TSO3 Reports Second Quarter 2018 Results


QUEBEC CITY and MYRTLE BEACH, United States, Aug. 7, 2018 /PRNewswire/ - TSO3 Inc. (TSX: TOS) ("TSO3" or the "Company"), an innovator in sterilization technology for medical devices in healthcare settings, reported financial results for the second fiscal quarter ended June 30, 2018.

2018 Second Quarter Financial Summary

  • Revenues equaled $0.4 million, as compared to $0.3 million in the first quarter of 2018 and $4.6 million in the second quarter of 2017. TSO3 recorded revenue from sales of consumables, accessories and service parts, and did not record revenue from STERIZONE® VP4 sterilizer sales or license fee amortization in the quarter. In the second quarter of 2017, the Company shipped 40 sterilizers to Getinge Infection Control AB ("Getinge"), the Company's former exclusive distributor, and recorded $0.2 million in license fee revenue.
  • The Company delivered upgrades of 47 STERIZONE® VP4 Sterilizers to Getinge, totaling $0.5 million. In lieu of recording revenue, the Company recorded an associated $0.5 million repurchase provision and retained $0.3 million of associated upgrade costs of sales in inventory.
  • Gross profit was positive $0.1 million, as compared to negative ($0.3) million in the first quarter of 2018 and $1.8 million in the second quarter of 2017. The Company generated gross profit from sales of consumables, accessories and service parts, but did not record gross profit contribution from sterilizer sales and license fee revenue, as it had in the same period in 2017.
  • Research and Development expenses were $1.5 million, as compared to $1.7 million in the first quarter of 2018 and $1.5 million in the year-ago quarter.
  • Sales, General and Administrative expenses were $2.5 million, as compared to $2.6 million in the first quarter of 2018 and $2.4 million in the year-ago quarter.
  • The Company's net loss was $(4.0) million or $(0.04) per share in the second quarter of 2018, as compared to $(4.5) million, or $(0.05) per share, in the first quarter of 2018 and to $(2.3) million or $(0.02) per share in the year-ago quarter.
  • The Company had $6.7 million in cash, cash equivalents and investments and no debt as of June 30, 2018, as compared to $14.8 million and no debt at the end of 2017. In the second quarter of 2018, the Company used $3.1 million for operations excluding changes in non-cash working capital, and $0.1 million for changes in non-cash working capital.

Business Highlight

The Company received clearance from US Regulators for its most recent 510(k) submission for the terminal sterilization of multi-channeled flexible endoscopes using the Company's STERIZONE® VP4 Sterilizer. The new clearance allows a hospital to terminally sterilize gastrointestinal endoscopes that have dimensions within the cleared intended use, such as certain colonoscopes, duodenoscopes and gastroscopes which have four or less channels, are up to 3.5 meters in length with internal diameters of 1.2 mm or greater.

Subsequent Event

Subsequent to the end of the second quarter of 2018, TSO3 announced it and a fund of which Courage Capital Management LLC, ("Courage") is the investment advisor, entered into a binding US$20 million debt financing to fund commercialization initiatives for its STERIZONE® VP4 Sterilizer. Courage is a Nashville, TN headquartered alternative asset management firm with a 20-year track record of investments in health care services, medical devices, and pharmaceuticals.

Concurrent with the Courage financing, TSO3 and Getinge mutually decided not to renew the distribution agreements that had existed between the parties and agreed to provide TSO3 unrestricted independent commercialization of its STERIZONE® VP4 Sterilizers, enable the Company's purchase of STERIZONE® VP4 Sterilizers from Getinge and transition the existing sales pipeline along with the service, maintenance and consumables sales of all existing STERIZONE® VP4 Sterilizer customers in the United States and Canada to TSO3.


Supplemental Non-IFRS Financial Measures

In addition to IFRS financial measures, management uses non-IFRS financial measures to assess the Company's operational performance. It is likely that the non-IFRS financial measures used by the Company will not be comparable to similar measures reported by other issuers or those used by financial analysts as their measures may have different definitions. The measures used by the Company are intended to provide additional information and should not be considered in isolation or as a substitute for IFRS financial performance measures.

Generally, a non-IFRS financial measure is a numerical measure of an entity's historical or future financial performance, financial position or cash flows that is neither calculated nor recognized under IFRS. Management believes that such non-IFRS financial measures are important as they provide users of the financial statements with a better understanding of the results of the Company's recurring operations and their related trends, while increasing transparency and clarity into its operating results. Management also believes these measures can be useful in assessing the Company's capacity to discharge its financial obligations.

Management is assessing its operational performance using supplemental non-IFRS measures which removes significant unusual items that do not reflect the recurring and ongoing operational results and trends.


