BURNABY, British Columbia – May 30, 2013 – LED Medical Diagnostics Inc. (“LED Medical, the Company”) today announced its financial results for the first quarter ended March 31, 2013, reported in United States dollars and in accordance with International Financial Reporting Standards (“IFRS”). The Company’s results are presented in comparison to the three months ended December 31, 2012 and March 31, 2012 (which have been restated due to the Company’s transition to United States dollar (“U.S.”) functional and reporting currency and for the revision of its revenue recognition policy pertaining to sales made to Henry Schein Inc.), also in accordance with IFRS all balances are expressed in U.S. dollars unless otherwise stated.
- Revenue decreased by 69% to $310,000 for the three months ended March 31, 2013 compared to $1.0 million over the same period in the prior year.
- EBITDA1 for three months ended March 31, 2013 of ($638,000) compared to the same period in the prior year of approximately ($961,000).
“The shift in our exclusive distribution alliance from Henry Schein Inc. to DenMat Holdings, LLC (“Denmat”) in late 2012 caused a temporary disruption to our activities in the marketplace in early 2013. As a result of the transition in our sales and marketing activities to our new distribution partner, the Company’s revenues were lower in the first quarter of fiscal 2013,” stated Peter Whitehead, LED Founder and Chief Executive Officer. “With the DenMat relationship transition now complete, we expect to see an aggressive sales and marketing program working at full pace by mid 2013 which is expected to result in increased future revenue. We have also experienced significant increased sales of our VELscope Vx product since March 31, 2013 and anticipate improved financial results for the second quarter of fiscal 2013 accordingly with the anticipation of increased future demand for our VELscope Vx product with increasing recurring consumable sales as our customer base increases.”
For the three months ended March 31, 2013, the Company reported revenues of approximately $310,000 which is lower than the approximately $1.4 million for three months ended December 31, 2012 and approximately $1.0 million for the three months ended March 31, 2012.
Gross margin2 was 53% during the three months ended March 31, 2013, compared to the three months ended December 31, 2012 of 46% and to 44% during the three months ended March 31, 2012. The Company’s margin varies depending on the mix of VELscope equipment versus disposables sales for any given period.
Core operating expenses (excluding stock-based compensation, deferred share unit compensation, mark to market adjustments on Canadian dollar denominated warrants and other operating expenses)3 for the three months ended March 31, 2013 of approximately $802,000 were 10% higher than the three months ended December 31, 2012 but 43% lower than the three months ended March 31, 2012.
EBITDA for the three months ended March 31, 2013 was approximately ($638,000) compared to approximately ($84,000) for the three months ended December 31, 2012 and ($961,000) for the three months ended March 31, 2012. The Company reported a net loss of approximately $1.33 million for the three months ended March 31, 2013 compared to a net loss of approximately $175,000 for the three months ended December 31, 2012 and $1.25 million for the three months ended March 31, 2012. The Company incurred significant non-cash costs in the period primarily due to the issuance of the DSU’s which are listed as non-cash on the statement of cash flow. The Company will continue to incur these items in future although perhaps not at this level given the magnitude of the DSU grant in FY13 Q1.
Cash was approximately $607,000 with negative net working capital4 of approximately $1.1 million as of March 31, 2013 compared to cash of approximately $970,000 with negative net working capital of approximately $97,000 as of December 31, 2012.
Notable developments and achievements during the first quarter of fiscal 2013 included the following:
- On January 9, 2013, the Corporation announced that it had completed the second tranche of an expedited non-brokered private placement of 1,300,000 Common Shares at an issue price of $0.25 per share for gross proceeds of $325,000. In combination with the first tranche, LED raised a total of $1,162,500 and issued 4,650,000 common shares at $0.25 per share. All of the securities issued in connection with the private placement are subject to a restricted period that expires four months after the issuance date. The proceeds are being used by LED to support product development, to purchase inventory and for working capital purposes.
- On January 9, 2013, the Corporation announced that its VELscope Vx enhanced oral assessment device will now be used by Chicago Otolaryngology Associates for oral mucosal abnormality assessment and when performing surgery on oral cancer patients.
- On January 23, 2013, the Corporation announced its Public Market Development and Communications Plan for 2013, designed to create a global understanding of its proprietary, patented technology platforms and their significant potential.
- On January 28, 2013, the Corporation announced that it had granted a total of 448,000 incentive stock options to consultants of the Company. Each stock option is exercisable to acquire one Common Share of the Company at $0.40 per share and can be exercised for a 3 year term.
- On January 29, 2013, the Corporation announced that a recent scientific review in the highly respected publication, The Journal of the American Dental Association, underscores the need for adjunctive screening technologies to help detect oral cancer and pre-cancer in earlier stages.
- On February 19, 2013, the Corporation announced that its common shares are now officially quoted on the Frankfurt Stock Exchange in the open market segment via the symbol “LME”.
- On February 25, 2013, the Corporation announced the appointment of Wayne Rees as Senior Vice President of its wholly-owned subsidiary, LED Dental Inc. (“LED Dental”).
