View Q4 2008 Financials

2008 Highlights

SPY continued to gain momentum:

SPY kits sales up 76% over 2007;

SPY capital sales up 61% over 2007; and

50 new SPY units placed in 2008.

Added 5 peer reviewed publications or society presentations to the total of more than 30 now featuring SPY. A presentation featuring SPY given during the 2008 American Urological Association conference was designated as the best poster in its scientific session.

Commenced introduction of SPY-Q image analysis software which enables surgeons to objectively analyze SPY images in the operating room and assists in improving critical operative decision making.

Leveraged the cleared indications for the use of SPY in reconstructive surgeries to include esophageal, colorectal and organ transplant.

Completed development of SPY scope in Q4, on track for FDA submission and introduction at SAGES in April and subsequent commercial launch in H1-2009.

Events Subsequent to Year-End

License, development and supply agreements signed with Intuitive Surgical Inc., the global leader in the rapidly emerging field of robotic-assisted minimally invasive surgery.

Positive interim results of SPY VICTORIA Cardiac Surgery Registry were released during the Society of Thoracic Surgery meeting in San Francisco.

Cost structure was further reduced, extending the company’s cash runway so that it can continue to work toward achieving net profitability through its direct sales and technology alliances.

Balance sheet strengthened through the completion of a $5.15 million private placement of senior unsecured convertible debentures.

Three Months Ended December 31, 2008

Revenue decreased 4% to $2,830,000 in Q4-2008 from $2,959,000 in Q4-2007. This was driven by a year-over-year 56% reduction in capital sales which was substantially offset by a 35% increase in recurring revenue and a 31% increase in service revenue. Q4-2008 capital sales were negatively impacted by the effect of a worsening credit market on customers. The increase in recurring revenue relates primarily to an increase in SPY consumable sales to a growing installed base.

The company incurred restructuring costs of approximately $223,000 associated with personnel-related termination costs in the fourth quarter of 2008. Including these termination charges, Novadaq’s Q4-2008 net loss was $3,523,000 or $0.14 per share, compared to $4,433,000, or $0.18 per share in Q4-2007.

Cash used in operating activities in Q4-2008 was $2,921,000 including a use $278,000 in net changes in non-cash working capital balances related to operations. This represents a 27% decrease in cash used in operating activities from Q4-2007 and a 15% decrease from Q3-2008.

Twelve Months Ended December 31, 2008

Gross profit as a percentage of sales increased to 50% in 2008 from 46% in 2007. The primary reasons for the increase were an increase in the portion of revenue derived from high margin SPY capital sales and an increase in SPY utilization and consumable sales. Cash used in operating activities for the twelve months ending December 31, 2008 was $12,010,647 compared to $15,614 544 for the year ended December 31, 2007.

As at December 31, 2008, Novadaq had cash, cash equivalents and short-term investments of $3,992,000. The company noted that this amount does not include any of the $2 million upfront license payment made to it by Intuitive Surgical pursuant to their License and Development Agreement announced on January 12, 2009, or any of the net proceeds from its previously announced $5.15 million private placement of senior unsecured convertible debentures which closed on February 18, 2009.

“2008 truly started to define Novadaq now and for the future as “the SPY imaging company” — SPY for open surgical procedures and SPY scope for minimally invasive surgical procedures,” commented Arun Menawat, Novadaq’s president and chief executive officer. “SPY revenue growth and new SPY placements have provided us with a very solid foundation upon which to further grow in 2009, and we are in the fortunate position of having sufficient capital to continue to execute on our business plan. As we work toward achieving net profitability through our direct sales and technology alliances, our focus will remain on the four A’s of all successful new medical technology rollouts – Awareness, Acceptance, Adoption and Acceleration.”