Novadaq Technologies Inc.

Novadaq Technologies Inc.

August 07, 2007 07:00 ET

Novadaq Reports Financial Results for the Second Quarter of 2007

TORONTO, ONTARIO--(Marketwire - Aug. 7, 2007) -

Attention Business/Financial Editors:

Novadaq® Technologies Inc. (TSX:NDQ), a developer of real-time medical
imaging systems and image guided therapies for the operating room, today
announced its financial results for the second quarter ended June 30, 2007.
In this press release, unless otherwise indicated, all dollar amounts are
expressed in US dollars.

"Strong efforts of our direct sales team and our ability to provide total
image guided revascularization during open heart bypass surgery enabled us to
meet our revenue goal for this quarter" said Dr Arun Menawat, President and
Chief Executive Officer, Novadaq Technologies Inc. "Acquisition of the
intellectual property from Xillix represented another important milestone for
Novadaq. We can now build revenues with our existing FDA approved products and
build a healthy pipeline of products for longer term growth within our sales

Q2 2007 Operating and Financial Highlights

- Recorded 2nd Quarter Revenue of $3.75 Million
- Completed $30 Million (CDN) private placement of common shares
- Completed the acquisition of all intellectual property and certain
capital assets and inventory from Xillix™ Technologies Corp. and
hired key R&D employees
- ICD-9-CM Procedure Code for Intra-operative Fluorescence Vascular
Angiography published in the Federal Register on April 17, 2007. The
code - 88.59 - effective October 1, 2007, will be used by hospitals
to bill for costs associated with SPY Imaging procedures performed by
cardiac surgeons in the operating room
- Announced the results of the first clinical experience utilizing
Novadaq's fluorescent imaging technology for plastic and
reconstructive surgery. The study was presented during the World
Congress for Reconstructive Micro Surgery held in Athens, Greece,
June 24 - 26, 2007

Subsequent Events

In mid-July the FDA announced an extension of the expiry date of ICG from
24 to 36 months and Novadaq resumed normal operations. Novadaq believes it has
secured a sufficient inventory of ICG for its continuous operations through to
the end of November 2007. Novadaq understands that Akorn continues to work
diligently to obtain approval of its manufacturing site change request and
resume production of ICG. In addition, Pulsion Medical Systems (Pulsion), an
alternative manufacturer of ICG which is currently approved in Europe, expects
FDA approval for its ICG during the second half of 2007, perhaps as early as
the third fiscal quarter of 2007, which will ultimately provide two suppliers
of ICG in the US marketplace.

Financial Results

Quarter Ended June 30, 2007 "Q2-2007" Compared to Quarter Ended June 30,
2006 "Q2-2006"

Total revenue increased to approximately $3,750,000 in Q2-2007 from
$509,000 in Q2-2006. Recurring revenue, which includes consumable kit and
rental revenue, increased to approximately $1,205,000 in Q2-2007 from
approximately $500,000 in Q2-2006. The main reason for the growth in revenue
is the acquisition of the TMR business in March 2007. Our ability to grow
recurring revenue during the quarter was negatively impacted by an
interruption of the supply of ICG which meant we were unable to sell SPY Paqs
in May and June. In early July the FDA announced that the expiry date of
existing lots of ICG had been increased from 24 months to 36 months such that
normal sales of SPY Paqs has resumed. The interruption of ICG supply is not
expected to have a material negative impact on Q3-2007 recurring revenue.

Capital sale revenue increased to $2,120,000 in Q2-2007 from $9,000
Q2-2006. Revenue from sales of CO2 Lasers increased significantly from the
level achieved in Q1-2007. Part of the increase in capital sale revenue was
attributable to the sale of SPY Systems in the US. While we remain committed
to our recurring revenue model, we are offering somewhat lower SPY Paq prices
in conjunction with the purchase of SPY Systems where hospital capital budgets
are available.

Other revenue includes service revenue and parts revenue. The majority of
service revenue relates to extended warranty contracts on CO(2) Lasers.
Revenue on service contracts is recognized over the term of the contracts.
Novadaq sub-contracts the provision of maintenance services to the
manufacturer of the CO(2) Laser.

Gross profit increased to approximately $1,787,000 in Q2-2007 from
approximately $297,000 in Q2-2006 and $679,000 in Q1 2007. The increase
relates to the increases in revenue discussed above. Gross profit percentages
were impacted negatively during Q2 2007 by depreciation expenses recorded for
SPY Systems that were not productive during the interruption of ICG supply.

