Hemisphere GPS Reports Growth in Second Quarter

CALGARY, Aug. 10 /CNW/ - (TSX: HEM) Hemisphere GPS, a designer and manufacturer of advanced GPS products, today reported financial results for the second quarter ended June 30, 2010. All amounts in this news release are expressed in US dollars.

For the second quarter ended June 30, 2010, Hemisphere GPS reported an 8% increase in revenues to $15.6 million compared to the second quarter of 2009 and a 3% increase from the first quarter of 2010. Due primarily to negative foreign exchange volatility, Hemisphere GPS reported an increased loss of $1.9 million, or $(0.03) per share (basic and diluted), in the second quarter of 2010,compared to a loss of $1.3 million, or $(0.02) per share (basic and diluted), in the second quarter of 2009.

In the Company's Agriculture business, sales of ground agriculture products grew by 10% from the second quarter of 2009. Ground agriculture product sales to international distribution customers, OEMs and systems integrator customers were strong during the quarter. North American revenues were down by 10% as a result of the impact of weaker grain prices on purchasing decisions and from lower sales in Canada where record levels of rain have hindered planting efforts. International revenues were very strong in the second quarter with growth of 55% compared to the second quarter of 2009. Sales to customers in Europe and Australia increased by 24% and 58%, respectively, following declines in these markets in the first quarter. The introduction of the North American Outback Guidance distribution model into the Australian market has contributed to growing Australian sales. Sales to other markets, including South America and China, were up by over 100% compared to the second quarter of 2009, continuing the strong growth seen in the first quarter. Revenues from the Precision Products segment grew by 5% versus the second quarter of 2009 with continued strength in sales of Vector heading sensor products and GPS boards sold to OEM customers.

"The first half of 2010 has been characterized by strong international sales, while North America continues to lag somewhat," said Steven Koles, President and CEO of Hemisphere GPS. "Other factors including planting season irregularities and record wet conditions in the Canadian and US Midwest seemed to contribute to end-customer purchasing below our expectations. While we saw very weak grain commodity prices in the first half of the year, prices have significantly strengthened in July. For example, wheat prices went from a 52-week low in June to a 52-week high in July. As we have stated previously, we anticipate a stronger than usual closing six months to our year based on improved optimism from commodity prices, new product releases, significant order backlog strength, new strategic customer opportunities, improving monthly performance relative to 2009 and continued strength in South America, Australia, and Asia."

In its February 2010 Farm Sector Income Forecast, the US Department of Agriculture ("USDA") projects that net farm income - which includes both crop and livestock farms - will be $63 billion in 2010, up by 12% from 2009 and the fifth highest year ever. During the first half of 2010 record wet weather will result in over 20% less production acres in Western Canada, and will negatively impact grain production in 2010. As a result July 2010 has seen a significant increase in grain prices as noted above.

Second quarter gross margins of $6.6 million, or 42.8%, were down from $7.3 million, or 50.3%, for the same quarter of 2009. Margins were down year over year primarily as a result of the impact of the significant weakening of the US dollar over last year, as well as product mix and program-related pricing discounts. Much of the US dollar inventory sold by the Company during the second quarter was acquired during the first and second quarter of 2009 - when the US dollar was much stronger. The Company estimates that this had a negative impact on gross margins in the quarter of approximately 5.5 percentage points, in part because the second quarter of 2009 reflected an opposite impact from foreign exchange (FX) rates. As of June 30, 2010, most of the inventory acquired at higher FX rates has been sold and the impact over the last half of 2010 will be less than 1 percentage point assuming that the Canadian dollar does not significantly strengthen from current levels.

Operating expenses were $8.5 million in the second quarter, an increase of $0.9 million compared to the second quarter of 2009 with about 60% of the increase resulting from stronger Canadian and Australian dollars relative to the US dollar. Research and development expense for the quarter increased year-over-year by $0.5 million to $2.5 million driven primarily by FX and new product development project-related expenses. Sales and marketing expenses increased from the second quarter of 2009 by 9%. In addition to the impact of FX, higher sales drove increased variable sales and marketing costs including advertising, promotions and travel costs. General and administrative expenses increased over the second quarter of 2009 by 4% as a result of FX changes.

