OSI Geospatial Reports 2006 Second Quarter Financial Results

VANCOUVER, BRITISH COLUMBIA -- (MARKET WIRE) -- Jul 12, 2006 -- OSI Geospatial Inc. (TSX: OSI)(OTCBB: OSIIF) announced today its financial results for the second fiscal quarter ended May 31, 2006. Effective the second quarter of 2006, the company has changed its reporting currency to U.S. dollars from Canadian dollars. All amounts are reported in U.S. dollars and in accordance with U.S. GAAP, unless otherwise indicated.

For the second quarter of 2006, OSI Geospatial reported revenue of $6.1 million, up from $1.5 million for the same quarter in 2005. The $4.6 million increase includes $2.4 million in land and air systems revenue gained through the company's new U.S. systems operations. Marine systems revenue increased approximately $1.7 million and mapping revenue increased approximately $585,000 compared to the prior year's quarter. The increase in marine systems and mapping revenue reflects contract awards during the period from new and existing customers.

For the second quarter of 2006, the company reported earnings before taxes of $93,983 and a net loss after taxes of $2,137 compared to a net loss before taxes of $1.2 million and a net loss after tax of $1.4 million for the same quarter in 2005. The improvement is attributable to the substantial increase in revenue and higher gross profit from an increase in software revenue. The net loss available to common shareholders was $715,055 or $0.02 per share for the second quarter of 2006 and includes approximately $525,000 for dividends paid to preferred shareholders. This compares to the net loss available to common shareholders of $5.6 million or $0.20 per share in the prior year's quarter.

"Overall we had a very strong quarter with substantial revenue growth. Contract awards were strong at $6.9 million. Top line results were solid in all of our businesses. Gross and operating margins rose and our business was profitable before taxes," said Ken Kirkpatrick, President and Chief Executive Officer of OSI Geospatial. "This quarter we demonstrated excellent progress against our goals to grow company revenue, strengthen our leadership in the international defense and commercial market, and demonstrate our ability to penetrate the U.S. defense, homeland security and commercial markets."

Second Quarter Highlights

- Secured land and air systems contracts totaling $2.7 million with the U.S. Department of Defense

- Secured marine systems contracts totaling $2.8 million, including a $1.8 million contract by L-3 Communications Marine Systems for a U.S. Navy program

- Secured mapping contracts totaling $1.4 million, including the company's first prime contract in California with a mapping project for Stanislaus County

- Announced the Royal Norwegian Navy has selected the company's surface and subsurface navigation systems for deployment on its mine warfare vessels and submarines

- Launched the simplified voyage data recorder (S-VDR) product for the commercial shipping market that will enable ship operators to benefit from the company's proven, world-leading navigation technology while meeting newly mandated International Maritime Organization (IMO) carriage requirements

Outlook

"We continue to show steady progress against all of our goals for fiscal 2006. Since the last investor conference call we have announced a very important contract with L-3 Communications Marine Systems which delivers on our stated objective to win a significant U.S. Navy contract," continued Mr. Kirkpatrick. "We have also expanded our presence in the commercial maritime market - signing our first commercial customer in Europe and announcing a contract with Teekay Shipping to install our navigation systems on vessels under construction."

Management reiterates revenue guidance of C$28 million to C$32 million for fiscal 2006. In support of the reporting currency change from Canadian dollars to U.S. dollars, the company has converted its Canadian dollar guidance to US$24 million to US$28 million.

Management has outlined the following goals for the fiscal year ending November 30, 2006 and is pleased to report the following progress:

1. Revenue in the range of $24 million to $28 million

- Reported $9.8 million in revenue for the first half of fiscal 2006

2. Demonstrate U.S. market penetration by winning a significant U.S. Navy contract

- Signed a $1.8 million contract with L-3 Communications Marine Systems for the delivery of one of the company's command and control products for a U.S. Navy program

3. Demonstrate market development in the company's existing customer base by securing a significant prime contract from the British Royal Navy

- The company is pursuing several opportunities and expects to meet this goal by the end of the third quarter of 2006

4. Expand the company's customer base by securing one new customer in each of the three defense domains: air, land, and sea

