ART Advanced Research Technologies Inc.
TSX : ARA

ART Advanced Research Technologies Inc.

March 23, 2007 07:01 ET

ART Advanced Research Technologies Announces Fourth Quarter and Year End 2006 Financial Results

MONTREAL, QUEBEC--(CCNMatthews - March 23, 2007) - ART Advanced Research Technologies Inc. (ART) (TSX:ARA), a Canadian medical device company and a leader in optical molecular imaging products for the healthcare and pharmaceutical industries, today announces its financial results for the fourth quarter and year ended December 31, 2006. Revenues for the fourth quarter of 2006 were $628,907, compared to $1,239,700 for the same quarter a year ago. Revenues for the year ended December 31, 2006 were $3,081,776, compared to $4,125,550 for the year ended December 31, 2005. The net income for the three-month period ended December 31, 2006 was $1,354,770 or $0.03 per share, compared to a net loss of $3,313,319 or $0.08 per share for the three-month period ended December 31, 2005. The net loss for the year ended December 31, 2006 was $8,754,767 or $0.18 per share, compared to $13,129,184 or $0.31 per share for the year ended December 31, 2005. All dollar amounts referenced herein are in US dollars, unless otherwise stated.

2006 Highlights

- ART acquired substantially all the assets of Alerion Biomedical, Inc.

- The Company closed a C$2.3 million investment by OppenheimerFunds, Inc., coupled with a public offering of common shares of C$7 million, for total gross proceeds of C$9.3 million.

- ART announced the repurchase of all its outstanding senior secured convertible debentures.

- ART completed a non-dilutive financing of C$7.35 million and the reorganization of its corporate structure following the approval of its securityholders.

- ART obtained regulatory approval for the commercialization of SoftScan® in Canada.

- Revenues for the year ended December 31, 2006 were $3,081,776, compared to $4,125,550 for the year ended December 31, 2005.

Post Quarter Events

- ART obtained the CE marking for the commercialization of SoftScan in the European market.

- ART received the Frost & Sullivan Product Innovation of the Year Award for its SoftScan device.

- ART announced the closing of the first C$4.5 million portion of a total private placement of approximately C$5.5 million in Company common shares and common share purchase warrants by long-time shareholders and insiders (the remaining portion being expected to close in May 2007 subject to the approval of ART's shareholders to be obtained at the next annual and special meeting of shareholders on May 25, 2007 - giving the Company, on a pro forma basis, $11.1 million in cash to fund its ongoing activities).

Financial Highlights (in US dollars)

The following information provides a discussion and analysis on the expenses for the 2006 fourth quarter and the year ended December 31, 2006, compared to the same periods of 2005.

For the three-month period ended December 31, 2006 sales were $628,907, compared to $1,239,700 for the same quarter a year ago. All sales during the 2005 and 2006 fourth quarters resulted from the sales of products. For the year ended December 31, 2006 revenues were $3,081,776, compared to $4,125,550 for the year ended December 31, 2005. Products sales for the year ended December 31, 2006 amounted to $2,917,159 compared to $3,626,100 a year ago. Maintenance sales totaled $164,617 compared to $499,450 in the year ended December 31, 2005. The decrease in product sales was a result of a decrease in the number of eXplore Optix systems sold in North America, more specifically in the United States. The decrease in maintenance sales is attributable to the fact that ART completed most of the eXplore Optix systems upgrades from the single-wavelength to the multi-wavelength during 2005. This upgrading process was completed in 2006. During the year ended December 31, 2006, the Company sold 11 eXplore Optix units, compared to 19 units and 1 demo unit last year. During 2006, the Company upgraded two single-wavelength systems to the new multi-wavelength system, compared to five during 2005. Sales from products include the eXplore Optix multi-wavelength system, add-ons, and other parts as well as sales of the Fenestra molecular imaging contrast product. Maintenance sales include upgrades of the single-wavelength system to the new multiwavelength system and the sale of demonstration units.