For the first six months of 2010, Hemisphere GPS reported revenues of $30.6 million, a 6% decrease from revenues of $32.4 million, for the same period in 2009. Gross margin for the first half of 2010 was 44%, down from 51% in the first half of 2009, impacted primarily by currency changes. Year-over-year expenses increased by $1.5 million, with about 80% of this increase resulting from stronger Canadian and Australian dollars. The loss for the first half of 2010 was $3.6 million, or ($0.06) per share (basic and diluted), compared to net earnings of $0.3 million, or $0.01 per share (basic and diluted), in the first half of 2009.

At June 30, 2010, Hemisphere GPS held cash of $7.9 million, as compared to $8.4 million at December 31, 2009. Working capital at the end of the second quarter was $25.1 million. Inventory levels were high in early 2009 as recessionary conditions resulted in revenues lower than forecasted. Although the weakening US dollar has offset the impact on reported inventory levels, quarter-end inventory levels have come down as follows:

    
                             Measurement           FX            Reporting
                              Currency            Rate           Currency

    Mar 31, 2009          Cdn$22.6 million      $1.2602      US$17.9 million
    Jun 30, 2009          Cdn$21.6 million      $1.1625      US$18.6 million
    Sep 30, 2009          Cdn$20.7 million      $1.0722      US$19.3 million
    Dec 31, 2009          Cdn$18.6 million      $1.0466      US$17.8 million
    Mar 31, 2010          Cdn$17.7 million      $1.0156      US$17.4 million
    Jun 30, 2010          Cdn$16.4 million      $1.0606      US$15.5 million
    

Second quarter Operational Highlights

    
    -   During the second quarter Hemisphere GPS began full commercial
        shipments of Outback eDriveX(TM) auto-steering system, which delivers
        a new level of precision steering and control performance opening up
        new market segments for the Company's products. eDriveX steers more
        demanding farming practices including high-precision planting, strip
        tilling and bedding, requiring centimeter-level accuracy at a wide
        range of speeds. End-user feedback on eDriveX has been very positive.

    -   Hemisphere GPS launched new software that allows users to configure
        and operate Outback AutoMate from the Outback S3 user interface.
        Users can now configure AutoMate features, operate AutoMate, and view
        spray or planting data on the moving map -- all from the S3 touch
        screen interface. Outback AutoMate is an automatic section control
        product that works directly with all Outback Guidance products and
        delivers one of the industry's quickest returns on investment. The
        software update is targeted at enhancing customer's experience with
        the Outback S3 and Outback AutoMate systems.

    -   Hemisphere GPS launched its new Earthworks business unit that designs
        and manufactures products for the construction market. The Earthworks
        product line is focused on machine guidance and control of earth-
        moving machinery. Hemisphere GPS has adapted its proven technology
        and applications currently used in agriculture, aerial application,
        marine and survey markets, to meet the needs of the construction
        industry.

    -   Hemisphere GPS announced its first Earthworks product, the Earthworks
        X200 excavator machine guidance system, which improves operator
        accuracy, simplifies machine operations and reduces excavation
        rework. The X200 guides the operator with a graphical and numeric
        display of the excavator bucket relative to the desired grade. "My
        company engaged two Hemisphere GPS X200 systems during fall 2009 and
        we have proven them to increase productivity and impact the bottom
        line by more than 25 per cent, even on smaller jobs," said Doug
        Pratt, president of Prattco Excavating Ltd. The company plans to
        expand its Earthworks product portfolio by offering complementary
        excavator and blade solutions in 2010.

    -   The Company launched the Crescent Vector II OEM board that brings a
        series of new features to Hemisphere GPS patented Crescent receiver
        technology including heave, pitch and roll output, more accurate
        timing, lower phase noise, and an improved accelerometer. The
        Crescent Vector II OEM board improves upon the success of the
        original Crescent Vector by providing a more robust precision GPS
        solution to both OEM integrators and off-the-shelf end-users. The
        release provides these advancements across the entire Vector-based
        product line.

    -   Subsequent to the end of the second quarter, Sunshine Village, a ski
        resort located in Banff, Alta. began outfitting its entire snowcat
        fleet with Hemisphere GPS's new snow grooming guidance systems.
        Sunshine Village operators can use the guidance systems to record
        boundaries and set flags on the screen to map tree lines, out-of-
        bounds limits, winch holds, hazards or other areas of interest. They
        can mark thin snowpack to address it on the next pass or navigate
        back to the location at a different time. With Hemisphere's snow
        grooming guidance systems, maintenance managers are able to review
        job files for operator and machine performance and concerns. It is
        easy to plot speed, position, area covered and time. "We experienced
        productivity improvements immediately with Hemisphere's snow grooming
        guidance systems," says Rod Chisholm, maintenance manager at Sunshine
        Village ski resort.
    

