Home Page
Home Page
20:50:32 EDT Wed 16 Apr 2014
Enter Symbol
or Name
USA
Canada
TSO3 Inc
Symbol C : TOS
Shares Issued 72,888,182
Close 2013-03-19 C$ 0.92
Recent Sedar Documents

TSO3 loses $5.79-million in 2012

2013-03-20 07:55 ET - News Release

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 2011.

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. Rumble.

"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. Rumble.

"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,              
                                                                          2012        2011
Revenues
Sales                                                               $1,162,922  $3,145,162
Licence revenue                                                      1,690,971     210,275
Total revenues                                                       2,853,893   3,355,437
Expenses
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)

Results analysis

In the following paragraphs, the company discusses the variations of certain accounts within the 12-month periods ended Dec. 31, 2012, and 2011.

Total revenues

Sales

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 minimal levels.

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.

Licence revenue

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.

Expenses

Supply chain

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 other departments.

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 assistance expenses.

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.

Administrative

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.

Liquid assets

As of Dec. 31, 2012, cash, cash equivalents and short-term investments amounted to $12,807,190, as compared with $11,384,373 in 2011.

Accounts receivable

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.

Inventories

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.

Deferred revenues

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, 2011.

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 
                                                                   Q4            Q4
                                                                 2012          2011
Revenues
Sales                                                         $59,140    $1,256,854
Licence revenue                                                     -        52,569
Total revenues                                                 59,140     1,309,423
Expenses
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.

© 2014 Canjex Publishing Ltd. All rights reserved.