TSO 3 Reports Record Fourth Quarter and Full Year 2016 Results

Transcription

1 TSO 3 Reports Record Fourth Quarter and Full Year 2016 Results Québec City, March 21, 2017 TSO 3 Inc. (TSX: TOS) ("TSO 3 " or the "Company"), an innovator in sterilization technology for medical devices in healthcare settings, reported its operating results for the fourth quarter and year ended December 31, All figures are in US dollars unless otherwise noted Fourth Quarter Financial Summary Revenue increased to a record 3.75 million compared to 0.15 million in the same period last year and 3.5 million in the third quarter of The Company shipped 30 STERIZONE VP4 Sterilizers, along with associated accessories and consumables, to Getinge Infection Control, its exclusive global distributor, in the fourth quarter of Gross profit was 1.3 million, or 36% of revenue, excluding a one-time write-down of 0.3 million for obsolete raw materials inventory. This compares to 1.1 million or 32% in the third quarter of 2016, and negative (0.3) million in the fourth quarter of Including the inventory write down, fourth quarter 2016 gross profit was 1.0 million, or 28% of revenue. Research and Development (R&D) expense grew to 1.3 million, as compared to 0.8 million in the third quarter of 2016 and 0.7 million in the year-ago quarter. Sales, General and Administrative (SG&A) expense was 1.8 million, which was consistent with the third quarter of 2016 and grew from 1.2 million in the year-ago quarter. The Company s net loss was (2.1) million or 0.02 per as compared to (2.2) million or 0.03 per share in the year-ago quarter and (1.5) million, or 0.02 per share, in the third quarter of Non- IFRS net loss in the fourth quarter of 2016 was (1.8) million or 0.02 per share. The Company had 19.3 million in cash, cash equivalents and investments and no debt as at December 31, 2016, as compared to 20.7 million and no debt at the end of the third quarter of Full Year Financial Summary Revenue increased to a record 13.3 million, which included shipments of 110 STERIZONE VP4 Sterilizers and associated accessories and consumables to Getinge, as compared to 1.2 million in Gross profit increased to 4.1 million, or 31% of revenue, as compared to negative (26%) in Excluding a one-time write-down of obsolete raw materials inventory, gross profit would have been 4.4 million, or 33% of revenue, in R&D expense grew to 3.5 million from 2.2 million in SG&A expense grew to 6.5 million from 3.9 million in The Company s net loss was (4.4) million or (0.05) per share, vs (6.3) million or (0.08) per share in 2015.

2 2 Fourth Quarter 2016 and Subsequent Event Operational Highlights TSO 3 secured a purchase order for a significant number of STERIZONE VP4 Sterilizers for delivery in This provides the Company with operational and supply chain predictability. The Company improved supply chain financing through an automated receivable factoring program through a joint effort with Getinge and a major financial institution. This program provides a simple and economical instrument for both parties to finance working capital. The Company signed three leading US healthcare institutions in our newly established TSO 3 Strategic Partnership Program, which provides an avenue for these institutions to independently study and provide feedback on the impact of TSO 3 technology on low temperature sterilization and/or endoscope reprocessing in their hospitals. TSO 3 added Dr. Linda Rosenstock and Mr. Jeffrey Pompeo to the Company s board of directors early 2017, adding more than 30 years of public company experience in health and life sciences. These appointments add significant and relevant US medical practice, regulatory and business development skills to the Company independent board. The Company appointed Dr. Mark Pasmore Ph.D. as Vice President of Research and Development. Dr. Pasmore brings extensive experience, having held scientific research positions in biofilms, sterilization, sterility assurance and microbial control for pharmaceuticals and medical devices for leading organizations. Management Commentary We are pleased with TSO 3 s strong finish to In the fourth quarter of 2016 we reached important operational milestones, added strategic key personnel, and made substantial improvement in revenues and gross margins, said TSO 3 President and CEO, R.M. (Ric) Rumble. We continue to invest in our team and our game-changing technology as we look to transform how low temperature sterilization and endoscope reprocessing is performed in healthcare. Looking ahead into 2017, Rumble continued, We will continue to support Getinge in North America, Europe and other international markets, conduct comprehensive sales training meetings and provide marketing collateral support will also see us expand upon the use of our existing laboratories in Québec and South Carolina in an effort to further support device compatibility testing, pursue expanded regulatory claims for duodenoscopes in the United States, and new product development. 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. In 2016, management began assessing its operational performance using supplemental non-ifrs statement of income which removes typically one-time unusual items that do not reflect the recurring and

