Novadaq Technologies Inc.

Novadaq Technologies Inc.

November 05, 2007 07:00 ET

Novadaq Reports Financial Results for the Third Quarter of 2007

TORONTO, ONTARIO--(Marketwire - Nov. 5, 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 third quarter ended September 30,
2007. In this press release, unless otherwise indicated, all dollar amounts
are expressed in US dollars.

"While third quarter results demonstrated the lost sales from our ICG
shortage, we are pleased to have this issue behind us, as we concentrate on
the continued commercialization of SPY and the TMR Heart Laser System," said
Dr Arun Menawat, President and Chief Executive Officer, Novadaq Technologies
Inc. "The launch of PINPOINT, our first imaging product for minimally invasive
treatment of lung cancer has been received well by thoracic surgeons. This
product requires no external fluorescent agent for imaging and will be the
base product for future expansion into image guided minimally invasive
surgical procedures"

Events Subsequent to Quarter End

- Resumed normal business operations as of first week of October
after receiving a sufficient shipment of ICG with long-term shelf
- Launched the PINPOINT™ endoscopic imaging system, the company's
first minimally invasive imaging system. The product was
recommended by the College of Chest Physicians for lung cancer
treatment, at the Annual Meeting of American College of Chest
Physicians (ACCP), CHEST 2007.
- Signed an agreement with Intuitive Surgical, Inc., to collaborate
on the development and integration of Novadaq's minimally invasive
imaging system to visualize blood vessels and potentially other
clinically relevant anatomical functions during robotic surgical

Financial Results

Quarter Ended September 30, 2007 "Q3-2007" Compared to Quarter Ended September 30, 2006 "Q3-2006"

Total revenue increased to approximately $2,149,000 in Q3-2007 from
$532,000 in Q3-2006. Recurring revenue, which includes consumable kit and
rental revenue, increased to approximately $1,235,000 in Q3-2007 from
approximately $402,000 in Q3-2006. The main reason for the growth in revenue
is the acquisition of the TMR business which occurred in March 2007.

The Company's ability to grow recurring revenue during the quarter was
negatively impacted by an interruption of the supply of ICG. The Company
announced in mid July that the FDA had approved an extension of the expiry
date for existing inventory of ICG from 24 to 36 months allowing Novadaq to
resume shipments of ICG. However, the Company was not in a position to
re-label product, and the Company believes that many customers were not
receptive to using ICG beyond the printed expiry date on the original label.
As a result, SPY® usage was inconsistent during Q3 - 2007. On September 26,
2007 Akorn Inc., the manufacturer of ICG, announced that its alternate ICG
manufacturing site had been approved by the FDA. The approval resolved the
shortage of ICG in the United States, and the Company has resumed its policy
of holding 6 to 12 months supply of ICG.

Capital sale revenue increased to $617,000 in Q3-2007 from $130,000
Q3-2006. The increase includes a year over year increase in SPY System sales
from $130,000 to $265,000 as well as revenue from sales of CO(2) Lasers in
2007. The Company's ability to increase SPY capital sale revenue was affected
by uncertainty about the long term supply of ICG. The increase also includes
approximately $351,000 of revenue related to the sale of CO(2) lasers as a
result of the acquisition of TMR distribution rights in Q1 2007. Capital sale
revenue from CO(2) lasers was lower in Q3-2007 than it was in Q2 2007.

Service revenue increased from nil in Q3-2006 to approximately $297,000
in Q3-2007. Service revenue is generated in connection with the TMR
distribution rights acquired in Q1-2007. Service revenue decreased in Q3-2007
from approximately $349,000 in Q2 2007.

Gross profit increased to approximately $929,000 in Q3-2007 from
approximately $271,000 in Q3-2006. The increase is related to the increases in
revenue described above. The gross profit percentage achieved in Q3-2007 was
impacted negatively during Q3-2007 by depreciation and maintenance expenses
recorded for SPY Systems that were relatively unproductive during the quarter
as a result of the ICG disruption discussed above. The gross profit percentage
earned in Q3-2007 was lower than the percentage earned in Q2-2007 because
capital sale revenue was lower in Q3-2007, and the affect of SPY related
depreciation and maintenance charges was more pronounced.

Sales and marketing expenses increased to approximately $2,093,000 in
Q3-2007 from approximately $1,134,000 in Q3-2006. The increase includes the
cost of building a direct sales team which began in December 2006 and higher
commissions related to sales growth. Sales and marketing expenses in Q3-2007
decreased from approximately $2,889,000 in Q2-2007 as a result of a
rationalization of the direct sales team hired by the Company in late 2006 and
the sales team hired in connection with the acquisition of the TMR
distribution rights. The rationalization was completed late in Q2-2007.

