TSO3: Q3 highest revenue generating quarter in company history

Stock symbol: TSX: TOS   
Outstanding shares: 58,779,016

Highlights of Q3 2011 and activities of recent weeks:

  • Additional shipments and installation of 3M™ Optreoz™ 125-Z Sterilizers to customer locations within Canada and international markets, according to plan;
  • High user satisfaction reported with the 3M™ Optreoz™ Sterilizer citing the products cost-effectiveness, increased utility and the ability to replace competitive low temperature sterile reprocessing solutions;
  • Progress made towards obtaining regulatory clearance in the United States through additional constructive communications with the regulators;
  • Progress towards year-end design freeze for new Product (OR Sterilizer).

QUEBEC CITY, Nov. 2, 2011 /CNW Telbec/ - TSO3 Inc. ("TSO3") (TSX: TOS) an innovator in sterilization technology for medical devices in healthcare settings, posted its highest historical quarterly revenues in third quarter of 2011. In Q3 2011, sales of 3M™ Optreoz™ 125-Z Sterilizers, consumable supplies, accessories, service contracts, training, after-sales service, as well as licence revenues, amounted to $1,153,460, compared to $176,397 in Q3 2010. For the nine-month period ended September 30, 2011, revenues amounted to $2,046,014 compared to $910,275 for the same period in 2010. The difference is explained by higher sales of private labelled 3M™ Optreoz™ Sterilizers, accessories and consumables, as a result of initial and growing 3M™ commercial activity on the Company's products.

The Company recorded a net loss of $2,261,434 for the third quarter of 2011, or $0.04 per share, compared to a net loss of $2,055,764, also $0.04 for the same period in 2010. Despite a positive contribution margin generated by increasing sales, the net loss has increased in third quarter. This is mainly due to higher research and development expenditures, as well as a $259,729 write-down of raw materials inventory related to the original ozone-only Sterilizer (the 125L). The 125L Sterilizer is no longer in production and its servicing needs will decrease, as the installed base of 38 sterilizers is being reduced through attrition, including through the upgrade program launched in Q3 2011. For the first nine-month period of 2011, the Company recorded a net loss of $6,257,228 or $0.11 per share, compared to $6,041,709 for the same period in 2010, or also $0.11.

"In the third quarter, we continued to manufacture and ship 3M sterilizers intended for worldwide destinations", said R.M. (Ric) Rumble President and CEO of TSO3. "Customers are reporting high satisfaction from increased throughput, rapid turn-around times and terminal sterilization of their delicate and costly surgical devices, including flexible endoscopes. The many benefits of this single sterilizer have enabled customers to significantly reduce, and in some cases discontinue the use of competitive low temperature sterile reprocessing solutions", added Mr. Rumble. "Another area where we have seen progress in Q3 2011 is in our filing for commercial clearance in the United States.  After filing on June 30, 2011 we have had additional and constructive communications with the regulators during the recent quarter and remain confident in our ability to receive clearance to commercialize the product in the United States", concluded Mr. Rumble.

Q3 2011 Conference Call

TSO3 will host a telephone Conference Call today, November 2, 2011 at 10:30 a.m. (ET). Analysts and Institutional Investors are invited to participate to the call. The numbers to dial for access are 1-514-940-2795 (Montréal area), 1-416-644-3425 (Toronto area) or the Toll-Free number 1-877-974-0445. Other interested parties may listen to the live Webcast of the Conference Call accessible via CNW's Website at: http://www.newswire.ca/en/webcast/detail/864239/916885. The Webcast will be archived for 90 days.

SUMMARY OF RESULTS
Periods ended September 30
(Unaudited, IFRS Basis)

 
  THIRD QUARTER NINE MONTHS
  2011 2010  2011 2010
  $ $ $
Revenues        
  Sales 1,100,892 122,759 1,888,308 761,340
  License Revenue 52,568 53,638 157,706 148,935
Total Revenues 1,153,460 176,397 2,046,014 910,275
Expenses
  Operating 1,175,065 250,867 2,240,890 1,179,091
  Sales & Marketing 106,091 263,042 398,747 874,236
  Research & Development 1,090,846 796,269 3,034,189 2,318,341
  Administrative 1,080,613 972,534 2,760,141 2,611,378
  Financial Revenues (49,089) (55,763) (154,295) (71,121)
  Financial Expenses 11,368 5,212 23,570 40,059
Total Expenses 3,414,894 2,232,161 8,303,242 6,951,984
Net Loss and Comprehensive Loss 2,261,434 2,055,764 6,257,228 6,041,709
Basic and Diluted Net Loss per Share 0.04 0.04 0.11 0.11
Weighted Average Number of Shares Outstanding 58,325,099 57,957,386 58,125,854 55,762,764

RESULTS ANALYSIS

Sales

In Q3 2011, sales of sterilizers, consumable supplies, accessories, service contracts, training and after-sales service amounted to $1,100,892, as compared to $122,759 in Q3 2010.

