Novadaq Technologies Inc.

Novadaq Technologies Inc.

May 07, 2007 07:00 ET

Novadaq Reports Financial Results for the First Quarter of 2007

TORONTO, ONTARIO--(Marketwire - May 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 first quarter ended March 31, 2007.
In this press release, unless otherwise indicated, all dollar amounts are
expressed in US dollars.

"Novadaq has met significant new milestones over the last four months.
These milestones have made Q1 our highest revenue quarter thus far and have
positioned the company to become a leader in imaging and synergistic
therapeutics in the operating room," said Dr. Arun Menawat, President and
Chief Executive Officer of Novadaq Technologies Inc. "In March 2007 we
acquired exclusive US distribution rights to the CO(2) HEART LASER™ System
for Transmyocardial Revascularization (TMR). The combination of our SPY®
Imaging System and TMR fits very well with our corporate strategy and
validates our vision that image guidance can improve the delivery and
effectiveness of therapeutic surgical procedures."

Q1 2007 Operating Highlights

- Image Guided Revascularization: Acquired exclusive United States (US)
distribution rights to PLC Medical System Inc.'s CO(2) HEART LASER
System for TMR from Edwards Lifesciences LLC. The acquisition
included rights to an install base of 150 CO(2) HEART LASER™
- Direct sales team: Continued to build our direct sales team to a
total of 18 who join our 12 clinical educators in the field to
provide service to our customers in those surgical specialties that
will benefit from Novadaq's products.
- HELIOS™ Imaging System: Received 510(k) clearance from the United
States Food and Drug Administration (FDA) for its imaging system for
use during plastic, micro- and reconstructive surgery. Completed
11 liver transplant patients in a Novadaq supported clinical study
at Baylor Regional Transplant Institute designed to assess the
clinical utility of HELIOS in liver, kidney and pancreatic transplant
- OPTTX® System: Expanded European Clinical Registry to include a
third site planned for Switzerland.

Subsequent Events

- SPY®: The US Centers for Medicare and Medicaid Services (CMS)
Fiscal 2008 Rules include a new ICD-9-CM Procedure Code for Intra-
operative Fluorescence Vascular Angiography, which can be performed
using SPY Imaging Systems. 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.ICG: There currently is no indocyanine green (ICG), a
fluorescent agent, available for the US market, accordingly Novadaq
has not shipped SPY Paqs since April 30, 2007. As reported
previously, Novadaq continues to work closely with the FDA to resolve
the ICG short supply issue. Near term solutions to this situation may
include FDA approval of an existing lot of ICG that has been
manufactured at Akorn's facility and/or special permission by the FDA
to import ICG from PULSION Medical Systems (PULSION), a European
supplier. Longer term resolution may include the resumption of ICG
manufacturing by Akorn at its approved contract facility, approval of
Akorn's pending Site Change Supplement, and/or approval of ICG
manufactured by PULSION, that has stated that such approval is
expected in H2 2007 (which would ensure 2 independent suppliers of
ICG in the US in 2007).
- Novadaq: Engaged RBC Capital Markets as the lead agent and Blackmont
and Versant as part of the syndicate for the proposed private
placement of approximately $15 million of common shares.
- Novadaq: Completed the acquisition of all intellectual property and
certain capital assets and inventory from Xillix™ Technologies

Financial Results

Revenue increased to approximately $1,427,000 in Q1-2007 from
approximately $518,000 in Q1-2005. The increase reflects an increase in both
recurring revenue and capital sales revenue. Recurring revenue increased due
to the increased installed base of SPY Systems in the US, and due to TMR kit
revenue generated since the acquisition of the TMR distribution rights on
March 20, 2007. The increase in capital sale revenue from Q1-2006 to Q1-2007
related to TMR lasers sold since March 20, 2007. Q1-2007 revenue of
approximately $1,427,000 was approximately $811,000 higher than Q4-2006
revenue with the increase relating to the sale of TMR lasers since the
acquisition of TMR distribution rights on March 20, 2007.