Research and development expenses increased to approximately $1,452,000
in Q3-2007 from approximately $1,164,000 in Q3-2006. The largest increases
include an increase in salary expense of approximately $146,000 which occurred
primarily as a result of hiring former employees of Xillix and an increase in
patent and trademark expenses. Similarly, the increase in total research and
development expense from approximately $1,306,000 incurred in Q2-2007 relates
primarily to Xillix related salary expense and increased patent and trademark

General and administration expenses increased to approximately $1,371,000
in Q3-2007 from $852,000 in Q3-2006. The increase from Q3-2006 relates
primarily to an increase of approximately $134,000 in salary expense incurred
to support direct sales activities including those related to the TMR
distribution business, an increase in professional fees of approximately
$155,000 incurred to develop commercial agreements to support direct sales and
to file a complaint regarding infringement of our IP in Japan, and increased
rent and other expenses incurred in relation to the acquisition of Xillix
assets. The same factors led to an increase in general and administration
expenses from $1,067,000 incurred in Q2-2007.

Depreciation expense increased to approximately $87,000 in Q3-2007 from
approximately $45,000 in Q3-2006 and $60,000 in Q2-2007 primarily as a result
of the depreciation of assets purchased from Xillix in Q2-2007, offset by a
reduction related to a change in the estimated live of certain SPY Systems.
Amortization increased to approximately $293,000 in Q3-2007 from $110,000 in
Q3-2006 due to amortization of intangible assets recorded in connection with
the acquisition of TMR distribution rights, and the intellectual property of
Xillix. The increase from approximately $261,000 in Q2-2007 results from a
full quarter of amortization of intangible assets related to Xillix in Q3-2007.

The Company had interest expense in Q3-2007 of approximately $74,000
relating to a $3,000,000 note payable issued on March 20, 2007 in connection
with the acquisition of TMR distribution rights. The note was not outstanding
in Q3-2006. Interest expense decreased slightly from approximately $77,000 in
Q2-2007 because the note was repaid on September 25, 2007 and was not
outstanding through the entire Q3-2007.

Interest income increased to approximately $339,000 in Q3-2007 from
approximately $284,000 in Q3-2006 resulting from higher investment balances in
Q3-2007. The increase in investment income from approximately $214,000 earned
in Q2-2007 results from an increase in investment balances resulting from the
private placement completed in May 2007.

Net loss increased to approximately $4,083,000 in Q3-2007 from
approximately $2,741,000 in Q3-2006 primarily as a result of an increase in
sales and marketing costs of approximately $959,000, an increase in general
and administrative expenses of approximately $519,000, an increase in research
and development costs of $288,000 which were partly offset by an increase in
gross profit of $658,000. Net loss increased by approximately $628,000 from
$3,444,000 in Q2-2007 primarily as a result of a decrease gross profit of
$859,000, an increase in general and administration expenses of $304,000, an
increase in research and development expenses of $146,000 which were partially
offset by a decrease in sales and marketing costs of approximately $796,000.

As at September 30, 2007 the Company had cash, cash equivalents and
short-term investments of approximately $23,188,000, an increase of
approximately $6,358,000 from December 31, 2006. The increase in cash is the
result of net proceeds of a private placement of $26,032,000 offset by cash
used in operating activities of $11,614,000, investments in TMR business
assets of $5,667,000 (including repayment of a $3,000,000 note payable)
investments in intangible assets of 1,330,000, and investments in property
plant and equipment of $963,000.

As at October 29, 2007 there were a total of 23,992,012 common shares
(26,101,895 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 third quarter 2007 results. To access the
conference call by telephone, dial 416-644-3418 or 1-800-732-6179. Please
connect approximately ten minutes prior to the beginning of the call to ensure
participation. The conference call will be archived for replay until November
12, 2007 at midnight. To access the archived conference call, dial
416-640-1917 or 1-877-289-8525 and enter the reservation number 21251726
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 ICG imaging systems can be used to visualize blood
vessels, nerves and the lymphatic system during a variety of 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 heart bypass surgery. The SPY System
is expandable to include upgrade kits for use during other surgeries such as
plastic, reconstructive and organ transplant surgery allowing surgeons to
evaluate blood flow and tissue and organ perfusion. In addition, SPY is ideal
for use during urological procedures enabling surgeons to visualize vessels,
tumors, the lymphatic system and potentially nerve bundles. Novadaq's OPTTX®
System 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. Novadaq also offers the FDA approved PINPOINT
endoscopic system for visualizing native tissue fluorescence which allows
surgeons to differentiate between healthy and cancerous tissue in the lung
during thoracic surgery. 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 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, utilization of the recently implemented reimbursement code
for the SPY System, future revenues arising from the sales of the Company's
products, the distribution arrangements with PLC Medical Systems Inc.,
research and development activities, FDA approval of additional 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 Company's plan to place
SPY Systems for use in reconstructive and microsurgery, 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 for both cardiothoracic surgery, and other
indications including urological applications, the OPTTX System, PINPOINT
(formerly ONCO LIFE™), 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 PINPOINT,
the clinical results of the use of PINPOINT in alternative indications, the
results from post market clinical tests of the OPTTX System, 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, which 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 implemented 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 each of the SPY System, PINPOINT
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, and risks relating to
fluctuations in the exchange rate between the US dollar and the Canadian
dollar. Moreover, there can be no assurance that the intended collaborative
efforts of the Company and Intuitive Surgical, Inc., will result in the
development of any particular device, innovation, procedure, product or other
business opportunity for the Company, Intuitive Surgical or both, or that, if
developed same can be profitably marketed, if at all.