Sales and marketing expenses increased to approximately $2,889,272 in
Q2-2007 representing a 140% and 30% increase from Q2-2006 and Q1-2007
respectively. The increase includes higher commissions related to sales
growth, and to overlap of sales coverage during the period resulting from the
addition of the sales team hired in conjunction with the TMR acquisition.
Prior to the acquisition Novadaq had a sales team which included 10 sales
executives trained to sell the SPY System. After adding 4 sales executives in
connection with the acquisition, Novadaq rationalized the sales team to end
the quarter with 10 sales executives fully trained to sell all of Novadaq's
products in the US. Novadaq incurred severance costs of approximately $186,000
related to the rationalization.

Research and development expenses in Q2-2007 were approximately equal to
levels incurred in Q2-2006 and Q1-2007. The focus of R&D expenditures is on
generating clinical data on the use of SPY in solid organ transplant, and
other general surgical procedures, and the use of LUNA both in Canada and the
US in urological procedures, continued generation of post market registry data
on the use of OPTTX, and the development of endoscopy systems which will allow
the application of the Company's imaging platform to minimally invasive

General and administration expenses increased to approximately $1,067,000
in Q2-2007 from $675,000 in Q2-2006 and $878,000 in Q1-2007. The increase from
Q1-2007 relates primarily to increased professional fees incurred in Q2-2007,
increased insurance expense to cover the TMR business, and increased employee

Depreciation expense increased to approximately $60,000 in Q2-2007 from
approximately $40,000 in Q2-2006 and $52,000 in Q1-2007 primarily as a result
of the depreciation of assets purchased from Xillix in the quarter.
Amortization increased to approximately $261,000 in Q2-2007 from $110,000 in
Q2-2006 and $121,000 in Q1-2007 due to amortization of intangible assets
recorded in connection with the acquisition of TMR distribution rights, and
the intellectual property of Xillix.

The Company had interest expense in Q2-2007 of approximately $77,000
relating to a $3,000,000 note payable issued on March 20, 2007 in connection
with the acquisition of TMR distribution rights.

The Company had interest income of approximately $214,000 in Q2-2007 on
its cash and short-term investments which is similar to income generated in
Q2-2006 and which represents a small increase from Q1-2007 when interest
income was $194,000. The increase from Q1-2007 was the result of a higher
average investment balance due to the completion of a CDN$30,000,000 private
placement in late May 2007.

Net loss increased by approximately $832,000 to approximately $3,444,000
in Q2-2007 from approximately $2,612,000 in Q2-2006 primarily as a result of
an increase in sales and marketing costs of approximately $1,691,000, an
increase in general and administrative expenses of approximately $392,000
which were partly offset by an increase in gross profit of $1,489,000. Net
loss decreased by approximately $257,000 from $3,701,000 in Q1-2007 primarily
as a result of an increase gross profit of $1,107,000 which was partly offset
by an increase in sales and marketing costs of approximately $672,000, and an
increase in general and administrative expenses of approximately $189,000.

As at June 30, 2007 the Company had cash, cash equivalents and short-term
investments of approximately $30,358,000, an increase of approximately
$19,925,000 from March 31, 2007. Approximately $25,831,758 of the increase
relates to the completion of a private placement for gross proceeds of
CDN$30,000,000 which was partly offset by cash used in operating activities of
$3,059,000, investments in intangible assets of $3,934,000, investments in
property plant and equipment of $647,000, and investments in deferred research
and development costs of $65,000.

As at July 30, 2007 there were a total of 23,980,354 common shares
(25,830,645 on a fully diluted basis) and no preferred shares outstanding.

Conference call

Novadaq will host a conference call and live webcast this afternoon at
4:30 p.m. E.T. to discuss its second quarter 2007 results. To access the
conference call by telephone, dial 416-644-3425 or 1-800-590-1508. Please
connect approximately ten minutes prior to the beginning of the call to ensure
participation. The conference call will be archived for replay until
August 14, 2007 at midnight. To access the archived conference call, dial
416-640-1917 or 1-877-289-8525 and enter the reservation number 21241897
followed by the number sign.