Cost of sales for the 2006 fourth quarter was $322,330 compared to $816,949 in the fourth quarter of 2005. The gross margin for the quarter ended December 31, 2006 was $306,577 or 48.7% compared to $422,751 or 34% for the same quarter a year ago. For the year ended December 31, 2006, the total cost of sales was $1,780,016 compared to $2,789,585 in the year ended December 31, 2005. As a result, ART generated a combined gross margin of $1,301,760 or 42% during the year ended December 31, 2006, and $1,335,965 or 32% the previous year. The combined gross margin percentage increase during the year 2006 compared to last year results from the positive gross margin contributions of both the eXplore Optix and Fenestra product lines. The positive contribution of the eXplore Optix products results from the sales of add-ons providing higher margins and the positive contribution of Fenestra relates to the commercialization of the Fenestra product line following the acquisition of the assets of Alerion Biomedical, Inc. at the end of the first quarter of 2006. Cost of sales consisted principally of raw materials, royalties and manufacturing costs.

The Company's research and development ("R&D") expenditures for the three-month period ended December 31, 2006, net of investment tax credits amounted to $1,517,747, compared to $2,216,146 for the same period a year ago. The R&D expenditures for the year ended December 31, 2006, net of investment tax credits amounted to $7,837,352, compared to $9,154,960 for the year ended December 31, 2005. The R&D expenditures mainly consist of the salaries and benefits for employees involved in R&D projects, consultation fees paid for clinical studies, the cost associated with the preparation and conduct of the clinical studies, and the cost of prototypes. The decrease in R&D expenditures for the year 2006 compared to last year is mainly due to the investment tax credits ("ITC") received, which were higher than originally accounted for. These ITC were applied against the R&D expenditures.

For the year ended December 2006, the SoftScan program represented 72% of the total R&D spending. R&D efforts were focused on the receipt of regulatory approvals in Canada, Europe and the United States. ART plans to expend additional R&D funds to further develop the SoftScan program. In June 2006, the Company filed a Medical Device License Application with Health Canada, to begin the commercialization of the SoftScan device as an adjunct to X-ray mammography. Effective December 14, 2006, ART received an unconditional Health Canada medical device licence to commercialize SoftScan in Canada. The medical device licence was issued in accordance with the Medical Devices Regulations for a Class III device and certifies that the device meets the safety and effectiveness requirements of Canada's Medical Device Regulations, which along with the ISO 13485 quality standard certification are among the highest in the industry.

In July 2006, ART obtained authorization from Health Canada's Therapeutic Products Directorate to begin a pilot study to evaluate the effectiveness of the SoftScan optical breast imaging system in the treatment monitoring of breast cancer. Dr. Gregory Czarnota, Radiation Oncologist at the Sunnybrook Health Sciences Centre in Toronto, Canada, is the lead investigator for the study. As of the date of this analysis, the clinical site agreement has been signed and the site was beginning enrollment. Under this study protocol, ART plans to enroll approximately 10 subjects with a histologically confirmed diagnosis of locally advanced breast cancer, which will be monitored for physical, and physiological/optical changes by SoftScan.

In December 2006, as part of the PMA process towards FDA approval, ART engaged the FDA by filing a pre-IDE (Investigational Device Exemption) information package and meeting request. The purpose of the meeting was to seek concurrence from the agency on the design of ART's protocol for its pivotal study, more specifically regarding the manner in which the clinical data will be analyzed and interpreted prior to the filing of the PMA application.

On February 7, 2007, ART announced it had received the CE certificate, which entitles the Company to affix the CE marking on its SoftScan optical breast imaging device, making the device approved for sale throughout the European market. Obtaining the CE marking enables ART to sell its SoftScan device in all 25 member states of the European Union (EU), as well as in Norway, Iceland, Liechtenstein and Turkey, without having to undergo country specific certifications. To acquire the CE marking, ART submitted comprehensive technical documentation, including evidence of clinical performance, to a European Notified Body for review, demonstrating that the SoftScan device complies with the safety and effectiveness requirements of the European Medical Devices Directive (MDD).

