Mr. R.M. Rumble reports
TSO3 DISCLOSES FOURTH QUARTER AND FULL YEAR 2012 FISCAL RESULTS
TSO3 Inc. had sales for the fiscal year ending
Dec. 31, 2012, totalling $1,162,922 compared with $3,145,162 in 2011.
Most of the sales in 2012, or $1,037,545, were made during the first
semester while, in 2011, most of the sales or $2,357,745 were made in
the second semester. The end of shipments under the upgrade program and
a decrease in orders placed by 3M created a sharp
contraction in sales in second quarter 2012. Sales to 3M during the
first semester of 2012 were 69 per cent lower than in the last semester of
On June 15, 2012, TSO3 terminated the distribution agreement with the 3M. This
explains the significant decrease in revenues starting in second quarter 2012, as
sales were then limited to services delivered to support the original 125L ozone sterilizer and comprised consumables for the already installed
Sterizone 125L+ sterilizers (3M Optreoz 125-Z). Meanwhile, the company opened
discussions on a non-exclusive basis with a third party to establish a
new distribution agreement.
In 2012, TSO3 recognized licensing revenue of $1,690,971, as compared with $210,275 for
the same period in 2011. The increase from 2011 to 2012 is due to the
recognition as income, in June, 2012, of the $1,585,833 unamortized
deferred licensing revenue from 3M.
In summary, for the fiscal year 2012, the company experienced a loss of
$5,795,598 (nine cents per share), as compared with $7,655,421 (13 cents per
share) in 2011. This decrease in the net loss is primarily due to the
recognition as income of the unamortized deferred licence revenue.
"In 2012, we made critical decisions to protect shareholder value and
prepare our steps forward," commented R.M. (Ric) Rumble, president
and chief executive officer of TSO3. "Consistent with our interactions with the U.S. regulatory agency,
toward the end of the year we modified our approach for clearance, by
simplifying our filing without impacting the value proposition for the
users. As previously announced, we submitted our cleaned up and
simplified filing in January of 2013. We believe that this approach
improves the opportunity for a rapid and successful outcome," added Mr.
"Now that our file is back in the hands of the agency, we have
reprioritized our efforts on the Sterizone 80L sterilizer, our smaller
product targeted at the OR substerile market segment as well as lower
price point product for central sterilization departments in foreign
markets. Once finalized, our strategy is to file this new product for
clearance in the U.S. and international markets after U.S. clearance for
the Sterizone 125L+ sterilizer has been obtained," commented Mr.
"In the third quarter of 2012, we also opened discussions with Getinge
Infection Control for the global distribution and service of our
product line to the health care and life science market. While the
dialogue between our companies has been productive, we have not yet
been able to agree on certain terms which remain open for discussion.
To be clear, TSO3 is not looking for a quick agreement, but rather for the right
agreement: one that reflects the value of not only the current
product, but also of the technology and opportunities for future
developments," he concluded.
Conference call details
TSO3 will host a conference call this morning at 10:30 a.m. (Eastern Standard Time). Analysts
and institutional investors are invited to participate. The numbers to
dial for access are 514-807-9895 (Montreal area), 647-427-7450 (Toronto
area) or the toll-free number 1-888-231-8191. Other interested parties
may listen to the live webcast of the conference call accessible via
the TSO3 website. The webcast will be archived for 90 days.
SUMMARY OF RESULTS
Years ended Dec. 31,
Sales $1,162,922 $3,145,162
Licence revenue 1,690,971 210,275
Total revenues 2,853,893 3,355,437
Supply chain 1,801,735 2,934,597
Customer support and communications 639,766 769,862
Research and development 2,877,203 3,999,794
Administrative 3,476,843 3,473,215
Financial income (loss) (167,708) (194,247)
Financial costs 21,652 27,637
Total expenses 8,649,491 11,010,858
Net (loss) before income taxes (5,795,598) (7,655,421)
Income taxes - -
Net (loss) and total comprehensive
(loss) attributable to shareholders (5,795,598) (7,655,421)
Basic and diluted net (loss) per share (0.09) (0.13)
In the following paragraphs, the company discusses the variations of
certain accounts within the 12-month periods ended Dec. 31, 2012,
In fiscal 2012, sales amounted to $1,162,922, as compared with $3,145,162
in 2011. Most of the sales in 2012, or $1,037,545, were made during the
first semester while, in 2011, most of the sales or $2,357,745 were
made in the second semester. In 2012, 54 per cent of the sales were to 3M
(69 per cent in 2011) that had initiated, in June, 2011, marketing the
Sterizone 125L+ sterilizer under the brand 3M Optreoz 125-Z sterilizer (Sterizone 125L+ sterilizer). Having not received U.S. regulatory clearance within
two years of the original filing date, and after it had experienced a
large reduction in orders from 3M in second quarter 2012, the company terminated
its distribution agreement, the lower sales in the second semester of
2012 are the result of a virtual elimination of sales to 3M since the middle of the second quarter of 2012.
In September, 2011, the company launched an upgrade program whereby users
of the 125L ozone sterilizers could trade in their sterilizers to
acquire, at a discounted price, 3M Optreoz 125-Z sterilizers
(Sterizone 125L+ sterilizer). Most of the fourth quarter 2011 and first quarter 2012 sales made to clients other than 3M
were made under that upgrade program. Beginning in second quarter 2012, after the
program had ended, the smaller installed base of 125L ozone sterilizers
generated fewer consumables and service revenues to TSO3 with the consequence that sales to clients other than 3M decreased to
Subsequent to termination of the distribution agreement with 3M, TSO3 had other non-exclusive discussions to secure an alternative
partnership and signed a non-binding letter of intent with Getinge
Infection Control, a division of the Getinge AB. The company's strategy has not been to invest resources in developing
its own sales organization and, as a result of the foregoing, its sales
have been reduced to minimum levels.
