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TSO3 MD&A Filing:

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Message from the Chairperson of the Board and the President and Chief Executive Officer

Dear shareholders,

2018 was an important transition year for TSO3. After a thorough strategic review process with our Board of Directors and management, it was decided that the best path forward to accelerate the market’s adoption of our technology was to take control of our entire distribution channel. After allowing our exclusive/co-commercialization distribution agreements with our commercial partner to expire, we redeployed our resources and shifted our entire organization’s focus to a direct commercialization strategy, with the single goal of deploying our innovative technology.

In order to support our new direct commercialization model, we concluded a $20.0 million financing agreement in August of 2018. This allowed us to repurchase our distributor’s inventory of STERIZONE®VP4 Sterilizers at favourable pricing and build our internal team of sales specialists. After six months, we can say that we are now in full control of our sales and distribution activities. Having our own dedicated sales and service team covering key markets in North America allows us to identify opportunities, anticipate customer requirements and provide world-class customer service.

Our objective in 2019 is to quickly reach a critical mass of installed in-use sterilizers. In order to achieve this, we are employing strategic pricing initiatives and working in partnership with our potential customers to develop solution-centric approaches that address their need for efficiency, efficacy and ease of use. While our sales process is still young, we are happy to see that we are beginning to produce tangible results as demonstrated by the 21 purchase orders secured in the last quarter of 2018. We are entering 2019 with visibility on more than 450 sterilizer opportunities verified by our own sales team.

Regulatory momentum and positive market outlook

We remain encouraged by the potential for our technology to displace legacy sterilization methods used by medical facilities in their operating room and central sterilization departments (“OR/CSSD”). Our STERIZONE® VP4 Sterilizer remains the newest technology available to medical facilities, offering improved efficiency, efficacy and patient safety. With an installed base of over 30,000 legacy systems globally, we are aggressively pursuing the North American market, which is at the core of our current and future growth potential.

Over the last few years, we have also pursued an important emerging market opportunity. In May 2018, we extended clearances of our sterilizer for the terminal sterilization of complex devices used by gastrointestinal departments (“GI”). Regulators and the medical community are also increasingly attentive to the threat of patient-to-patient cross contamination from improperly reprocessed scopes. To this effect, in December of 2018, the US Food and Drug Administration issued a Safety Communication reporting higher than expected contamination rates from reprocessed duodenoscopes. We continue to believe that this is an important public safety issue and that this recent scrutiny will create awareness and additional incentives for our proprietary sterilization process as it remains the only FDA cleared terminal sterilization technology capable of addressing this critical unmet medical need.

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TSO3 - 2018 Annual Report

Governance Matters

In April 2018, the Board of Directors established an ad hoc “Special Committee” comprised of three independent directors. The mandate of the Special Committee was to assist management of the Company in its discussions with its former exclusive distribution partner relating to revision of the parties’ distribution relationship, and in its strategic review of alternatives for the Company.

In closing, we now have the technology, inventory, sales and service teams in place and a sales pipeline to pursue our objectives in 2019. Our team is experienced, focused, educated and driven to provide results. We look forward to updating you as the year unfolds.

Dr. Linda Rosenstock            Richard M. Rumble
Chairperson of the Board      President and Chief Executive Officer

(bolding above is mine...)