Novadaq Technologies Inc.

Novadaq Technologies Inc.

March 19, 2007 08:00 ET

Novadaq Reports Fiscal 2006 Year-End and Fourth Quarter Results

TORONTO, ONTARIO--(Marketwire - Mar. 19, 2007) -

Attention Business/Financial Editors:

Novadaq® Technologies Inc. (TSX:NDQ), a developer of real-time medical
imaging systems for the operating room, today announced its financial results
for the fourth quarter and year ended December 31, 2006. In this press release,
unless otherwise indicated, all dollar amounts are expressed in US dollars.

"Our vision of becoming the imaging company of the operating room began
to take shape in 2006" said Dr. Arun Menawat, President and Chief Executive
Officer of Novadaq Technologies Inc. "SPY, our first marketed product in the
United States, is now supported by a direct sales team and we have a solid
pipeline of intellectual property protected products including the recently
FDA cleared HELIOS System for plastic reconstructive surgery and Health Canada
approved LUNA for various urological procedures."

2006 Operating Highlights

- SPY®: Presented to Centers for Medicare & Medicaid Services (CMS),
the federal agency responsible for administering the United States'
health-related programs, resulting in a recommendation for a unique
ICD-9-CM reimbursement code; Signed an exclusive European and
Emerging Markets distribution agreement with Eastman Kodak Company
for the SPY System; Was the subject of a scientific presentation
made at the Society of Thoracic Surgeons Meeting reporting a
statistically significant 43% reduction (from 20.8% to 11.8%) in
post-operative myocardial injury in patients treated with SPY
compared to those who were not; Hired 12 highly experienced sales
representatives to represent the SPY Intra-operative Imaging System
(SPY System) throughout the United States in December 2006.

- LUNA™: Licensed Intellectual Property from the University of
Rochester that enables visualization of nerves and lymphatics during
urological procedures including prostate surgery; Completed animal
testing as highlighted at the annual meeting of the American
Urological Association held in Atlanta, Georgia, in May; Initiated
first human clinical trial in Rochester on partial nephrectomy;
Received Health Canada issuance of a medical device license for the
use of Luna for the assessment of organs, tissues and vessels in
urological procedures, such as open radical prostatectomy, tumor
resections, evaluating perfusion in suspected testicular torsion
cases, and aiding in the assessment of vessel reconstruction

- OPTTX®: Presented results from a clinical trial of 40 patients,
demonstrating that, among other positive results, at the end of the
treatment, on average the visual acuity was stable, and 29% of all
patients seen at this visit had an improvement in vision. These
results were a major factor in the receipt of the necessary CE Mark
Certificate to market the OPTTX System in Europe. First 2 devices
installed in Europe by year end.

Subsequent 2007 Events

- Ended distribution partnership with CarboMedics effective
December 31, 2006

- HELIOS™: Received 510(k) clearance from the United States Food
and Drug Administration (FDA) for its imaging system for use during
plastic reconstruction and micro surgery.

- OPTTX: Initiated European Clinical Registry; Placed two systems in
Europe. One in Italy and the other in England, with a third site
planned for Switzerland in the first quarter of 2007.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Year ended
December 31,
2006 2005 2004
$ $
Procedure based revenue 1,837,672 317,588 32,559
Capital sale revenue 337,351 305,851 1,114,715
Total Revenue 2,175,023 623,439 1,147,274

Total revenue increased by approximately $1,552,000 from approximately
$623,000 in 2005 to approximately $2,175,000 in 2006. This included a more
than five-fold increase in procedure based revenue relating primarily to the
increasing installed base of SPY Systems in the US. At December 31, 2005 the
installed base in the US was 14 systems, which increased to 55 systems by
December 31, 2006. The Company also had 12 purchase orders on hand at December
31, 2006 under which SPY Systems were installed in January 2007. 2006
procedure based revenue included minimum payments of $171,000 that CarboMedics
was required to make under the distribution agreement with the Company.
Capital sale revenue increased by approximately $32,000 or 10% from 2005 to

Gross profit as a percentage of sales decreased from 64.0% in 2005 to
53.2% in 2006. The primary reason for the decrease was that gross margins
earned on capital sales were significantly lower in 2006 as a decision was
made to reduce the capital sale price of systems sold internationally, and to
increase the price of consumable supplies.

