Xillix Technologies Corp.
TSX : XLX

Xillix Technologies Corp.

November 14, 2006 17:24 ET

Xillix Announces Third Quarter Results

RICHMOND, BRITISH COLUMBIA--(CCNMatthews - Nov. 14, 2006) - Xillix Technologies Corp. (TSX:XLX), the world leader in fluorescence endoscopy for the early detection of cancer, today announced results for the third quarter ended September 30, 2006.

New Product Introduction

During the quarter, and as part of its ongoing research and development activities, Xillix announced it had developed a new product, LIFE Luminus™, designed to allow fluorescence imaging of the colon using conventional video endoscope technology. Video endoscopes are the current gold standard in colorectal screening, and LIFE Luminus allows physicians to capture fluorescence images in the colon with the white light equipment they currently use in their daily practice. Based upon clinically proven Xillix LIFE™ technology, the new product also incorporates a single use, disposable component. Development of the product is ongoing and the Company is evaluating the most efficient and cost effective path forward for this product.

Amendments to Loan Agreement and Subsequent Events

In August, Xillix announced changes to its Loan Agreement with Hercules Technology Growth Capital, Inc. ("Hercules"), the Company's secured lender. In exchange for a US$1 million pre-payment of principal, payment of certain associated costs, changes to the repayment schedule and re-pricing of previously issued warrants, Hercules agreed to waive certain claims which it may otherwise have with the respect to the occurrence of defaults under the Loan Agreement.

Subsequent to quarter end, Xillix received a demand letter from Hercules for the repayment of the term loan alleging that Xillix was in default under the Loan Agreement and related security agreement. On October 23, 2006, Xillix sought and obtained an order of the British Columbia Supreme Court granting it protection from creditors under the Companies' Creditors Arrangement Act (CCAA). The court order will give Xillix time to develop a reorganization plan, thereby providing the Company with an opportunity to maximize value for its stakeholders. During the period of this protection, the Company intends to continue to seek a collaboration partner or other interested party to further the development and commercialization of Xillix's world leading fluorescence technology for cancer detection.

"The last few months have presented both opportunities and challenges for Xillix," said Brett Gannon, President and CEO. "We have taken the necessary steps to afford us maximum flexibility as we assess all the options to maximize stakeholder value and I would like to thank all stakeholders for their support and patience during this period."

Financial Review

Revenues for the three and nine months ended September 30, 2006 were $0.3 million and $1.6 million, respectively, compared with $1.4 million and $2.0 million for the three and nine months ended September 30, 2005. Revenues were derived from the sales of Onco-LIFE devices, accessories and services to customers in the U.S. as well as sales to customers in Canada and other international markets. During the three and nine months ended September 30, 2006, three and 24 Onco-LIFE units were sold, respectively, compared with 23 and 33 units during the three and nine months ended September 30, 2005. The decrease in revenues during the third quarter of 2006 compared with the same quarter in 2005 reflects the lower number of units sold during 2006.

Cost of sales was $0.3 million and $1.6 million for the three and nine months ended September 30, 2006, respectively, compared with $1.1 million and $1.9 million for the three and nine months ended September 30, 2005. Cost of sales includes the cost of manufacturing overheads as well as the direct cost of Onco-LIFE devices sold during the periods. Gross margins during the three and nine months ended September 30, 2006 were nominal, reflecting lower sales volumes combined with fixed overhead costs not absorbed by the level of sales activity during the period.

R&D expenditures for the quarter ended September 30, 2006 were $0.7 million compared with $1.0 million for the same quarter in 2005. R&D expenditures for the nine months ended September 30, 2006 were $3.0 million compared with $3.2 million for the same period in 2005. R&D expenditures in both years consisted primarily of salaries and benefits. For the three and nine months ended September 30, 2006, R&D salaries and benefits expenses were $0.5 million and $2.2 million, respectively, and $0.7 million and $2.1 million for the three and nine months ended September 30, 2005, respectively. The decrease in salaries and benefits during the third quarter of 2006 compared with the prior year reflects reduced headcount as part of the Company's cost reduction program. The increase in salaries and benefits for the nine months ended September 30, 2006 compared with the same period in 2005 reflects one time restructuring costs associated with the Company's previously announced cost reduction program. The remainder of R&D expenditures in the first three quarters of 2006 resulted primarily from the development of the Company's latest product, LIFE Luminus. The balance of R&D expenditures in the first three quarters of 2005 resulted from preparation for the previously planned clinical trials for the GI (colon cancer) application of Onco-LIFE, as well as on continued R&D activities for new applications of Onco-LIFE. In July 2006, the Company announced its decision to cancel its planned clinical trials for the GI application of Onco-LIFE and as a result will not be incurring any further costs related to this trial. The Company does expect R&D expenditures to remain substantial in the near future as it focuses all of its R&D spending on its newest development project, LIFE Luminus.

General and administrative (G&A) expenses were $0.7 million for the three months ended September 30, 2006 and September 30, 2005. G&A expenses were $2.0 million for the nine months ended September 30, 2006 compared with $2.2 million for the nine months ended September 30, 2005 and were comprised mainly of salaries and benefits, investor relations, legal and travel costs.

