TSO3: Third Quarter 2007 Financial Results



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

    QUEBEC CITY, Nov. 9 /CNW Telbec/ - TSO3 Inc. ("TSO3") (TSX: TOS)
announces today the financial results for the third quarter of 2007. The
Company registered a net loss of $2,042,730 or $0.04 per share, compared to a
net loss of $2,013,069 or $0.06 per share, for the same period in 2006. For
the nine-month period ended September 30, 2007, the net loss reached
$5,745,887 or $0.13 per share, compared to $5,510,506 or $0.15 per share for
the same period in 2006.
    "During the third quarter of 2007, we announced five additional sales,
among which, one wrapped up the referral sites program in a particularly
satisfying way. Let us also point out the sale of a second sterilizer to a
hospital, as well as a second sale in an American city, thanks to the good
references from the first customer", indicated Jocelyn Vézina, CEO for
TSO3 Inc. "These sales give eloquent proof that our strategy of closely
collaborating with initial users to ensure their satisfaction is a winning
strategy", he concluded.

    
    High Points of the Quarter

    - Five new sales in both the United States and Canada

    - Recruiting of new regional sales managers and clinical specialists for
      the American market

    - An additional $4M in cash for TSO3, as a result of warrant exercise

    Analysis of Financial Situation and Operating Results

    The following information must be read in conjunction with the audited
    financial statements and accompanying notes.

    SUMMARY OF OPERATING RESULTS
    Periods ended September 30 (unaudited)

    -------------------------------------------------------------------------
                                THIRD QUARTER                NINE MONTHS
                                -------------                -----------
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    SALES             $    281,525  $     33,961  $  1,055,401  $    636,110
    -------------------------------------------------------------------------
    EXPENSES
      Operating            431,548       308,057     1,246,332     1,186,140
      Marketing          1,055,463       794,376     3,039,599     2,289,755
      Research &
       Development         438,415       387,637     1,267,439     1,267,583
      Administrative       725,911       705,234     2,303,356     2,220,493
      Financial              4,342         1,968        11,048        12,270
    -------------------------------------------------------------------------
                         2,655,679     2,197,272     7,867,774     6,976,241
    -------------------------------------------------------------------------
    OPERATING LOSS       2,374,154     2,163,311     6,812,373     6,340,131
    OTHER REVENUES         331,424       150,242     1,066,486       829,625
    -------------------------------------------------------------------------
    NET LOSS          $  2,042,730  $  2,013,069  $  5,745,887  $  5,510,506
    -------------------------------------------------------------------------
    NET LOSS PER
     SHARE BASIC
     & DILUTED        $       0.04  $       0.06  $       0.13  $       0.15
    -------------------------------------------------------------------------
    WEIGHTED AVERAGE
     NUMBER OF
     SHARES
     OUTSTANDING        47,790,928    36,532,147    44,473,596    36,505,341
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    OPERATING RESULTS

    Quarter ended September 30, 2007, compared with the same quarter ended
September 30, 2006.

    Sales

    Sales for the third quarter ended September 30, 2007, amounted to $281,525
compared to $33,961 for the same period in 2006. The Company received signed
purchase agreements for five 125L Ozone Sterilizers and related accessories
during the third quarter of 2007, compared to none for the same period in
2006. According to our revenue recognition policy, the Company recognizes
revenues when ownership of the unit has been transferred to the purchaser, at
the time of shipment. As a result, the Company recognized two of the five
purchase agreements as sales for the third quarter. The recognition of the
sale of the last three sterilizers, in the beginning of the forth quarter,
will represent an amount of $498,787. For the nine-month period ended
September 30, 2007, sales amounted to $1,055,401 compared to $636,110 for the
same period in 2006.

    Operating

    Operating expenses were $431,548 for the three-month period ending
September 30, 2007, compared to $308,057 for the same period in 2006.
Operating expenses are related to the Production Department, the cost of
making the device and the After-Sales Service Department. The variance between
the two periods is mainly explained by an increase in the cost of sold
merchandise as well as warranty fees. For the nine-month period ended
September 30, 2007, Operating Expenses amounted to $1,246,332 compared to
$1,186,140 for the same period in 2006. The variance between the two periods
is explained by an increase in the cost of goods sold as well as payroll
costs.

    Marketing

    Marketing expenses amounted to $1,055,463 for the three-month period ended
September 30, 2007 compared to $794,376 for the same period in 2006. The
difference between the two periods is explained by an increase in salaries,
sales-related expenses and commissions paid due to the expansion of the sales
& marketing team. On the other hand, costs related to professional fees
decreased. For the nine-month period ended September 30, 2007, marketing
expenses amounted to $3,039,599 compared to $2,289,755 for the same period in
2006. The variance between the two periods is also explained by an increase in
salaries due to the expansion of the sale & marketing team, sales-related
expenses, and commissions paid. On the other hand, costs related to referral
sites and professional fees decreased between the two periods.