Gross profit increased to approximately $679,000 in Q1-2007 from
approximately $232,000 in Q1-2006. The increase related primarily to the sale
of TMR lasers and kits in Q1-2007. Gross profit as a percentage of sales
increased from 45% in Q1-2006 to 48% in Q1-2007 as the gross profit percentage
earned on TMR lasers was higher than on the SPY Systems sold in Q1-2006. Gross
profit as a percentage of sales decreased to 48% in Q1-2007 from 58% in
Q4- 2006 as the Q4-2006 margin benefited from a minimum payment Carbomedics
was required to make under a distribution agreement.

Sales and marketing expenses increased by approximately $1,456,000 to
approximately $2,217,000 in Q1-2007 from approximately $761,000 in Q1-2006 due
to the hiring of clinical educators through 2006, and the hiring of a total of
17 sales representatives between December 1, 2006 and March 31, 2007 including
5 former employees of Edwards Lifesciences who were hired in connection with
the acquisition of TMR distribution rights. The increase also related to sales
commissions which increased as a result of the increase in revenue. The
increase in sales and marketing expenses from Q4-2006 was approximately
$719,000 which related to the hiring of a direct sales team.

Research and development expenses decreased by approximately $88,000 to
approximately $1,295,000 in Q1-2007 from approximately $1,383,000 in Q1-2006.
The decrease relates primarily to reductions in OPTTX device development
costs. OPTTX development was completed in Q4-2006. Research and development
expenses in Q1-2007 were generally consistent with Q4-2006.

General and administration expenses increased by approximately $310,000
to approximately $878,000 in Q1-2007 from $568,000 in Q1-2006. Increases
relate primarily to the costs of supporting a direct sales organization in the
US. General and administrative expenses in Q1-2007 were generally consistent
with Q4-2006.

Depreciation expense increased to approximately $51,000 in Q1-2007 from
approximately $36,000 in Q1-2006 primarily as a result of computer equipment
purchased in 2006 and 2007 for clinical educators and sales representatives
hired during the period. Depreciation expense in Q1-2007 was generally
consistent with Q4-2006. Amortization increased from Q1-2006 and Q4-2006 to
Q1-2007 as a result of amortization of the TMR distribution rights acquired on
March 20, 2007.

The Company had interest expense in Q1-2007 of approximately $9,000
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 $194,000 in Q1-2007 on
its cash and short-term investments representing a decrease of approximately
$52,000 from investment and other income earned in Q1-2006 and a decrease of
$39,000 from Q4-2007. The decrease in interest income from Q1-2006 and Q4-2006
is the result of an overall decrease in cash and short term investment
balances in Q1-2007.

Net loss increased by approximately $1,326,000 to approximately
$3,701,000 in Q1-2007 from approximately $2,375,000 in Q1-2006 primarily as a
result of an increase in sales and marketing costs of approximately
$1,456,000, an increase in general and administrative expenses of
approximately $310,000 which were partly offset by an increase in gross profit
of $447,000.

As at March 31, 2007 the Company had cash, cash equivalents and
short-term investments of approximately $10,433,000, a decrease of
approximately $6,396,000 from December 31, 2006. Approximately $3,278,000 of
the decrease relates to a net loss incurred during the period after deducting
items not involving cash, a use of approximately $746,000 in net changes in
non-cash working capital, an investment of approximately $38,000 in deferred
development costs, an investment of approximately $894,000 in property, plant
and equipment, an investment of approximately $4,479,000 in intangible assets
in relation to the acquisition of TMR distribution rights offset partially by
the issuance of a note payable of $3,000,000.

