ContextVision AB — Interim / Quarterly Report 2009

Feb 18, 2010

CONTEXTVISION
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ContextVision AB

Fourth quarter and 12 months result 2009

COV reports Q4

Q4 HIGHLIGHTS:

• Quarterly sales of 16.1 MSEK
• Q4 operating margin of -1,5%
• SharpView AB recorded as an associated company
• Strong GOPView®iRVPlus (fluoroscopy) sales start
• The process to evaluate a merger or other strategic opportunity is moving forward, managed by Nomura Code Securities, a leading European Healthcare Investment Bank. Announcement on outcome is expected by the end of first quarter 2010.

FINANCIAL DATA (MSEK)

Fourth quarter 2009

• Sales of 16.1 (20,8)
• Underlying OEM sales excluding currency effects 15,8 (18,2)
• Operating profit of -0.2 (5.7) and profit before tax of -9.2 (6.1)
• Earnings per share of -1.26 (0.60) SEK

12 months 2009

• Sales of 54.7 (73.2)
• Underlying OEM sales excluding currency effects 53,7 (70,1)
• Operating profit of 0.7 (24.7) and profit before tax of -8.0 (27.4)
• Earnings per share of -1.05 (2.49) SEK

ContextVision is the software imaging partner to the most recognized medical equipment manufacturers worldwide, enabling them to rapidly deliver leading products to market and provide next-generation upgrades while focusing on their customers. Context Vision's world leading imaging software offers the greatest image clarity and quality available, enabling unprecedented diagnostic confidence. The company has offices worldwide with management in Stockholm, Sweden and listed on the Oslo Stock Exchange, Norway (ticker: COV)

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Management Comment

Jan-Erik Hedborg, the company's CEO commented: I am pleased with the sales results last quarter which we believe indicates some market recovery. Sales were also strengthened by the start of GOPView iRVPlus delivery, fuelled by upgrade sales for installed products. We believe that the Asian medical software markets are the least affected by the financial downturn and expect these markets to grow in 2010. In our view, North America remains weak whilst Europe is more stable.

The process to pursue a merger or other strategic opportunity, announced in October 2009, is moving forward. The motive for entering into this process is to optimize the value of ContextVision's world leading technology and products, to maximize revenue, and to continue strong technology development. There can be no assurance that a transaction will be entered into or completed as a result of this process. As stated earlier, we will not disclose any information as to the status of this process until it has been completed. We are however, expecting an announcement on the outcome of this process by the end of first quarter 2010.

We are very pleased to announce that during the year 2009, we signed up with seven new OEM customers during the year amongst which majority are within x-ray. Amongst our more than 50 customers, over 20 are X-ray manufacturer from which we expect growing revenues in the future.

The clinical study made by Johns Hopkins University School of Medicine of GOPView iRVPlus dose reduction capability was presented at RSNA in December 2009. Quote from Dr. Liapi, "The use of real-time adaptive filters, like GOPView iRVPlus, in all low-dose angiograms led to significant improvement in diagnostic acceptability. The low-dose images were comparable to those derived with a full dose in terms of the visibility of large and small vessels and spinal structures". The level of dose reduction in this study is between 40 and 50%.

GOPView XR2Plus was launched at RSNA. This new product update will help our customers deliver cost savings, increased throughput, and clinical value to their customers. Its revolutionary filters eliminate artefacts in areas near metal implants, delivering greater diagnostic accuracy.

A joint study between ContextVision AB, SharpView AB, Massachusetts General Hospital (MGH) and the Centre for Medical Image Science and Visualization (CMIV) was announced in November 2009. The study will investigate advanced 3D image filtering as means of increasing patient throughput and improving image quality in MRI and further enabling dose reduction in CT. Researchers will compare state-of-the-art 3D techniques with 2D filters. Man-nudeep Kalra, MD has been appointed as principal investigator for the study that will be completed in May 2010. The purpose of this study for us is to validate GOPiCE MR which we have announced earlier as the next volumetric enhancement product.

