TSO3 Reports First Quarter 2018 Results

TSO3 Reports First Quarter 2018 Results

QUEBEC CITY and MYRTLE BEACH, SC, May 8, 2018 /PRNewswire/ - TSO(3) Inc. (TSX: TOS) ("TSO(3)" or the "Company"), an innovator in sterilization technology for medical devices in healthcare settings, reported financial results for the first quarter 2018 ended March 31, 2018.

Operational Highlights

    --  The Company successfully hired, trained and deployed a team of talented
        and experienced sales, marketing, clinical and support personnel, as
        well as launched several marketing initiatives.
    --  To date, the TSO(3) sales team has effectively targeted and connected
        with 531 potential customers, many of which have led to follow up visits
        or calls.  TSO(3) has submitted quotations to US medical facilities for
        over 30 sterilizers, plus related accessories, consumables and service
        contracts.  These now populate the Company's sales pipeline and each is
        moving through the sales process.
    --  The Company entered into a co-commercialization agreement with Getinge
        Infection Control AB ("Getinge"), which allows TSO(3) to sell directly
        to end-users in the US and Canada and purchase sterilizer inventory from
        Getinge at favourable pricing.
    --  The Company provided its final additional information response to US
        Regulators in support of extending the claims of the Company's
        STERIZONE(®) VP4 Sterilizer to include the terminal sterilization of

2018 First Quarter Financial Summary

    --  Revenues equaled $0.3 million, as compared to $5.8 million in the fourth
        quarter of 2017 and $4.2 million in the first quarter of 2017. TSO(3)
        did not ship any STERIZONE(® )VP4 Sterilizers to Getinge in the first
        quarter of 2018, but recorded revenue from sales of consumables and
        service parts. The Company shipped 50 sterilizers in the fourth quarter
        of 2017 and 36 in the first quarter of 2017.
    --  The Company did not record license fee revenue in the first quarter of
        2018, as opposed to $0.3 million recorded in the fourth quarter of 2017
        and $0.2 million recorded in the first quarter of 2017.  The Company
        expects to recognize this license fee revenue in the future in a manner
        which reflects the outcome of the negotiations with Getinge.
    --  Gross profit was negative ($0.3) million, as compared to positive $2.3
        million or 40% of revenue in the fourth quarter of 2017 and $1.6 million
        or 37% of revenue in the first quarter of 2017.  Gross profit declined
        as the Company did not record revenue from sterilizer sales to Getinge
        or from deferred license fee amortization, as compared to prior periods.
        Gross profit was negative as the contribution to gross profit from
        consumables and service parts did not exceed manufacturing overhead and
        other costs incurred by the Company.
    --  Research and Development expenses were $1.7 million, as compared to $1.8
        million in the fourth quarter of 2017 and $1.4 million in the year-ago
        quarter.  The Company incurred expenditures in connection with its
        laboratory in Myrtle Beach, extended regulatory claims activity and
        product development.
    --  Sales, General and Administrative expenses were $2.6 million, as
        compared to $2.0 million in the fourth quarter of 2017 and $2.2 million
        in the year-ago quarter.  The Company incurred additional expenses
        related to its increased sales and marketing activity, while it reduced
        its general and administrative expenses.
    --  The Company's net loss was $(4.5) million or $(0.05) per share in the
        first quarter of 2018, as compared to $(1.4) million, or $(0.02) per
        share, in the fourth quarter of 2017 and to $(2.0) million or $(0.02)
        per share in the year-ago quarter.
    --  The Company had $10.0 million in cash, cash equivalents and investments
        and no debt as of March 31, 2018, as compared to $14.8 million and no
        debt at the end of 2017.  In the first quarter of 2018, the Company used
        $3.9 million for operations excluding changes in non-cash working
        capital, and $0.9 million for changes in non-cash working capital,
        particularly for inventory in support of sterilizer upgrades for which
        the Company has received a purchase order from Getinge.

Management Commentary

"In the first quarter of 2018, we initiated commercialization efforts on a stand-alone basis as well as continued support of our relationship with Getinge Infection Control and are measuring our progress to date," stated (R.M.) Ric Rumble, TSO(3)'s President and CEO. "We continue to add to our sales pipeline weekly and are moving accounts in the pipeline toward closure. Not all of our quotations will lead to sales, but we have achieved traction in these early stages and look forward to a productive 2018."

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 First Quarter 2018 Financial information

                                               2018                                               2017        2016


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

    Net loss                                (4,512)    (1,449)  (1,771)   (2,254)    (1,980)    (2,068)    (1,473)    (1,487)

    Financial expenses
     (income)                                  (14)         74        48         49        (39)       (69)       (50)          -

    Amortization and
     depreciation                               315         246       331        221         168         120         147         103

     expense                                    371         301       632        592         609         286         333         268

    One-time write-off
     of inventory                                 -          -        -         -          -        312           -          -

    Income taxes                                  -       (59)       33         29          27          48          15        (12)
    ------------                                ---        ---       ---        ---         ---         ---         ---         ---

    Adjusted Ebitda                         (3,840)      (887)    (727)   (1,363)    (1,215)    (1,371)    (1,028)    (1,128)
    ---------------                          ------        ----      ----     ------      ------      ------      ------      ------

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 March 31 (Unaudited, IFRS Basis, in thousands of US
     dollars, except per share amounts)

