Mr. Mark Komonoski reports

LED MEDICAL DIAGNOSTICS INC. REPORTS 2014 SECOND QUARTER RESULTS

LED Medical Diagnostics Inc. has released its financial results for the second quarter ended June 30, 2014, reported in U.S. dollars and in accordance with international financial reporting standards. The company's results are presented in comparison with the second quarter ended June 30, 2013. All balances are expressed in U.S. dollars unless otherwise stated.

Business highlights

Notable business developments and achievements up to the reporting date included the following:

• On April 2, 2014, the company announced that its wholly owned U.S. operating subsidiary, LED Dental Ltd., released a new brand initiative to further its goal of providing advanced imaging technologies to dental and specialty practices in the United States and Canada. The branding initiative includes a new logo to further unify the business under the LED Imaging name.
• On April 3, 2014, the company announced that the LED Imaging division of its wholly owned subsidiary, LED Dental, is partnering with Ray Co. Ltd., a subsidiary of Samsung, to sell, install and provide support for the RAYSCAN -- Expert dental imaging system.
• On April 15, 2014, the company announced that it entered a non-exclusive distribution partnership with Atlanta Dental Supply and Nashville Dental.
• On April 22, 2014, the company announced that the LED Imaging division of its wholly owned subsidiary, LED Dental, entered a partnership with the UT College of Dentistry. Residents and dental students will receive hands-on training with the RAYSCAN -- Expert, a multifunction digital imaging system, as part of their clinical training.
• On April 24, 2014, the company announced that the LED Imaging division of its wholly owned subsidiary, LED Dental, is launching its LED Imaging software to integrate with the company's growing portfolio of imaging technologies.
• On May 14, 2014, the LED Imaging division introduced its new digital radiography intraoral sensor, the LED IS100. Designed with simplicity and versatility in mind, the LED IS100 intraoral sensor is a replacement for traditional dental film as it captures intraoral images of the teeth and supporting bone structures. The LED IS100 intraoral sensor is the third product to be added to LED Imaging's portfolio since the launch of the division on April 2, 2014.
• On June 4, 2014, the company announced that Wes Newsom and Joan Fiore joined the Atlanta-based LED team in the role of director of product line management for digital imaging and vice-president of client services, respectively.

"Our excitement grows as our offices in Atlanta are nearing completion with a move in date mid-October. This will complete our transformation from a VELscope company to a multiproduct dental technology provider. We look forward to the onset of the busy trade season ahead, especially the fourth quarter, where we expect most of our annual revenues to occur and providing revenue guidance for the full fiscal year ending Dec. 31, 2014. We welcome both the opportunities and challenges that lay before us as we continue to position the company as a pre-eminent digital dental imaging leader."

Financial highlights

Financial position as at June 30, 2014

Working capital as at June 30, 2014, was $69,212, which includes cash of $1,838,400. This is compared with working capital of $4,445,795 at Dec. 31, 2013, which included cash of $4,358,986. The decrease in working capital is due primarily to the classification of the company's warrant liability as current, as it is expected to be settled upon expiration of these warrants, at June 14, 2015, at the latest. Subsequent to June 30, 2014, the company received $1.42-million in proceeds from warrant exercises.

Three-month comparative results

The company reported revenue of $1,590,289 for the three months ended June 30, 2014, as compared with $1,082,883 for the three months ended June 30, 2013. Operating loss was $1,636,691 for the three months ended June 30, 2014, as compared with an operating loss of $375,919 for the three months ended June 30, 2013.

The company's calculated gross margin was 54 per cent for the three months ended June 30, 2014, which is a slight decrease in comparison with the 59-per-cent gross margin during the three months ended June 30, 2013. Total operating expenses for the three months ended June 30, 2014, were $2,498,717 as compared with $1,012,293 for the three months ended June 30, 2013. Core operating expenses (excluding stock-based compensation, deferred share unit compensation and other operating expenses) for the three months ended June 30, 2014, were $2,298,421, as compared with $740,238 for the three months ended June 30, 2013.

Earnings before interest, taxes, depreciation and amortization for the three months ended June 30, 2014, were negative $1,363,323 compared with negative $94,224 for the three months ended June 30, 2013.

Included in the company's net income of $76,825 for the three months ended June 30, 2014, is a gain of $1,778,644 in mark-to-market adjustments on Canadian-dollar-denominated warrants. Exclusive of the mark-to-market adjustment, the company would have incurred a net loss of $1,701,819. Included in the company's net loss of $2,201,139 for the three months ended June 30, 2013, is a loss of $1,795,163 in mark-to-market adjustments on Canadian-dollar-denominated warrants. Exclusive of the mark-to-market adjustment, the company's net loss would be $405,976.