About Novadaq Technologies

Novadaq Technologies Inc. (TSX:NDQ) develops and commercializes medical
imaging systems and real-time image guided therapies for use in the operating
room. Novadaq's proprietary imaging platform can be used to visualize blood
vessels, nerves and the lymphatic system during surgical procedures. Novadaq's
SPY® Imaging System, commercially available worldwide, enables cardiac
surgeons to visually assess coronary vasculature and bypass graft
functionality during the course of open-heart surgery. Novadaq's OPTTX®
System which received CE Mark approval in November 2006, is aimed at the
diagnosis, evaluation and treatment of wet Age-related Macular Degeneration
(AMD) by using the same core imaging technology that is used in the SPY
Imaging System. The HELIOS™ Imaging System, which received FDA clearance in
January 2007, is the first fluorescent imaging system available for use during
plastic reconstructive surgery allowing surgeons to evaluate pre- and
intra-operative blood flow, as well as post-surgery perfusion. Novadaq's
LUNA™ Imaging System is designed to enable surgeons to visualize nerve
bundles during the course of urological and neurological procedures. LUNA has
been granted a license for use by Health Canada. Novadaq is also the exclusive
United States distributor of PLC Medical's CO(2) HEART LASER™ System for
TMR (Trans-Myocardial Revascularization). Novadaq recently acquired a
comprehensive portfolio of minimally invasive native tissue fluorescence
imaging technology with the vision to expand the applications for this
technology in Novadaq's surgical markets. For more information, please visit
the company's website at

Forward Looking Information

This press release contains certain information that may constitute
forward-looking information within the meaning of securities laws. In some
cases, forward-looking information can be identified by the use of terms such
as "may", "will", "should", "expect", "plan", "anticipate", "believe",
"intend", "estimate", "predict", "potential", "continue" or other similar
expressions concerning matters that are not historical facts. Forward-looking
information may relate to management's future outlook and anticipated events
or results, and may include statements or information regarding the future
financial position, business strategy and strategic goals, research and
development activities, projected costs and capital expenditures, financial
results, research and clinical testing outcomes, taxes and plans and
objectives of or involving Novadaq. Without limitation, information regarding
future sales and marketing activities, SPY System placement targets and
utilization rates, the implementation and utilization of the recently
published reimbursement code for the SPY System, future revenues arising from
the sales of the Company's products or the distribution arrangements with PLC
Medical Systems Inc., and research and development activities, FDA approval of
sources of indocyanine green ("ICG"), the fluorescent agent used with some of
the Company's products, and or the manufacturing of an alternate form of the
florescent agent by the Company, the Company's plans to seek additional
regulatory clearances for additional indications, the expected benefits of the
combination of TMR with the SPY System, as well as the Company's plans for
each of the SPY System, HELIOS System, the OPTTX System ONCO-LIFE™ (now
branded PINPOINT), and LUNA, and the current development by the Company of a
family of prototype endoscopes is forward-looking information.

Forward-looking information is based on certain factors and assumptions
regarding, among other things, market acceptance and the rate of market
penetration of Novadaq's products, the adoption by customers of a rental mode
of arrangement for the SPY System, the effect of a recently announced
reimbursement code for the SPY System, the clinical results of the use of the
SPY System, market acceptance and the rate of market penetration of the HELIOS
System, the clinical results of the use of the HELIOS System, market
acceptance and the rate of market penetration of PINPOINT, the clinical
results of the use of PINPOINT in alternative indications, the results from
clinical tests of the OPTTX System and LUNA, and potential opportunities in
the AMD treatment market and in image guided conventional and minimally
invasive urological applications including nerve-sparing radical
prostatectomy. While the Company considers these assumptions to be reasonable
based on information currently available to it, they may prove to be

Forward looking-information is subject to certain factors, including
risks and uncertainties, that could cause actual results to differ materially
from what we currently expect. These factors include risks relating to the
transition from research and development activities to commercial activities,
market acceptance and adoption of the Company's products, the risk that a
recently published reimbursement code will not affect acceptance or usage of
the SPY System, risks related to third party contractual performance,
dependence on key suppliers for components of the SPY System and the OPTTX
System, regulatory and clinical risks, risks relating to the protection of
intellectual property, risks inherent in the conduct of research and
development activities, including the risk of unfavorable or inconclusive
clinical trial outcomes, potential product liability, competition and the
risks posed by potential technological advances, risks related to the
completion, and risks relating to fluctuations in the exchange rate between
the US dollar and the Canadian dollar.

