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Novadaq Reports Financial Results for the Second Quarter of 2008

July 30, 2008

Novadaq(R) Technologies Inc. (TSX: NDQ), a leading developer of real-time imaging and image guidance systems for use in the operating room, today announced its financial results for the second quarter ended June 30, 2008. In this press release, unless otherwise indicated, all dollar amounts are expressed in US dollars.

Q2-2008 Highlights

– SPY continues to gain:

— 21 units installed, the highest quarterly installed so far

— SPY capital sales up 41% over Q1-2008

— SPY kits sales up 37% over Q1-2008

– SPY data presentation designated as the best poster in its scientific session at the 2008 American Urological Association conference. The presentation by a leading University of Rochester researcher concluded that the use of SPY may allow urologists to diagnose additional lesions, decrease positive surgical margins rate, spare unnecessary resection of normal parenchyma, and preserve renal function.

– Positive 12-month follow-up data on wet AMD patients treated with the OPTTX(R) System presented by ophthalmologists from Sacco Hospital in Milan, Italy at the Euretina Conference. This data continued to support the six-month data presented earlier in the quarter at the Association for Research in Vision and Ophthalmology Conference and served to further strengthen partnership opportunities.

“This is the third quarter in a row where SPY disposable revenues have grown in double digits,” commented Dr. Arun Menawat, Novadaq’s President and Chief Executive Officer. “Part of that success has come from us viewing SPY not as a single product or product category, but rather, as a platform technology that can be applied to and across multiple surgical markets such as cardiac, urological, general, micro, plastic and reconstructive. As we move forward into the second half of 2008, our continuing focus will be on indentifying and targeting additional SPY markets while, at the same time, building awareness, acceptance and adoption of all our core imaging technologies amongst surgeons and surgery centers.”

Quarter Ended June 30, 2008 “Q2-2008″ Compared to Quarter Ended June 30, 2007 “Q2-2007″

Revenue decreased to approximately $3,457,000 in Q2-2008 from approximately $3,751,000 in Q2-2007, a drop of $294,000. This decline is reflective of a number of factors. Overall SPY related revenues increased to $1,316,000 in Q2-2008 from $714,000 in Q2-2007 and increase of $603,000. This was driven by an increase in SPY kit revenue of $439,000 and SPY capital revenue of $164,000. This was offset by a decline in TMR revenues from $1,506,000 in Q2-2007 to $442,000 in Q2-2008 a decline of $1,064,000. The bolus of activity in TMR capital during Q2-2007 can in part be attributed to the shortage of ICG driving a more intense focus on other revenue opportunities. The quarter also saw a significant increase in sales of Pinpoint to $258,000 in Q2-2008 from $7,000, an increase of $251,000. Due to sales of a capital nature being difficult to precisely predict at this point in the Company’s development, fluctuations on a quarterly basis are to be anticipated. We also identified a modest decline in TMR kits revenue which dropped by $66,000 compared to the second quarter in 2007. Service revenue declined by approximately $17,000.

With respect to a comparison to Q1-2008, revenue increased by approximately $684,000 which included an increase in SPY kit revenue of approximately $146,000, an increase in SPY capital sales of $228,000, and an increase in PINPOINT revenue of $252,000. There was also a modest increase in TMR capital sales, with TMR kit sales being approximately flat. The Company placed 21 SPY systems during the quarter, the highest placement activity rate achieved to date.

Gross profit increased to approximately $1,832,000 in Q2-2008 from approximately $1,787,000 in Q2-2007. The gross margin percentage of 53% in Q2-2008 compared to 47.6% in 2007. This improvement was primarily driven by the product mix moving towards the higher margin SPY product set.

Sales and marketing expenses increased by approximately $125,000 to approximately $3,014,000 in Q2-2008 from approximately $2,889,000 in Q2-2007 due to higher salary costs and travel expenses partially offset by lower commission payments. The non-cash expense relating to options extension amounted to $68,000.

Research and development expenses were $1,334,000, an increase of $28,000 on Q2-2007. This was driven by an increase of $148,000 in salaries partially offset by a research credit of $123,000. The increase in salaries was due to an increased level of investment in endoscope development.

General and administration expenses increased by approximately $538,000 to approximately $1,604,000 in Q2-2008 from $1,067,259. Primary drivers were salaries, professional fees and non cash option costs. The professional fees, which increased by $141,000, are in part the ongoing costs of defending SPY intellectual properties rights in Japan. The non-cash charge in the quarter for options related items was $257,000. Salaries increased by $148,000 compared to the same quarter in 2007.

Depreciation expense increased to approximately $85,000 in Q2-2008 from approximately $60,000 in Q2-2007 primarily as a result of increased depreciation of capital equipment used for endoscope development.