Sales and marketing expenses increased by approximately $3,287,000 to
approximately $4,586,000 in 2006 from $1,299,000 in 2005. The increase relates
primarily to an increase in employee and recruiting costs of approximately
$2,016,000 to hire a team of 12 clinical educators which began in late 2005
and to hire a direct sales team in late 2006; an increase of approximately
$661,000 of related travel and entertainment costs; and an increase of
approximately $514,000 in commissions paid to CarboMedics. Sales and Marketing
expenses are expected to be higher in 2007 because the direct sales team was
hired in late 2006 and early 2007.

Research and development expenses increased by approximately $1,489,000
to $5,103,000 in 2006 from $3,614,000 in 2005. The overall increase reflects
increases of approximately $717,000 in employee costs to support the
completion of a redesigned OPTTX device, LUNA device development and clinical
trials, and SPY product development; an increase of approximately $185,000 in
clinical trial expenses related primarily to trials being done with LUNA at
the University of Rochester, an increase in patent costs of $328,000 which
resulted in issuance of SPY patents in Japan as well as additional patent
coverage for LUNA and OPTTX; and an increase of approximately $170,000 in SPY
registry costs.

General and administration expenses increased by $64,000 to $2,958,000 in
2006 from $2,894,000 in 2005. The overall increase included an increase in
officers & directors and liability insurance of $172,000, an increase in
investor relations expenses of $143,000, an increase in professional fees of
$379,000, an increase in office expenses of $102,000, other general increases
totaling $89,000, offset by a reduction in stock-based compensation of
$820,000 resulting from the contractual vesting of options in 2005 upon the
completion of the Company's initial public offering, which did not recur in

Depreciation expense increased by $143,000 to $171,000 in 2006 from
$28,000 in 2005. The increase related primarily to the purchase of computer
hardware and software and other infrastructure to support the Company's

Interest and other income increased by $526,000 to $1,043,000 in 2006
from $517,000 in 2005 as a result of the increase in cash and short term
investment balances following completion of the Company's initial public
offering in June 2005 and following the exercise of warrants in March 2006.

Net loss increased by approximately $4,161,000 as a result of an increase
in sales and marketing costs of approximately $3,287,000, an increase in
research and development expenses of approximately $1,489,000, an increase in
general and administrative expenses of approximately $64,000, an increase in
depreciation of $143,000, a reduction in foreign exchange gain of $454,000,
offset partially by an increase in gross profit of approximately $758,000 and
an increase in interest and other income of $526,000.

As of December 31, 2006 the Company had cash, cash equivalents and
short-term investments of approximately $16,829,000, a decrease of
approximately $5,945,000 from December 31, 2005. The decrease in these
balances was primarily the result of cash used in operating activities of
$9,083,000, cash invested in PPE, licenses and deferred development costs and
of approximately $2,328,000, offset partly by $5,466,000 of capital raised
from the exercise of warrants, special options and options.

As at March 15, 2007, there were a total of 19,711,892 common shares
(21,416,817 on a fully diluted basis) and no preferred shares outstanding. A
total of 1,704,925 stock options were outstanding under the Company's employee
stock option plan.

Quarter Ended December 31, 2006 Compared to Quarter Ended September 30, 2006

Revenue in the fourth quarter of 2006 was approximately $205,000 higher
than in the third quarter of 2006. Most of the increase related to minimum
payments of approximately $171,000 which CarboMedics was required to make
under the distribution agreement with Novadaq. Capital sale revenue was down
from the third quarter of 2006 as there were no SPY Systems shipped in the
fourth quarter.

Gross profit as a percentage of sales was positively impacted by the
minimum margin payment and increased from 51% in the third quarter of 2006 to
58% in the fourth quarter of 2006.

Sales and marketing expenses increased by approximately $364,000
primarily as a result of expenses associated with building a direct sales team
in the fourth quarter, which were not offset by reduced CarboMedics
commissions as the CarboMedics distribution contract was not terminated until
January 2007. Sorin commissions of up to approximately $171,000 may be paid in
2007 to CarboMedics based on 2007 revenue generated from devices placed before
termination of the distribution agreement. The post-termination commission
arrangement was designed to minimize any disruption in revenue during a
transition phase.

Research and development costs increased by approximately $150,000
primarily due to focused efforts to complete OPTTX Systems for CE Mark testing
and device installation in two European clinical trial sites.

General and Administrative expenses increased from the third to the
fourth quarter of 2006 by approximately $12,000.