Until June, 2012, TSO3 was recognizing revenue over the expected initial term of its agreement
with 3M by amortizing the payments it had received under
that agreement. In June, 2012, as a result of the termination of the 3M
agreement, all unamortized licence payments were recognized as revenue.
Therefore, in the second half of 2012, there was no licence revenue.
For the 12-month period ended Dec. 31, 2012, licence revenue
amounted to $1,690,971, as compared with $210,275 for the same period in
2011. The increase from 2011 to 2012 is due to the recognition as
income, in June, 2012, of the $1,585,833 unamortized deferred licence
revenue from 3M.
Supply chain expenses include all of the expenses incurred in connection
with the outsourcing of products and services for all departments,
production, related quality control and assurance, and shipping.
For the fiscal year ended Dec. 31, 2012, the supply chain expenses
amounted to $1,801,735, as compared with $2,934,597 in 2011. The
variation is due to the reduction in sales which has led to reduced
sourcing activities and staff reductions. Staff has been reallocated to
Customer support and communications
Beginning in 2012, TSO3 has regrouped all activities related to corporate communications,
customer service and technical assistance, including support to a
former partner in its customer support and communication activities.
For the fiscal year ended Dec. 31, 2012, the customer support and
communication expenses amounted to $639,766, as compared with $769,862 in
2011. The cost of customer support activities and corporate
communications was lower in 2012 than in 2011 due to smaller technical
Research and development
Starting in second quarter 2012, there has been a reallocation of research and
development resources away from new product development and toward
work related to the filings with the U.S. regulatory agency.
For the fiscal year ended Dec. 31, 2012, the research and
development expenses amounted to $2,877,203, as compared with $3,999,794
in 2011. During the first three quarters, the R&D expenses were similar
in 2012 and in 2011. Lower expenses for the entire year 2012 are
primarily the result of $603,521 related to the collection and the
recording of unbooked R&D (research and development) tax credits for the years 2008 to 2011 and
a decrease in expenses during the fourth quarter. The unbooked
investment tax credits are the result of additional claims made by the
company for years 2008 to 2010 and the company's policy to provision
no more than 80 per cent of the amounts claimed as well as. The lower expenses
in fourth quarter 2012 were due to several items, including lower maintenance
costs for medical devices, fewer compatibility studies and lower payroll expenses as a result of attrition.
For the fiscal year 2012, the administrative expenses amounted to
$3,476,843, as compared with $3,473,215 in 2011. These variations were
offsetting each other, the largest ones being a reduction in
incentive-based compensation and an increase in professional fees and
in stock exchange listing fees.
As of Dec. 31, 2012, cash, cash equivalents and short-term
investments amounted to $12,807,190, as compared with $11,384,373 in
From their level of $1,893,470 on Dec. 31, 2011, the accounts
receivable decreased to $1,029,265 on Dec. 31, 2012. Most of the
decrease is due to a reduction in trade receivables as a result of
lower sales in second quarter, third quarter and fourth quarter of 2012.
As at Dec. 31, 2011, the receivable amount includes a $589,200
provision for R&D tax credits, which was increased to $893,066 as at
Dec. 31, 2012.
As at Dec. 31, 2012, inventories amounted to $1,216,721, as compared
with $1,120,482 on Dec. 31, 2011.
Raw materials inventory has increased primarily in the fourth quarter of
2012 as a result of the company receiving raw materials and components
ordered prior to the termination of the 3M agreement and on the basis
of a production plan reflecting market penetration in those markets
where regulatory clearance had been obtained.
In spite of interrupting the production due to an unplanned lack of
orders from 3M in the second quarter of 2012, TSO3 has been able to postpone certain deliveries of raw materials, thereby
delaying the corresponding increase in inventories. A certain amount of
similar deliveries are still pending, but nothing that would materially
change the company's financial position.
The combined level of work in progress and finished goods inventories
has decreased by $47,931 from Dec. 31, 2011, to Dec. 31, 2012.
The sterilizers that were in inventory at the end of 2011 were shipped
in 2012, but partly replaced by units manufactured prior to the
termination of the 3M agreement. Such inventories at the end of 2012
primarily consist of 3M Optreoz 125-Z sterilizers (Sterizone 125L+ sterilizer) and branded related accessories but which could easily
be rebranded under the TSO3 trademark.
As at Dec. 31, 2012, current and non-current deferred revenues
amounted to $103,035, as compared with $1,906,520 as at Dec. 31,
The variation in deferred revenues in 2012 is explained by the
recognition, in June, 2012, of the unamortized balance of the licence
revenue for an amount of $1,585,833.
Any remaining deferred revenues stem from the prepaid portion of service
contracts on the 125L ozone sterilizers commercialized by the company
up to the beginning of 2010.
FOURTH QUARTER ANALYSIS
Sales $59,140 $1,256,854
Licence revenue - 52,569
Total revenues 59,140 1,309,423
Supply chain 270,543 960,456
Customer support and communications 168,170 104,366
Research and development (loss) (184,923) 965,605
Administrative 948,152 713,074
Financial income (loss) (37,815) (39,952)
Financial (costs) (5,013) 4,067
Total expenses 1,159,114 2,707,616
Net (loss) before income taxes (1,099,974) (1,398,193)
Income taxes - -
Net (loss) and total comprehensive
(loss) attributable to shareholders (1,099,974) (1,398,193)
Basic and diluted net (loss) per share (0.02) (0.02)
We seek Safe Harbor.