company recorded for the period ended December 31, 2006 a net loss of
$7,477,443 or $0.20 per share, compared to a net loss of $6,434,885, or
$0.19 per share in 2005.

    FINANCIAL POSITION

    -------------------------------------------------------------------------
    As at December 31                               2006      2005      2004
    (in thousands of dollars)
    -------------------------------------------------------------------------
    Liquid Assets (Cash & Temporary
     Investments)                               $  7,309  $ 14,595  $ 10,679

    Accounts Receivable                         $    811  $    344  $    332

    Inventories                                 $  3,388  $  3,303  $  2,845

    Property, Plant and Equipment               $    391  $    416  $    498

    Intangible Assets                           $  3,712  $  3,832  $  3,908

    Short & Long Term Debt                      $      -  $      -  $     69

    Deferred Revenues                           $     76  $    962  $     36

    Share Capital and Contributed Surplus       $ 52,149  $ 50,657  $ 39,866

    Shareholders' Equity                        $ 14,624  $ 20,610  $ 17,431
    -------------------------------------------------------------------------


    Liquid Assets and Financial Situation

    As of December 31, 2006, cash, temporary investments and accounts
receivable amounted to $8,119,901 compared to $14,939,305 as of December 31,
2005.

    Inventories

    As of December 31, 2006, short term assets showed inventory valued at
$3,387,837 compared to $3,303,258 as of December 31, 2005. These amounts were
attributable to the cost of producing sterilizers for the commercial launch as
well as different trials performed in hospitals.

    Deferred Revenues

    As of December 31, 2006, deferred revenues amounted to $75,709 compared to
a total amount of $961,821 for the same period last year. These deferred
revenues reflect amounts received for a certain number of sterilizers that
were delivered but for which the ownerships had not been transferred. It also
includes warranties and service contracts that had been paid in advance. As of
December 31, 2006, deferred revenues did not include any device for which the
ownership had not yet been transferred. During the fiscal year 2006, the
sterilizers, included in the item Deferred Revenues, were the object of a
transfer of property or were paid off.

    Required Capital Payments and Contractual Commitments

    Required capital payments and the various contractual commitments in the
coming fiscal year are as follows:

                                                              2007      2008
    -------------------------------------------------------------------------
    R&D Contract                                          $114,447  $      -

    Rent                                                  $ 28,355  $ 19,632

    Referral and Pilot Sites                              $105,688  $      -
    -------------------------------------------------------------------------


    FOURTH QUARTER

    Three-month period ended December 31, 2006 compared to period ended
December 31, 2005.

    Sales

    For the three-month period ended December 31, 2006, Sales amounted to
$433,629 compared to $10,421 for the corresponding period in 2005. The Company
recorded the sale of three sterilizers and their accessories during the last
quarter of 2006 while in the period corresponding in 2005, the Company
recorded only accessory sales.

    Operating

    For the three-month period ended December 31, 2006, operating expenses
were $456,976 compared to $300,327 for the same period in 2005. The variance
between the two periods is explained by an increase in the cost of goods sold,
having sold more devices during the quarter, warranty fees, travelling and
transportation expenses.

    Marketing

    Marketing expenses amounted to $895,178 for the three-month period ended
December 31, 2006 compared to $578,203 for the corresponding period in 2005.
This increase is mainly due to more intensive marketing activities, costs
related to salaries, commissions, and recruitment as well as representation
fees. On the other hand, the amount paid for referral sites decreased between
the two periods.

    Research & Development Activities

    For the three-month period ended December 31, 2006, Research and
Development expenses before tax credits amounted to $414,830 compared to
$507,570 for the same period in 2005. The decline between the two periods is
explained primarily by a reduction in expenses related to scientific advisor
committees, as well as a decrease in the expenses related to the inactivation
of prions. On the other hand the amount paid in salaries during the fiscal
year 2006 increased.

    Administration

    Administration expenses amounted to $870, 078 for the three-month period
ended December 31, 2006 compared to $654,463 for the corresponding period in
2005. This increase is mainly attributed to a rise in professional fees, and
Stock-based Compensation.

    Other Revenues

    For the last quarter of 2006, the Company realized Other Revenues $241,852
compared to $196,648 for the corresponding period in 2005. The increase
between these two periods is mainly due to a rise in investment revenues and
R&D income tax credits.

    Net Loss

    The Company recorded, for the fourth quarter of 2006, a net loss of
$1,966,937, or $0.05 per share, compared to $1,833,666 for the corresponding
period in 2005, or also $0.05 per share.

    RISK FACTORS

    Risks Related to Operating Activities

    The Company's activities entail certain risks and uncertainties inherent
to the industry in which it operates.

    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 to market on
an international scale will put the Company in a position of direct
competition with firms that possess networks and resources greater than its
own. Nothing can guarantee that the marketing campaigns planned by the Company
for international markets, alone or with strategic alliances, will be
successful. The operations of TSO3 at an international level could be affected
negatively by factors such as the policies of Canada and the United States in
regard to foreign trade, 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 can
guarantee that these measures will be sufficient to protect any illegal
appropriation or infringement of its technology by a third party.

    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, by the Director of Communications and IR, as well as by 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 February 26, 2007. 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 Inc. is located in Québec City, Québec, Canada, and was founded in 1998. The Company's mission is to develop and market innovative and comprehensive sterilization solutions. TSO3 has perfected an innovative sterilization process using ozone as the sterilizing agent. The first product based on this technological platform is the 125L Ozone Sterilizer, which is intended for hospital sterilization units. The 125L - named after its 125-litre/4.3-cubic-foot capacity - was designed to sterilize heat-sensitive surgical and diagnostic devices which are expensive and in high demand from the surgical suite. The ozone sterilization process is a safe, efficacious, fast and cost-effective response to evolving sterilization needs. The 125L Ozone Sterilizer by TSO3 has been cleared for commercialization by Health Canada and by the U.S. Food and Drug Administration (FDA). TSO3 currently has more than 50 employees, 23 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; Mathieu Claise, Interim Director, Corporate Communications
and Investor Relations, (418) 651-0003, Ext. 237, ir@tso3.com; Source: TSO3
Inc.


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