During the quarter we made the first delivery of GOPView CT to a customer to be installed in their new Computed Tomography equipment that will be launched in the spring 2010. The solution is designed on a Cell Broadband processor (the same processor as in Sony's Playstation game consoles).

During 2008, ContextVision invested in former subsidiary SharpView AB (publ). The total investment was 10.4 MSEK giving ContextVision a shareholding of 14.4%. By the end of 2009, the market value of these shares was 1.4 MSEK. The drop of the value of this investment has previously been recorded in the statement of comprehensive income, but has now been recorded in the income statement as a write down of total 8.9 MSEK. The holding of SharpView has also been reclassified as a holding in an associated company.

Capital expenditure for a specific product has been written off due to difficulties in the development process (1,9 MSEK).

Looking at 2009 as a whole, I am of course disappointed with sales. The financial downturn has affected our customers, lower sales volumes and consequently increased price pressure. This has led to increased cost reduction efforts amongst customers, which have impacted our sales especially within ultrasound. I am confident that our new products such as GOPView iRVPlus will counter balance the sales loss in 2009 and lead us back to growth.

Outlook 2010

We expect the medical imaging market to remain weak in the first half of the year and somewhat recover in the second half. We are expecting to see growth in sales in 2010 compared to 2009. Operating costs has been reviewed and are targeted to be somewhat lower compared to previous year.

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Net sales and operating profit

Fourth quarter

Net sales

• Quarter four sales for ContextVision were 16.1 MSEK, compared to 20.8 MSEK prior year, representing a drop of 23%. Underlying OEM sales dropped 13%.
• Other income consists of quarterly minimum license fee of 0.25 MSEK from SharpView AB.

Operating profit and margin

• The operating profit was -0.2 (5.7) MSEK. Operations produced a margin of -1% (27%). Capitalized expenditure of total 1.9 MSEK (1.3 MSEK capitalized 2008 and 0.6 MSEK Q1 2009) has been written off during the period, due to difficulties in the development of one specific product. External costs during the current quarter also contain 1.0 MSEK in remuneration of expertise assisting the company through the M&A process.

Full year 2009

Net sales

• Total sales for ContextVision were 54.7 (73.2) MSEK. Full year 2009 represented a drop of 26%. Underlying OEM sales dropped 23%. The company has been impacted by the general downturn in the world economy, and by increased competition within the ultrasound market.

Other income 2009 consists of 1.0 MSEK of yearly minimum licence fee from SharpView AB.

Operating profit and margin

• The operating profit was 0.7 (24.7) MSEK. Operational costs of 54.1 MSEK for the full year 2009 include a write down of capitalized expenditure of 1.9 MSEK and costs for the M&A process of 1.0 MSEK.
• Personnel costs have increased since 2008 due to strategic recruitments during 2008.

Cash-flow and financing

• Cash flow from operations represented a drop of 3.8 MSEK during Q4, and a drop of 6.1 MSEK full year 2009. The cash situation recovered in the beginning of 2010 when receivables of 5 MSEK were paid in to the company. During the year 7.2 MSEK has been used for repurchase of own stock.
• Liquid funds in ContextVision including current investments amounted to 20.0 (31.4) MSEK. The company was investing excess cash in fund holdings during 2007 and 2008. The last funds were sold Jan 2009 and converted to cash.
• The repurchase of own shares was completed during first quarter 2009. During 2009, 202.300 shares have been repurchased, amounting 7.2 MSEK. The number of outstanding shares in the company is now 7.736.750.
• Equity at period end amounted to 40.7 (49.5) MSEK giving a solidity of 82% (73%).

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Investments

Write-down of assets held for sale.

> During the 4th quarter a write-down of 8,9 MSEK, related to the investment in Sharpview AB publ accounted for as an asset held for sale, have been recorded in the income statement. A fair value adjustment in relation to this has earlier been recorded in the statement of comprehensive income.

Reclassification of SharpView AB (publ).

