OMT Inc.
TSX VENTURE : OMT

OMT Inc.

August 24, 2006 14:10 ET

OMT Reports Results for Three Months Ended June 30, 2006

WINNIPEG, MANITOBA--(CCNMatthews - Aug. 24, 2006) - OMT Inc. (TSX VENTURE:OMT) announced today the Company's consolidated results for the period ended June 30, 2006.

Second Quarter Highlights

- New Retail Radio customers including Holt Renfrew and the University of Toronto Bookstore joined the growing list of in-store music and messaging service customers

- OMT successfully completed the first major milestone in the American Forces Radio and Television Service system project, which included factory testing of iMediaTouch within the large scale system

- OMT previewed its new radio broadcast products at the National Association of Broadcasters show in April including HDNow, audio content for high definition radio, and the newest release of iMediaTouch

Description of Business

OMT Inc. (TSX VENTURE:OMT) is a digital media content and technology solution provider to radio broadcasters and retailers with two business units. Intertain Media, the digital entertainment division, offers background music and messaging services as well as media previewing systems to major retailers. The OMT Technologies division delivers radio automation systems to over 1,500 domestic and international clients. OMT's broadcasting, multi-media technology, and content are heard daily by over 50 million people worldwide through radio, satellite, television and Internet delivered broadcasts. To learn more about the Company, its products and services, visit its website at www.omt.net.

Management's Discussion and Analysis

Certain statements made in the following Management's Discussion and Analysis contain forward-looking statements including, but not limited to, statements concerning possible or assumed future results of operations of the Company. Forward-looking statements represent the Company's intentions, plans, expectations and beliefs, and are not guarantees of future performance. Such forward-looking statements represent our current views based on information as at the date of this report. They involve risks, uncertainties and assumptions and the Company's actual results could differ, which in some cases may be material, from those anticipated in these forward-looking statements. Unless otherwise required by applicable securities law, we disclaim any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise. The Company cautions investors not to place undue reliance upon forward-looking statements.

Results of Operations

This review contains Management's discussion of the Company's operational results and financial condition, and should be read in conjunction with the consolidated financial statements for the six months ended June 30, 2006 and the associated notes.

The unaudited consolidated financial statements provide a comparison of the six months ended June 30, 2006 to the six months ended June 30, 2005.



Eight Quarter Review (numbers shown in '000s) (unaudited)

------------------------------------------------------------------------
2006 2005 2004
------------------------------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
------- ------- ------- ------- ------- ------- ------ ------
Total
Sales $1,074 $929 $1,139 $1,105 $1,044 $888 $1,072 $645
Gross
Profit $668 $625 $661 $695 $611 $628 $616 $435
Gross
Profit % 62% 67% 58% 63% 58% 70% 57% 67%
Operating
Expenses $599 $582 $622 $598 $633 $539 $698 $544
EBITDA $69 $43 $39 $97 ($22) $89 ($82) ($109)
Other
Expenses $196 $194 $229 $214 $214 $215 $242 $175
Net Income
(Loss) ($127) ($151) ($190) ($117) ($236) ($126) ($324) ($284)
Net Income
(Loss) per
share
(basic &
diluted) ($0.004)($0.004)($0.007)($0.004)($0.008)($0.004)($0.03)($0.02)
------------------------------------------------------------------------


Sales in the second quarter were 3% higher than the previous year, as a result of the Commercial custom projects revenue, which increased by $197,000 from $58,000 in the previous year to $255,000 this year. Excluding custom projects, both the Commercial and Retail segments experienced lower new sales in the second quarter of this year as compared to last year, while recurring revenue from both the Commercial and Retail segments increased by a total of $102,000 (59%) in the second quarter.

Gross profit in the second quarter was up 9% or $57,000 over the same quarter last year. This gross profit increase was a direct result of the positive nature of OMT's higher recurring revenues. The increase in recurring revenue also supports the increase in overall gross margin of 5%, from 58% in 2005 to 62% in 2006. While gross margins were higher than the same period last year, they were lower than the first quarter of this year, due to higher software sales in the first quarter. Gross margins will always vary based on the mix of hardware and software sales in that period.

Overall, operating expenses have remained substantially consistent when compared to previous quarters. However, the Company has invested in additional sales and marketing employees in the Retail and Commercial segments this year to support our revenue growth objectives, which have been offset by reduced administration expenses.