As at March 31, 2007 there were a total of 19,711,892 common shares
(21,341,317 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 first quarter 2007 results. To access the
conference call by telephone, dial 416-644-3425 or 1-800-591-7539. Please
connect approximately ten minutes prior to the beginning of the call to ensure
participation. The conference call will be archived for replay until May 14,
2007 at midnight. To access the archived conference call, dial 416-640-1917 or
1-877-289-8525 and enter the reservation number 21231178 (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
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). For more information, please visit the
company's website at

Forward Looking Information

This MD&A 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 of a 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 the Company's products, and or the
manufacturing of an alternate form of the florescent agent by the Company, the
currently proposed private placement of common shares by the Company or the
terms thereof, 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 and LUNA, and the current development
by the Company of a family of prototype endoscopes is forward-looking

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 SPY System, 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, 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 SPY System and of the OPTTX System, the
risk that a recently announced 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 if completed the terms of the Company's proposed private
placement, 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.


(expressed in U.S.$)

Three months ended
March 31,
2007 2006
$ $

Revenue 1,427,424 518,226
Cost of sales 748,062 381,153
Gross profit 679,362 137,073

Operating expenses
Sales and marketing 2,216,885 660,909
Research and development 1,294,876 1,383,504
General and administration 878,467 567,505
Depreciation 51,955 36,966
Amortization 121,522 109,597
Loss (gain) on foreign exchange 1,418 (442)
4,565,122 2,758,039
Loss before the following (3,885,760) (2,620,966)
Interest expense 9,396 -
Other income - 60,896
Interest income 194,023 185,033
Net loss and comprehensive loss
for the period (3,701,133) (2,375,037)
Deficit, beginning of period (34,675,721) (23,639,801)
Deficit, end of period (38,376,854) (26,014,838)

Basic and diluted loss per share (0.19) (0.13)

Incorporated under the laws of Canada

(expressed in U.S.$)

As at As at
March 31, December 31,
2007 2006
$ $

Cash and cash equivalents 606,555 2,311,973
Short-term investments 9,825,998 14,517,289
Accounts receivable 1,490,286 440,046
Prepaid expenses and other receivables 265,076 375,949
Inventory 1,015,955 185,792
Total current assets 13,203,869 17,831,048
Property, plant and equipment, net 2,563,988 1,933,896
Deferred charges 633,470 9,713
Deferred research and development costs 269,248 231,356
Intangible Assets, net 7,076,476 2,607,135
23,747,050 22,613,148

Accounts payable and accrued liabilities 3,478,123 1,753,959
Note payable 3,000,000
Current portion of deferred revenue 79,446 61,786
Total current liabilities 6,557,569 1,815,745
Deferred revenue - -
Total liabilities 6,557,569 1,815,745
Commitments and contingencies

Shareholders' equity
Share capital 51,721,632 51,721,632
Contributed surplus 3,844,704 3,751,492
Deficit (38,376,854) (34,675,721)
Total shareholders' equity 17,189,481 20,797,403
23,747,050 22,613,148


(expressed in U.S.$)

Three months ended
March 31,
2007 2006
$ $

Net loss for the period (3,701,133) (2,375,037)
Add (deduct) items not involving cash
Depreciation and amortization 368,599 208,322
Stock based compensation 93,212 67,837
(3,278,205) (2,098,878)
Net change in non-cash working capital
balances related to operations (646,401) 42,738
Cash (used) in operating activities (3,924,606) (2,056,140)

Issuance common shares, net - 5,431,742
Issuance of note payable 3,000,000 -
Cash provided by financing activities 3,000,000 5,431,742

Deferred research and development costs (37,892) -
Purchase of property, plant and equipment (894,094) (838,508)
Purchase of intangible assets (4,579,000) (15,000)
Investments in short-term investments, net 4,691,291 (2,350,582)
Cash provided by (used in) investing (819,695) (3,204,090)

Net increase (decrease) in cash and cash
equivalents during the period (1,744,301) 171,511
Cash and cash equiv. beginning of period 2,311,973 750,726
Cash and cash equivalents, end of period 606,555 922,237

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