    Research and Development Activities

    For the three-month period ended September 30, 2007, Research and
Development expenses before tax credits amounted to $438,415 compared to
$387,637 for the same period in 2006. The increase between the two periods is
explained by the cost of purchasing materials and fees related to the "Prion
Project" in the United Kingdom. For the nine-month period ended September 30,
2007, Research and Development amounted to $1,267,439 compared to $1,267,583
for the same period in 2006.

    Administration

    Administration expenses amounted to $725,911 for the three-month period
ended September 30, 2007 compared to $705,234 for the same period in 2006. The
difference between the two periods is mainly due to an increase in
professional fees. On the other hand, Stock-based Compensation and bonuses
paid to management decreased. For the nine-month period ended September 30,
2007, administration expenses reach $2,303,356 compared to $2,220,493 for the
corresponding period of the preceding fiscal year. The difference between the
two periods is mainly due to an increase in salaries, professional fees and
Stock-based Compensation. On the other hand there was a decrease in bonuses
paid.

    Other Revenues

    For the three-month period ended September 30, 2007, the Company realized
revenues of $331,424 compared to $150,242 for the same period in 2006. For the
nine-month period ended September 30, 2007, other revenues amounted to
$1,066,486 compared to $829,625 for the corresponding period of the preceding
fiscal year. These increases are explained primarily by an increase in
investment revenues.

    Net Loss

    The Company recorded a net loss of $2,042,730 or $0.04 per share for the
third quarter of 2007, compared to a net loss of $2,013,069, $0.06 per share,
for the same period in 2006. For the nine-month period ended September 30,
2007, net loss was $5,745,887 or $0.13 per share, compared to $5,510,506 or
$0.15 per share for the same period in 2006.

    SELECTED ITEMS

    -------------------------------------------------------------------------
                                                            SEPTEMBER 30
                                                            ------------
                                                          2007          2006
    -------------------------------------------------------------------------
    Cash & Temporary Investment                   $ 27,837,259  $  8,738,435
    Accounts Receivable                           $    940,077  $    473,840
    Inventories                                   $  2,848,385  $  3,337,515
    Deferred Revenues                             $    140,501  $     46,847
    Assets                                        $ 35,995,447  $ 16,854,296
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                   DECEMBER 31
                                                   -----------
                                            2006          2005          2004
    -------------------------------------------------------------------------
    Cash & Temporary Investment     $  7,308,782  $ 14,595,003  $ 10,678,563
    Accounts Receivable             $    811,119  $    344,302  $    332,331
    Inventories                     $  3,387,837  $  3,303,258  $  2,845,586
    Deferred Revenues               $     75,709  $    961,826  $     36,060
    Assets                          $ 15,743,739  $ 22,587,034  $ 18,310,919
    -------------------------------------------------------------------------
    

    Liquid Assets and Financial Situation

    As of September 30, 2007, cash and temporary investments amounted to
$27,837,259 and accounts receivable amounted to $940,077, for a total amount
of $28,777,336 compared to $9,212,275 as of September 30, 2006. The difference
between the two periods is mainly due to the realization of financing of
$23 million in the first quarter of 2007. Furthermore, the Company received
revenues of $4,033,250 in the third quarter as a result of the exercising of
1,613,300 warrants at a price of $2.50. These warrants expired on July 7,
2007. Furthermore, no amounts were invested in Asset Backed Commercial Paper.

    Inventories

    As of September 30, 2007, short term assets showed inventory valued at
$2,848,385 compared to $3,337,515 for the same period in 2006. These amounts
correspond to allocations for the production of sterilizers for the
commercialization process. The decrease between the two periods is due to sale
of devices.

    Deferred Revenues

    Deferred revenues as of September 30, 2007, amounted to $140,501 compared
to $46,847 for the same period in 2006. The item Deferred revenues reflects
financial transactions relative to parts, warranties and service contracts not
yet recognized as revenues.

    RISK FACTORS

    Risks related to Operating Activities

    The Company's activities entail certain risks and uncertainties inherent
in 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.

    Competition Risks

    The Company's products face intense competition. Many of TSO3's
competitors have greater financial resources and marketing capabilities than
it does. 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.

    PROSPECTIVE STATEMENTS

    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 October 31, 2007.
Additional information on the Company is available through regular filing of
press releases, annual reports, 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 whit 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 65 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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