For the nine-month period ended September 30, 2011, sales amounted to $1,888,308, as compared to $761,340 for the same period in 2010. Higher sales of sterilizers, consumable supplies and accessories explain this increase.

License Revenue

For the third quarter of 2011, the Company recorded an amount of $52,568 as license revenues compared to $53,638 in 2010.  These revenues are related to the commercial agreement signed with 3M and are equal to the amortization of the sums already received from 3M. Under IFRS, these revenues are presented separately in the statement of loss and comprehensive loss.

For the nine-month period ended September 30, 2011, these revenues amounted to $157,706 as compared with $148,935 for the same period in 2010.

Operating

In Q3 2011, the operating expenses amounted to $1,175,065, as compared to $250,867 in Q3 2010.  Most of the increase is directly related to higher sales, but it also includes a $259,729 write-down of raw material inventories related to the original Ozone Sterilizer 125L which is no longer in production and whose servicing needs will be reduced as the installed base of 38 sterilizers is reduced through attrition, including through the upgrade program launched in Q3 2011. The manufacturing of new generation units and the related consumables, as well as the assistance given to 3M for product launch and installation of sterilizers, constituted the majority of activities during the third quarter of 2011.

Excluding the write-down in inventory, when compared to the operating costs incurred in the second quarter, those incurred in the third quarter benefit from the impact of the initial shipments of higher margin consumable supplies.

For the nine-month period ended September 30, 2011, the operating expenses amounted to $2,240,890, as compared to $1,179,091 in 2010. The increase between those two periods is also caused by higher sales and the write-down of raw material inventories.

Sales and Marketing

For the third quarter of 2011, the sales and marketing expenses amounted to $106,091, as compared to $263,042 for the same period in 2010.  The decrease is due to a scale-down of that department, resulting in a decrease in salaries, fringe benefits and traveling expenses, since these activities are now under the responsibility of 3M™ Company. Conversely, costs related to website development have increased between the two periods due to the work undertaken earlier this year for the complete redesign of the Company's website.

For the nine-month period ended September 30, 2011, these expenses amounted to $398,747, as compared to $874,236 for the same period in 2010. The above described causes also explain the variation between the two periods.

Research and Development

For the quarter ended September 30, 2011, the research and development expenses, amounted to $1,090,846, as compared to $796,269 for the same period in 2010.  As fewer of the R&D expenditures are expected to qualify for an investment tax credit, no investment tax credit was provisioned in Q3 2011, as compared with a provision of $83,000 in Q3, 2010. The higher research and development expenses are the result of an increase in reliability and compatibility tests for various surgical instruments undertaken in parallel to the commercial launch of the 3M™ Optreoz™ 125-Z Sterilizer as well as the efforts made to develop a new sterilizer product for the operating room. That work required the hiring of new resources, the use of subcontractors, and the purchase, maintenance and repairs of endoscopes and other expensive surgical instruments.

For the nine-month period ended September 30, 2011, these expenses amounted to $3,034,189, as compared to $2,318,341 for the same period in 2010. The nine-month R&D expenses are presented net of a R&D tax credit provision of $125,000 ($230,000 in 2010). The above described causes also explain the variation between the two periods.

Administrative

In Q3 2011, the administrative expenses amounted to $1,080,613, as compared to $972,534 in Q3 2010. The increase is primarily the result of incentive-based compensation (provision for bonus and stock-based compensation).

For the nine-month period ended September 30, 2011, these expenses amounted to $2,760,141, as compared with $2,611,378 for the same period in the previous year.  The above described causes also explain the variation between the two periods.

Liquid Assets

As of September 30, 2011, cash, cash equivalents and temporary investments amounted to $12,852,774, as compared to $19,120,007 as at December 31, 2010. This decrease reflects the absorption of cash by the operations and the increase in working capital resulting from increased sales.  The decrease in liquidity was partly offset by the exercise of 750,000 warrants in 2011.

Third Quarter Disclosure

The Third Quarter Report is available on TSO3's website at the following address http://www.tso3.com/en/investors/financial_reporting/quarterly_reports/ and full Q3 disclosure will shortly be available on SEDAR (www.sedar.com).

About TSO3

TSO3 enables better health care through the development of innovative, low-temperature medical device sterilization systems and offers these solutions through licensing agreements to reputable channel partners for global commercial reach.

The TSO3 sterile reprocessing solutions answer the global and growing need for economical and fast turnaround of a wide range of medical instruments. These solutions address cutting-edge, high-demand devices - such as flexible endoscopes - and support the development of increasingly sophisticated medical devices and techniques.

At TSO3 's core, is its ability to conduct rapid research, development and prototyping  as well as validating biocompatibility and functionality of innovative medical reprocessing systems. TSO3 maintains a rigorous quality system as well as in-house expertise for regulatory submissions.

For more information about TSO3, visit the Web site of the Company 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, to 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:

Source: TSO3 Inc.

For further information:
Caroline Côté
Director - Investor and Business Relations
418 651-0003 / 237
ccote@tso3.com

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TSO3 INC.

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