(TSX: HEM) Hemisphere GPS, a designer and manufacturer of advanced GPS products, reported financial results for the fourth quarter and year ended December 31, 2010. All amounts in this news release are expressed in US dollars.

For the fourth quarter ended December 31, 2010, Hemisphere GPS reported $12.2 million in revenues, compared to $12.1 million recorded in the fourth quarter of 2009. Revenues from all market segments increased in the fourth quarter with the exception of OEM sales in the Agriculture segment which were 31% below 2009 due to timing of order receipts. Specifically, OEM revenues increased by 20% during the second half of 2010, driven by high deliveries in the third quarter which increased 106% over 2009. In the fourth quarter, however, expected OEM orders were deferred into the first half of 2011. Despite deferred orders, the fourth quarter of 2010 still represents the second highest fourth quarter revenue in the Company's history and the last half of the year is the strongest on record for Hemisphere GPS.

"We experienced a general recovery that strengthened through 2010, with second half revenues that grew by 20% year-over-year, after a decline of 6% in the first half of the year" stated Steven Koles, President and CEO of Hemisphere GPS. "The recovery led us well into 2011 where we have seen improved momentum in the first quarter supporting a return to growth and profitability. Traction from new products, stronger grain prices and signs of economic recovery are believed to have contributed to stronger purchasing since the second quarter of 2010."

A weaker US dollar softened gross margins and increased operating costs during the fourth quarter. Incremental inventory reserves also lowered margins during the quarter. Hemisphere GPS reported a net loss for the fourth quarter of $3.8 million, or $(0.07) per share (basic and diluted), compared to a net loss of $2.5 million, or ($0.04) per share (basic and diluted), in the fourth quarter of 2009.  

The percentage of total sales that were made outside North America in 2010 increased to 40% from 32% in 2009. Sales to Australia showed the strongest relative performance in 2010 with a year-over-year increase of 77% resulting from the launch of an Outback sales network in Australia modeled after the existing Outback sales network deployed in North America. Sales to other markets, excluding Europe, grew by 67% for the year, with particularly strong growth in Asia and South America. In 2010, North American sales declined by 8% for the year given the slower recovery compared to international markets. Following a decline in North American revenues of 17% in the first half of the year, revenues grew by 8% in the back half of 2010.

Agriculture product sales in the Company's Outback North American and Australian networks grew by 22% during the fourth quarter compared to 2009, driven by sales of the new eDriveX auto-steering product and the launch of the Australian network during the year. However, sales to OEM and International distributors declined by about 30% from the fourth quarter of 2009. Purchasing by these customers was up by 20% over the last half of 2010 as a result of a third quarter increase of 106% over 2009. The particularly strong third quarter deliveries combined with the deferral of some expected fourth quarter OEM customer orders into 2011, resulted in lower than expected fourth quarter revenues. Growth of 18% in the Precision Products segment during the fourth quarter was led by sales of Vector heading sensor products, including strong sales of the newly released Vector II OEM board.

Fourth quarter gross margins decreased to 40% compared to 43% in 2009. Lower margins were largely attributable to incremental inventory reserves recorded in the quarter totaling 5.5 percentage points. In addition, gross margins were negatively impacted by the impact on cost of sales of a weaker US dollar which reduced margins by about 1.5 percentage points in the quarter.

Operating expenses were $8.9 million in the fourth quarter, an increase of $1.5 million compared to the fourth quarter of 2009, impacted, in part, by a weakened US dollar and by 2009 cost reduction initiatives that were not in place during the fourth quarter of 2010. Research and development expense for the quarter increased by $0.3 million to $2.7 million. Sales and marketing expenses increased by $0.8 million from the fourth quarter of 2009 as a result of foreign exchange, consulting costs associated with international sales activities, and the deployment of the Australian Outback distribution network. For 2011, management has implemented foreign currency risk management transactions intended to mitigate the impact on operating expenses of future foreign currency fluctuations.

 At December 31, 2010, Hemisphere GPS held cash of $5.3 million, as compared to $8.4 million at the end of 2009. Working capital was $22.3 million. Subsequent to the close of 2010, Hemisphere GPS closed a bought-deal financing of 5,228,759 common shares at a price of $1.53 per share for gross proceeds of approximately $8.0 million.

For the 2010 year, Hemisphere GPS reported revenues of $56 million, a 4.4% increase from revenues of $53.6 million in 2009. Gross margin for the 2010 year was 44%, compared to 48% in 2009. The weakening of the US dollar had a 2.5 percentage point impact on gross margins for the year and the inventory reserve had a negative impact of 1.2 percentage points. Rising Canadian and Australian currencies versus the US dollar were responsible for approximately half of increased year-over-year expenses of $3.4 million, or 11%, to $33.8 million.  Increased investment in research and development contributed the majority of the remaining increase. Average headcount of 229 during 2010 was down by 18 employees from 247 for 2009. The Company reported a net loss for 2010 of $9.4 million, or $(0.17) per share (basic and diluted), compared to a net loss of $5.9 million, or ($0.11) per share (basic and diluted) in 2009.