Conference Call - Tuesday, August 10 at 11:00AM ET (9:00am MT)

A conference call and Web cast for shareholders, analysts and other members of the investment community has been scheduled for Tuesday, August 10, 2010 at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) to discuss the financial results and provide updates on operations.

To participate in the conference call, please dial 1-647-427-7450, or 1-888-231-8191, approximately 10 minutes before the conference call. Please note that a live Web cast of the call will be available on the Hemisphere GPS Web site at http://www.hemispheregps.com. The Web cast will be archived there for later review.

A recording of the call will be available through August 17. Please dial 1-416-849-0833 or 1-800-642-1687 and enter the reservation number 91301253 to listen to the rebroadcast.

About Hemisphere GPS

Hemisphere GPS designs and manufactures innovative, cost-effective GPS products for positioning, guidance, and machine control applications in agriculture, marine, construction, and other markets. The Company holds numerous patents and other intellectual property and owns several leading brand names, including Outback Guidance(R), a leading brand in precision GPS for agriculture. The Company is headquartered in Calgary, Alberta, with major product development, sales, and marketing facilities in Arizona, Kansas, and Australia. Hemisphere GPS is listed on the Toronto Stock Exchange (TSX) trading under the symbol "HEM" and is one of the TSX Cleantech designated companies. For more information about Hemisphere GPS, please go to www.hemispheregps.com.

The above disclosure contains certain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Hemisphere GPS' control, including: the impact of general economic conditions, industry conditions, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to the announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Hemisphere GPS' actual results, performance or achievement could differ materially from those expressed in, or implied by these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceed, that Hemisphere GPS will derive therefrom.

    
    Hemisphere Gps INC.
    Consolidated Balance Sheets
    (unaudited - expressed in U.S. dollars)

    -------------------------------------------------------------------------
                                                       June 30,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------

    Assets
    Current assets:
      Cash and cash equivalents                   $  7,885,902  $  8,397,418
      Accounts receivable                            8,116,001     5,986,781
      Inventories                                   15,485,767    17,751,949
      Deferred commissions                             148,395       187,436
      Prepaid expenses and deposits                    442,516       628,023
      -----------------------------------------------------------------------
                                                    32,078,581    32,951,607

    Deferred commissions                               103,234       158,171
    Property and equipment                           7,453,882     7,905,708
    Intangible assets                                6,361,081     7,386,776
    Goodwill                                        40,379,810    40,919,957
    -------------------------------------------------------------------------
                                                  $ 86,376,588  $ 89,322,219
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities:
      Accounts payable and accrued liabilities    $  5,862,388  $  4,030,075
      Deferred revenue                                 989,865     1,242,573
      Current portion of capital lease                  92,097        89,637
      -----------------------------------------------------------------------
                                                     6,944,350     5,362,285

    Deferred revenue                                   686,509       819,888
    Capital lease                                      208,038       258,426

    Shareholders' equity:
      Share capital                                107,708,468   107,708,468
      Contributed surplus                            4,217,551     3,853,826
      Deficit                                      (43,731,119)  (40,121,337)
      Accumulated other comprehensive income        10,342,791    11,440,663
    -------------------------------------------------------------------------
                                                    78,537,691    82,881,620

    -------------------------------------------------------------------------
                                                  $ 86,376,588  $ 89,322,219
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    HEMISPHERE GPS INC.
    Consolidated Statements of Operations and Deficit
    (unaudited - expressed in U.S. dollars)

    -------------------------------------------------------------------------
                           Three months ended           Six months ended
                                June 30,                   June 30,
                      --------------------------- ---------------------------
                              2010          2009          2010          2009
    -------------------------------------------------------------------------

    Sales             $ 15,557,105  $ 14,465,261  $ 30,625,508  $ 32,420,313

    Cost of sales        8,901,535     7,182,484    17,161,514    15,730,497
    -------------------------------------------------------------------------
                         6,655,570     7,282,777    13,463,994    16,689,816

    Expenses:
      Research and
       development       2,531,431     1,995,546     4,915,407     4,096,908
      Sales and
       marketing         3,100,466     2,832,314     6,371,912     6,056,998
      General and
       administrative    1,836,101     1,768,856     3,561,790     3,344,061
      Stock-based
       compensation        195,601       205,638       363,725       422,506
      Amortization         820,866       762,970     1,687,540     1,476,450
    -------------------------------------------------------------------------
                         8,484,465     7,565,324    16,900,374    15,396,923

