LED Medical Diagnostics Inc. (TSX VENTURE:LMD)(OTCQX:LEDIF)(FRANKFURT:LME)
("LED" or 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.
Financial Highlights
-- 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.
-- EBITDA(1) 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 margin(2) 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 capital(4) 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.
Business Highlights
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(R)
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(R) 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.
Non-GAAP Measures
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.
(1) EBITDA 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.
(2) Non-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.
(3) Non-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.
(4) 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 IFRS measure. Working Capital is defined as current assets
less current liabilities.
Forward-Looking Statements
This press release contains statements which, to the extent that they are not
recitations of historical fact, may constitute forward-looking information under
applicable Canadian securities legislation. Such forward-looking statements or
information includes financial and other projections as well as statements
regarding the Corporation's future plans, objectives, performance, revenues,
growth, profits, operating expenses or the Corporation's underlying assumptions
and the Company's intention to expand its technology beyond dental applications.
The words "may", "would", "could", "will", "likely", "expect", "anticipate",
"intend", "plan", "forecast", "project", "estimate" and "believe" or other
similar words and phrases may identify forward-looking statements or
information. Persons reading this Management's Discussion and Analysis are
cautioned that such statements or information are only predictions, and that the
Corporation's actual future results or performance may be materially different.
Factors that could cause actual events or results to differ materially from
those suggested by these forward-looking statements include, but are not limited
to: economic conditions; dilution; limited history of profits and operations;
operational risk; distributor risks; working capital; potential conflicts of
interest; speculative investment; volatility of stock price; intellectual
property risks; disruptions in production; reliance on key personnel;
seasonality; management's estimates; development of new customers and products
risks; stock price volatility risk; sales and marketing risk; competitors and
competition risk; regulatory requirements; reliance on few suppliers; reliance
on subcontractors; operating cost and quarterly results fluctuations;
fluctuations in exchange rates; product liability and medical malpractice
claims; access to credit and additional financing; taxation; market acceptance
of the Corporation's products and services; customer and industry analyst
perception of the Corporation and its technology vision and future prospects;
technological change, new products and standards;
risks related to acquisitions and international expansion; reliance on large
customers; concentration of sales; international operations and sales;
management of growth and expansion; dependence upon key personnel and hiring;
the Corporation not adequately protecting its intellectual property; risks
related to product defects and product liability; and including, but not limited
to, other factors described in the Corporation's reports filed on SEDAR,
including its financial statements and management's discussion and analysis for
the year ended December 31, 2012 and three months ended March 31, 2013. In
drawing a conclusion or making a forecast or projection set out in the
forward-looking information, the Corporation takes into account the following
material factors and assumptions in addition to the above factors: the
Corporation's ability to execute on its business plan; the acceptance of the
Corporation's products and services by its customers; the timing of execution of
outstanding or potential customer contracts by the Corporation; the sales
opportunities available to the Corporation; the Corporation's subjective
assessment of the likelihood of success of a sales lead or opportunity; the
Corporation's historic ability to generate sales leads or opportunities; and
that sales will be completed at or above the Corporation's estimated margins.
This list is not exhaustive of the factors that may affect the Corporation's
forward-looking information. These and other factors should be considered
carefully and readers should not place undue reliance on such forward-looking
information. All forward-looking statements made in this press release are
qualified by this cautionary statement and there can be no assurance that actual
results or developments anticipated by the Corporation will be realized. The
Corporation disclaims any intention or obligation to update or revise
forward-looking information, whether as a result of new information, future
events or otherwise, except as required by law.
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(R) Vx Enhanced Oral
Assessment System, the first system in the world to apply tissue fluorescence
visualization technology to the oral cavity. VELscope(R) 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.
LED MEDICAL DIAGNOSTICS INC.
Interim Condensed Consolidated Statements of Financial Position
(Unaudited and Expressed in U.S. Dollars)
As at As at
March 31, December 31,
2013 2012
------------------------------
ASSETS
CURRENT
Cash $ 606,910 $ 969,584
Restricted cash 4,921 5,026
Receivables 273,358 1,514,577
Inventory 416,450 296,467
Inventory held by the distributor 518,400 518,400
Prepayments 69,321 69,300
------------------------------
1,889,360 3,373,354
PROPERTY AND EQUIPMENT 24,826 28,015
PATENTS AND INTELLECTUAL PROPERTY 81,716 88,167
------------------------------
$ 1,995,902 3,489,536
------------------------------
------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Trades payable and accrued liabilities $ 1,632,556 $ 1,689,009
Advances from the distributor 1,362,290 1,778,112
Current portion of finance lease obligation 3,144 2,982
------------------------------
2,997,990 3,470,103
LONG TERM LIABLILTIES
Long term portion of finance lease
obligation 6,029 6,879
Warrants 102,239 140,467
------------------------------
3,106,258 3,617,449
------------------------------
SHAREHOLDERS' DEFICIT
Share capital 24,658,241 24,658,241
Stock-based payments reserve 413,826 62,495
Warrants reserve 277,748 277,748
Accumulated other comprehensive income 474,458 474,458
Deficit (26,934,629) (25,600,855)
------------------------------
(1,110,356) (127,913)
------------------------------
$ 1,995,902 $ 3,489,536
------------------------------
------------------------------
LED MEDICAL DIAGNOSTICS INC.
