TSO3: Second Quarter 2007 Financial Results



    Ticker:  TSX - TOS
    Shares Outstanding:  47,857,402

    QUEBEC CITY, Aug. 10 /CNW Telbec/ - TSO3 Inc. ("TSO3") (TSX: TOS)
announces today the financial results for the second quarter of 2007. The
Company registered a net loss of $1,634,021, or $0.04 per share, compared to a
loss of $1,492,074 for the same period in 2006, also $0.04 per share. For the
six months ended June 30, 2007, the net loss reached $3,703,157, or $0.09 per
share, compared to $3,497,437, or $0.10 per share, for the same period in
2006.
    "During the second quarter, we sold four 125L Ozone Sterilizers. These
additional sales clearly demonstrate that our sterilization technology is
being accepted by the North American hospital market," declared Jocelyn
Vézina, the Chief Executive Officer of TSO3 Inc.
    "We have also continued to increase our sales force in the United States.
These hires will allow us to better cover the market and optimize our
commercialization efforts," he concluded.

    
    The highpoints of the quarter

    - Four more 125L Ozone Sterilizers sold, including three in the United
      States and one in Canada.

    - Addition of sales representatives in the United States.

    - Addition of a Director of National Accounts in the United States.

    - Implementation of a stock purchase plan for TSO3 employees and
      management.


    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 June 30 (unaudited)

    -------------------------------------------------------------------------
                                SECOND QUARTER                SIX MONTHS
                                --------------                ----------
                              2007          2006          2007          2006
    -------------------------------------------------------------------------
    SALES             $    575,253  $    300,800  $    773,876  $    602,149
    -------------------------------------------------------------------------
    EXPENSES
      Operating            492,750       379,607       814,784       878,083
      Marketing          1,085,907       779,657     1,984,136     1,495,379
      Research &
       Development         412,294       421,817       829,024       879,946
      Administrative       775,558       648,178     1,577,445     1,515,259
      Financial              3,335         6,935         6,706        10,302
    -------------------------------------------------------------------------
                         2,769,844     2,236,194     5,212,095     4,778,969
    -------------------------------------------------------------------------
    OPERATING LOSS       2,194,591     1,935,394     4,438,219     4,176,820
    OTHER REVENUES         560,570       443,320       735,062       679,383
    -------------------------------------------------------------------------
    NET LOSS          $  1,634,021  $  1,492,074  $  3,703,157  $  3,497,437
    -------------------------------------------------------------------------
    NET LOSS PER
     SHARE BASIC
     & DILUTED        $       0.04  $       0.04  $       0.09  $       0.10
    -------------------------------------------------------------------------
    WEIGHTED
     AVERAGE
     NUMBER OF
     SHARES
     OUTSTANDING        46,243,702    36,532,147    42,814,930    36,491,938
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    OPERATING RESULTS

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

    Sales

    Sales for the second quarter ended June 30, 2007, amounted to $575,253
compared to $300,800 for the same period in 2006. The Company recorded the
sale of four 125L Ozone Sterilizers and accessories during the second quarter
of 2007, compared to two sales and accessories for the same period in 2006.
Three of the four sales were sold in the United States and one to a Canadian
referral site. For the six-month period ended June 30, 2007, sales amounted to
$773,876 representing five sterilizers compared to $602,149 also representing
five sterilizers for the same period in 2006. Sales increased between the two
periods, despite the appreciation of the Canadian dollar, because of the
increase of the sale price of the 125L Ozone Sterilizer and the increase of
sales of accessories required to operate the Sterilizer.

    Operating

    Operating expenses were $492,750 for the three-month period ending June
30, 2007, compared to $379,607 for the same period in 2006. Operating expenses
are related to the Production and After-Sales Service Department operations as
well as the cost of goods sold. The variance between the two periods is mainly
explained by an increase in the cost of sold merchandise. On the other hand,
salaries decreased between the two periods. For the six-month period ended
June 30, 2007, Operating Expenses amounted to $814,784 compared to $878,083
for the same period in 2006. The variance between the two periods is explained
by a decrease in payroll costs associated with operating activities as well as
a decrease in warranty fees.

