TSO3 Reports First Quarter 2019 Results

QUEBEC CITY and MYRTLE BEACH, SC, May 6, 2019 /PRNewswire/ - TSO3 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 ended March 31, 2019.

Business Highlights

TSO(3)'s direct sales force continues to increase market adoption of its technology. In the first quarter of 2019, TSO(3) received purchase orders or commitment indications for 14 units of its industry-leading STERIZONE(®) VP4 Sterilizer and shipped nine sterilizers to end-users. The Company ended the quarter with 75 sterilizers installed at end-user locations, seven that have been shipped but not yet installed, and 28 which are under open purchase orders or commitment indications.

"The Company is on a record pace with 35 units sold or committed to within the last two quarters. TSO(3) continues to execute on its goal to sell the 230 sterilizers repurchased from our exclusive distributor last year," stated R.M. (Ric) Rumble, President and CEO of TSO(3). "The Company now has over 450 opportunities in our pipeline and is also investing in contracting efforts with Integrated Delivery Networks (IDN's) and Group Purchasing Organizations (GPO's) to provide further access and credibility with acute care facilities in the USA. We remain singularly focused on commercializing our innovative product and see real signs of progress."

2019 First Quarter Financial Summary

    --  Revenues equaled $1.0 million, compared to $0.3 million in the first
        quarter of 2018. TSO(3) revenues in the first quarter of 2019 reflect
        sales of sterilizers and related accessories, service and $0.4 million
        from the sale of consumables directly to end customers. The Company
        shipped nine sterilizers to hospitals in the first quarter of 2019 as
        compared to none in the first quarter of 2018.
    --  Gross profit was positive $0.4 million, or 39% of revenues, as compared
        to negative ($0.3) million in the first quarter of 2018. Gross profit in
        the first quarter of 2019 increased as a result of growth in sterilizers
        and consumables sales at direct-to-user selling prices rather than the
        wholesale prices at which the Company sold to its distributor in the
        first quarter of 2018.
    --  Research and Development (R&D) expenses amounted to $0.7 million, as
        compared to $1.7 million in the first quarter of 2018. The Company
        reduced its research and development expenditures as it focused more of
        its investments on selling and marketing activities.
    --  Selling, general and administrative (SG&A) includes marketing, sales,
        service and administrative expenses. SG&A expenses were $2.6 million,
        which is comparable to the first quarter of 2018.
    --  Financial expense was $0.5 million as compared to an immaterial amount
        in the first quarter of 2018. The Company recorded $0.7 million of
        accrued interest expense in the first quarter of 2019 related to a $20.0
        million debt financing it obtained in August 2018 and a non-cash gain of
        $0.2 million on the revaluation of the embedded derivative within the
        Convertible Note associated with this financing.
    --  The Company's net loss was $(3.4) million, or $(0.04) per share, as
        compared to $(4.5) million, or $(0.05) per share in the first quarter of
        2018.
    --  The Company had $11.3 million in cash and cash equivalents and $18.5
        million of debt as of March 31, 2019, as compared to $13.0 million in
        cash and cash equivalents and $18.0 million of debt at the end of 2018.
        The Company used $1.6 million for operating activities in the first
        quarter of 2019.

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.



       
              IFRS to Non-IFRS adjusted EBITDA Reconciliation




                                             2019                                          2018

        
            
              $000's

    ---

                                Q1    
            Q4   
            Q3   
          Q2   
          Q1

                               ---

         Net
         loss                             (3,426)       (2,676)     (2,104)     (3,952)    (4,512)


         Financial
         expenses
         (income)                             479        (1,055)       (599)        (12)       (14)


         Amortization
         and
         depreciation                         269            235          270          292         315


         Write-
         down
         of
         tangible
         and
         intangible
         assets                                           1,026


         Share-
         based
         compensation
         expense                              356            369          688          627         371


         Income
         taxes                                 32              7           11            7

    ---

         Adjusted
         EBITDA                           (2,290)       (2,094)     (1,734)     (3,038)    (3,840)

    ---

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) income taxes, and (7) other significant unusual items.



       
                Summary of Results


        Periods ended March 31, 2019 and 2018 (Unaudited,
         IFRS Basis, in thousands of US dollars, except
         per share amounts)




                                                                 First Quarter


                                                             2019            2018


                                         
              
               $   
              $

                                                                             ---

                     Revenues                                 960             255


                     Cost of
                      sales                                   583             526

    ---                                                                      ---

                     Gross
                      profit                                  377           (271)

    ---                                                                      ---



                     Expenses


         Research
         and
         development                                          710           1,704


         Selling,
         general
         and
         administrative                                     2,582           2,551


         Financial
         expenses
         (income)                                             479            (14)

    ---                                                                      ---

                     Total
                      Expenses                              3,771           4,241

    ---                                                                      ---

                     Net
                      loss
                      before
                      income
                      taxes                               (3,394)        (4,512)


        Income
         taxes                                                 32

    ---                                                                      ---

                     Net
                      loss
                      and
                      comprehensive
                      loss                                (3,426)        (4,512)