Interim Condensed Consolidated Statements of Operations and Comprehensive
Loss
(Unaudited and Expressed in U.S. Dollars)
For the Three Months ended
---------------------------
March 31,
March 31, 2012
2013 (Restated)
----------------------------------------------------------------------------
SALES $ 309,590 $ 999,138
COST OF GOODS SOLD 146,366 562,421
------------------------------
163,224 436,717
------------------------------
EXPENSES
Sales and marketing 332,036 883,315
Research and development 89,757 173,987
Administration 379,728 340,473
Stock-based compensation 351,331 -
Deferred share unit compensation 287,581 -
Mark to market adjustments on Canadian dollar
denominated warrants (38,229) 215,200
Other operating expenses 9,640 17,273
------------------------------
1,411,844 1,630,248
------------------------------
OPERATING LOSS (1,248,620) (1,193,531)
------------------------------
OTHER INCOME (EXPENSES)
Foreign exchange gain (loss) (82,456) (60,308)
Interest income - 287
Miscellaneous income (expenses) - 2,102
------------------------------
(82,456) (57,919)
------------------------------
NET LOSS BEFORE INCOME TAXES (1,331,076) (1,251,450)
INCOME TAXES 2,698 -
------------------------------
NET LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD $ (1,333,774) $ (1,251,450)
------------------------------
------------------------------
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.03) $ (0.03)
------------------------------
------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
- BASIC AND DILUTED 40,985,508 36,335,508
------------------------------
------------------------------
LED MEDICAL DIAGNOSTICS INC.
Interim Condensed Consolidated Statements of EBITDA and Loss
(Expressed in U.S. Dollars)
For the Three Months ended
----------------------------------
March 31,
March 31, 2012
2013 (Restated)
----------------------------------------------------------------------------
SALES $ 309,590 $ 999,138
COST OF GOODS SOLD 146,366 562,421
----------------------------------
163,224 436,717
----------------------------------
EXPENSES
Sales and marketing 332,036 883,315
Research and development 89,757 173,987
Administration 379,728 340,473
----------------------------------
801,521 1,397.775
----------------------------------
EBITDA (638,297) (961,058)
----------------------------------
OTHER INCOME (EXPENSES)
Stock-based compensation (351,331) -
Deferred share unit compensation (287,581) -
Mark to market adjustments on Canadian
dollar denominated warrants 38,229 (215,200)
Other operating expenses (9,640) (17,273)
Foreign exchange gain (loss) (82,456) (60,308)
Interest income - 287
Miscellaneous income (expenses) - 2,102
----------------------------------
(692,779) (290,392)
----------------------------------
NET LOSS BEFORE INCOME TAXES (1,331,076) (1,251,450)
INCOME TAXES 2,698 -
----------------------------------
NET LOSS FOR THE PERIOD UNDER IFRS $ ( 1,333,774) $ ( 1,251,450)
----------------------------------
----------------------------------
LED MEDICAL DIAGNOSTICS INC.
Interim Condensed Consolidated Statements of Changes in Shareholders'
Deficit
(Unaudited and Expressed in U.S. Dollars)
----------------------------------------------------------------------------
Stock-based
Share Payments Warrants
Number of Capital Reserves Reserve
Shares $ $ $
----------------------------------------------------------------------------
Balance, January 1, 2013 40,985,508 $ 24,658,241 $ 62,495 $ 277,748
Stock-based compensation - - 351,331 -
Net loss for the period - - - -
----------------------------------------------------------------------------
Balance, March 31, 2013 40,985,508 $ 24,658,241 $ 413,826 $ 277,748
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, January 1, 2012
(Restated) 36,335,508 $ 23,713,352 $ 62,495 $ 277,748
Net loss for the period - - - -
Reclassification of
warrants - (136,624) - -
----------------------------------------------------------------------------
Balance, March 31, 2012
(Restated) 36,335,508 $ 23,576,728 $ 62,495 $ 277,748
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LED MEDICAL DIAGNOSTICS INC.