Six-month comparative results

The company reported revenue of $2,645,175 for the six months ended June 30, 2014, as compared with $1,392,473 for the six months ended March 31, 2013. Operating loss was $2,839,448 for the six months ended June, 2014, as compared with an operating loss of $1,662,768 for the six months ended June 30, 2014.

The company's calculated gross margin was 53 per cent for the six months ended June 30, 2014, which is slightly lower than the 57-per-cent gross margin during the six months ended June 30, 2013. Total operating expenses for the six months ended June 30, 2014, were $4,234,856 as compared with $2,462,366 for the six months ended June 30, 2013, representing a 72-per-cent increase. Core operating expenses (excluding stock-based compensation, deferred share unit compensation and other operating expenses) for the six months ended June 30, 2014, were $3,833,134, as compared with $1,541,759 for the six months ended June 30, 2013, representing a 149-per-cent increase.

EBITDA for the six months ended June 30, 2014, was negative $2,437,726 compared with negative $742,161 for the six months ended June 30, 2013.

Included in the company's net loss of $2,811,433 for the six months ended June 30, 2014, is a gain of $83,525 in mark-to-market adjustments on Canadian-dollar-denominated warrants. Exclusive of the mark-to-market adjustment, the company would have incurred a net loss of $2,894,958. Included in the company's net loss of $3,534,913 for the six months ended June 30, 2013, is a loss of $1,756,934 in mark-to-market adjustments on Canadian-dollar-denominated warrants. Exclusive of the mark-to-market adjustment, the company's net loss would have been $1,777,979.

Financial guidance for fiscal year 2014

The company is providing guidance for the full fiscal year ending Dec. 31, 2014. This guidance is intended solely to give investors an understanding of management's expectations for the full fiscal year in light of recent industry sales trends, seasonality of the business and recognition that much of the sales generated in the dental industry occur in the fourth quarter. The guidance does not take into account, or give effect for, any events that are beyond the company's reasonable control.

                                                                            
          GUIDANCE FOR FULL FISCAL YEAR ENDING DEC. 31, 2014 

Net revenues                                           $9.0M to $11.0M       
 

The company anticipates increasing sales of the digital imaging product portfolio in the latter part of the third quarter and throughout the fourth quarter of fiscal 2014 due to seasonal buying patterns in the dental industry as a result of tax incentives for dental and medical health practitioners in the United States. The company looks forward to potentially exceeding the company's revenue guidance through greater than anticipated impact of its marketing and tradeshow programs in addition to the receipt of more favourable terms from key suppliers while also expecting to manage its operating expenses in line with the company's anticipated revenue growth.

Financial statements and management's discussion and analysis

Please see the interim condensed consolidated financial statements and related management's discussion and analysis for more details. The interim condensed consolidated financial statements for the three and six months ended June 30, 2014, and related MD&A have been reviewed and approved by the company's audit committee and board of directors. The company has prepared this truncated news release to alert investors to its results and that a more detailed explanation and analysis are readily available in the MD&A. These reports have been filed on SEDAR and posted to the company's website.

                                       
           CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
                               (In U.S. dollars)

                        Three months ended June 30, Six months ended June 30,
                                 2014         2013         2014         2013

Revenues                  $ 1,590,289  $ 1,082,883  $ 2,645,175  $ 1,392,473
Cost of goods sold            724,230      446,509    1,249,767      592,875
                              866,059      636,374    1,395,408      799,598
Expenses
Sales and marketing         1,545,537      327,299    2,288,978      659,335
Research and
development                   247,342      110,794      505,923      200,551
Administration                505,543      302,145    1,038,233      681,873
Stock-based
compensation                  186,352      200,462      377,850      551,793
Deferred share unit
compensation                        -       27,850            -      315,431
Other operating
expenses                       13,944       43,743       23,872       53,383
                            2,498,718    1,012,293    4,234,856    2,462,366
Operating (loss)           (1,632,659)    (375,919)  (2,839,448)  (1,662,768)
Other income (expenses)
Mark-to-market
adjustments on
Canadian-dollar-
denominated warrants        1,778,644   (1,795,163)      83,525   (1,756,934)
Foreign exchange
(loss) gain                   (63,419)     (28,615)     (55,510)    (111,071)
                            1,715,225   (1,823,778)      28,015   (1,868,005)
Net income (loss) before
incomes taxes                  82,566   (2,199,697)  (2,811,433)  (3,530,773)
Income taxes                        -        1,442            -        4,140
Net income (loss) and
comprehensive income
(loss) for the period          82,566   (2,201,139)  (2,811,433)  (3,534,913)
Income (loss) per share
-- basic and diluted             0.00        (0.04)       (0.04)       (0.06)

We seek Safe Harbor.