Amortization increased from $261,000 in Q-2007 to $308,000 in Q2-2008 as a result of the acquisition of intangibles related to TMR and Xillix. Amortization in Q2-2008 was flat in comparison with Q1-2008. The Company had interest expense in Q2-2007 of approximately $77,000 related to the debt used to finance TMR acquisition. The debt was repaid and the charge ceased in 2007.

Interest income decreased by approximately $147,000 to $67,000 in Q2-2008 from $214,000 in Q2-2007. The decrease was primarily driven by lower cash balances and lower interest rates. The gain on foreign exchange in Q2-2007 was $217,000 which declined by $166,000 to $51,000 in Q2-2008, largely driven by funds being held in the functional currency.

Net loss increased by approximately $927,000 to approximately $4,371,000 in Q2-2008 from approximately $3,444,000 in Q2-2007 primarily as a result of an increase in sales and marketing costs of approximately $125,000, an increase in R&D expense of $28,000 and an increase in general and administrative expenses of approximately $538,000. Non-cash options based compensation charges accounted for $402,000 during the quarter. Other factors contributing to the overall net loss were a decline in interest earned and foreign exchange gains offset by a slight increase in margin and a gain on investment.

Novadaq’s principal capital needs are for funds to support scientific research and development activities, including device design and development and clinical trials, and funds to support sales and marketing activities, capital expenditures and working capital. Since inception, Novadaq has financed its cash requirements primarily through the issuances of securities, investment tax credits, government funding and interest income. Management believes that over the short term revenues will continue to increase as a result of the Company’s sales of the SPY products into the US. Management also believes that the Company currently has sufficient capital resources over the short term to continue to execute to its commercialization plans. The Company is aware of the medium to long term funding required to fully commercialize its product set and is working towards addressing these objectives. Consideration is being given to a number of options including; licensing or selling non-core technology, partnering with other larger companies for faster commercialization and recourse to the equity markets.

As at June 30, 2008 the Company had cash, cash equivalents and short-term investments of approximately $10,370,411, a decrease of approximately $4,402,000 from March 30, 2008. The decrease is comprised of an operating loss after adding back noncash items of $3,363,000, a use of $828,000 to fund changes in working capital, an investment of $474,000 in plant, property and equipment offset partly by redemption of long term investment of $250,000.

Dr. Julia Levy Joins Novadaq’s Board of Directors

Novadaq also announced today that Dr. Julia Levy has been appointed to its Board of Directors.

Dr. Levy is the co-founder of QLT Inc., where she held several key positions, including President and CEO from 1995 to February 2002. Under Dr. Levy’s leadership, QLT recorded the strongest period of growth in company history and earned a reputation for achieving milestones, including FDA approval for Visudyne(R) therapy to treat wet AMD.

Following her doctorate degree in immunology from the University of London, Dr. Levy was awarded an Industrial Professorship in the Department of Microbiology from the University of British Columbia and is the recipient of several honorary degrees. A fellow of the Royal Society of Canada and former President of the Canadian Federation of Biological Sciences, Dr. Levy has earned numerous awards and honors including an appointment as an Officer of the Order of Canada in 2001, the Female Entrepreneur of the Year for International Business in 1998, Pacific Canada Entrepreneur of the Year in 2000 and the Future of Vision Award from the Foundation Fighting Blindness in 2001. In 2002 she received, along with Dr. David Dolphin, the Friesen-Rygiel prize for medical research and the Prix Galien Canada research award. Along with Dr. Gustav Huber of Novartis, she was presented with the 2003 Helen Keller Prize for Innovation in Eye Care. In her honor, the Julia G. Levy Professorship in Ophthalmology Chair was created at Johns Hopkins Hospital Wilmer Eye Institute in 2004, the same year she was awarded the Lifetime Achievement Award from the British Columbia Biotechnology Association. She is the author of many published scientific articles, a director of the Working Opportunity Fund (a Canada-based venture capital firm), and serves as a director with a number of public and private health care companies. “We are thrilled to have Dr. Levy join the Company’s Board,” said Dr. Menawat. “Julia’s great clinical and business experience will be a tremendous asset to Novadaq as we continue to execute our strategies for growth.”

Conference Call

Novadaq is pleased to invite all interested parties to participate in a conference call today, July 30, at 10:00 a.m. Eastern Time during which these results will be discussed.

Those wishing to access the live conference call by telephone should dial 1-866-223-7781 (within Canada and the United States) or 416-641-6119 (international callers) several minutes prior to the beginning of the call. A telephonic replay of the conference call will be made available until August 13, 2008 at midnight and can be accessed by dialing 416-695-5800 and entering the pass code 3266650 followed by the number sign when prompted.

The call will also be webcast live and archived for 365 days on the company’s website at www.novadaq.com under the “Events” tab in the Investors section. In addition, a replay of the call will be available for download to a portable audio player or computer as an MP3, or podcast, file at the same location on Novadaq’s website.