Interim Condensed Consolidated Statements of Changes in Shareholders'
Deficit
(Unaudited and Expressed in U.S. Dollars)
--------------------------------------------------------------------------
Other Total
Comprehensive Shareholders'
Deficit Income Equity
$ $ $
--------------------------------------------------------------------------
Balance, January 1, 2013 $ (25,600,855) $ 474,458 $ (127,913)
Stock-based compensation - - 351,331
Net loss for the period (1,333,774) - (1,333,774)
--------------------------------------------------------------------------
Balance, March 31, 2013 $ (26,934,629) $ 474,458 $ (1,110,356)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Balance, January 1, 2012
(Restated) $ ( 24,733,922) $ 474,458 $ ( 205,869)
Net loss for the period (1,251,450) - (1,251,450)
Reclassification of
warrants - - (136,624)
--------------------------------------------------------------------------
Balance, March 31, 2012
(Restated) $ (25,985,372) $ 474,458 $ (1,593,943)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LED MEDICAL DIAGNOSTICS INC.
Interim Condensed Consolidated Statements of Cash Flows
(Unaudited and Expressed in U.S. Dollars)
For the Three Months ended
------------------------------
March 31,
2012
March 31, (Restated -
2013 Note 18)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year $ (1,333,774) $ (1,251,450)
Adjustments to net loss for items not
involving cash:
Depreciation of equipment 3,189 10,822
Amortization of intangible assets 6,451 6,451
Accrued interest on shareholder loans - 2,583
Mark to market adjustments on Canadian dollar
denominated warrants (38,228) 215,200
Stock based compensation 351,331 -
------------------------------
(1,011,031) (1,016,394)
------------------------------
Changes in working capital assets and
liabilities:
Receivables 1,241,219 187,891
Inventory (119,983) 328,475
Inventory held by distributor - (241,247)
Prepayments (21) (38,179)
Trades payable and accrued liabilities (56,453) (71,816)
Advances from the distributor (415,822) 899,271
------------------------------
Changes in working capital assets and
liabilities 648,940 1,064,395
------------------------------
Cash flows provided by (used in) operating
activities (362,091) 48,001
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment - (16,758)
Restricted cash 105 19,569
------------------------------
Cash flows provided by investing activities 105 2,811
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of finance lease obligation (688) (559)
Repayment of shareholder loans - (105,379)
------------------------------
Cash flows used in financing activities (688) (105,938)
------------------------------
CHANGE IN CASH (362,674) (55,126)
CASH - BEGINNING OF PERIOD 969,584 975,772
------------------------------
CASH - END OF PERIOD $ 606,910 $ 920,646
------------------------------
------------------------------
Restatement
In the preparation of the Company's consolidated financial statements for the
year ended December 31, 2012, management identified historical errors as
follows:
-- the functional currency of its subsidiary, LED Dental Inc. should have
been U.S. dollars rather than Canadian dollars from June 1, 2006;
-- the functional currency of LED, should have been U.S. dollars rather
than Canadian dollars from January 1, 2012; and,
-- revenue recognition for a distributor's agreement which had previously
been recognized upon shipment to the distributor has been corrected to
be recognized upon sell through to the end customer.
As a result, the Company has restated its consolidated financial statements for
the three months ended March 31, 2012.
The following table summarizes the impact of the restatement adjustments on the
Company's previously reported consolidated financial statements for the three
months ended March 31, 2012:
Correcting
As reported adjustment As restated
---------------------------------------------
Consolidated statements of loss
and comprehensive loss
Sales $ 1,827,164 ($ 828,026) $ 999,138
Cost of goods sold 780,821 (218,400) 562,421
Depreciation and amortization 17,414 (141) 17,273
Mark to market adjustments on
Canadian dollar denominated
warrants - 215,200 215,200
Foreign exchange gain (loss) (20,756) (39,552) (60,308)
Net and comprehensive loss for
the period (387,213) (864,237) (1,251,450)
Loss per share - basic and
diluted ($0.01) ($0.02) ($0.03)
Consolidated statements of
shareholders' deficit
Deficit, beginning of period ($ 23,342,822) ($ 1,391,100) ($24,733,922)
Deficit, end of period ($ 23,730,035) ($ 2,255,337) ($25,985,372)
---------------------------------------------
FOR FURTHER INFORMATION PLEASE CONTACT:
LED Medical Diagnostics Inc.
Mark Komonoski, Investor Relations
(403) 255-8483 or Toll-Free: (877) 255-8483
Cell: (403) 470-8384
mark.komonoski@ledmd.com
Skype: mkomonoski
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