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 November
2, 2007.

(expressed in U.S. $)

As at, As at,
September 30 December 31
2007 2006
$ $
Cash and cash equivalents 1,077,999 2,311,973
Short-term investments 22,109,611 14,517,288
Accounts receivable 3,869,714 440,046
Prepaid expenses and other receivables 1,436,195 375,949
Inventory 1,657,149 185,792
Total current assets 30,150,668 17,831,048
Property, plant and equipment, net 2,952,134 1,933,896
Deferred charges 265,345 9,713
Deferred research and development costs 331,183 231,356
Intangible assets, net 10,854,392 2,607,135
44,553,722 22,613,148

Accounts payable and accrued liabilities 5,494,156 1,753,959
Current portion of deferred revenue 827,327 61,786
Total current liabilities 6,321,483 1,815,745
Deferred revenue 436,125 -
Total liabilities 6,757,608 1,815,745

Shareholders' equity
Share capital 79,553,574 51,721,632
Contributed surplus 4,146,567 3,751,493
Deficit (45,904,027) (34,675,722)
Total shareholders' equity 37,796,114 20,797,403
44,553,722 22,613,148

(expressed in U.S. $)

Three months ended Nine months ended
September 30, September 30,

2007 2006 2007 2006
$ $ $ $

Product sales 1,852,198 531,805 6,681,913 1,559,291
Service revenue 297,130 - 645,764 -
Total revenues 2,149,328 531,805 7,327,677 1,559,291
Cost of sales 1,220,417 261,166 3,947,225 759,073
Gross profit 928,911 270,639 3,380,452 800,218

Operating expenses
Sales and marketing 2,093,398 1,133,956 7,199,554 3,088,197
Research and
development 1,452,054 1,163,750 4,052,452 3,788,912
General and
administration 1,371,076 851,603 3,302,303 2,093,712
Depreciation 86,987 45,021 198,786 122,631
Amortization 293,347 109,660 676,164 328,916
Loss (gain) on foreign
exchange (20,066) (7,935) (235,153) (84,456)
5,276,796 3,296,055 15,194,106 9,337,912
Loss before the
following (4,347,885) (3,025,416) (11,813,654) (8,537,694)
Interest expense 74,061 161,188 -
Other income - - - 60,896
Interest income 338,856 284,345 746,537 748,684
Net loss for the
period (4,083,090) (2,741,071) (11,228,305) (7,728,114)

Deficit, beginning
of period (41,820,937) (28,626,844) (34,675,722) (23,639,801)
Deficit, end of
period (45,904,027) (31,367,915) (45,904,027) (31,367,915)

Basic and diluted
loss per share (0.17) (0.14) (0.52) (0.40)

(expressed in U.S. $)

Three months ended Nine months ended
September 30, September 30,

2007 2006 2007 2006
$ $ $ $

Net loss for the
period (4,083,090) (2,741,071) (11,228,305) (7,728,114)
Add (deduct) items not
involving cash:
Depreciation and
amortization 528,583 279,613 1,485,874 736,234
Stock option
compensation 178,956 81,825 395,074 226,657
(3,375,551) (2,379,633) (9,347,357) (6,765,223)
Net changes in
non-cash working
capital balances
related to
operations (87,699) 137,152 (2,266,996) 444,568
Cash provided by
(used in)
activities (3,463,250) (2,242,481) (11,614,353) (6,320,655)

Repayment of note
payable (3,000,000) (3,000,000)
Issuance of common
shares, net 201,128 837 26,032,205 5,463,144
Cash provided by
activities (2,798,872) 837 23,032,205 5,463,144

Deferred research and
development costs 3,564 - (99,824) -
Purchase of plant,
property and
equipment (305,900) (409,087) (962,726) (1,926,171)
Purchase of
intangible assets (325,007) - (1,330,055) (15,000)
Purchase of TMR
business (280,782) - (2,666,899) -
Investments in
investments, net 7,640,377 2,992,767 (7,592,323) 2,461,537
Cash provided by
(used in) investing
activities 6,732,252 2,583,680 (12,651,826) 520,366

Net increase (decrease)
in cash and cash
equivalents during
the period 470,130 342,036 (1,233,974) (337,145)
Cash and cash
equivalents, beginning
of period 607,869 71,545 2,311,973 750,726
Cash and cash
equivalents, end of
period 1,077,999 413,581 1,077,999 413,581

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