Novadaq reports fiscal 2006 year-end and fourth quarter results

    TORONTO, March 19 /CNW/ - Novadaq(R) 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(R): 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(TM): 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(R): 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(TM): 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(R) 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(R) 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(TM) 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.

                         CONSOLIDATED BALANCE SHEETS
                            (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

    %SEDAR: 00022069E

For further information:

For further information: visit our website at, or
contact: Arun Menawat, PhD, MBA, President & CEO, Novadaq Technologies Inc.,
(905) 629-3822 x 202,; Michael Moore, Investor Relations,
The Equicom Group, (416) 815-0700 x 241,

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