> As of December 31 2009 the accounting for the shares in Sharpview AB publ has been changed. This implies that the shareholding from now on is classified as an investment in an associated company and as a consequence is accounted for using the equity method in accordance with IAS 28. Following this change receivables on Sharpview of 2 MSEK, previously classified as trade receivables, have been reclassified as a long term financial asset.
> The equity method implies that the carrying amount of the shares in the associate recognised in the consolidated financial statements consists of the Group's share of the associate's equity plus goodwill and any other remaining fair value adjustments.

Employees

> At period end the Company had 32 (34) employees whereof 15 are dedicated to research and development. Three are located in the United States of America and one in China.

Business operations

> Sales by region for the quarter are as follows (MSEK): Asia 7.8 Europe 5.3 and USA 2.8. In addition, in accordance with the present agreement 0.25 MSEK has been invoiced to the former subsidiary SharpView for the use of ContextVision technology.
> Sales by product for the quarter are as follows (MSEK): Ultrasound 8.5 X-Ray 1.8 Magnetic Resonance 3.6 and Other 1.9 (other consists of GOPView iRV, GOPView CT and GOPView MAMMO).
> Ultrasound continues to be our main revenue driver and is our revenues are expected to be reinforced through the sales of GOPiCE US (real time volumetric image enhancement). Regarding the Magnetic Resonance product market, our plan is to introduce 3D image enhancement which will be evaluated and targeted to be introduced 2010/2011.

Product development

> GOPView XR2plus (product update) was launched at RSNA in November 2009. This new product update will help our customers deliver cost savings, increased throughput, and clinical value to their customers.

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Growth strategy

• The company's most recent products, GOPView iRV and GOPiCE US, are a cornerstone in the company's growth plan targeting sales within new customers including tier 1 OEMs
• GOPView US (2D ultrasound) is expected to remain the highest revenue generating product and we are expecting to release a new release with improved performance in 2011
• Sales towards X-ray is expected to grow in the coming years and we are targeting a new release with improved performance and extended applications possibly beyond image enhancement

Transactions with related party

• The former subsidiary SharpView, where Knut Brundtland and Jan Erik Hedborg are members of the board, has according to an agreement made 2007, the right to use ContextVision technology. In accordance with the agreement 1 MSEK has been invoiced to SharpView during the quarter for these rights.

Risks & uncertainties

• Consolidation of the medical business occur on a regular basis with the general purpose of enhancing technical competence and gaining market shares, at the same time as competition decreases. Besides consolidations, new players enter the market and challenge the established actors. The trends above represent both threats and opportunities for ContextVision.

The quarter report provides a fair and true overview of the company's and the Group's activities, position and results, and describes the risks and uncertainties of significance faced by ContextVision and by the companies in the Group.

The Board of Directors of ContextVision AB

Stockholm 2010-02-17

This report has not been reviewed by the company's auditors.

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Presentation and reporting dates

At February 18th, 09.00 there will be a webcast presentation of the quarter 4, 2009, by CEO Jan Erik Hedborg.

Please follow the link: http://www.cik.no/contextvision/100218/100218_contextvision.php

Questions will be answered during the webcast, please send your questions latest February 17th at 16.00 hrs to janerik.hedborg@contextvision.se

Please visit our website for further information, www.contextvision.com, or use shareholderinfo@contextvision.se to send a question directly to management.

Reporting dates

Q1 result 2010 April 21, 2010

Q2 result 2010 August 19, 2010

Q3 result 2010 October 21, 2010

Q4 2010 and annual result 2010 February 17, 2011

For more information please contact:

Jan Erik Hedborg, CEO Phone +46 (0)8 750 35 59

ContextVision fast facts

• ContextVision is a spun-off from research done at the Image Processing Laboratory at Linköping University, Sweden. The corporate identity was established in 1983 with the first OEM agreement in radiology in 1987. ContextVision is traded on the Oslo Stock Exchange since 1997.

