Novadaq Corp. Reports Financial Results For Second Quarter Of 2006

TORONTO, Aug. 8 /PRNewswire-FirstCall/ - Novadaq(R) Technologies Inc. , a developer of medical imaging systems for the operating room, today reported its results for the second quarter ended June 30, 2006.

"We continue to gain recognition as the logical alternative for imaging in the operating room and we are meeting our stated milestones. We said we would have 50 SPY Systems placed by July 2006 and we have achieved exactly that," said Arun Menawat, President and Chief Executive Officer of Novadaq Technologies Inc. "We also filed for CE Mark approval for the OPTTX System which will enable a limited launch of this product in Europe by the end of this year. For the LUNA System, we completed animal studies and recently shipped a LUNA System to the University of Rochester for use in a human clinical trial."

Selected Second Quarter, 2006 Financial and Operating Highlights - SPY(R): Received a purchase order for the 50th SPY System in the United States as of June 30, 2006 - up from 30 Systems at the end of the first quarter. Procedure based revenues increased by over 50% from the previous quarter. Received 510(k) pre-market clearance from the FDA for a labeling revision that gives cardiac surgeons greater flexibility for the administration of the imaging agent, enhancing image quality during coronary artery bypass graft (CABG) procedures. Implemented software and hardware upgrades to the SPY System as part of our on-going program of responding to user feedback to further improve product performance and ease of adoption and to increase revenue. - OPTTX(R): Filed for CE Mark which would enable us to market the OPTTX System in Europe. - LUNA(TM): Completed animal testing as highlighted at the annual meeting of the American Urological Association held in Atlanta, Georgia, in May. Shipped a LUNA System to the University of Rochester for use in a human clinical trial. Financial Results Three Months Ended June 30, 2006 "Q2-2006" Compared to Three Months Ended June 30 2005 "Q2-2005"

Revenue increased to approximately $509,000 in Q2-2006 from approximately $64,000 in Q2-2005. The increase reflects an increase in procedure based revenue resulting from the commercial launch of the SPY System in the US. Procedure based revenue increased by approximately $171,000 or 52% from Q1-2006 reflecting the growing installed based, and a gradual improvement in utilization.

Gross profit increased to approximately $297,000 in Q2-2006 from approximately $23,000 in Q2-2005. As a percentage of sales, gross profit increased to 58% in Q2-2006 from 36% in Q2-2005 primarily due to increasing utilization rates of the SPY System. Gross profit in Q2-2006 was approximately $65,000 higher than in Q1-2006 because the gross profit percentage on capital sales completed in Q1 was lower than the gross profit percentage on procedural revenue. In Q2-2006, the commission paid to Sorin is included in sales and marketing expenses rather than cost of sales. We have reclassified the presentation of commissions in previous periods shown above, to conform with current quarter presentation.

Sales and marketing expenses increased by approximately $897,000 to approximately $1,198,000 in Q2-2006 from approximately $301,000 in Q2-2005 to support the commercial launch of the SPY System in the US. Significant increases included the cost of hiring 12 Clinical Educators, increased commission expense, and increased marketing costs. Sales and marketing expenses increased by approximately $442,000 from Q1-2006 to Q2-2006 because the rate of hiring of clinical educators was particularly rapid during that period, and because sales commissions increased in proportion to the increase in procedure based revenue. With the exception of sales commissions which will continue to grow in proportion to revenue, the rate of growth in sales and marketing expenses is expected to moderate for the balance of 2006.

Research and development expenses increased by approximately $293,000 to $1,242,000 in Q2-2006 from $949,000 in Q2-2005. The overall increase relates primarily to increases in patent and trademark expenses to expand Novadaq's patent portfolio to cover additional applications of its imaging platform, OPTTX device design and testing costs, and costs associated with the registry trial and visionary programs for SPY. Research and development costs are expected to continue to increase moderately during 2006 to support product development initiatives for SPY and clinical trials for OPTTX and LUNA.

General and administration expenses decreased by approximately $581,000 to $675,000 in Q2-2006 from $1,256,000 in Q2-2005. This overall decrease includes a decrease of approximately $831,000 in stock based compensation expense, offset partly by increases in salaries, professional fees, investor relations costs and insurance. Q2-2005 Stock-based compensation expense of approximately $908,000 related to the contractual vesting of all options issued prior to 2005 upon completion of the Company's initial public offering.

Depreciation expense increased to approximately $41,000 in Q2-2006 from $4,000 in Q2-2005 primarily as a result of additional computer hardware, software and other office equipment to support the growth of the Company's infrastructure. Amortization increased by slightly from Q2-2006 to Q2-2005 as a result of license payments made in March 2006 which are capitalized and amortized.

The Company had a total investment return of approximately $279,000 in Q2-2006 on its cash and short-term investments. The increase in investment returns over Q2-2005 is the result of an overall increase in cash and short term investment balances following completion of the Company's initial public offering on June 10, 2005, and higher interest rates.