                                                             First Quarter

                                                          2018        2017

                                                             $          $
                                                        ---        ---

    Revenues                                            255       4,211

    Cost of sales                                       526       2,641
    -------------                                       ---       -----

                                                      (271)      1,570
                                                       ----       -----


                Research and development                1,704       1,353

                 Selling, general and
                 administrative                         2,551       2,209

                Financial income                         (14)       (39)
                ----------------                          ---         ---

    Total Expenses                                    4,241       3,523
    --------------                                    -----       -----

    Net loss before income
     taxes                                          (4,512)    (1,953)

    Income taxes                                          -         27
    ------------                                        ---        ---

    Net loss and comprehensive
     loss                                           (4,512)    (1,980)
    --------------------------                       ------      ------

    Weighted average number of
     outstanding shares (in
     thousands)                                      92,877      91,995
    --------------------------                       ------      ------

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

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

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

                                                     March 31,   December 31,

                                                            2018            2017

                                                               $              $
                                                             ---            ---

    Current Assets

                Cash and Cash Equivalents                 5,521           8,044

                Short-term Investments                    4,430           6,764

                Accounts Receivable                         582             651

                Inventories                               2,456           2,040

                Prepaid Expenses                            261             150
                ----------------                            ---             ---

                                                       13,250          17,649

    Non-current Assets

                Property, Plant and Equipment             2,984           3,184

                Intangible Assets                         1,879           1,886
                -----------------                         -----           -----

                                                        4,863           5,070
                                                        -----           -----

                                                       18,113          22,719
                                                       ------          ------

    Current Liabilities

                 Accounts Payable and Accrued
                 Liabilities                              2,025           2,430

                Warranty Provision                        1,182           1,263

                Current Tax Liabilities                      68              68

                Deferred Revenues                             2               6
                -----------------                           ---             ---

                                                        3,277           3,767

    Non-current Liabilities

                Deferred Tax Liabilities                     17              17

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

                                                        9,338           9,828
                                                        -----           -----


                Share Capital                           111,254         111,215

                Reserve - Share-based Compensation        6,931           6,574

                Deficit                               (107,698)      (103,186)

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

                                                        8,775          12,891
                                                        -----          ------

                                                       18,113          22,719
                                                       ------          ------

    Consolidated Statements of Cash Flows
    As of March 31, 2018, and 2017 (Unaudited, in thousands of US dollars)

                                                                       First Quarter

                                                                    2018        2017

                                                                       $          $
                                                                     ---        ---

    Cash flows from operating activities

                          Net loss                               (4,512)    (1,980)

                          Adjustments for:

                          Depreciation and amortization              315         168

                          Deferred income tax liabilities              -         27

                          Share-based compensation                   371         609

                          Investment income                         (27)       (75)
                          -----------------                          ---         ---

                                                                 (3,853)    (1,251)

                           Changes in non-cash operating
                           working capital items                   (948)      1,765

                          Interest received                           35          41
                          -----------------                          ---         ---

    Cash flows (used in) generated by
     operating activities                                      (4,766)        555
    ---------------------------------                           ------         ---

    Cash flows from investing activities

                          Acquisition of investments                   -    (1,412)

                          Disposal of investments                  2,326       3,504

                           Acquisition of property, plant and
                           equipment                                (67)      (193)

                          Acquisition of intangible assets          (41)      (129)
                          --------------------------------           ---        ----

    Cash flows generated by investing
     activities                                                  2,218       1,770
    ---------------------------------                            -----       -----

    Cash flows from financing activities

                          Options exercised                           25          63
                          -----------------                          ---         ---

    Cash flows generated by financing
     activities                                                     25          63
    ---------------------------------                              ---         ---

                           increase in cash
                           and cash
                           equivalents                           (2,523)      2,388

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

    Cash and cash equivalents at the end                         5,521       5,086
    ------------------------------------                         -----       -----

Q1 Results Conference Call

Date: May 9, 2018
Time: 8:00 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: 2845669

TSO(3)'s President and CEO R.M. (Ric) Rumble and CFO Glen Kayll will host.

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/1660076/E86DE808AFF783FA01BE70885CC0BDEF 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 (H(2)O(2)) and ozone (O(3)) 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(TM) 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 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 TSO(3)'s website, under the Products section at http://www.tso3.com/en/products/sterizone-vp4/.

About TSO(3)

Founded in 1998, TSO(3)'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. TSO(3) also offers services related to the maintenance of sterilization equipment and compatibility testing of medical devices with such processes.

For more information about TSO(3), visit the Company's website at www.tso3.com.

The statements in this release and oral statements made by representatives of TSO(3) 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 TSO(3) to obtain financing on favourable terms and other risks and uncertainties. Although TSO(3) 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 TSO(3)'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 TSO(3) 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.

Company Contacts: R.M. (Ric) Rumble, President and CEO, Tel: 418 651-0003, Email: info@tso3.com; Glen Kayll, CFO, Tel: 418 651-0003, Email: info@tso3.com; Investor Relations: Gilmartin Group, Greg Chodaczek, Tel: 610-368-6505, Email: Greg@gilmartinir.com; Renmark Financial Communications Inc., Barry Mire, Tel: 416 644-2020 or 514 939-3989, Email: bmire@renmarkfinancial.com

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