3 3 ongoing operational results and trends. The results of the associated adjustments in 2016 included the removal of a one-time expense associated with a commitment to purchase of raw materials made in the year but made obsolete by adjustments and improvements in installation alternatives in response to feedback from end customers, which resulted in the calculation of adjusted gross profit, adjusted EBITDA and adjusted net income. Additional Fourth Quarter and Full Year 2016 Financial Information 000 s Quarterly 2016 Full Year 2016 Q1 Q1 Q2 Q3 Q4 Q4 IFRS Adjustments Non- IFRS IFRS IFRS IFRS Adjustments Non- IFRS IFRS Adjustments Non- IFRS Revenues 3,071-3,071 2,977 3,507 3,746-3,746 13,301-13,301 Cost of Goods Sold 1,961-1,961 2,143 2,368 2,716 (312) 2,404 9,188 (312) 8,876 Gross Profit 1,110-1, ,139 1,030 (312) 1,341 4,113 (312) 4,424 Gross Margin 36% - 36% 28% 32% 28% (8%) 36% 31% (2%) 33% R&D ,297-1,297 3,512-3,512 SGA 1,385-1,385 1,529 1,841 1,774-1,774 6,529-6,529 Financial (1,588) 1,578 (10) - (50) (21) - (21) (1,658) 1,578 (80) Net Income (loss) before tax 707 (1,578) (871) (1,499) (1,458) (2,020) (312) (1,708) (4,270) 1,266 (5,536) Tax (12) Net Income (loss) 649 (1,578) (929) (1,487) (1,473) (2,068) (312) (1,756) (4,379) 1,266 (5,645) Net Income (loss) per share 0.01 (0.02) (0.01) (0.02) (0.02) (0.02) 0.00 (0.02) (0.05) (0.01) (0.06) Adjusted Ebitda 1,000 (1,578) (578) (1,128) (977) (1,614) (312) (1,302) (2,719) 1,266 (3,985) Non-IFRS cost of goods sold, non-ifrs gross profit and non-ifrs gross margin in Q was impacted by a one-time write-off of inventory of 0.3 million associated with a commitment to purchase of raw materials made in the year, but made obsolete by adjustments and improvements in installation alternatives in response to feedback from end customers. The Company plans to sell these materials in 2017, but the amount of potential recovery could not be estimated at the end of Non-IFRS financial income in Q was impacted by the one-time foreign exchange gain realized of 1.6 million following the change in functional currency from Canadian dollars to US dollars. 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) amortization and depreciation expenses (3) share-based compensation expense, (4) amortization or write-downs of certain tangible and intangible assets, (5) one-time write-off of inventory, (6) income taxes, and (7) other significant unusual items.

4 4 Summary of Results Periods ended December 31 (Audited, IFRS Basis, in thousands of US dollars, except per share amounts) 2016 Restated 2015 Revenues 13,301 1,248 Cost of sales 9,188 1,578 Gross profit 4,113 (330) Expenses Research and development 3,512 2,181 Selling, general and administrative 6,529 3,946 Financial expenses (income) (1,658) (121) Total Expenses 8,383 6,006 Net loss before income taxes (4,270) (6,336) Income taxes Net loss (4,379) (6,336) Other comprehensive income (loss) item that will not be reclassified subsequently to net income Translation adjustments - (1,712) Total comprehensive loss (4,379) (8,048) Weighted average number of outstanding shares (in thousands) 90,810 81,264 Basic and diluted net loss per share (in ) (0.05) (0.08) Basic and diluted net comprehensive loss per share (in ) (0.05) (0.10) Fourth Quarter Analysis (Unaudited, IFRS Basis, in thousands of US dollars, except per share amounts) Three-month period ended December 31, 2016, compared to the three-month period ended December 31, 2015: Fourth Quarter Fourth Quarter Restated Revenues 3, Cost of sales 2, Gross profit 1,030 (333) Expenses Research and development 1, Selling, general and administrative 1,774 1,210 Financial expenses (income) (21) (57) Total Expenses 3,050 1,827 Net loss before income taxes (2,020) (2,160) Income taxes 48 - Net loss (2,068) (2,160) Other comprehensive income (loss) item that Will not be reclassified subsequently to net income Translation adjustments - (379) Total comprehensive loss (2,068) (2,539) Weighted average number of outstanding shares (in thousands) 90,810 81,263 Basic and diluted net loss per share (in ) (0.02) (0.03) Basic and diluted net comprehensive loss per share (in ) (0.02) (0.03)