You should not place undue importance on forward-looking information and
should not rely upon this information as of any other date. While Novadaq may
elect to, Novadaq is under no obligation and does not undertake to update this
information at any particular time. Unless otherwise indicated, this press
release was prepared by management from information available to July 30,

Incorporated under the laws of Canada

(expressed in U.S.$)

As at As at
June 30, December 31,
2007 2006
$ $

Cash and cash equivalents 607,869 2,311,973
Short-term investments 29,749,989 14,517,289
Accounts receivable 4,603,419 440,046
Prepaid expenses and other receivables 1,610,787 375,949
Inventory 1,177,001 185,792
Total current assets 37,749,065 17,831,048
Property, plant and equipment, net 2,869,614 1,933,896
Deferred charges 254,968 9,713
Deferred research and development costs 334,744 231,356
Intangible Assets, net 10,763,350 2,607,135
51,971,741 22,613,148

Accounts payable and accrued liabilities 6,067,958 1,753,959
Note payable 3,000,000
Current portion of deferred revenue 891,649 61,786
Total current liabilities 9,959,607 1,815,745
Deferred revenue 513,012 -
Total liabilities 10,472,619 1,815,745
Commitments and contingencies

Shareholders' equity
Share capital 79,352,447 51,721,632
Contributed surplus 3,967,610 3,751,492
Deficit (41,820,935) (34,675,721)
Total shareholders' equity 41,499,122 20,797,403
51,971,741 22,613,148

(expressed in U.S.$,)

Three months ended Six months ended
June 30, June 30,
2007 2006 2007 2006
$ $ $ $

Revenue 3,750,925 509,260 5,178,349 1,027,486
Cost of sales 1,964,246 212,035 2,712,308 497,907
Gross profit 1,786,679 297,225 2,466,041 529,579

Operating expenses
Sales and marketing 2,889,272 1,198,051 5,106,156 1,954,241
Research and
development 1,305,523 1,241,658 2,600,398 2,625,162
General and
administration 1,067,259 674,604 1,945,726 1,242,108
Depreciation 59,844 40,644 111,799 77,610
Amortization 261,296 109,660 382,817 219,257
Loss (gain) on
foreign exchange (216,505) (76,080) (215,087) (76,522)
5,366,689 3,188,537 9,931,810 6,041,857
Loss before
the following (3,580,010) (2,891,312) (7,465,770) (5,512,278)
Interest expense (77,729) (87,125)
Other income - 60,896
Interest income 213,658 279,305 407,681 464,339
Net loss for
the period (3,444,081) (2,612,007) (7,145,214) (4,987,043)
Deficit, beginning
of period (38,376,854) (26,014,838) (34,675,721) (23,639,801)
Deficit, end
of period (41,820,935) (28,626,845) (41,820,935) (28,626,845)

Basic and diluted
loss per share (0.16) (0.13) (0.35) (0.26)

(expressed in U.S.$)

Three months ended Six months ended
June 30, June 30,
2007 2006 2007 2006
$ $ $ $

Net loss for
the period (3,444,081) (2,612,007) (7,145,214) (4,987,043)
Add (deduct) items
not involving cash
Depreciation and
amortization 588,692 248,302 969,154 456,623
Stock based
compensation 122,906 76,995 216,118 144,832
(2,732,483) (2,286,710) (5,959,943) (4,385,588)
Net change in non-cash
working capital
balances related
to operations (326,339) 264,678 (972,740) 307,416
Cash (used) in
operating activities (3,058,822) (2,022,032) (6,932,682) (4,078,172)

Issuance of
common shares 27,630,815 30,565 27,630,815 5,462,307
Issuance of
note payable 3,000,000
Cash provided by
financing activities 27,630,815 30,565 30,630,815 5,462,307

Deferred research and
development costs (65,496) (103,390)
Purchase of property,
plant and equipment (646,732) (678,577) (1,540,829) (1,517,085)
Purchase of
intangible assets (3,934,459) - (8,525,321) (15,000)
Investments in
inv., net (19,923,991) 1,819,352 (15,232,700) (531,230)
Cash provided by
(used in) investing (24,570,678) 1,140,775 (25,402,237) (2,063,315)

Net increase (decrease)
in cash and cash
equivalents during
the period 1,314 (850,692) (1,704,104) (679,181)
Cash and cash equiv.
beginning of period 606,555 922,237 2,311,973 750,726
Cash and cash
end of period 607,869 71,545 607,869 71,545

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