LED announces acquisition of Ohio-based dental software developer Apteryx for $10.25 million

Company says transaction is significantly accretive to revenue, EBITDA, and net income

Last week, LED Medical Diagnostics Inc. (Vancouver, British Columbia; TSX-V: LMD) announced it has entered into a definitive purchase agreement to acquire 100% of Apteryx Inc. In a press release, LED indicated that "Apteryx is a profitable software development company with well-established applications for the dental imaging market with strong brand recognition across the dental industry, including the United States armed forces, United States government agencies and dental universities."

LED expects this transaction to be immediately accretive, allowing the company to reach profitability prior to the end of 2017. LED also believes the transaction to be closed in the first quarter of 2017, subject to financing and regulatory approvals.

Apteryx was founded by Kevin Crucs in 1995. It has 18 employees and is headquartered in Akron, Ohio.

LED listed the following as key benefits of the transaction:

• Expected to be significantly accretive to revenue, EBITDA, and net income for the 2017 fiscal year

• Diversifies LED’s revenue base and revenue timing, adding significant recurring revenue opportunities

• Apteryx has a proven and consistent history of profitable operations and attractive financial operating margins

• Establishes LED as a leader in imaging software to dental practices across the United States

• Provides LED with a range of software applications to augment its hardware offerings, establishing the company as an end-to-end dental imaging solution provider in a growing market

• Provides LED the addition of significant customer user base of dental professionals as well as partnership opportunities with Apteryx’s existing original equipment manufacturer (OEM) distribution partners for new and existing LED imaging products

• The addition of a software development team which will help expand development of new products

• Provides LED critical mass to support significant growth operationally and financially

• Kevin Crucs, founder of Apteryx, is joining LED in a senior leadership role and is taking a portion of the acquisition proceeds in LED stock

• LED management team is very familiar with Apteryx’s management team and products. LED is currently a customer of Apteryx products and services

• Significant expansion of LED’s IP portfolio with addition of 28 patents

“The Apteryx team are top of their class when it comes to dental imaging software innovation and development,” said LED CEO Dr. David Gane. “Combining Apteryx with LED provides the combined company with a compelling financial profile, significant embedded and organic growth, and exciting opportunities to build a leading, pure play dental technology company. Also—and just as importantly—LED is gaining a wonderful management and R&D team from Apteryx, and we know that they will thrive while helping us build an even stronger LED.”

Kevin Crucs, founder and CEO of Apteryx said, “I am interested in having a significant and lasting impact in the dental industry through integrated, open source, best in class, interoperable solutions, and know that the team at LED has that same shared vision that we can enact and accelerate together.”

Transaction Details

Pursuant to the binding agreement, LED will purchase 100% of the capital stock of Apteryx for US$10.25 million, subject to adjustment, of which US$6,800,000 is payable in cash at closing, US$700,000 payable in cash in tranches over 18 months, a hold back of US$500,000 and US$2,250,000 of which is payable in common shares of LED, based on a price per share of CDN$0.07. Eighty percent (80%) of the consideration shares will be issued at closing and will be subject to an escrow agreement with staged releases over 24 months. The balance of the consideration shares will be issued 24 months after the closing, subject to any required TSX Venture Exchange approval, or settled in cash at the option of LED. Following the transaction, Kevin Crucs will join the senior management team of LED and will continue to lead the Apteryx business as a significant shareholder of LED. Apteryx will operate as a standalone subsidiary of LED.

Transaction Financing

The transaction will be financed primarily by an equity financing by way of a brokered private placement of units of LED (the “Units”) priced at C$0.06 per Unit, for gross proceeds of approximately C$11,000,000. Each Unit will consist of one common share and one-half of one common share purchase warrant, with each whole warrant being exercisable for a period of 24 months into one common share of LED at a price of C$0.10 per common share. In addition, the transaction will also be financed by a debt financing by way of a brokered private placement of 12% senior secured debentures of the Company (the “Debentures”) of approximately C$2 million, maturing 24 months from the closing date (the “Closing Date”) of the Acquisition. The Company intends to grant a total of 2,550,000 common shares of the Company as a loan bonus to the holders of the Debentures in connection with the issuance of the Debentures.

The proceeds of the equity and debt private placements will be held in escrow pending closing of the Acquisition. The net proceeds will be used by LED to fund the cash portion of the acquisition price, and for working capital and general corporate purposes. All securities issued in connection with the transaction will be subject to a hold period expiring four months and one day after the Closing Date.

Bloom Burton Securities Inc. is acting as sole agent and financial advisor (the “Agent”) to LED for the acquisition of Apteryx and related financings. In connection with the Unit offering, the Agent will receive a cash commission of 7% of the gross proceeds of the offering and non-transferable broker units equal to 7% of the aggregate number of Units sold under the offering. In connection with the Debenture offering, the Agent will receive a cash commission of 4% of the gross proceeds of the offering and non-

transferable broker units equal to 4% of the principal amount raised in the Debenture financing divided by $0.10. Each broker unit will consist of one common share of LED and one-half of one common share purchase warrant, with each whole warrant being exercisable for a period of 24 months into one common share of LED at a price of CDN$0.10 per common share.

The acquisition and transaction financing are subject to the approval of the TSX Venture Exchange. The acquisition qualifies as an “expedited acquisition” under the policies of the TSX Venture Exchange.

About Apteryx Inc.

Apteryx Inc. was founded in 1995 to create and develop software applications and systems that are leading products in their respective industry segments. Apteryx's products include XrayVision and XVlite, an imaging suite of applications that digitize x-rays and other images for dental practitioners; XrayVision DCV DICOM software for the institutional dental market; XVWeb, a cloud-based PACS and DICOM server; and other Windows-based applications and utilities. For additional information visit the Apteryx web site at apteryx.com

About LED Medical Diagnostics Inc.

Founded in 2003 and headquartered in Vancouver, British Columbia, Canada, LED Medical Diagnostics Inc., through its wholly-owned subsidiaries LED Dental Inc. and LED Dental Ltd., provide dentists and oral health specialists with advanced diagnostic imaging products and software, in addition to the VELscope Vx tissue fluorescence visualization technology. Backed by an experienced leadership team and dedicated to a higher level of service and support, LED Dental is committed to providing dental practitioners with the best technology available by identifying and adding leading products to its growing portfolio.

The Company is currently listed on the 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, call (884) 952-7327 or visit www.leddental.com/investor-relations.

Editor's note: This article is an edited version of an LED Dental press release 20 January 2017

Editor's note: This article first appeared in the Apex360 e-newsletter. Apex360 is a DentistryIQ partner publication for dental practitioners and members of the dental industry. Its goal is to provide timely dental information and present it in meaningful context, empowering those in the dental space to make better business decisions. Subscribe to the Apex360 e-newsletter here.