Financial Results of the second Quarter 2007 - ORTHOsoft Announces Financial Results for the Second Quarter 2007



    
    ORTHOsoft reports a record 62% increase in Direct Sales and 105% increase
    in recurring revenues

    HIGHLIGHTS
    - Q2 2007 revenues up 16.82% over Q2 2006
    - Direct Sales revenue up 62% over Q2 2006
    - Record Recurring sales up 104.67% over Q2 2006
    - Software revenue up 37.18% over Q2 2006
    - Record direct procedures, up 162% from Q2 2006
    - Record pay-per-use procedures, up 36% from Q2 2006
    

    MONTREAL, Aug. 28 /CNW Telbec/ - ORTHOsoft Inc. (TSX-V: OSH), a leader in
computer-assisted surgery systems that increase the accuracy of orthopaedic
hip and knee replacement, reports results for the second quarter and six-month
period ended June 30, 2007. Second quarter revenues for 2007 were 
$3.66 million, increasing 16.82% from $3.13 million for the second quarter of
2006. For the six-month period ended June 30, 2007, revenues were 
$6.15 million, increasing 12.25% from $5.48 million for the same period a year
ago. This increase was mainly driven by a continued growth in recurring
revenues and in Direct Sales of CAS systems and software applications.
    "We are meeting our objectives. The strong growth in the number of direct
procedures as well as pay-per-use is a testimony of the effectiveness of our
sales force as well as the excellence of our products", commented Dr.
Louis-Philippe Amiot, Chairman and CEO of ORTHOsoft Inc.

    Overview of three-month and Six-month period ended June 30, 2007

    For the three-month period ended June 30, 2007, revenues from the sale of
software applications were $0.74 million, up by 37% compared to the same
period a year ago. The increase is related to the increased sales of hip and
knee application licences; hardware sales amounted to $1.78 million, up by
0.35% over second quarter 2006. The increase is attributed to higher sales of
CAS systems and instruments. Recurring revenues amounted to $1.13 million, up
by 104.67% compared to the second quarter 2006. The significant increase is
attributable to the increase in sales of disposables and pay-per-use revenue.
The increase is a direct result of the release of Navitracker(TM), a
disposable reflector that revolutionizes the tracking of instruments and
patients' anatomy during orthopaedic surgeries. Development revenues were nil
compared to $0.26 million for the second quarter of 2006 in line with
corporate plan.
    For the six-month period ended June 30, 2007, software revenues were
$1.10 million, up by 4.02% compared to the same period a year ago. The
increase is attributable to the overall increase in the sales of knee and hip
applications. Hardware revenues reached $3.01 million, up by 3.76%. The
increase is attributable to the increased sales of instruments. Recurring
revenues climbed to $2.03 million, representing a growth of 90.51% compared to
the same period a year ago. The significant increase is attributable to the
increase in sales of disposables and pay-per-use revenue. Development revenues
were nil compared to $0.45 million for the same period of the previous year in
line with corporate plan.