    -------------------------------------------------------------------------
    Earnings (loss)
     before undernoted
     items              (1,828,895)     (282,547)   (3,436,380)    1,292,893

    Foreign exchange
     loss (gain)          (142,024)      173,254       (28,518)      162,790
    Interest income         (3,714)       (7,345)       (6,065)      (16,680)
    Restructuring costs    207,985       812,186       207,985       812,186
    -------------------------------------------------------------------------
    Net earnings (loss) (1,891,142)   (1,260,642)   (3,609,782)      334,597

    Deficit, beginning
     of period         (41,839,977)  (32,636,954)  (40,121,337)  (34,232,193)

    -------------------------------------------------------------------------
    Deficit, end of
     period           $(43,731,119) $(33,897,596) $(43,731,119) $(33,897,596)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per
     common share from
     continuing
     operations:
      Basic and
       diluted        $      (0.03) $      (0.02) $      (0.06) $       0.01
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per
     common share:
      Basic and
       diluted        $      (0.03) $      (0.02) $      (0.06) $       0.01
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average
     shares outstanding:
      Basic             55,561,667    55,561,667    55,561,667    55,561,667
      Diluted           55,561,667    55,561,667    55,561,667    55,561,667




    HEMISPHERE GPS INC.
    Consolidated Statements of Cash Flows
    (unaudited - expressed in U.S. dollars)
    -------------------------------------------------------------------------
                           Three months ended           Six months ended
                                June 30,                   June 30,
                      --------------------------- ---------------------------
                              2010          2009          2010          2009
    -------------------------------------------------------------------------

    Cash flows from
     (used in)
     operating
     activities:
      Earnings (loss)
       from continuing
       operations     $ (1,891,142) $ (1,260,642) $ (3,609,782) $    334,597
      Items not
       involving cash:
        Amortization       902,467       821,767     1,850,846     1,591,190
        Stock-based
         compensation      195,601       205,638       363,725       422,506
        Unrealized
         foreign
         exchange loss
         (gain)           (339,732)      492,472      (202,493)       23,120
    -------------------------------------------------------------------------
                        (1,132,806)      259,235    (1,597,704)    2,371,413

      Change in non-cash
       operating working
       capital:
        Accounts
         receivable       (899,239)    3,165,179    (2,261,529)      445,478
        Inventories      1,201,584       809,492     2,048,877    (3,608,315)
        Prepaid expenses
         and deposits      175,969        66,425       182,820        54,748
        Deferred
         commissions        20,089        13,600        91,360        44,582
        Accounts payable
         and accrued
         liabilities      (124,431)   (4,373,213)    1,913,573    (2,515,713)
        Foreign currency
         contract                -    (2,985,954)            -    (3,270,210)
        Deferred revenue  (131,196)     (185,617)     (367,331)     (234,865)
    -------------------------------------------------------------------------
                          (890,030)   (3,230,853)       10,066    (6,712,882)

    Cash flows used in
     financing activities:
      Capital lease
       obligations         (22,589)            -       (44,443)            -
    -------------------------------------------------------------------------
                           (22,589)            -       (44,443)            -

    Cash flows used in
     investing activities:
      Purchase of
       property and
       equipment          (213,771)     (298,996)     (425,916)     (529,397)
      Intangible asset
       additions           (26,548)     (493,390)      (79,880)     (697,300)
    -------------------------------------------------------------------------
                          (240,319)     (792,386)     (505,796)   (1,226,697)

    -------------------------------------------------------------------------
    Decrease in cash
     position           (1,152,938)   (4,023,239)     (540,173)   (7,939,579)
    Effect of currency
     translation on cash
     balances and cash
     flows                 (16,219)      302,076        28,657       441,810
    Cash and cash
     equivalents,
     beginning of
     period              9,055,059    12,512,069     8,397,418    16,288,675
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end
     of period        $  7,885,902  $  8,790,906  $  7,885,902  $  8,790,906
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE AgJunction Inc.

For further information: For further information: Cameron Olson, Chief Financial Officer, Hemisphere GPS Inc., 403-259-3311, CFO@HemisphereGPS.com; Cory Pala, Investor Relations, e.vestor Communications Inc., 416-657-2400, InvestorRelations@HemisphereGPS.com

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