Marketing and sales expenses were $0.4 million and $2.1 million for the three and nine months ended September 30, 2006, respectively. This compares with $0.8 million and $1.9 million for the same periods in 2005. The decrease from the third quarter of 2005 to the third quarter of 2006 is due to a reduction in sales salaries and headcount as part of the Company's previously announced cost reduction program.

The loss for the three months ended September 30, 2006 was $2.2 million, or ($0.02) per share. This compares with a loss of $2.6 million, or ($0.02) per share, for the same period in 2005. The loss for the nine months ended September 30, 2006 was $9.0 million, or ($0.07) per share. This compares with a loss of $8.2 million, or ($0.06) per share for the nine-month period ended September 30, 2005. The Company does not anticipate earning a profit in 2006.

As at September 30, 2006, the Company had working capital of $3.5 million that primarily consisted of cash and cash equivalents of $0.1 million and short-term investments of $3.1 million. This compares with working capital of $15.5 million at December 31, 2005, which primarily consisted of cash and cash equivalents of $8.6 million and short-term investments of $6.6 million. The decrease in working capital is primarily attributed to the loss for the nine months ended September 30, 2006 of $9.0 million, combined with long-term debt repayments of $1.7 million, $1.0 million of which was repaid in August 2006 as part of an amendment to the Company's loan agreement with Hercules.



CONSOLIDATED BALANCE SHEETS

(Expressed in Canadian dollars)

September 30 December 31
2006 2005
(Unaudited) $ $
------------------------------------------------------------------------

ASSETS
Current
Cash and cash equivalents 57,250 8,568,491
Short term investments 3,130,099 6,608,056
Accounts receivable 186,791 475,657
Interest and other receivables 80,586 164,787
Inventories 3,189,548 2,273,559
Prepaid expenses and deposits 292,881 263,480
------------------------------------------------------------------------
Total current assets 6,937,155 18,354,030
Capital assets 2,262,050 1,964,146
Intellectual property and patents 522,081 586,242
Deferred charges 377,495 -
Deferred financing costs 162,619 206,882
------------------------------------------------------------------------
Total assets 10,261,400 21,111,300
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
Current
Accounts payable and accrued
liabilities 1,011,639 1,663,559
Current portion of capital lease
obligation 5,247 4,769
Current portion of long term debt 2,646,883 1,121,259
Deferred revenue 6,120 2,040
Deferred lease inducement 128,487 105,419
------------------------------------------------------------------------
Total current liabilities 3,798,376 2,897,046
Capital lease obligation 6,615 10,650
Deferred lease inducement 53,536 127,095
Deferred revenue 1,655,348 1,395,243
Convertible debt 4,333,728 4,215,459
Long term debt 1,833,140 4,935,929
------------------------------------------------------------------------
Total liabilities 11,680,743 13,581,422
------------------------------------------------------------------------

Shareholders' equity (deficiency)
Common share capital 88,514,806 88,509,706
Contributed Surplus 1,969,844 1,956,323
Deficit (91,903,993) (82,936,151)
------------------------------------------------------------------------
Total shareholders' equity
(deficiency) (1,419,343) 7,529,878
------------------------------------------------------------------------
Total liabilities and
shareholder's equity (deficiency) 10,261,400 21,111,300
------------------------------------------------------------------------
------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

(Expressed in Canadian dollars)

Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
(Unaudited) $ $ $ $
--------------------------------------------------------------------------

REVENUE
Product sales and
services 273,688 1,351,617 1,620,353 1,950,537
Cost of sales and
services 271,233 1,062,175 1,601,346 1,855,997
--------------------------------------------------------------------------
Gross margin 2,455 289,442 19,007 94,540
--------------------------------------------------------------------------

EXPENSES
Research and
development 652,787 1,022,508 2,971,096 3,214,955
General and
administrative 668,004 671,824 2,010,802 2,185,047
Marketing and sales 379,243 841,067 2,108,003 1,923,846
Amortization 174,960 223,066 603,476 718,189
--------------------------------------------------------------------------
Total expenses 1,874,994 2,758,465 7,693,377 8,042,037
--------------------------------------------------------------------------
Operating loss (1,872,539) (2,469,023) (7,674,370) (7,947,497)
Interest Income 32,528 75,501 156,163 264,409
Foreign exchange
gain (loss) 6,657 (39,622) (260,452) (51,326)
Interest expense -
long term (381,217) (167,805) (1,189,183) (502,949)
--------------------------------------------------------------------------
Loss for the period (2,214,571) (2,600,949) (8,967,842) (8,237,363)

Deficit, beginning
of period (89,689,422) (77,044,916) (82,936,151) (71,408,502)
--------------------------------------------------------------------------
Deficit, end of
period (91,903,993) (79,645,865) (91,903,993) (79,645,865)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Loss per common
share - basic and
diluted (0.02) (0.02) (0.07) (0.06)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Weighted average
number of common
shares outstanding 136,917,464 129,232,515 136,912,617 128,492,607
--------------------------------------------------------------------------
--------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in Canadian dollars)

Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
(Unaudited) $ $ $ $
--------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the period (2,214,571) (2,600,949) (8,967,842) (8,237,363)
Add items not
affecting cash:
Amortization of
capital assets and
intellectual
property and patents 174,960 223,066 603,476 718,189
Amortization of
deferred financing
costs 15,274 2,433 46,164 7,298
Amortization of
deferred lease
inducement (32,122) 44,938 (50,491) 166,180
Accretion of
liability component
of convertible debt 39,423 39,423 118,269 118,269
Accretion of long
term debt and end of
term fee 41,361 - 124,371 -
Stock-based
compensation expense 26,223 66,598 13,521 167,139
--------------------------------------------------------------------------
(1,949,452) (2,224,491) (8,112,532) (7,060,288)
Changes in non-cash
operating working
capital items
relating to
operations:
Accounts receivable (130,643) (671,465) 288,866 (1,021,633)
Interest and other
receivables 62,289 95,974 84,201 76,048
Inventories (864) (289,661) (915,989) (983,313)
Prepaid expenses and
deposits 10,143 (46,533) (29,401) (59,414)
Accounts payable and
accrued liabilities (190,980) 79,551 (626,257) (328,724)
Deferred revenue (510) 30,602 264,186 330,002
Deferred charges (377,495) - 377,495 -
--------------------------------------------------------------------------
Cash used in
operating activities (2,577,512) (3,026,023) (9,424,421) (9,047,322)
--------------------------------------------------------------------------

FINANCING ACTIVITIES
Issuance of share
capital, net 600 - 5,100 70,879
Repayment of capital
lease obligations (1,224) (1,077) (3,557) (3,132)
Cost of issuance of
convertible
debentures - - - (66,262)
Repayment of long
term debt, net (1,701,535) - (1,703,436) -
--------------------------------------------------------------------------
Cash (used in)
provided by
financing activities (1,702,159) (1,077) (1,701,893) 1,485
--------------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of capital
assets (9,467) (179,002) (808,635) (806,149)
Purchase of
intellectual
property and patents (5,930) (32,263) (54,249) (107,611)
Proceeds from short
term investments,
net 2,002,761 3,543,702 3,477,957 4,505,591
--------------------------------------------------------------------------
Cash provided by
investing activities 1,987,364 3,332,437 2,615,073 3,591,831
--------------------------------------------------------------------------

(Decrease) increase
in cash and cash
equivalents (2,292,307) 305,337 (8,511,241) (5,454,006)

Cash and cash
equivalents,
beginning of period 2,349,557 1,805,180 8,568,491 7,564,523
--------------------------------------------------------------------------
Cash and cash
equivalents, end of
period 57,250 2,110,517 57,250 2,110,517
Supplemental cash
flow information:
Interest paid 172,659 125,666 787,880 389,427
--------------------------------------------------------------------------
--------------------------------------------------------------------------


About Xillix

Xillix Technologies Corp. is a Canadian medical device company and the world leader in fluorescence endoscopy for improved cancer detection. Xillix's currently approved device, Onco-LIFE™, incorporates fluorescence and white-light endoscopy in a single device that has been developed for the detection and localization of lung and gastrointestinal (GI) cancers. An international multicentre lung cancer clinical trial of Onco-LIFE demonstrated a 325% per- lesion improvement in the detection of early lung cancer (moderate-severe dysplasia and carcinoma in situ) and a 250% per- patient improvement compared to white-light alone. Onco-LIFE is approved for sale in the United States for the lung application and in Europe, Canada and Australia for both lung and GI applications. The Company also recently announced that it has developed a new product, LIFE Luminus™, designed to allow fluorescence imaging of the colon using conventional video endoscope technology.

"Statements contained in this document which are not based on historical fact, including without limitation, statements containing the words "may", "will", "plans", "intends", "expects", "anticipates", "believes", "estimate", "continue" and similar expressions, constitute "forward-looking information" within the meaning of applicable Canadian securities laws. Forward-looking statements contained in this document may involve, but are not limited to, statements relating to the Company's objectives, priorities, strategies, actions, targets, expectations and outlook. Forward-looking statements are necessarily based upon assumptions and predictions with respect to the future, including but not limited to the factors referred to below. As a result, forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied thereby. These risks, uncertainties and other factors include, but are not limited to the factors referred to in the Company's Annual Information Form dated March 28, 2006 and its other filings with the applicable Canadian securities regulatory authorities. In light of these uncertainties, assumptions and risks, readers are cautioned not to place undue reliance on such forward-looking statements, and the Company assumes no obligation to update or revise such information to reflect later events or developments, except as required by law."

The Company is listed on the Toronto Stock Exchange under the trading symbol "XLX".

Contact Information

  • Xillix Technologies Corp.
    Sonja Rematore
    Investor Relations
    (604) 278-5000
    Email: ir@xillix.com
    or
    Xillix Technologies Corp.
    Brett Gannon
    President and Chief Executive Officer
    (604) 278-5000
    (604) 278-5111 (FAX)
    Website: www.xillix.com