5 5 Consolidated Statements of Financial Position As of December 31, 2016 and 2015 (Audited, IFRS Basis, in thousands of US dollars) 2016 Restated 2015 Current Assets Cash and Cash Equivalents 2,698 12,654 Short-term Investments 15,064 2,457 Accounts Receivable 2, Inventories 1,703 1,302 Prepaid Expenses ,885 16,929 Non-current Assets Long-term Investments 1,498 - Property, Plant and Equipment 2, Intangible Assets 1,836 1,691 5,691 2,057 27,576 18,986 Current Liabilities Accounts Payable and Accrued Liabilities 2,272 1,288 Warranty Provision Deferred Revenues 1, ,851 2,118 Non-current Liabilities Deferred Income Tax Liabilities Deferred Revenues 5,945 6,735 9,905 8,853 Equity Share Capital 110,406 98,817 Reserve Share-based Compensation 4,709 3,990 Reserve Warrants Deficit (95,732) (91,455) Accumulated Other Comprehensive Loss (1,712) (1,712) 17,671 10,133 27,576 18,986

6 6 Consolidated Statements of Cash Flows As of December 31, 2016 and 2015 (Audited, IFRS Basis, in thousands of US dollars) 2016 Restated 2015 Cash flows from operating activities Net loss (4,379) (6,336) Adjustments for: Depreciation and amortization Write-off of intangible assets Deferred income tax liabilities Share-based compensation 1, Investment income (180) (87) (2,899) (5,367) Changes in non-cash operating working capital items (2,597) 7,859 Interest received Cash flows generated by (used in) operating activities (5,390) 2,578 Cash flows from investing activities Acquisition of investments (26,195) (6,939) Disposal of short-term investments 12,164 4,282 Acquisition of property, plant and equipment (1,085) (192) Acquisition of intangible assets (314) (259) Cash flows used in investing activities (15,430) (3,108) Cash flows from financing activities Issuance of share capital and warrants - 9,108 Share capital and warrants issue expenses - (912) Options exercised Warrants exercised 10, Cash flows generated by financing activities 10,864 9,155 Effect of exchange rates on cash and cash equivalents - (1,120) Increase (decrease) in cash and cash equivalents (9,956) 7,505 Cash and cash equivalents at the beginning 12,654 5,149 Cash and cash equivalents at the end 2,698 12,654

7 7 Consolidated Statements of Cash Flows (Unaudited, IFRS Basis, in thousands of US dollars) Three-month period ended December 31, 2016, compared to the three-month period ended December 31, 2015: Q Restated Q Cash flows from operating activities Net Income (loss) (2,067) (2,160) Adjustments for: Depreciation and amortization Deferred income tax liabilities Share-based compensation Financial income (49) (26) (1,601) (1,898) Changes in non-cash operating working capital items 537 8,303 Interest received Cash flows used in operating activities (1,053) 6,430 Cash flows from investing activities Acquisition of short-term investments (3,278) (2,457) Disposal of short-term investments 3,319 1,734 Acquisition of property, plant and equipment (450) (90) Acquisition of intangible assets (66) (107) Cash flows generated by (used in) investing activities (475) (920) Cash flows from financing activities Options exercised Cash flows generated by financing activities Effect of exchange rates on cash and cash equivalents - (228) Increase in cash and cash equivalents (1,481) 5,305 Cash and cash equivalents at the beginning 4,179 7,349 Cash and cash equivalents at the end 2,698 12,654 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, March 21, 2017 Time: 10:30 a.m. Eastern Daylight Time (7:30 a.m. PDT) Toll-free dial-in number: International dial-in number: (Montreal); (Toronto) Conference ID: 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 Liolios Group at Other interested parties may listen to the live webcast of the conference call at which will also be available for replay in the Investors section of the Company s website at

8 8 Fourth Quarter and Fiscal 2016 Results Disclosure The 2016 Annual Report is available on TSO 3 s website at the following address and full 2016 disclosure will shortly be available on SEDAR ( 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 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 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 The statements in this release and oral statements made by representatives of TSO 3 relating to matters that are not historical facts (including, without limitation, those regarding the timing or outcome of TSO 3 's sales, business or operations) are forward-looking statements that involve certain risks, uncertainties and hypotheses, including, but not limited to, the ability of the Company to obtain the required regulatory clearance to market its products on a worldwide basis; 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 version 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, 2016, 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. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful.

9 Source: TSO 3 Inc. For further information Company Contacts: TSO 3 Inc., R.M. (Ric) Rumble, President and CEO, Tel: , info@tso3.com TSO 3 Inc., Glen Kayll, CFO, Tel: , info@tso3.com Investor Relations: Liolios Group, Inc., Scott Liolios, Tel: , TOS@liolios.com Renmark Financial Communications Inc., Barry Mire, Tel: or , bmire@renmarkfinancial.com