    
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                                                                    Quarter
                                                                       over
                                           Three-month period       quarter
                                                ended June 30           +/-
    Revenues by category                   2007          2006          2007
    -------------------------------------------------------------------------
    Software applications               744,790       542,940         37.18%
    -------------------------------------------------------------------------
    Development services                      -       261,344       (100.00%)
    -------------------------------------------------------------------------
    Hardware (cart & instruments)     1,776,667     1,770,547          0.35%
    -------------------------------------------------------------------------
    Recurring revenues                1,133,697       553,912        104.67%
    -------------------------------------------------------------------------
    Total                             3,655,154     3,128,743         16.82%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                             Six-month period   Period over
                                                ended June 30  period + / -
    Revenues by category                   2007          2006          2007
    -------------------------------------------------------------------------
    Software applications             1,104,200     1,061,515          4.02%
    -------------------------------------------------------------------------
    Development services                      -       445,874       (100.00%)
    -------------------------------------------------------------------------
    Hardware (cart & instruments)     3,016,377     2,907,180          3.76%
    -------------------------------------------------------------------------
    Recurring revenues                2,032,271     1,066,765         90.51%
    -------------------------------------------------------------------------
    Total                             6,152,848     5,481,334         12.25%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the second quarter of 2007, gross profit margin increased to
approximately 67% from 65% for the same quarter in 2006. The increase is
attributable to the increase in software revenue and recurring revenue offset
by the decrease in development revenue. For the six-month period ended
June 30, 2007, the gross profit margin decreased to approximately 64% from 66%
for the same period in 2006, mainly due to the decrease in development
revenue.
    In the second quarter of 2007, operating expenses were $4.19 million,
representing an increase of 31.07% over the same quarter last year. The
increase in operating expenses is mainly attributable to the significant
increase in R&D and sales & marketing expenses. For the six-month period ended
June 30, 2007, operating expenses were $7.69 million, up by 41.05% compared to
the same period a year ago. This increase in operating expenses is also
attributable to the increase in R&D and sales & marketing expenses. The
increase in operating expenses is in line with the Corporation's strategy to
develop its own universal proprietary applications and disposables and build
up a direct sales team.
    "The increase in operating expenses is in line with the Corporation's
strategy to develop universal proprietary applications and disposables and
build up a direct sales team." commented Yvan Beaudoin COO of Orthosoft Inc.
"The 62% increase in direct revenue, the 105% increase in recurring revenue
and the 80% increase in deferred revenue in the second quarter, are direct
results of this investment in our sales team and new product development",
added Yvan Beaudoin.
    Net loss in the quarter was $1.74 million, or $0.03 per share, compared
with a net loss of $1.16 million, or $0.03 per share in the second quarter of
last year. For the six-month period ended June 30, 2007, net loss was 
$3.72 million or $0.07 per share compared with a net loss of $1.86 million or
$0.04 per share in the same period a year ago.
    On July 20, 2007, on the advice of National Bank of Canada, the
Corporation purchased a $2.0 million asset-backed commercial paper. The
commercial paper was not repaid when it came due on Monday, August 20th. The
commercial paper was accorded the highest rating (R-1 (high)) available from
the Dominion Bond Rating Service when it was purchased. The Corporation is
unable to determine at this time if the commercial paper will ultimately be
repaid in whole or in part and, if so, when that might occur. "We are told by
our bankers that it is not a question of the quality of the assets but the
liquidity of the markets - and as such we expect to recover our capital",
stated Peggy Katsiroumbas, CFO of ORTHOsoft Inc.

    Financial Highlights

    ORTHOsoft INC.
    Statements of loss and comprehensive loss
    (unaudited)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                     For the                   For the
                                   three-month                six-month
                                  period ended              period ended
                                     June 30,                  June 30,
                          ------------------------  -------------------------
                                2007         2006         2007         2006
                                   $            $            $            $
    Revenues               3,655,154    3,128,743    6,152,848    5,481,334

    Cost of sales          1,207,373    1,092,154    2,188,158    1,887,721
    -------------------------------------------------------------------------
                           2,447,781    2,036,589    3,964,690    3,593,613
    -------------------------------------------------------------------------