Net loss increased by approximately $328,000 to approximately $2,612,000 in Q2-2006 from approximately $2,284,000 in Q2-2005 primarily as a result of an increase in sales and marketing costs of approximately $897,000, an increase in research and development expenses of approximately $293,000, a decrease in general and administrative expenses of approximately $581,000, offset partially by an increase in investment returns of approximately $189,000. Net loss in Q2-2006 increased by approximately $237,000 from Q1-2006 primarily as a result of increases in sales and marketing and general and administration expenses, partially offset by increased gross profit and exchange gains and reduced research and development expenses.

Six Months Ended June 30, 2006 "Q2-YTD" Compared to Six Months Ended

June 30 2005 "YTD-2005"

Revenue in YTD 2006 was approximately $1,027,000, or 469% of YTD 2005 revenue of approximately $219,000. This included an increase in procedure based revenue from approximately $76,000 to approximately $829,000 due primarily to the increasing installed based in the US.

Sales and marketing expenses increased to approximately $1,954,000 in YTD 2006 from approximately $402,000 in YTD 2005 primarily due to the expansion of commercialization activities in the US.

Research and development expenses increased to approximately $2,626,000 in YTD 2006 from approximately $1,668,000 in YTD 2005 primarily due to increases in salary expenses relating to engineers hired to increase product development capacity, clinical and regulatory staff to accelerate OPTTX and LUNA programs, expenses associated with the SPY patient registry and visionary programs, and patent and trademark costs incurred to protect developments in OPTTX and LUNA, and expanded applications of SPY.

General and administration expenses decreased from approximately $1,689,000 in YTD 2005 to approximately $1,242,000 in YTD 2006 primarily as a result of a significant reduction in stock based compensation expense stemming from the contractual vesting of all pre-2005 options upon the initial public offering completed in YTD 2005. The reduction in stock based compensation was offset by general increases in administrative costs to support the commercial launch of SPY in the US, and public company costs.

As at June 30, 2006 the Company had cash, cash equivalents and short-term investments of approximately $22,626,000, a decrease of approximately $2,670,000 over March 31, 2006. The decrease was primarily the result of the cash used in operations of 2,022,000 and cash invested in property and equipment and licenses of $679,000 offset slightly by employee stock option proceeds of approximately $31,000 during the Q2-2006. Cash, cash equivalents and short-term investments of $22,626,000 at June 30, 2006 were approximately $145,000 lower than at December 31, 2005 as the operating losses and investments in property plant and equipment in the first six months of 2006 were almost entirely offset by the proceeds from the exercise of warrants in March 2006.

As at August 1, 2006 there were a total of 19,708,784 common shares (21,335,872 on a fully diluted basis) and no preferred shares outstanding.

Conference call

Novadaq will host a conference call and live webcast on Tuesday, August 8, 2006 at 4:30 p.m. E.T. to discuss its second quarter 2006 results. To access the conference call by telephone, dial 416-644-3417 or 1-800-814-4861. Please connect approximately ten minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until August 15, 2006 at midnight. To access the archived conference call, dial 416-640-1917 or 1-877-289-8525 and enter the reservation number 21197987 followed by the number sign.

A live audio webcast of the conference call will be available at www.novadaq.com. 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 90 days.

About Novadaq Technologies

Novadaq Technologies Inc. develops and commercializes medical devices based on its proprietary imaging platform for the diagnosis and treatment of human vascular, ophthalmic, and neurologic diseases and conditions. 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 bypass surgery. Novadaq's ophthalmic product, the OPTTX System, 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 OPTTX System is currently being evaluated in clinical trials. Novadaq's product for nerve visualization in prostate surgery, LUNA(TM) is designed to enable surgeons to visualize nerve bundles during the course of radical prostatectomy in order to reduce negative outcomes including impotency. For more information, please visit the company's website at www.novadaq.com.

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, and plans and objectives of or involving Novadaq. Particularly, information regarding future sales and marketing activities, future revenues and research and development activities, expectations for regulatory approval and commercial launch of the OPTTX System, as well as the Company's plans for each of the SPY, OPTTX and Luna Systems, 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 clinical results of the use of the SPY System, the results from clinical tests of the OPTTX System, the likelihood of regulatory approval in Europe for the OPTTX System, and potential opportunities in the AMD treatment market, and potential opportunities 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 incorrect.

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, 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.

This press release was prepared from information available to August 1, 2006.