About Novadaq Technologies Inc.

Novadaq commercializes real-time imaging and image guidance systems for use in the operating room. With one set of proprietary core technologies, Novadaq’s products have multiple applications. Novadaq’s SPY(R) System enables cardiac surgeons to diagnose intra-operatively by visually assessing coronary vasculature and bypass graft functionality during the course of heart bypass surgery. The SPY System is also indicated for use during other surgeries, such as cardiovascular, plastic, reconstructive, organ transplant and urological procedures. SPY can be used to visualize blood vessels, tumors, tumor margins and the lymphatic system. Novadaq introduced PINPOINT(TM), its first minimally invasive imaging system for autofluorescence, in October 2007. PINPOINT allows surgeons to differentiate between healthy and cancerous tissue in the lung and other hollow organs. Further expanding its portfolio of minimally invasive products, Novadaq is developing SPYscope which combines the typical features of a standard endoscope with the additional capabilities of SPY imaging. Novadaq is the exclusive United States distributor of PLC Medical’s CO2 HEART LASER System, used in the same cardiac procedures as the SPY System. Novadaq also offers the OPTTX(R) System, which leverages the company’s core imaging technology and is designed for the diagnosis, evaluation and treatment of wet Age-related Macular Degeneration (AMD). For more information, please visit the company’s website at www.novadaq.com.

Forward-Looking Statements

Certain statements included in this press release may be considered forward-looking. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements, and therefore these statements should not be read as guarantees of future performance or results. All forward-looking statements are based on Novadaq’s current beliefs as well as assumptions made by and information currently available to Novadaq and relate to, among other things, results of future clinical tests of PINPOINT and the SPY System, anticipated financial performance, business prospects, strategies, regulatory developments, market acceptance and future commitments. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Due to risks and uncertainties, including the risks and uncertainties identified by Novadaq in its public securities filings actual events may differ materially from current expectations. Novadaq disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

