Dear Shareholders,

On August 1, 2018, TSO3 regained direct control of its commercial future – the Company announced it successfully secured a $20 million debt facility and ended its global distribution arrangements with Getinge.

TSO3 now has clarity on the condition of its business.  In North America, the Company has verified that over 50 STERIZONE® VP4 Sterilizers have been sold and installed; including units which have been sold but not yet installed, this number exceeds 70.  The Company has also witnessed the initial impact of its own direct sales efforts. TSO3 sales professionals assisted Getinge in closing sales of six sterilizers, which became part of the acquired Getinge backlog.

It is from here that the Company starts its direct commercial effort, having full accountability for customer development with a list of reputable customers, many having internally documented the value proposition of TSO3’s technology. Some of these centers have now become our reference sites, and TSO3 has been channeling new customers through these sites at an increasing rate.  That said, during the second quarter, the Company directly responded to tenders in the provinces of British Columbia and Quebec, neither have yet to be awarded.

During the quarter the Company received additional US regulatory clearances enabling on-label sterilization of complex multi-channeled endoscopes including gastroscopes, colonoscopes, and duodenoscopes. This claim becomes increasingly important as recent reports indicate growing concerns of persistent contamination. Recent report data indicates that 89% of healthcare institutions surveyed have implemented at least one of the suggested supplemental methods as outlined by the FDA and CDC when processing duodenoscopes. While these scopes have not been historically sterilized, we have seen a previously unfavored method, ethylene oxide (EO), regain some cycle share. This same report suggests that 12% of the surveyed facilities are using this slow, carcinogenic chemistry and environmental pollutant which is also known to increase the rate of repair rate of duodenoscopes.  Most healthcare facilities do not maintain their own EO systems and are required to send instruments to outside locations or neighboring facilities which adds cost and time. Since receiving the US clearance in May of this year, the Company has been directly involved in assisting three facilities to adopt the process of sterilizing duodenoscopes with STERIZONE® VP4 Sterilizers. Additional facilities have requested support, and TSO3 Clinical professionals have been actively providing information and education to these locations. There is a growing interest in our technology for this application, but like most large capital purchase decisions, it does not happen overnight. Based on the feedback we are receiving from current and potential customers, we believe our technology to be superior, and we have an FDA label for sterilization of complex multi-channeled endoscopes, something no other company can claim.  In summary, the Company believes that displacing EO is the nearest term opportunity in our pursuit of transitioning gastrointestinal endoscope reprocessing toward terminal sterilization.

By making the business decision not to renew our global distribution agreement with Getinge, the conversion of customer from lead generation to revenue recognition will take time, but we believe our decision is best for the future of TSO3.

Sincerely,

R.M. (Ric) Rumble, Director, President and Chief Executive Officer