ART continued to pursue enrollment for its pivotal study at all its Canadian and US sites. As of February 28, 2007, 336 patients have enrolled in this study, out of a total of 950 volunteers whom ART is seeking to enroll. In order to minimize the time to complete the study, ART has selected sites generating high biopsy volumes. This clinical study is being conducted on patient volunteers to demonstrate the improved diagnostic accuracy of SoftScan when used as an adjunct to mammography. The sites now involved in the study are Toronto's Princess Margaret Hospital, University of California-San Diego ("UCSD"), The Robert and Carol Weissman Cancer Center at Martin Memorial in Florida, McGill University Health Centre in Montreal and the Central Alberta Medical Imaging Services. The clinical data will be used by ART as part of its submission to the FDA to support the Company's SoftScan pre-market approval (PMA) application.

Selling, general, and administrative ("SG&A") expenses for the 2006 fourth quarter, totaled $1,284,333, compared to $971,405 for the same quarter a year ago. SG&A expenses for the year ended December 31, 2006, totaled $4,263,450, compared to $3,918,236 for the year ended December 31, 2005. SG&A expenses consist principally of salaries, professional fees and other costs associated with marketing activities. The increase in SG&A expenses compared to the year 2005 mainly results from professional fees engaged for the distribution of ART's product lines, including direct marketing activities to support the commercialization of the eXplore Optix product.

The operating expenses for the 2006 fourth quarter decreased by $244,001 or 8% to $3,013,049, from $3,257,050 for the same quarter a year ago. For the 2006 year end, the operating expenses were $12,886,083 compared to $13,359,002 for the year ended December 31, 2005.

As a result, the operating loss for the 2006 fourth quarter was $2,706,472, compared to $2,834,299 for the same quarter a year ago. For the 2006 year end, the operating loss was $11,584,323 compared to $12,023,037 a year ago.

The financial expenses for the 2006 fourth quarter, totaled $1,002,506, compared to $479,020 for the same quarter a year ago. The financial expenses for the year ended December 31, 2006 totaled $2,234,192 compared to $1,106,147 for the year ended December 31, 2005. The financial expenses include the interest on the convertible debentures, amortization of deferred financing costs, financing fees, interest income, and convertible debentures settlement expenses, as well as foreign exchange gain or loss. The increase during the fourth quarter is mainly due to the convertible debentures settlement expenses which includes the loss on the debt component and the balance of the unamortized deferred financing costs as of the date of the repurchase of the debentures.

The gain on disposal of an investment for the year ended December 31, 2006 represented $5,888,981 compared to nil for the year ended December 31, 2005. The gain resulted from the disposal of an investment on November 27, 2006, following a corporate reorganization.

The current income taxes for the quarter ended December 31, 2006 totaled $825,233 compared to nil during the same quarter a year ago. The current income tax is primarily attributable to the tax impact resulting from the gain on the disposal of an investment.

As a result, the net income for the three-month period ended December 31, 2006 was $1,354,770 or $0.03 per share, compared to a net loss of $3,313,319 or $0.08 per share for the three-month period ended December 31, 2005. The net loss for the year ended December 31, 2006 was $8,754,767 or $0.18 per share, compared to $13,129,184 or $0.31 per share for the year ended December 31, 2005.

The financial statements, accompanying notes to the financial statements, and Management's Discussion and Analysis for three-month period ended December 31, 2006, will be available online at www.sedar.com or at www.art.ca. Summary financial tables are provided below.

Conference Call

ART will host a conference call today at 8:30 AM (EDT). The telephone number to access the conference call is (514) 868-2590 when dialing within the Montreal area, or (866) 898-9626 for the rest of North America. Outside of North America, please dial (514) 868-2590. A replay of the call will be available until March 30, 2007. To listen to the replay from the Montreal area, please dial (514) 861-2272, or, (800) 408-3053 for the rest of North America. From outside of North America, please dial (514) 861-2272. The access code for the replay is 3217900#.

A detailed list of the risks and uncertainties affecting the Company can be found in the Company's Annual Report on Form 20-F.

About ART

ART Advanced Research Technologies Inc. is a leader in molecular imaging products for the healthcare and pharmaceutical industries. ART has developed products in medical imaging, medical diagnostics, disease research, and drug discovery with the goal of bringing new and better treatments to patients faster. eXplore Optix™, an optical molecular imaging device designed for monitoring physiological changes in living systems at the preclinical study phases of new drugs, is distributed by GE Healthcare and is used by industry and academic leaders worldwide. SoftScan®, an optical medical imaging device, is designed to improve the diagnosis and treatment of breast cancer. ART is commercializing these products in a global strategic alliance with GE Healthcare, a world leader in mammography and imaging. Finally, the Fenestra™ line of molecular imaging contrast products provide image enhancement for a wide range of preclinical Micro CT applications allowing scientists to see greater detail in their imaging studies, with potential extension into other major imaging modalities. ART's shares are listed on the TSX under the ticker symbol ARA. For more information on ART, visit our website at www.art.ca .