- Announced contracts with the U.S. Office of the Naval Research and the Royal Norwegian Navy

5. Accelerate U.S. and international market penetration by signing a teaming agreement with a top-tier defense contractor

- The company is making solid progress towards completing this goal

6. Diversify into new market sectors by leveraging the company's core navigation technology in the development of new products

- Launched the S-VDR product for the commercial maritime market

Conference Call

OSI Geospatial will present the results from the 2006 second quarter at 8:00 a.m. Eastern Time (5:00 a.m. Pacific Time), today, July 12, 2006. The conference call may be accessed on the company's investor site at www.osigeospatial.com. To listen to the conference call live by telephone, dial +1-866-400-2280 for participants in North America and +1-416-850-9143 for Toronto area and international participants approximately ten minutes before the start time. A telephone playback will available via telephone for two business days, beginning approximately two hours after the call. To listen to the telephone replay please dial +1-888-567-0782 and for international callers, dial +1-402-220-2884. Enter access code 2352238.

About OSI Geospatial

OSI Geospatial Inc. delivers advanced systems and software to address the growing need for enhanced situational awareness in command, control, communications, and intelligence applications. By providing essential tactical and geospatial information, the company's systems and software help decision-makers know the precise location of mission operations across all military forces while integrating information with allies. OSI Geospatial systems are in use by military, government, and commercial customers around the world. The company is publicly traded on the Toronto Stock Exchange (OSI) and the Over the Counter Bulletin Board (OSIIF). For additional information please visit www.osigeospatial.com.

Forward-Looking Statements

Certain statements made in this news release that are not based on historical information (including those in the section entitled "Outlook") are forward-looking statements which are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 and Section 138.4(9) of the Ontario Securities Act. These forward-looking statements are subject to risks and uncertainties. Actual results may differ from these projections. The risks associated with the Company's business include risks related to its reliance on international government contracts; the number of large customer transactions and the related lengthy sales cycles in executing those opportunities; uncertainties associated with competitive bidding processes and contract negotiations; actions by government authorities; the effects of general economic and political conditions; changing foreign exchange rates; and challenges related to the company's ability to introduce, develop and implement new products and enhancements to existing products that respond to customer requirements in a changing, complex, technological market. A complete discussion of the company's risk factors is presented in the company's most recent annual reports, filed with the United States Securities and Exchange Commission ("SEC") and the Canadian Securities Administrators ("CSA"), as well as other periodic reports filed with the SEC and the CSA. The Company does not undertake any obligation to update the forward-looking statements.

Copyright © 2006 OSI Geospatial Inc. and its affiliated or related companies. ECPINS and COP-IDS are registered trademarks of Offshore Systems Ltd., an OSI Geospatial company. Other company brand, product and service names are for identification purposes only and may be either trademarks, service marks or registered trademarks of their respective owners. Data subject to change without notice.


OSI Geospatial Inc.
Consolidated Balance Sheets (Unaudited)
(in U.S. dollars, U.S. GAAP)

                                              May 31     November 30
                                                2006            2005
--------------------------------------------------------------------

Assets

Current assets
  Cash  and  cash  equivalents                            $    1,419,553        $    8,222,226
  Marketable  securities                                              159,685                              -
  Restricted  cash                                                            60,000                  189,519
  Accounts  receivable                                              7,223,816              9,419,395
  Inventory                                                                  1,109,450                  937,554
  Prepaid  expenses  and  deposits                              672,779                  532,282
                                                                                ----------------------------
                                                                                    10,645,283            19,300,976
Plant  and  equipment                                                1,080,632                  869,398
Intangible  and  other  assets                                    870,558                  625,799
Goodwill                                                                      8,130,396                  405,681
                                                                                ----------------------------
                                                                                $  20,726,869        $  21,201,854
                                                                                ----------------------------
                                                                                ----------------------------