Summary financial statements attached: For complete financial statements please go to www.sedar.com NOVADAQ TECHNOLOGIES INC. Incorporated under the laws of Canada BALANCE SHEETS (expressed in U.S.$) Unaudited As at As at June 30, December 31, 2006 2005 $ $ ------------------------------------------------------------------------- ASSETS Current Cash and cash equivalents 71,545 750,726 Short-term investments 22,554,767 22,023,537 Accounts receivable 133,268 233,977 Investment tax credits receivable 5,221 41,341 Prepaid expenses and other receivables 684,386 553,534 Inventory 55,578 410,064 ------------------------------------------------------------------------- Total current assets 23,504,765 24,013,179 ------------------------------------------------------------------------- Property, plant and equipment, net 1,744,202 464,484 Deferred charges 72,069 11,259 Licenses, net 2,826,454 3,030,711 ------------------------------------------------------------------------- 28,147,490 27,519,633 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable and accrued liabilities 1,458,893 1,432,455 Current portion of deferred revenue 37,351 37,351 ------------------------------------------------------------------------- Total current liabilities 1,496,244 1,469,806 ------------------------------------------------------------------------- Deferred revenue 3,113 21,789 ------------------------------------------------------------------------- Total liabilities 1,499,357 1,491,595 ------------------------------------------------------------------------- Shareholders' equity Share capital 51,718,295 46,255,988 Contributed surplus 3,556,683 3,411,851 Deficit (28,626,845) (23,639,801) ------------------------------------------------------------------------- Total shareholders' equity 26,648,133 26,028,038 ------------------------------------------------------------------------- 28,147,490 27,519,633 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOVADAQ TECHNOLOGIES INC. STATEMENTS OF LOSS AND DEFICIT (expressed in U.S.$) Unaudited Three months ended Six months ended June 30, June 30, 2006 2005 2006 2005 $ $ $ $ ------------------------------------------------------------------------- Revenue 509,260 64,057 1,027,486 219,475 Cost of sales 212,035 41,271 497,907 77,570 ------------------------------------------------------------------------- Gross profit 297,225 22,786 529,579 141,905 ------------------------------------------------------------------------- Operating expenses Sales and marketing 1,198,051 300,889 1,954,241 402,621 Research and development 1,241,658 948,924 2,625,162 1,667,573 General and administration 674,604 1,255,573 1,242,108 1,689,146 Depreciation 40,644 3,702 77,610 11,968 Amortization 109,660 106,680 219,257 211,963 Loss (gain) on foreign exchange (76,080) (218,829) (76,522) (211,354) ------------------------------------------------------------------------- 3,188,537 2,396,938 6,041,857 3,771,917 ------------------------------------------------------------------------- Loss before the following (2,891,312) (2,374,152) (5,512,278) (3,630,012) Other income - - 60,896 - Interest income 279,305 90,153 464,339 124,475 ------------------------------------------------------------------------- Net loss for the year (2,612,007) (2,283,999) (4,987,043) (3,505,537) Deficit, beginning of year (26,014,838) (17,986,881) (23,639,801) (16,765,343) ------------------------------------------------------------------------- Deficit, end of year (28,626,845) (20,270,880) (28,626,845) (20,270,880) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted loss per share (0.13) (0.14) (0.26) (0.23) ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOVADAQ TECHNOLOGIES INC. STATEMENTS OF CASH FLOWS (expressed in U.S.$) Unaudited Three months ended Six months ended June 30, June 30, 2006 2005 2006 2005 $ $ $ $ ------------------------------------------------------------------------- OPERATING ACTIVITIES Net loss for the period (2,612,007) (2,283,999) (4,987,043) (3,505,537) Add (deduct) items not involving cash Depreciation and amortization 248,302 118,421 456,623 235,307 Stock based compensation 76,995 908,331 144,832 1,068,940 ------------------------------------------------------------------------- (2,286,710) (1,257,247) (4,385,588) (2,201,290) Net change in non-cash working capital balances related to operations 264,678 307,541 307,416 1,507,474 ------------------------------------------------------------------------- Cash (used) in operating activities (2,022,032) (949,706) (4,078,172) (693,816) ------------------------------------------------------------------------- FINANCING ACTIVITIES Issuance of common shares 30,565 18,247,623 5,462,307 18,247,623 ------------------------------------------------------------------------- Cash provided by financing activities 30,565 18,247,623 5,462,307 18,247,623 ------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of property, plant and equipment (678,577) (89,566) (1,517,085) (31,068) Purchase of licenses - (125,000) (15,000) (125,000) Investments in short-term inv., net 1,819,352 (17,541,464) (531,230) (17,603,255) ------------------------------------------------------------------------- Cash provided by (used in) investing 1,140,775 (17,756,030) (2,063,315) (17,830,918) ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents during the period (850,692) (458,113) (679,181) (277,111) Cash and cash equiv. beginning of period 922,237 615,382 750,726 434,380 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 71,545 157,269 71,545 157,269 ------------------------------------------------------------------------- -------------------------------------------------------------------------

Novadaq Technologies Inc.

CONTACT: visit our website at www.novadaq.com, or contact: Arun Menawat,PhD, MBA, President & CEO, Novadaq Technologies Inc., (905) 629-3822 x 202,amenawat@novadaq.com; Michael Moore, Investor Relations, The Equicom Group,(416) 815-0700 x 241, mmoore@equicomgroup.com