This press release may contain forward-looking statements subject to risks and uncertainties that would cause actual events to differ materially from expectations. These risks and uncertainties are described in the Management Proxy Circular of ART dated October 24, 2006, available on SEDAR (www.sedar.com) under the profile of "ART Advanced Research Technologies Inc. (old)" (ART's predecessor issuer).



ART Advanced Research Technologies Inc.
Balance Sheets
(In U.S. dollars)
(Unaudited)

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December 31, 2006 December 31, 2005
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ASSETS

Current assets
Cash $6,546,936 $4,858,085
Term deposit, 2% - 257,954
Commercial paper, 4.27% - 4,000,496
Accounts receivable 625,189 1,102,124
Investment tax credits receivable 353,583 691,273
Inventories 1,715,592 1,226,812
Prepaid expenses 331,782 399,567
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9,573,082 12,536,311
Property and equipment 504,426 554,929
Patents 1,962,038 1,529,092
Other assets 459,488 611,877
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$12,499,034 $15,232,209
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LIABILITIES

Current liabilities
Accounts payable and accrued
liabilities $3,256,756 $2,052,381
Deferred grant 129,552 89,872
Income taxes payable 806,751 -
Current portion of convertible
debentures - 2,054,600
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4,193,059 4,196,853
Convertible debentures - 1,666,543
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4,193,059 5,863,396

SHAREHOLDERS' EQUITY

Share capital and share purchase
warrants 24,126,432 87,131,724
Equity component of convertible
debentures - 1,510,467
Contributed surplus 3,586,059 721,051
Deficit (21,247,643) (82,033,557)
Cumulative translation adjustment 1,841,127 2,039,128
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8,305,975 9,368,813
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$12,499,034 $15,232,209
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ART Advanced Research Technologies Inc.
Contributed surplus and deficit
(In U.S. dollars)
(Unaudited)

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Year ended Year ended
December 31, December 31,
2006 2005
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CONTRIBUTED SURPLUS
Balance, beginning of year $721,051 $474,698
Stock-based compensation 268,206 246,353
Expired warrants 1,137,124 -
Convertible debentures settlement 1,459,678 -
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Balance, end of year $3,586,059 $721,051
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DEFICIT
Balance, beginning of year $82,033,557 $68,122,241
Deficit reduction (70,585,829) -
Share and share purchase warrant
issue expenses 1,045,148 782,132
Net loss 8,754,767 13,129,184
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Balance, end of year $21,247,643 $82,033,557
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ART Advanced Research Technologies Inc.
Operations
(In U.S. dollars)
(Unaudited)