Liabilities

Current  liabilities
  Accounts  payable  and
    accrued  liabilities                                      $    3,017,715        $    3,359,656
  Income  taxes  payable                                                  62,022                  242,411
  Unearned  revenue                                                        874,823                  454,220
                                                                                ----------------------------
                                                                                      3,954,560              4,056,287
Deferred  income  taxes                                                342,697                  200,998
                                                                                ----------------------------
                                                                                      4,297,257              4,257,285
                                                                                ----------------------------
Stockholders'  Equity

Issued  and  outstanding
  30,262  Class  A  preference  shares
    -  Series  A  (2005  -  30,262)                                    19,227                    19,227
  317,240  Class  B  preference  shares
    -  Series  2  (2005  -  341,240)                            8,750,314              9,040,914
  32,857,048  common  shares
    (2005  -  30,367,309)                                          17,060,916            15,373,529
                                                                                ----------------------------
                                                                                    25,830,457            24,443,670
Warrants                                                                      4,286,060              4,286,060
Additional  paid  in  capital                                  3,860,761              3,995,835
Accumulated  deficit                                            (20,202,694)        (18,061,619)
Accumulated  other  comprehensive  income          2,655,028              2,290,623
                                                                                ----------------------------
                                                                                    16,429,612            16,944,569
                                                                                ----------------------------
                                                                                $  20,726,869        $  21,201,854
                                                                                ----------------------------
                                                                                ----------------------------


OSI  Geospatial  Inc.
Consolidated  Statements  of  Earnings  (Loss)  (Unaudited)
(in  U.S.  dollars,  U.S.  GAAP)

                              Three  months  ended  May  31          Six  months  ended  May  31
                                            2006                    2005                    2006                    2005
--------------------------------------------------------------------

Revenue
Marine
  systems            $    2,435,442    $        783,226    $    3,717,882    $    2,372,381
Land  and
  air  systems          2,370,118                          -          4,221,681                          -
Mapping                    1,334,309              750,019          1,863,057              998,748
                            ------------------------------------------------------
                                  6,139,869          1,533,245          9,802,620          3,371,129
Cost  of  sales        3,544,897          1,216,568          6,013,942          2,049,336
                            ------------------------------------------------------
Gross  profit          2,594,972              316,677          3,788,678          1,321,793
                            ------------------------------------------------------

Expenses
General  and
  administrative    1,514,184              836,773          2,859,976          1,678,981
Research  and
  development              450,592              372,761              992,859              633,270
Sales  and
  marketing                  605,817              543,530          1,158,039              992,314
Depreciation
  and  amortization    137,878                63,712              269,905              107,478
Interest  expense          6,218                  6,950                12,264                17,234
Interest  income          (6,849)            (31,347)            (19,683)            (31,437)
Foreign
  exchange  loss
  (gain)                        (21,147)              62,307                      267                24,328
Technology
  Partnerships
  Canada  royalty        107,668                30,459              164,572                74,861
Technology
  Partnerships
  Canada
  contribution          (293,372)          (378,386)          (503,840)          (594,399)
                            ------------------------------------------------------
                                  2,500,989          1,506,759          4,934,359          2,902,630
                            ------------------------------------------------------
Net  earnings
  (loss)  before
  income  taxes              93,983        (1,190,082)      (1,145,681)      (1,580,837)
                            ------------------------------------------------------

Income  tax
  expense  (recovery)
Deferred  income
  tax  expense
  (recovery)                (23,321)            113,378                (7,594)            (94,440)
Current  income
  tax  expense              119,441                66,587                93,706                82,116
                            ------------------------------------------------------
                                        96,120              179,965                86,112              (12,324)
                            ------------------------------------------------------
Net  loss            $          (2,137)  $  (1,370,047)  $  (1,231,793)  $  (1,568,513)
                            ------------------------------------------------------
                            ------------------------------------------------------
Net  loss
  available  to
  common
  shareholders  $      (715,055)  $  (5,560,039)  $  (2,120,971)  $  (5,780,204)
                            ------------------------------------------------------
                            ------------------------------------------------------

Loss  per  share
  Basic  and
    diluted
    earnings  per
    share              $            (0.02)  $            (0.20)  $            (0.07)  $            (0.21)