• ContextVision enhances significant information in digital images using proprietary GOP technology. The company offers:

• More than 25 years successful experience in OEM business

• Unprecedented image enhancement for X-ray, MRI, CT, and ultrasound images
• Long standing corporate commitment to R&D that ensures timely and rewarding upgrade paths
• Strong customer relationships to ensure their success
• Expert training in image processing for our customers

• Compatibility across any image format and all major computer platform

• Context Vision's technology enables the company's customers to provide superior digital imaging solutions for hospitals and clinicians. Such solutions promise more rapid and accurate diagnoses, reduced operator eye fatigue, and ultimately, a greater return-on-investment for medical imaging users.

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Income Statement (SEK 1000)

	Q4 2009	Q4 2008	12 months 2009	12 months 2008
Net sales	15 828	19 215	53 731	71 091
Other revenues	250	1 556	1 000	2 107
Total revenues	16 078	20 771	54 731	73 198
Goods for resale	-709	-362	-1 489	-1 502
Other external costs	-5 752	-6 462	-17 950	-17 723
Personnel costs	-7 089	-7 598	-29 882	-26 721
Depreciation assets	-839	-682	-2 805	-2 589
Write-down of intangible assets	-1 933	-	-1 933	-
Operating results	-243	5 667	673	24 663
Interest income	-	454	341	2 837
Interest costs and similar profit / loss items	-2	-14	-20	-63
Write-down of assets held for sale	-8 973	-	-8 973	-
Results after financial items	-9 218	6 107	-7 979	27 437
Tax	107	-1 294	-273	-7 240
Net results	-9 111	4 813	-8 252	20 197
Earnings per share after tax, SEK	-1,26	0,60	-1,05	2,49

Consolidated Statement of comprehensive income (SEK 1000)

	Q4 2009	Q4 2008	12 months 2009	12 months 2008
Effect of currency hedging	-207	-1 517	2 119	-1 517
Fair value adjustment of assets held for sale	-386	3 120	-4 368	-4 605
Fair value adjustment for assets held for sale transferred to the income statement during the period	8 973	-	8 973	-
Translation difference	42	138	-90	189
Total other comprehensive income	8 422	-5 984	6 634	-5 933
Net result for the period	-9 111	4 813	-8 252	20 197
Total comprehensive income for the period	-689	-1 171	-1 618	14 264

Financial Highlights

	Q4 2009	Q4 2008	12 months 2009	12 months 2008
Earnings per share after tax, SEK	-1,26	0,60	-1,05	2,49
Operating margin (per cent)	-1,5	27,3	1,2	33,7
Solidity (per cent)	81,7	73,3	81,7	73,3

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Consolidated Balance Sheet (SEK 1000)

	2009	2008
Intangible fixed assets	11 247	11 311
Tangible assets	1 438	1 574
Participation in associated companies	1 426	-
Long-term receivables from associated comapnies	2 000	-
Other financial assets	50	6 385
Inventories	404	429
Current receivables	23 185	16 500
Current investments	-	15 202
Cash and bank	10 067	16 201
Total assets	49 817	67 602
Equity	40 678	49 535
Provisions	1 088	1 488
Current liabilities	8 051	16 579
Total equity and liabilities	49 817	67 602

Change in equity (SEK 1000)

	Q4 2009	Q4 2008	12 months 2009	12 months 2008
Opening balance	41 367	57 588	49 535	54 358
Total comprehensive income for the period	-689	-1 171	-1 618	14 264
Cash dividend	-	-	-	-12 205
Repurchase of own shares	-	-6 882	-7 239	-6 882
Closing balance	40 678	49 535	40 678	49 535

In accordance with the authorization from the Annual General Meeting the company has during first half of 2009 repurchased 202 300 own shares for 7 238 610 SEK. After that repurchase the company had 600 000 of own shares in stock with a total repurchase value of 24 864 228 SEK including shares repurchased previous years. The Annual General Meeting on the 3rd of June 2009 decided to reduce the share capital of Contextvision by 150 000 SEK following a withdrawal of all 600 000 shares owned by the company. At the same AGM, it was decided to restore the share capital by 150 000 SEK following a bonus issue. After these transactions Contextvision does not have any own shares in stock.