    Additional Second Quarter 2018 Financial information

                                                        2018                            2017


                                     Q2          Q1         Q4       Q3        Q2         Q1
                                    ---         ---        ---      ---       ---        ---

    Net loss                                (3,952)    (4,512)  (1,449)   (1,771)    (2,254)    (1,980)

    Financial expenses
     (income)                                  (12)       (14)       74         48          49        (39)

    Amortization and
     depreciation                               292         315       246        331         221         168

     expense                                    627         371       301        632         592         609

    Income taxes                                  7           -     (59)        33          29          27
    ------------                                ---         ---      ---        ---         ---         ---

    Adjusted Ebitda                         (3,038)    (3,840)    (887)     (727)    (1,363)    (1,215)
    ---------------                          ------      ------      ----       ----      ------      ------


Adjusted EBITDA is adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (Adjusted EBITDA). Adjusted EBITDA adjusts net income for (1) significant realized and unrealized foreign exchange gains or losses, (2) financial expenses (income), (3) amortization and depreciation expenses, (4) share-based compensation expense, (5) write-downs of certain tangible and intangible assets, (6) one-time write-off of inventory, (7) income taxes, and (8) other significant unusual items.


    Summary of Results
    Periods ended June 30, 2018 and 2017 (Unaudited, IFRS Basis, in thousands of US dollars, except per share amounts)

                                                            Second Quarter             Six months

                                                          2018        2017        2018        2017

                                                             $          $          $          $
                                                           ---        ---        ---        ---

    Revenues                                            373       4,630         628       8,841

    Cost of sales                                       319       2,871         845       5,511
    -------------                                       ---       -----         ---       -----

                                                         54       1,759       (217)      3,330
                                                        ---       -----        ----       -----


                Research and development                1,488       1,539       3,192       2,894

                 Selling, general and
                 administrative                         2,523       2,396       5,074       4,604

                Financial income                         (12)         49        (26)         10
                ----------------                          ---         ---         ---         ---

    Total Expenses                                    3,999       3,984       8,240       7,508
    --------------                                    -----       -----       -----       -----

    Net loss before income taxes                    (3,945)    (2,225)    (8,247)    (4,178)

    Income taxes                                          7          29           7          56
    ------------                                        ---         ---         ---         ---

    Net loss and comprehensive
     loss                                           (3,952)    (2,254)    (8,464)    (4,234)
    --------------------------                       ------      ------      ------      ------

    Weighted average number of
     outstanding shares (in
     thousands)                                      92,891      92,328      92,884      92,162
    --------------------------                       ------      ------      ------      ------

    Basic and diluted net loss
     per share                                       (0.04)     (0.02)     (0.09)     (0.05)
    --------------------------                        -----       -----       -----       -----

    Basic and diluted net
     comprehensive loss per
     share                                           (0.04)     (0.02)     (0.09)     (0.05)
    -----------------------                           -----       -----       -----       -----


    Interim Consolidated Statements of Financial Position
    (Unaudited, in thousands of US dollars)

                                                            June 30, December 31,

    Current Assets

                Cash and Cash Equivalents                     5,056         8,044

                Short-term Investments                        1,617         6,764

                Accounts Receivable                             727           651

                Inventories                                   2,665         2,040

                Prepaid Expenses                                303           150
                ----------------                                ---           ---

                                                           10,368        17,649

    Non-current Assets

                Property, Plant and Equipment                 2,809         3,184

                Intangible Assets                             1,868         1,886
                -----------------                             -----         -----

                                                            4,677         5,070
                                                            -----         -----

                                                           15,045        22,719
                                                           ------        ------

    Current Liabilities

                 Accounts Payable and Accrued
                 Liabilities                                  1,894         2,430

                Provision for Repurchase                        524             -

                Warranty Provision                            1,094         1,263

                Current Tax Liabilities                           -           68

                Deferred Revenues                                22             6
                -----------------                               ---           ---

                                                            3,534         3,767

    Non-current Liabilities

                Deferred Tax Liabilities                         17            17

                Deferred Revenues                             6,044         6,044
                -----------------                             -----         -----

                                                            9,595         9,828
                                                            -----         -----


                Share Capital                               111,254       111,215

                Reserve - Share-based Compensation            7,558         6,574

                Deficit                                   (111,650)    (103,186)

                Accumulated Other Comprehensive Loss        (1,712)      (1,712)
                ------------------------------------         ------        ------

                                                            5,450        12,891
                                                            -----        ------

                                                           15,045        22,719
                                                           ------        ------


    Interim Consolidated Statements of Cash Flows
    As of June 30, 2018, and 2017 (Unaudited, in thousands of US dollars)

                                                                  Six months

                                                            2018        2017

                                                               $          $
                                                             ---        ---

