TSO3 second-quarter net loss decreases to $1.9 million

OPERATING RESULTS ANALYSIS

Three and six-month periods ending June 30, 2010, compared to the three and six-month periods ending June 30, 2009.

Sales

Sales for the three-month period ending June 30, 2010 amounted to $494,353 representing the sale of four STERIZONE(R) 125L+ Sterilizers, accessories and service contracts, compared to $510,626 representing the sale of two of its first generation ozone sterilizers, the STERIZONE(R) 125L Sterilizer, accessories and service contracts, including a large installation contract, for the same period in 2009. For the six-month period ending June 30, 2010, sales amounted to $638,581 representing the sale of four STERIZONE(R) 125L+ Sterilizers, accessories and service contracts, compared to $1,044,114 representing the sale of five sterilizers, accessories and service contracts for the same period in 2009.

Operating

For the three-month period ending June 30, 2010 operating expenses amounted to $588,576 compared to $576,719 for the same period in 2009. Operating expenses are related to production, manufacturing and after-sales service departments. Having sold more devices, the sterilizer's cost of goods sold increased between the two periods. Conversely, costs related to service contracts and salaries related to customer service and after-sales service, decreased between the two periods. For the six-month period ending June 30, 2010, operating expenses amounted to $929,912 compared to $1,170,992 for the same period in 2009. Having sold fewer devices, the variance between the two periods is the result of a decrease in the cost of goods sold. This variance is also explained by a decrease in costs related to service contracts and in salaries related to customer service and after-sales service.

Sales and Marketing

Sales and Marketing expenses amounted to $298,466 for the three-month period ending June 30, 2010 compared to $644,068 for the same period in 2009. The variance between the two periods is mainly the result of a decrease in salaries, commissions and expenses due to a reduction in workforce in the sales department. This variance can also be explained by a decrease in expenses related to exhibitions and trade shows. Conversely, provision for bonuses increased between the two periods. For the six-month period ending June 30, 2010, Sales and Marketing expenses amounted to $611,824 compared to $1,255,621 for the same period in 2009. The variance between the two periods is also the result of a decrease in salaries, commissions, and expenses as well as a decrease in expenses related to trade shows. Conversely, the provision for bonuses increases between the two periods. We anticipate our Sales and Marketing expenses to decrease going forward since these expenses are now the responsibility of our channel partner.

Research and Development

For the second quarter of 2010, Research and Development expenses amounted to $865,306, compared to $775,099 for the same period in 2009. The difference between the two periods is due to an increase in professional fees as well as in salaries resulting from the addition of employees in the R&D department to pursue the work on patents and the filings of the new cycles with agencies. Conversely, material purchases and sub-contracting fees decreased between the two periods. For the six-month period ending June 30, 2010, Research and Development expenses amounted to $1,623,650 compared to $1,514,155 for the same period in 2009. The difference is also due to an increase in professional fees, regulatory fees as well as in salaries. Conversely, material purchases and sub-contracting fees also decreased between the two periods.

Administrative

Administrative expenses amounted to $732,495 for the three-month period ending June 30, 2010, compared to $826,848 for the same period in 2009. The variance between the two periods is explained by a decrease in expenses related to Stock-based Compensation, representation and professional fees. Conversely, director's fees increased. For the six-month period ending June 30, 2010, administrative expenses amounted to $1,642,288 compared to $1,522,676 for the same period in 2009. The variance is explained by an increase in salaries as well as in professional fees. The variance is also explained by a provision for bonuses, by an increase in director's fees and professional fees mainly related to the review as well as tests performed on internal controls. Conversely, expenses related to Stock-based Compensation decreased between the two periods.

Other Income

For the three-month period ending June 30, 2010, the Company realized other revenues of $86,413 compared to $54,236 for the same period in 2009. The variance is mainly due to the amortization of the deferred revenues from the 3M(TM) agreement. In the second quarter of 2010, an amount of $51,251 was amortized. Conversely, the foreign exchange loss increased between the two periods. For the six-month period ending June 30, 2010, other revenues amounted to $233,237 compared to $178,422 for the same period in 2009. The variance is due to an increase in the amortization of the deferred revenues from the 3M(TM) agreement and in R&D tax credit. Conversely, investment income decreased.

Net Loss

The Company recorded a net loss of $1,906,765 for the second quarter of 2010, or $0.03 per share compared to a net loss of $2,263,463 or $0.05 for the same period in 2009. For the six-month period ending June 30, 2010, the net loss amounted to $3,940,697, or $ 0.07 per share, compared to $4,250,807, or $0.09 per share for the same period in 2009.

Liquid Assets and Financial Situation

As of June 30, 2010, cash, cash equivalents and temporary investments amounted to $22,177,974 compared to an amount of $13,740,386 as of June 30, 2009.