Conference call

Novadaq will host a conference call on Monday, March 19, 2007 at 4:30
p.m. E.T. to discuss the financial results for the fourth quarter and full
year ended December 31, 2006. To access the conference call by telephone, dial
416-644-3415 or 1-800-732-9303. Please connect approximately ten minutes prior
to the beginning of the call to ensure participation. The conference call will
be archived for replay until March 26, 2007 at midnight. To access the
archived conference call, dial 416-640-1917 or 1-877-289-8525 and enter the
reservation number 21222176 followed by the number sign.

A live audio webcast of the conference call will be available at Please connect at least ten minutes prior to the conference
call to ensure adequate time for any software download that may be required to
join the webcast. The webcast will be archived at the above website for 365

About Novadaq Technologies

Novadaq Technologies Inc. (TSX:NDQ) develops and commercializes medical
imaging devices 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® Intra-operative 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™ 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 LUNATM 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. For more
information, please visit the company's website at

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, the implementation of a reimbursement code for the SPY
System, future revenues and research and development activities, 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 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 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 SPY System, the adoption by customers of a rental
mode of arrangement for the SPY System, the effect of a recommended
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 recommended reimbursement code will not be fully implemented or
that it will not affect acceptance 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, 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.$)

As at December 31

2006 2005
$ $

Cash and cash equivalents 2,311,973 750,726
Short-term investments 14,517,288 22,023,537
Accounts receivable 440,046 233,977
Investment tax credits receivable - 41,341
Prepaid expenses and other receivables 375,949 553,534
Inventory 185,792 410,064
Total current assets 17,831,048 24,013,179
Property, plant and equipment, net 1,933,896 464,484
Deferred charges 9,713 11,259
Deferred research and development costs 231,356 -
Licenses, net 2,607,135 3,030,711
22,613,148 27,519,633

Accounts payable and accrued liabilities 1,753,959 1,432,455
Current portion of deferred revenue 61,786 37,351
Total current liabilities 1,815,745 1,469,806
Deferred revenue - 21,789
Total liabilities 1,815,745 1,491,595
Commitments and contingencies

Shareholders' equity
Share capital 51,721,632 46,255,988
Contributed surplus 3,751,492 3,411,851
Deficit (34,675,721) (23,639,801)
Total shareholders' equity 20,797,403 26,028,038
22,613,148 27,519,633

(expressed in U.S.$)

Years ended December 31
2006 2005
$ $

Revenue 2,175,023 623,439
Cost of sales 1,018,520 224,595
Gross profit 1,156,503 398,844

Operating expenses
Sales and marketing 4,586,511 1,299,193
Research and development 5,103,157 3,613,867
General and administration 2,958,173 2,894,494
Depreciation 171,342 28,379
Amortization 438,576 430,907
Gain on foreign exchange (22,399) (476,298)
13,235,360 7,790,542
Loss before the following (12,078,857) (7,391,698)
Other income 60,896
Interest income 982,041 517,240
Net loss for the year (11,035,920) (6,874,458)

Deficit, beginning of year (23,639,801) (16,765,343)
Deficit, end of year (34,675,721) (23,639,801)

Basic and fully diluted loss per share (0.57) (0.41)

(expressed in U.S.$)

Years ended December 31
2006 2005
$ $

Net loss for the year (11,035,920) (6,874,458)
Add (deduct) items not involving cash
Depreciation and amortization 1,034,270 524,389
Foreign exchange gain on cash held in
foreign currency (326) (9,712)
Stock-based compensation 339,641 1,130,960
(9,662,335) (5,228,821)
Net change in non-cash working capital balances
related to operations 578,943 941,551
Cash used in operating activities (9,083,392) (4,287,270)

Issuance of common shares 5,465,644 18,289,971
Cash provided by financing activities 5,465,644 18,289,971

Deferred research and development costs (231,356) -
Purchase of property, plant and equipment (2,081,223) (511,424)
Purchase of licenses (15,000) (125,000)
Disposal (purchase) of short-term
investments, net 7,506,248 (13,059,643)
Cash provided by (used in) investing activities 5,178,669 (13,696,067)

Foreign exchange gain on cash held in
foreign currency 326 9,712

Net increase in cash and cash equivalents
during the year 1,561,247 316,346
Cash and cash equivalents, beginning of year 750,726 434,380
Cash and cash equivalents, end of year 2,311,973 750,726

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