    Cash flows from operating activities

    Net loss                                          (8,464)    (4,234)

    Adjustments for:

                 Depreciation and amortization              607         389

                 Deferred income tax liabilities              -         56

                 Share-based compensation                   998       1,201

                 Investment income                         (62)       (91)
                 -----------------                          ---         ---

                                                      (6,921)    (2,679)

                  Changes in non-cash operating
                  working capital items                 (1,087)        723

                 Interest received                           83         103
                 -----------------                          ---         ---

    Cash flows (used in) generated by operating
     activities                                       (7,925)    (1,853)
    -------------------------------------------        ------      ------

    Cash flows from investing activities

                 Acquisition of investments                   -    (2,909)

                 Disposal of investments                  5,126       8,999

                  Acquisition of property, plant and
                  equipment                               (134)      (909)

                 Acquisition of intangible assets          (80)      (151)
                 --------------------------------           ---        ----

    Cash flows generated by investing activities        4,912       5,030
    --------------------------------------------        -----       -----

    Cash flows from financing activities

                 Options exercised                           25         405
                 -----------------                          ---         ---

    Cash flows generated by financing activities           25         405
    --------------------------------------------          ---         ---

                  (Decrease) increase in cash and
                  cash equivalents                      (2,988)      3,582

                  Cash and cash equivalents at the
                  beginning                               8,044       2,698
                 ---------------------------------        -----       -----

    Cash and cash equivalents at the end                5,056       6,280
    ------------------------------------                -----       -----


Q2 Results Conference Call

Date: August 8, 2018
Time: 8:30 a.m. EDT
Toll-free dial-in number: 1-888-231-8191
International dial-in number: 1-514-807-9895 (Montreal); 1-647-427-7450 (Toronto)
Conference ID: 1888566

TSO3's President and CEO R.M. (Ric) Rumble and CFO Glen Kayll, will host the conference.

Analysts and investors are invited to participate on the call. Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gilmartin Group at 1-610-368-6505.

Other interested parties may listen to the live webcast of the conference call at https://event.on24.com/wcc/r/1797562/02A40374E09B0B081C77081E12FCBA62 which will be available for replay in the Investors section of the Company's website at www.tso3.com.

About the STERIZONE® VP4 Sterilizer

The STERIZONE® VP4 Sterilizer is a low-temperature sterilization system that utilizes the dual sterilants of vaporized hydrogen peroxide (H2O2) and ozone (O3) to achieve terminal sterilization of heat and moisture-sensitive medical devices. Its single pre-programmed cycle can sterilize a large number and wide range of compatible devices, creating a cost-effective sterilization process with error-free cycle selection. The device's unique Dynamic Sterilant Delivery System™ automatically adjusts the quantity of injected sterilant based on the load composition, weight and temperature. This capability removes the guesswork and potential for human error, as there is no need to sort instruments and choose the appropriate cycles as with other machines.

The STERIZONE® VP4 Sterilizer is the only terminal sterilization method that is FDA cleared to sterilize multi-channeled flexible endoscopes (with a maximum of four channels) of up to 3.5 meters in length, such as video colonoscopes, duodenoscopes and gastroscopes - an industry first for any medical device sterilization process.

The STERIZONE® VP4 Sterilizer is also the only cleared low temperature sterilizer that can process a mixed load consisting of general instruments, single channel flexible endoscopes, and single or double channel rigid endoscopes in the same cycle with load weights of up to 75 lb. The ability to run mixed loads significantly reduces labor costs by minimizing the amount of instrument sorting required, while maximizing the device turns (more productivity from increased throughput capacity).

More information about the STERIZONE® VP4 Sterilizer is available through TSO3's website, under the Products section.

About TSO3

Founded in 1998, TSO3's activities encompass the sale, production, maintenance, research, development and licensing of sterilization processes, related consumable supplies and accessories for heat-sensitive medical devices. The Company designs products for sterile processing areas in the hospital environment that offer an advantageous replacement solution to other low temperature sterilization processes currently used in hospitals. TSO3 also offers services related to the maintenance of sterilization equipment and compatibility testing of medical devices with such processes.

For more information about TSO3, visit the Company's website 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 are forward-looking statements that involve certain risks, uncertainties and hypotheses, including, but not limited to, the limited history of sales or distribution of the Company, the ability of the Company to obtain the required regulatory clearances to market its products, 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. Although TSO3 believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The complete versions of the cautionary note regarding forward-looking statements as well as a description of the relevant assumptions and risk factors likely to affect TSO3's actual or projected results are included in the Management's Discussion and Analysis for the year ended December 31, 2017, which is available on the Company's website. The forward-looking statements contained in this press release are made as of the date hereof, and TSO3 does not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.


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Company Codes: Toronto:TOS

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