"Since mid-2010 we have experienced recovery and strengthening in all of our markets," said Mr. Koles. "This strength has continued in the first quarter, and year-to-date revenues in 2011 are ahead of the same period in 2010 by 40%. Our current sales forecast predicts better than 25% growth for 2011 and supports a return to profitability."

Operational Highlights

Throughout 2010, Hemisphere GPS capitalized on product and technology innovation and expanded its sales channels and partners.

• Hemisphere GPS announced its first OEM (original equipment manufacturer) alliance in China with FOTON LOVOL International Heavy Industry Co., Ltd. to launch Outback Guidance precision farming products in China. FOTON LOVOL is a leading manufacturer of tractor, harvester and construction machinery in China with sales of $2.04 billion (U.S.) in 2009. FOTON LOVOL annually manufactures approximately 200,000 tractors.  Hemisphere GPS also formed an OEM joint venture with Chinese manufacturer, YTO Group, to complement its series of agricultural vehicles with Outback products in China.
• In Europe, CLAAS Agrosystems launched eDriveX under the CLAAS brand, "GPS pilot", as a part of its precision automated steering solution that also includes the Hemisphere GPS Outback S3 guidance terminal and BaseLineX GPS base station.
• In Brazil, Hemisphere GPS and Stara S.A. Industria de Implementos Agricolas launched eDriveX   under the Stara brand, "SPEED DRIVEx". Stara, one of the world's largest agricultural equipment manufacturers, is offering SPEED DRIVEx as a part of its precision automated steering solution. When combined with Outback S3 and BaseLineX or A220/A221 RTK GPS systems, the system automatically steers farm machinery to centimeter-level accuracy. The new system is being sold throughout Stara's distribution network that includes over 1,100 resellers.  
• Also in Brazil, Hemisphere GPS announced that Technomaster, a marine electronics engineering firm in Brazil, had integrated Hemisphere GPS's new LV101 GPS compass into a state-of-the-art marine navigation autopilot system. The LV101 GPS compass is paired with Technomaster's exclusive navigation technology to create an autopilot system suitable for large vessels and small pleasure crafts.
• In Canada, Hemisphere GPS Inc. and UFA Co-operative Ltd. partnered to sell the Outback Guidance S-Lite GPS system in UFA's 35 farm and ranch supply stores across Alberta.
• Innovation through Research & Development is a core focus at Hemisphere GPS. Commitment to R&D investment through the economic challenges of 2008 and 2009 resulted in the highest number of new product announcements ever by Hemisphere GPS for a single year, in 2010. Based on new Hemisphere GPS firmware and ASIC designs, Hemisphere GPS introduced its next-generation Eclipse II GNSS receiver technology and released the Eclipse II OEM board -- the first product incorporating these technological advancements. Eclipse II provides improved RTK performance, GPS, GLONASS, SBAS and OmniSTAR support, and reduced power consumption. In addition, the miniEclipse was unveiled, the smallest precision dual-frequency (L1/L2) OEM module available in the market today. Innovations for the Outback product line included new software that allows users to configure and operate Outback AutoMate from the Outback S3 user interface. The most notable new product in 2010 was the remarkable high-precision Outback eDriveX.
• The Outback eDriveX was launched through the Outback Guidance dealer network in early 2010. When combined with Outback S3 and BaseLineX or A220/A221 RTK GPS systems, eDriveX automatically steers farm machinery to centimetre-level accuracy. The most demanding farm practices including high precision planting, strip tilling and bedding are improved through the reliable and repeatable performance of eDriveX. As a result, farmers achieve more uniform treatments, reduced waste and fuel conservation all while reducing driver fatigue.
• Subsequent to the close of 2010, Hemisphere GPS has introduced the latest advanced feature to for Outback eDriveX - the agriculture industry's first auto-turn solution available for multiple brands of farm machinery. eTurns enables farmers to automatically execute a turn at the end of a row, increasing efficiency and reducing driver fatigue

New applications and market verticals were introduced during the year.

• 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 entered the Earthworks market with the launch of its X200 full two-dimensional machine guidance system in March 2010. The Company followed with the Earthworks X300 excavator guidance system later in the year. The X300 measures and displays three-dimensional excavator positioning to operators, vastly improving excavation proficiency and accuracy and greatly reducing rework.
• Three new Earthworks dealers were added to the Company's distribution network, serving the mid-Atlantic and Western United States; Rocky Mountain Laser, Print-O-Stat, and Engineering Supply Company. Each channel partner represents the Hemisphere GPS Earthworks product portfolio, including the X200 and X300 excavator machine guidance systems.
• Hemisphere GPS applied its S3 Outback guidance technology to the Oil and Gas Industry through a customized version of the S3 in partnership with Summit Liability Solutions. The resulting product, the S3-S Navigator provides a drilling waste disposal solution that manages the ever-increasing regulatory pressure to be environmentally compliant. The S3-S uses Hemisphere GPS's Crescent GPS receiver technology in combination with a Hemisphere GPS eDriveTC for tilt control to precisely apply drilling fluids to a disposal area and is designed to eliminate most of the human error currently present in drilling waste disposal services.

In the third quarter, Sunshine Village ski resort began outfitting its entire Snow Cat 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. 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.