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Consolidated Statement of Cash Flows (SEK 1000)

	Q4 2009	Q4 2008	12 months 2009	12 months 2008
Result after financial items	-9 218	6 107	-7 979	27 437
Depreciation and write-down of assets	11 745	682	13 713	2 589
Urealised gain/loss on current investments	-	-243	-280	-321
Changes in provisions	-	-	875	-
Income tax paid	-410	-327	-8 411	-6 531
Cash flow from operating activities before change in working capital	2 117	6 219	-2 081	23 174
Change in working capital
Increase(-)/decrease(+) inventories	303	108	25	280
Increase(-)/decrease(+) current receivables	-4 398	-2 709	-3 332	1 689
Increase(+)/decrease(-) liabilities	1 072	2 370	-2 169	-3 179
Cash flow from operating activities	-906	5 988	-7 557	21 964
Investing activities
Investments in intangible assets	-847	-2 079	-4 268	-6 129
Investments in tangible assets	-1	-329	-273	-499
Investments in financial assets	-2 000	-	-1 614	-10 399
Short-term investments	-	-	15 202	13 817
Cash flow from investing activities	-2 848	-2 408	9 047	-3 210
Financing activities
Cash dividend	-	-	-	-12 205
Repurchase of own stock	-	-6 882	-7 239	-6 882
Cash flow from financing activities	0	-6 882	-7 239	-19 087
Cash flow for the period	-3 754	-3 302	-5 749	-333
Change of liquid assets
Liquid assets at beginning of period	13 821	19 504	16 202	16 535
Liquid assets at period end	10 067	16 202	10 067	16 202

Basis of preparation

The interim condensed consolidated financial statements for the 12 months ended December 31st 2009 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as of 31 December 2008.

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GLOSSARY

• CT (COMPUTED TOMOGRAPHY)
  A diagnostic device through which a two-dimensional cross-sectional image of the studied tissue is obtained using X-rays.

• DR (DIRECT RADIOGRAPHY)
  A detector that converts X-ray photons into digital signals, replacing the need for X-ray films.

• FLUOROSCOPY
  An X-ray imaging technique that produces real-time images of a patient's internal structures on a TV monitor. Fluoroscopy allows the study of dynamic processes within the body and can be used for guidance in interventional procedures.

• GOP® (GENERAL OPERATOR PROCESSOR)
  A term for ContextVision's methodology in detecting structures in an image and relating them to their wider context in order to increase visualization accuracy.

• GOPVIEW®
  The family name for ContextVision's product lines of OEM-embedded software.

• HCU (HAND CARRIED ULTRASOUND)
  A portable, battery-powered ultrasound machine no larger than a briefcase.

• IMAGE ANALYSIS
  Processing a digital image in order to describe/classify its contents or to extract quantitative measurements.

• IMAGE PROCESSING
  A generic term used to describe the computation of digital images, typically to enhance or analyze them.

• IMAGE ENHANCEMENT
  To improve the visual quality of a digital image by increasing the visibility of relevant structures, as in edge/contrast enhancement and the suppression of noise or artifacts.

• MAMMOGRAPHY
  An X-ray method used to examine the human breast.

• MODALITY
  A device that generates internal images of the body, such as X-ray, ultrasound, magnetic resonance imaging, and computed tomography.

• MRI (MAGNETIC RESONANCE IMAGING)
  A non-invasive procedure, generated by variations in strong magnetic fields, that produces a two-dimensional view of an internal organ or structure, especially the brain and spinal cord.

• OEM
  The acronym for Original Equipment Manufacturer.

• US (ULTRASOUND)
  A procedure in which high-energy sound waves are bounced off internal tissues or organs to create echoes. The echo patterns are displayed on the screen of an ultrasound machine, forming a picture of body tissues called a sonogram.

• X-RAY
  A diagnostic device in which radiation is used to create images for examination of soft and hard tissue, such as muscle and bone.

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