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Three-month period ended Year ended
December 31, December 31, December 31, December 31,
2006 2005 2006 2005
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Sales
Product $628,907 $1,239,700 $2,917,159 $3,626,100
Maintenance - - 164,617 499,450
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628,907 1,239,700 3,081,776 4,125,550
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Cost of sales
Product 322,330 816,949 1,642,181 2,379,802
Maintenance - - 137,835 409,783
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322,330 816,949 1,780,016 2,789,585
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Gross margin 306,577 422,751 1,301,760 1,335,965
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Operating expenses
Research and
development, net
of investment
tax credits 1,517,747 2,216,146 7,837,352 9,154,960
Selling, general
and administra-
tive 1,284,333 971,405 4,263,450 3,918,236
Severance and
related costs - - 361,118 -
Amortization 210,969 69,499 424,163 285,806
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3,013,049 3,257,050 12,886,083 13,359,002
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Operating loss 2,706,472 2,834,299 11,584,323 12,023,037
Financial
expenses 1,002,506 479,020 2,234,192 1,106,147
Gain on disposal
of an
investment (5,888,981) - (5,888,981) -
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Income (loss)
from operations
before income
taxes 2,180,003 (3,313,319) (7,929,534) (13,129,184)
Current income
taxes (825,233) - (825,233) -
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Net income
(net loss) $1,354,770 (3,313,319) $(8,754,767)$(13,129,184)
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Basic and diluted
net income
(net loss)
per share $0.03 $(0.08) $(0.18) $(0.31)
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Basic and diluted
weighted average
number of common
shares
outstanding 52,248,981 42,664,523 48,775,554 42,664,523
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Number of common
shares
outstanding,
end of year 52,411,350 42,664,523 52,411,350 42,664,523
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ART Advanced Research Technologies Inc.
Cash Flows
(In U.S. dollars)
(Unaudited)
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Three-month period ended Year ended
December 31, December 31, December 31, December 31,
2006 2005 2006 2005
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OPERATING
ACTIVITIES
Net income
(net loss) $1,354,770 $(3,313,319) $(8,754,767) $(13,129,184)
Items not
affecting cash
Amortization 210,969 69,499 424,163 285,806
Amortization
of deferred
financing
costs 118,826 46,039 118,826 90,853
Stock-based
compensation 57,452 66,329 268,206 246,353
Interest on
convertible
debentures 16,143 340,598 942,375 592,915
Gain on
disposal
of an
investment (5,888,981) - (5,888,981) -
Convertible
debentures
settlement 793,930 - 793,930 -
Net changes in
working
capital items
Accounts
receivable 149,863 327,956 463,129 (174,513)
Investment
tax credits
receivable (13,139) (73,969) 350,802 140,658
Inventories (570,008) 639,654 (551,082) (140,746)
Prepaid
expenses 97,443 (23,537) 82,610 (239,182)
Accounts
payable and
accrued
liabilities 1,576,570 (397,913) 1,192,822 (171,772)
Deferred
grant - (43,791) 40,190 86,528
Income taxes
payable 806,751 - 806,751 -
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Cash flows from
operating
activities (1,289,411) (2,362,454) (9,711,026) (12,412,284)
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INVESTING
ACTIVITIES
Business
acquisition 118,700 - (333,755) -
Short-term
investments 1,001,464 (3,964,668) 4,272,571 5,784,836
Property and
equipment (7,093) (2,578) (7,825) (222,189)
Patents (18,939) - (18,939) (5,339)
Deferred costs 6,994 (102,827) (50,034) (361,557)
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Cash flows from
investing
activities 1,101,126 (4,070,073) 3,862,018 5,195,751
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FINANCING
ACTIVITIES
Issue of senior
convertible
debentures - - - 5,000,000
Repayment of
convertible
debentures (625,000) - (2,500,000) -
Convertible
debentures
settlement (2,928,866) - (2,928,866) -
Disposal of
an investment 5,888,981 - 5,888,981 -
Issue of
convertible
preferred
shares (24,317) - 2,007,043 5,900,000
Common shares and
share purchase
warrants - - 6,283,708 -
Equity and debt
issue expenses (43,484) (5,800) (953,440) (924,041)
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Cash flows from
financing
activities 2,267,314 (5,800) 7,797,426 9,975,959
Effect of
foreign
currency
translation
adjustments (288,286) (40,915) (260,624) 466,645
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1,979,028 (46,715) 7,536,802 10,442,604
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Net increase
(decrease) in
cash and cash
equivalents 1,790,743 (6,479,242) 1,687,794 3,226,071
Cash and cash
equivalents,
beginning of
period 4,756,193 11,338,384 4,859,142 1,633,071
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Cash and cash
equivalents,
end of year $6,546,936 $4,859,142 $6,546,936 $4,859,142
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CASH AND CASH
EQUIVALENTS
Cash $6,546,936 $4,858,085 $6,546,936 $4,858,085
Commercial paper - 1,057 - 1,057
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$6,546,936 $4,859,142 $6,546,936 $4,859,142
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Supplemental
disclosure of
cash flow
information
Interest paid $(38,623) $(88,986) $(340,646) $(88,986)
Interest received 14,103 86,077 156,953 225,135
Transfer of
finished goods
inventory to
property and
equipment 180,001 - 180,001 -
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