- On February 26, 2013, the Corporation announced that it began trading on the OTCQX International (symbol: “LEDIF”), a segment of the OTCQX® marketplace reserved for high-quality, non-U.S. companies listed on a qualified stock exchange in their home country. U.S. investors can find current financial disclosures and Real-Time Level 2 quotes for the company on www.otcmarkets.com.
- On March 6, 2013, the Corporation announced that it is expanding its investigation of the application of its tissue fluorescence visualization technology to the detection of skin cancer and other dermatologic diseases.
- On April 24, 2013, the Corporation, a strategic partner in Second Step Laboratory Services with PMI, is pleased to announce the results of an independent study published in “Oral Surgery, Oral Medicine, Oral Pathology, Oral Radiology” (Vol. 114 No. 3) that confirms the use of quantitative cytology (“QC”) testing, as an adjunctive tool, successfully identifying high-risk potentially malignant disorders of the oral mucosa.
- On May 7, 2013), the Corporation cited a recent clinical study documenting the ability of its VELscope® Vx Enhanced Oral Assessment adjunctive technology to detect cancerous and pre-cancerous lesions that are missed by conventional exams.
The Audit Committee of the Company has reviewed the contents of this news release.
The following and preceding discussion of financial results includes reference to Gross Margin, EBITDA, Core Operating Expenses and Working Capital, which are all non-IFRS financial measures. The measure of gross margin is provided as management believes this is a good indicator in evaluation the operating performance of the Company. EBITDA is defined as operating loss less other operating expenses. The measure is provided as a proxy for the cash earnings from the operations of the business as operating loss for the Company includes non-cash amortization and depreciation expense. The measure of core operating expenses is provided as a proxy for cash expenses incurred from the operations of the business. The measure of working capital is provided as management believes this is a good indicator of the operating liquidity available to the Company.
Change in Functional and Reporting Currency
The Company has changed the functional currency of the parent company entity from Canadian dollar to United States dollar as of January 1, 2012 to reflect the transition from an entity with some operations to a holding company for the group companies upon the completion of the reverse takeover (“RTO”) in November 2011. This change was effected prospectively from January 1, 2012 onwards.
The Company also changed their reporting currency on December 31, 2012 from Canadian dollars to U.S. dollars given LED’s listing on the OTC stock exchange in the United States and on the Frankfurt Stock Exchange in early 2013 reflective of LED becoming a global Company. This change also results in increased comparability for LED to other global technology companies.
Revision to Revenue Recognition Policy
The Company also revised its prior revenue recognition policy pertaining to the sales of its product in fiscal 2011 and 2012 to Henry Schein from “sell to this distributor” to “sell through this distributor to their end customers”. While legal title with the risks and rewards of ownership is transferred to Henry Schein as at the date at which the Company’s products are sold to this distributor, the participation by the Company in the provision to this distributor of special market development pricing adjustments pertaining to LED product to increase overall market share of the Company results in the Company not being able to reasonably estimate such marketing oriented expenses at the time of sale and shipment to Henry Schein resulting in the required deferral of revenue recognition until all such marketing oriented expenses are fully determinable. There is no such issue in the Company’s distribution arrangement with Denmat resulting in the Company recognizing revenue at the time of sale and shipment to Denmat. As a result, the financial results for prior periods have been restated.
1EBITDA or Earnings before Interest, Taxes, Depreciation and Amortization is a non-IFRS measure that does not have a standardized meaning and may not be comparable to a similar measure disclosed by other issuers. This measure does not have a comparable GAAP measure. EBITDA referenced here relates to operating loss and excludes amortization, depreciation, stock-based compensation, deferred share unit compensation and mark to market adjustments on Canadian dollar denominated warrants.. Please refer to the reconciliation of EBITDA to reported financial results attached to this press release.
2Non-IFRS measure that does not have a standard meaning and may not be comparable to a similar measure disclosed by other issuers. Gross margin referenced here relates to revenues less cost of sales.
3Non-IFRS measure that does not have a standard meaning and may not be comparable to a similar measure disclosed by other issuers. Core operating expenses excludes stock-based compensation, deferred share unit compensation, mark to market adjustments on Canadian dollar denominated warrants and other operation expenses.
4Non-IFRS measure that does not have a standardized meaning and may not be comparable to a similar measure disclosed by other issuers. This measure does not have a comparable IFRS measure. Working Capital is defined as current assets less current liabilities.
About LED Medical Diagnostics Inc.
Founded in 2003 and headquartered in Burnaby, British Columbia, Canada, LED Medical Diagnostics Inc. is a leading developer of LED-based visualization technologies for the medical industry. The Company is currently listed on the Toronto Stock Exchange (TSX-V) under the symbol “LMD”, the OTCQX under the symbol “LEDIF”, as well as the Frankfurt Stock Exchange under the symbol “LME”. For more information, visit www.ledmd.com. Through its wholly-owned subsidiary, LED Dental Inc., the company manufactures the VELscope® Vx Enhanced Oral Assessment System, the first system in the world to apply tissue fluorescence visualization technology to the oral cavity. VELscope® Vx devices are now used to conduct more screenings for oral cancer and other oral tissue abnormalities than any other adjunctive device. For more information, visit www.leddental.com.