                       CONSOLIDATED BALANCE SHEET             (expressed in U.S. dollars)     (unaudited)                                                      As at         As at                                                    June 30,  December 31,                                                       2008          2007                                                          $             $                                                 ------------------------- ASSETS Current Cash and cash equivalents                        6,841,975     7,417,929 Short-term investments                           3,528,436    11,443,506 Accounts receivable                              2,967,229     4,743,994 Current portion of prepaid expenses and other  receivables                                     1,357,515     1,185,707 Inventory                                        1,450,175     2,031,932                                                 ------------------------- Total current assets                            16,145,330    26,823,068                                                 ------------------------- Long-term investments                              240,000       426,000 Property, plant and equipment, net               3,118,514     2,785,342 Prepaid expenses and other receivables             295,662       323,761 Deferred development costs                         331,183       331,183 Intangible assets                               10,414,266    11,030,760                                                 -------------------------                                                 30,544,955    41,720,114                                                 -------------------------                                                 ------------------------- LIABILITIES AND SHAREHOLDERS'  EQUITY Current Accounts payable and accrued liabilities         3,851,966     6,289,722 Current portion of deferred revenue                838,681       995,099                                                 ------------------------- Total current liabilities                        4,690,647     7,284,821                                                 ------------------------- Deferred revenue                                   422,073       446,118                                                 ------------------------- Total liabilities                                5,112,720     7,730,939                                                 ------------------------- Shareholders' equity Share capital                                   80,144,379    80,109,644 Contributed surplus                              4,864,653     4,285,187 Accumulated other comprehensive loss               (30,000)      (69,000) Deficit                                        (59,546,797)  (50,336,656)                                                 ------------------------- Total shareholders' equity                      25,432,235    33,989,175                                                 -------------------------                                                 30,544,955    41,720,114                                                 -------------------------                                                 -------------------------                CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT             (expressed in U.S. dollars)             (unaudited)                               Three months ended          Six months ended                                          June 30                   June 30                         ---------------------------------------------------                                2008         2007         2008         2007                                   $            $            $            $                         --------------------------------------------------- Revenues Product sales             3,056,702    3,333,425    5,408,548    4,760,849 Service revenue             400,329      417,500      821,145      417,500                         --------------------------------------------------- Total revenues            3,457,031    3,750,925    6,229,693    5,178,349 Cost of sales             1,625,127    1,964,246    3,093,319    2,712,308                         --------------------------------------------------- Gross profit              1,831,904    1,786,679    3,136,374    2,466,041                         --------------------------------------------------- Operating expenses Long-term investments     3,014,418    2,889,272    5,798,543    5,106,158 Research and  development              1,333,572    1,305,523    2,945,663    2,600,398 General and  administration           1,604,507    1,067,259    3,063,525    1,945,726 Depreciation                 84,961       59,844      173,776      111,799 Amortization                308,247      261,296      616,494      382,817 Gain on foreign  exchange                   (50,859)    (216,505)      (1,333)    (215,087)                         --------------------------------------------------- Total operating  expenses                 6,294,846    5,366,689   12,596,668    9,931,811                         --------------------------------------------------- Loss before the  following               (4,462,942)  (3,580,010)  (9,460,294)  (7,465,770) Interest expense                  -      (77,729)           -      (87,125) Gain on investments          25,000            -       25,000            - Interest income              66,733      213,658      225,153      407,681                         --------------------------------------------------- Net loss for the period  (4,371,209)  (3,444,081)  (9,210,141)  (7,145,214) Deficit, beginning of  period                 (55,175,588) (38,376,854) (50,336,656) (34,675,721)                         --------------------------------------------------- Deficit, end of period  (59,546,797) (41,820,935) (59,546,797) (41,820,935)                        ---------------------------------------------------                         --------------------------------------------------- Basic and fully diluted  loss per share               (0.18)       (0.16)       (0.38)       (0.35)                         ---------------------------------------------------                         ---------------------------------------------------                         CONSOLIDATED STATEMENTS OF                             COMPREHENSIVE LOSS                (expressed in U.S. dollars)      (unaudited)                                  Three months ended        Six months ended                                             June 30                 June 30                              -----------------------------------------------                                    2008        2007        2008        2007                                       $           $           $           $                              ----------------------------------------------- Net loss for the period      (4,371,209) (3,444,081) (9,210,141) (7,145,214) Unrealized loss on  investment                     (39,000)          -     (39,000)          -                              ----------------------------------------------- Comprehensive loss           (4,410,209) (3,444,081) (9,249,141) (7,145,214)                              -----------------------------------------------                              -----------------------------------------------                      CONSOLIDATED STATEMENTS OF CASH FLOWS                  (expressed in U.S. dollars)       (unaudited)                               Three months ended         Six months ended                                          June 30                  June 30                          -------------------------------------------------                                2008         2007        2008         2007                                   $            $           $            $                          ------------------------------------------------- OPERATING ACTIVITIES Net loss for the period  (4,371,209)  (3,444,081) (9,210,141)  (7,145,214) Add items not involving  cash Depreciation and  amortization               606,175      588,692   1,193,020      957,291 Gain on investment          (25,000)           -     (25,000)           - Stock-based  compensation               402,205      122,906     579,466      216,118                          -------------------------------------------------                          (3,387,829)  (2,732,483) (7,462,655)  (5,971,805) Net change in non-cash  working capital  balances related to  operations                (802,954)  (1,961,685)  1,685,878   (2,179,297)                          ------------------------------------------------- Cash used in operating  activities              (4,190,783)  (4,694,168) (5,776,777)  (8,151,102)                          ------------------------------------------------- FINANCING ACTIVITIES Issuance of common  shares, net                  9,735   25,831,077      34,735   25,831,077                          ------------------------------------------------- Cash provided by  financing activities         9,735   25,831,077      34,735   25,831,077                          ------------------------------------------------- INVESTING ACTIVITIES Research and  development costs                -      (65,496)          -     (103,390) Purchase of plant,  property and equipment    (473,711)    (141,061)   (909,698)    (656,824) Purchase of Xillix  business                         -   (1,005,048)          -   (1,005,048) Redemption of long-  term investments           250,000            -     250,000            - Purchase of TMR  business                         -            -  (2,089,284)  (2,386,117) Sale of short-term  investments, net         3,732,672  (19,923,990)  7,915,070  (15,232,700)                          ------------------------------------------------- Cash provided by  (used in) investing        activities               3,508,961  (21,135,595)  5,166,088  (19,384,079)                          ------------------------------------------------- Net increase (decrease)  in cash and cash  equivalents during the  period                    (672,087)       1,314    (575,954)  (1,704,104) Cash and cash  equivalents, beginning  of period                7,514,062      606,555   7,417,929    2,311,973                          ------------------------------------------------- Cash and cash  equivalents, end of  period                   6,841,975      607,869   6,841,975      607,869                          -------------------------------------------------                          ------------------------------------------------- 

 Contacts: Company: Novadaq Technologies Inc. Arun Menawat, PhD, MBA, President & CEO (905) 629-3822 X 202 Email: amenawat@novadaq.com Website: www.novadaq.com  Investor: Kilmer Lucas Inc. Stephen Kilmer, Managing Partner (905) 690-2400 X 21 Email: stephen@kilmerlucas.com  Media: Kilmer Lucas Inc. Leonard Zehr, Senior Partner (905) 690-2400 X 41 Email: len@kilmerlucas.com

SOURCE: Novadaq Technologies Inc.




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