Weighted
  average  number
  of  common
  shares
  outstanding
  Basic  and
    diluted              32,301,357        27,488,074        31,790,928        27,488,074


OSI  Geospatial  Inc.
Consolidated  Statements  of  Cash  Flows  (Unaudited)
(in  U.S.  dollars,  U.S.  GAAP)

                              Three  months  ended  May  31          Six  months  ended  May  31
                                            2006                    2005                    2006                    2005
--------------------------------------------------------------------

Cash  flows
  provided  by
  operating
  activities
Net  loss  for
  the  period      $          (2,137)  $  (1,370,047)  $  (1,231,793)  $  (1,568,513)
  Items  not
    affecting
    cash
    Depreciation
      and
      amortization        201,225                95,068              388,578              164,107
    Stock-based
      compensation          78,569                10,725              103,743                12,961
    Deferred
      income  taxes            2,414              114,050                (7,594)            (78,239)
                            ------------------------------------------------------
                                      280,071        (1,150,204)          (747,066)      (1,469,684)
                            ------------------------------------------------------

Changes  in
  non-cash
  working
  capital  items
  Accounts
    receivable                (1,636)        1,165,596          3,636,020          1,975,522
  Inventory                  (15,732)            (24,397)          (109,663)          (198,072)
  Prepaid
    expenses  and
    deposits                    32,421                88,843                92,307            (153,706)
  Accounts
    payable  and
    accrued
    liabilities            630,745          1,073,781        (1,148,540)            379,972
  Income  taxes
    payable                    (30,699)              60,915            (171,219)              60,915
  Unearned
    revenue                    126,302                (2,095)            377,912                (6,623)
                            ------------------------------------------------------
                                      741,401          2,362,643          2,676,817          2,058,008
                            ------------------------------------------------------
                                  1,021,472          1,212,439          1,929,751              588,324
                            ------------------------------------------------------
Cash  flows
  used  in
  investing
  activities
Purchase  of
  CHI  Systems
  Inc.,  net  of
  cash  acquired        (239,642)                        -        (8,122,800)                        -
Purchase  of
  Mapcon  Mapping
  Consultants
  Inc.,  net  of
  cash  acquired                      -            (972,421)                        -            (972,421)
Decrease
  (increase)  in
  marketable
  securities                  98,531                          -            (159,685)                        -
Decrease
  (increase)  in
  restricted  cash      (60,000)          (175,271)            129,519            (175,271)
Additions  to
  plant  and
  equipment                  (39,249)            (60,771)            (87,017)            (82,910)
Additions  to
  intangibles
  and  other
  assets                        (52,723)            (19,211)            (92,999)            (30,278)
                            ------------------------------------------------------
                                    (293,083)      (1,227,674)      (8,332,982)      (1,260,880)
                            ------------------------------------------------------
Cash  flows
  provided  by
  (used  in)
  financing
  activities
Payment  to
  operating
  line  of
  credit                                    -            (442,386)                        -                          -
Issue  of
  common  shares              6,480                          -                  6,480                          -
Issue  of
  Class  B  Series
  2  preference
  shares  and
  warrants,  net
  of  issue  costs                    -        13,798,195                          -        13,798,195
Repurchase  of
  Class  B  Series
  2  preference
  shares                                    -        (2,298,327)                        -        (2,298,327)
Class  B
  preference
  share  dividends
  declared  and
  paid                          (526,406)          (132,972)          (526,406)          (201,921)
                            ------------------------------------------------------
                                    (519,926)      10,924,510            (519,926)      11,297,947
                            ------------------------------------------------------
Translation
  adjustment                  62,209            (243,712)            120,484            (171,500)
                            ------------------------------------------------------
Increase
  (decrease)
  in  cash                      270,672        10,665,563        (6,802,673)      10,453,891
Cash  and  cash
  equivalents
  -  beginning
  of  period              1,148,881                          -          8,222,226              211,672
                            ------------------------------------------------------
Cash  and  cash
  equivalents
  -  end  of
  period              $    1,419,553    $  10,665,563    $    1,419,553    $  10,665,563
                            ------------------------------------------------------
                            ------------------------------------------------------

 

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