Hemisphere GPS Reports Growth in Second Quarter

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.