    Marketing

    Marketing expenses amounted to $1,085,907 for the three-month period ended
June 30, 2007 compared to $779,657 for the same period in 2006. The difference
between the two periods is explained by an increase in salaries as well as
sales-related expenses due to the expansion of the sales & marketing team. On
the other hand, costs related to referral sites decreased between the two
periods. For the six-month period ended June 30, 2007, marketing expenses
amounted to $1,984,136 compared to $1,495,379 for the same period in 2006. The
variance between the two periods is also explained by an increase in salaries
and sales-related expenses. On the other hand, costs related to referral
sites, and bonuses decreased between the two periods.

    Research and Development Activities

    For the three-month period ended June 30, 2007, Research and Development
expenses before tax credits amounted to $412,294 compared to $421,817 for the
same period in 2006. R&D expenses were very similar between the two periods.
For the six-month period ended June 30, 2007, Research and Development
amounted to $829,024 compared to $879,946 for the same period in 2006. The
decline is explained by a reduction in payroll costs associated with R&D
activities. On the other hand, costs related to R&D material purchases
increased between the two periods.

    Administration

    Administration expenses amounted to $775,558 for the three-month period
ended June 30, 2007 compared to $648,178 for the same period in 2006. The
difference between the two periods is mainly due to an increase in salaries,
fees related to patents and Stock-based Compensation. On the other hand,
professional fees decreased. For the six-month period ended June 30, 2007,
administration expenses increased $62,186 to reach $1,577,445 compared to
$1,515,259 for the corresponding period of the preceding fiscal year. The
difference between the two periods is mainly due to an increase in salaries
and Stock-based Compensation. On the other hand, a decrease in professional
fees occurred.

    Other Revenues

    For the three-month period ended June 30, 2007, the Company realized
revenues of $560,570 compared to $443,320 for the same period in 2006. The
increase is explained primarily by an increase in investment revenues, income
tax credits and government grants. On the other hand, the Company experienced
a loss in revenue due to exchange rate fluctuations. For the six-month period
ended June 30, 2007, other revenues amounted to $735,062 compared to $679,383
for the corresponding period of the preceding fiscal year. The increase is
explained primarily by an increase in investment revenues and government
grants. On the other hand the Company experienced a loss in revenue due to
exchange rate fluctuations.

    Net Loss

    The Company recorded a net loss of $1,634,021 or $0.04 per share for the
second quarter of 2007, compared to a net loss of $1,492,074, $0.04 per share,
for the same period in 2006. For the six-month period ended June 30, 2007, net
loss was $3,703,157, or $0.09 per share, compared to $3,497,437, or $0.10 per
share for the same period in 2006.


    SELECTED ELEMENTS

    -------------------------------------------------------------------------
                                                               JUNE 30
                                                               -------
                                                          2007          2006
    -------------------------------------------------------------------------
    Cash & Temporary Investment                   $ 25,686,620  $ 10,717,088
    Accounts Receivable                           $  1,121,320  $    721,500
    Inventories                                   $  2,961,635  $  3,223,549
    Deferred Revenues                             $    147,347  $    372,584
    Assets                                        $ 34,098,080  $ 18,934,240
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                  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 June 30, 2007, cash and temporary investments amounted to
$25,686,620 and accounts receivable amounted to $1,121,320, for a total amount
of $26,807,940 compared to $11,438,588 as of June 30, 2006. The difference
between the two periods is mainly due to the realization of financing of
$23 million on March 8, 2007.

    Inventories

    As of June 30, 2007, short term assets showed inventory valued at
$2,961,635 compared to $3,223,549 for the same period in 2006. These amounts
correspond to allocations for the production of sterilizers for the
commercialization process.

    Deferred Revenues

    Deferred revenues as of June 30, 2007, amounted to $147,347 compared to
$372,584 for the same period in 2006. The item Deferred revenues reflects
financial transactions relative to parts, warranties and service contracts
paid in advance but not yet recognized as revenues. As of June 30, 2006, the
item deferred revenues also included amounts received for sterilizers in trial
use.

    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.

    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 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 August 1, 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 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). On August
3, 2006, 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.

    TSO3 currently has more than 60 employees, 25 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 and
Investor Relations, (418) 651-0003, Ext. 237, ccote@tso3.com; Source: TSO3
Inc.


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