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Message: Press Release Part II: Significant Recurring Revenue Stream

Hello team:

As mentioned in the recent press release:

(1). "The combined company expects to generate higher overall revenues, which will now include a substantial recurring component."

(2). "Perio's revenue model also incorporates a significant recurring revenue component with a usage fee for each patient exam."

In a future post I'll discuss the actual product....its benefits.... its timing to market.... and also compare it to LLSR's timetable in the soft tissue arena (Periodontal Disease). For now, the focus is on the recurring revenue stream which is a missing piece with LLSR.

Total Available Market: per LLSR site

"In the U.S., dentists form the largest medical sub-group, with 140,000 practicing in 100,000 offices in 380,000 treatment rooms. Europe, Japan and other first world countries have at least another 100,000 offices. Based on the assumption that each office would purchase one OCT System, the world market can be estimated at 200,000 Systems."

But.... this information is based on selling one OCT/NIR type platform per dentist office worldwide at a price tag in the $25K+ range (200K offices). The Perio-Imaging device selling for under $3000 will be a candidate for each treatment room staffed with a technician. For this exercise, lets only assume 200K offices worldwide and ignore that in the USA alone, there are 380K treatment rooms.

The Next Piece:

The average dental office in the US market sees on average between 1400-1800 patients/year. In the model I'm developing, let's use only 1000 patients/year. Next, on average, ~ 50% of the patients would be candidates for the Period-Imagining System test based on statistics provided by the AAP. In this model, let's only use 25% of the patients.

So for one given average size office using at least conservative numbers we have 1000 (patients) times 25% usage = 250 replacement mouth probes/year.

The Last Piece:

The price of each replaceable mouth probe tip from the company to the dentist is $10. Trust me it's going to be $10/pop for the new company.

In Summary..... each dentist office represents $2500/year (250 probes x $10/probe tip) in recurring revenue to the new company.

Now let's assume only a 15% penetration rate in the first few years which is equivalent to what Carl Zweiss achieved in the Opthalmology market with an initial selling price of $65K... so you know this is a conservative number:

200K (dental offices worldwide) x 15% (penetration rate) x $2500/recurring revenue = $75M/year recurring revenue at very high gross profit margins as you look at the probe itself... it can't cost more than $1 to manufacture in high volume.

Now including the non-recurring equipment using only the 380K treatment rooms in the USA (excluding all non-USA treatment rooom) and the same penetration rate of 15% will yield 380K (treatment rooms) x 15% (penetration rate) x $2800/system (as it is suppose to be less than $3K each) results in ~ $160M in total equipment sales.

So although not a perfect model and trying to be conservative in all areas, after 3 years, the Perio-Imaging piece of the company has generated $150M in equipment sales with a recurring revenue of $75M/year.

As there is no diagnostic equipment in the dental market that detects and documents.... two key conditions that do not exist today in the area of detecting the early stages of Periodontal Disease, the market penetration rate should be much higher and at a faster rate compared to the only model we have in the field which is the Opthalmology OCT system who was the first (so naturally the market adoption would start off slow) and priced at less than $3K compared to the initial price of the Opthalmology system price of $65K (I'm sure the prices have come down considerable since their initial launch, I just can't find any new price info yet).

Finally.... what does this mean to the dentist:

1. He/She no longer has to forward their patent to a Periodontal specialist which represents lost revenue opportunity.

2. The dentist will most likely charge ~$35/test minus their recurring tip fee of $10 for a net of ~ $25/patient test. Using the same model from above, the dentist is now making a net of $25 (per test) x 250 (test/year) = $6,250 net additional revenue that would be otherwise forwarded to the Periodontal specialist as the dentist only has to test to identify the early stages of Periodontal disease and then send them to the specialist.

3. The equipment cost ($2800) is paid off within the first 5 months.... and... don't you think the dentist will try to get to 50% of the patients instead of my conservative 25%?

So let's dream a moment before we digest this information.... I'm only changing the model to increase the market penetration rate to 50% which is feasible within at least the first 5-7 years, then we are looking at a recurring annual revenue (again my other numbers should appear conservative) of 200K (dental offices.. not treatment rooms) x 50% (penetration rate) x $2500 (recurring revenue per dental office) = $250M/year recurring revenue and does not include the revenue derived from the equipment sales over this same time-frame ($530M).

So.... based on the model I'm presenting (and I welcome any feedback pro/con), I think the recurring revenue stream is SIGNIFICANT and SUBSTANTIAL.

That is why I'm called,

Enlightened

ps: "NewCo" is a placeholder name for a New Company.... so that is not the new name of the company.



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