    Research and
     development
     expenses, net         1,470,543    1,036,544    2,988,746    1,862,112
    Sales and marketing
     expenses              1,728,074    1,028,925    3,247,266    1,774,305
    General and
     administrative
     expenses                724,798      893,578    1,029,089    1,410,700
    Amortization             208,126      212,345      396,678      411,641
    Financial expenses
     (income), net            56,940       24,115       24,390       (9,504)
    -------------------------------------------------------------------------
                           4,188,481    3,195,507    7,686,169    5,449,254
    -------------------------------------------------------------------------
    Loss before
     income taxes         (1,740,700)  (1,158,918)  (3,721,479)  (1,855,641)
    -------------------------------------------------------------------------
    Net loss and
     comprehensive loss   (1,740,700)  (1,158,918)  (3,721,479)  (1,855,641)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net loss per share
     - basic and fully
     diluted                   (0.03)       (0.03)       (0.07)       (0.04)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average
     number of common
     shares outstanding   51,082,755   41,360,532   51,082,755   41,360,532
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    ORTHOsoft INC.
    Balance sheets
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                         As at        As at
                                                       June 30  December 31
                                                    ----------  -------------
                                                          2007         2006
                                                             $            $
                                                    (unaudited)    (audited)
    Assets
    Current assets
      Cash and cash equivalents                        637,349    8,181,734
      Short-term deposits                            5,000,000      493,190
      Accounts and other receivable, net of
       allowance for doubtful accounts               3,180,129    2,961,199
      Tax credits receivable                         1,417,096    1,677,844
      Inventory                                      1,168,381    1,042,154
      Prepaid expenses                                 500,319      230,515
    -------------------------------------------------------------------------
                                                    11,903,274   14,586,636

    Long-term deposit                                  167,400      167,400
    Capital assets, net                              1,551,676    1,299,462
    Patents, net                                     1,164,602    1,071,837
    -------------------------------------------------------------------------
                                                    14,786,952   17,125,335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities
      Bank indebtedness                                580,000            -
      Accounts payable and accrued liabilities       4,224,891    3,439,239
      Deferred revenues                              1,009,408      556,419
      Current portion of deferred
       lease inducements                                28,572       21,739
    -------------------------------------------------------------------------
                                                     5,842,871    4,017,397

    Deferred lease inducements                          71,430       65,216
    -------------------------------------------------------------------------
                                                     5,914,301    4,082,613
    -------------------------------------------------------------------------

    Shareholders' equity
      Share capital                                 25,679,341   25,679,341
      Contributed surplus                            1,954,346    2,402,938
      Deficit                                      (18,761,036) (15,039,557)
    -------------------------------------------------------------------------
                                                     8,872,651   13,042,722
    -------------------------------------------------------------------------
                                                    14,786,952   17,125,335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    About ORTHOsoft

    Founded in 1995, ORTHOsoft Inc. (TSX-Venture: OSH) develops and markets
best-in-class medical software, instruments and computerized systems designed
to help orthopaedic surgeons increase accuracy in hip, knee and spine implant
surgery. ORTHOsoft's FDA-approved patented software solutions are developed by
surgeons for surgeons, resulting in intuitive and easy-to-use navigation that
tracks surgical flow and provides surgeons with real-time data, thus helping
to improve the surgical process and patient outcomes. For further information,
visit www.orthosoft.ca.

    The TSX Venture Exchange does not accept responsibility for the adequacy
    or accuracy of this release.

    Certain statements contained in this news release, other than statements
of fact that are independently verifiable at the date hereof, may constitute
forward-looking statements. Such statements, inherently involve numerous risks
and uncertainties, known and unknown, many of which are beyond the control of
ORTHOsoft, Inc. Such risks include, but are not limited to: the impact of
general economic conditions, general conditions in the medical industry, and
changes to the competitive environment in the jurisdictions in which ORTHOsoft
does business, regulatory changes to the health care industry, and adequate
protection of the proprietary interests of the Company. Consequently, actual
future results may differ materially from the anticipated results expressed in
the forward-looking statements. The reader should not place undue reliance on
the forward-looking statements included in this press release. These
statements speak only as of the date made, and ORTHOsoft is under no
obligation and disavows any intention to update or revise such statements as a
result of any event, circumstances, or otherwise.

    Complete financial statements and the Interim Management's report for the
three-month and six-month period ended June 30, 2007 will soon be available on
ORTHOsoft's web site and filed on SEDAR (www.sedar.com).




For further information:

For further information: Peggy Katsiroumbas, Chief Financial Officer,
(514) 861-4074 ext. 221, peggy.katsiroumba@orthosoft.ca; Dr. Louis-Philippe
Amiot, CEO, (514) 861-4074 ext.201

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ORTHOSOFT INC.

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