    ---                                                                      ---

                      Weighted
                      average
                      number
                      of
                      outstanding
                      shares
                      (in
                      thousands)                           93,465          92,877

    ---                                                                      ---

                     Basic
                      and
                      diluted
                      net
                      loss
                      per
                      share                                (0.04)         (0.05)

    ---                                                                      ---

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

    ---                                                                      ---



       
                Consolidated Statements of Financial Position



       (Unaudited, IFRS Basis, in thousands of US dollars)




                                                                   March 31, 
     December 31,
                                                                        2019            2018


                                                    
              
               $   
              $

                                                                                        ---


       
                Current Assets


        Cash and Cash
         Equivalents                                                  11,268          12,961


        Accounts Receivable                                              944           1,591



       Inventories                                                    3,438           3,534


        Current Tax Assets                                                 -             16


        Prepaid Expenses                                                 340             261

    ---

                                                                      15,990          18,363



       
                Non-current Assets


        Property, Plant and
         Equipment                                                     2,360           2,039


        Intangible Assets                                              1,793           1,781

    ---

                                                                       4,153           3,820



                                                                      20,143          22,183




       
                Current Liabilities


        Accounts Payable and
         Accrued Liabilities                                           1,882           1,858


        Warranty Provision                                               305             273


        Current Tax
         Liabilities                                                      16               -


        Lease Liabilities                                                139               -


        Deferred Revenues                                                185             103

    ---

                                                                       2,557           2,234



       
                Non-current Liabilities


        Deferred Tax
         Liabilities                                                      51              51


        Lease Liabilities                                                250               -



       Debt                                                          17,453          16,711


        Embedded Derivative                                            1,064           1,319


        Deferred Revenues                                                  -

    ---                                                                                 ---

                                                                      21,345          20,315




       
                Equity


        Share Capital                                                111,470         111,470


        Reserve - Share-based
         Compensation                                                  8,896           8,540



       Deficit                                                    (119,856)      (116,430)


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

    ---

                                                                     (1,202)          1,868



                                                                      20,143          22,183



       
                Consolidated Statements of Cash Flows


        As of March 31, 2019 and 2018 (Unaudited, IFRS Basis, in thousands of US
         dollars)




                                                                                  First Quarter


                                                                            2019              2018

                                                       
              
                $     
              $

                                                                                              ---

                     Cash flows from operating activities



       Net loss                                                         (3,426)          (4,512)



       Adjustments for:


        Depreciation and amortization                                        269               315


        Loss on disposal of property,
         plant and equipment                                                   7



       Income tax                                                            32


        Share-based Compensation                                             356               371


        Capitalized interest on long
         term debt                                                           714


        Gain on re-measurement at
         fair-value on embedded
         derivative                                                        (255)



       Investment income                                                   (44)             (27)

    ---                                                                                       ---

                                                                         (2,347)          (3,853)


        Changes in non-cash operating
         working capital items                                             (657)            (948)



       Interest received                                                   (44)               35

    ---                                                                                       ---

                     Cash flows used by operating
                      activities                                         (1,646)          (4,766)

    ---                                                                                       ---

                     Cash flows from investing activities


        Disposal of investments                                                -            2,326


        Acquisition of property, plant
         and equipment                                                       (8)             (67)


        Acquisition of intangible
         assets                                                             (71)             (41)


        Proceed from disposal of
         property, plant and equipment                                         4

    ---                                                                                       ---

                     Cash flows (used) generated by
                      investing activities                                  (75) 
              2 218

    ---                                                                                       ---

                     Cash flows from financing activities



       Financing fee                                                         28



       Options exercised                                                      -               25

    ---                                                                                       ---

                     Cash flows generated by
                      financing activities                                    28                25

    ---                                                                                       ---

        Increase in cash and cash
         equivalents                                                     (1,693)          (2,523)


        Cash and cash equivalents at
         the beginning                                                    12,961             8,044

    ---                                                                                       ---

                     Cash and cash equivalents at
                      the end                                             11,268             5,521

    ---                                                                                       ---

Conference call

TSO(3) President and CEO R.M. (Ric) Rumble and CFO Glen Kayll, will host the conference call, followed by a question and answer period.



     Date:                           Tuesday, May 7, 2019



     Time:                           8:00 a.m. Eastern Daylight
                                       Time


      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:                                     5423529

Analysts and institutional 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 Danielle Ste-Marie at 1-514-465-6701

Other interested parties may listen to the live webcast of the conference call at https://event.on24.com/wcc/r/1993850/97C1DC5ABD2F78F31B0550ECA1263AEF which will be available for replay in the Investors section of the Company's website at www.tso3.com.

First Quarter of 2019 Results Disclosure

The first quarter of 2019 Report is available on TSO(3)'s website at www.tso3.com and will shortly be available on SEDAR (www.sedar.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 long, multi-channel flexible endoscopes (with a maximum of four channels) of up to 3.5 meters in length - 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 www.tso3.com.

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 evolution in customer demand for the Company's products and services, the plans for sales and marketing including the fact that the Company's customers may not commit to any purchases, 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, 2018, 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.

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SOURCE TSO3 Inc.