EBITDA is defined as Earnings before interest, tax, depreciation and amortization and is a measure that has no standardized meaning under Canadian GAAP and is considered a non-GAAP earnings measure. Therefore this measure may not be comparable to similar measures reported by other companies. EBITDA can be used to compare the Company's operating performance on a consistent basis. It is presented in this MD&A to provide the reader with additional information regarding the Company's liquidity and ability to generate funds to finance its operations. In the second quarter of 2006, EBITDA was $69,000, as compared to ($22,000) in the same period last year. This improvement was achieved through higher gross profit and ongoing expense containment. Both the first and second quarters of 2006 were EBITDA positive providing a positive EBITDA of $112,000 in the first half of 2006 compared to $67,000 in the first half of 2005.



Other expenses that reduce EBITDA to arrive
at net loss include: Q2-2006 Q2-2005
------- -------
(000's)
Interest, finance and related expense $145 $148
Amortization $ 51 $ 66
------- -------
Total $196 $214
------- -------


Cash Flow

Cash flow in the second quarter was negative $302,000 mainly due to several large customer accounts that were outstanding as at June 30, resulting in the Company drawing $30,000 of its existing bank line. The accounts receivable are in good standing and with the collection of these large accounts, the bank line will again be reduced to zero.

Changes in Accounting Policies

No changes in accounting policies were contemplated or implemented in 2006. Details of significant accounting policies are fully disclosed in the financial statements.

Liquidity

Current assets less current liabilities results in a working capital balance of $132,000 as of June 30, 2006, which represents a decrease of $38,000 over the beginning of the year. When current liabilities are adjusted to remove deferred revenue of $348,000, the working capital is actually $480,000. Total accounts payable and accrued liabilities are $73,000 lower than the beginning of the year. As of June 30, 2006, the Company had borrowings on its operating line of credit of $30,000.

Related Party Transactions

In October 2005, ENSIS Growth Fund Inc. provided a guarantee for $400,000 to the Bank of Nova Scotia in support of the Company's Line of Credit. This guarantee is ongoing and requires payments of a monthly administration fee of $1,000 as well as a monthly standby fee of $1,000. If the Company actually draws down on the guarantee, then the interest rate would be 20% of the amount received.

During the quarter ended June 30, 2006, the Company made interest payments to three major shareholders, ENSIS Growth Fund Inc., ENSIS Investment Limited Partnership and Renaissance Capital Manitoba Ventures Fund Limited Partnership in the amounts of $34,000, $5,000 and $20,000 respectively.

The Company has contracted to supply Radio Automation Software and Services to a corporation in which one of OMT's directors is also an officer and director. The amount of the contract is approximately $600,000. At June 30, 2006 the project is partially completed and $255,000 had been invoiced. The project is projected for completion in the fourth quarter of 2006.

Disclosure Controls

Under new rules, which became effective on December 31, 2005, all public companies are required to certify that certain procedures have been put in place to ensure that information required to be disclosed is reported in a timely and appropriate manner. The President and CFO have evaluated the effectiveness of the procedures and disclosure controls and are satisfied that the procedures are, in fact, in place and they have reviewed such procedures and find them adequate and effective.

Risks and Uncertainties

We are confident about OMT Inc.'s long-term prospects. However, the risks and uncertainties discussed below must be taken into account, as they may affect our ability to achieve our strategic goals. Investors are therefore advised to consider the following items in assessing the Company's future prospects as an investment.

Competition and technological obsolescence

Our products' markets experience ongoing technological changes and apart from the fact that OMT Inc. must compete with existing technology and service providers, new companies and advancing technologies remain a competitive fact. In order to remain fully competitive in our target markets, OMT must continue to innovate and respond with advanced generations of software, products and services. The inability to react in a timely fashion to technological and competitive changes could have an impact on the value of the Company's intangible assets and our ability to attract and retain our customers. Moreover, the highly competitive market in which we operate could cause the Company to reduce its prices and offer other favorable terms in order to compete successfully with its rivals. These practices could, over time, limit the prices that OMT can charge for its products. If we were unable to offset such potential price reductions by a corresponding increase in sales or to lower expenses, such a decline in revenues from software sales and related products could negatively impact our profit margins and operating results.

Growth management and market development

There can be no assurance that OMT Inc. will be able to significantly develop its market, which would affect its profitability. On the other hand, rapid growth would put significant pressure on management, operations and technical resources. To manage growth, the Company would have to increase its technical and operational complement and manage its staff while effectively maintaining numerous relationships with third parties.

Capital requirements

OMT Inc. would need to find the necessary funds to execute its strategic goals if net revenues from operations were insufficient to do so. In the event that financing were required, there can be no assurance that additional capital will be available under acceptable conditions for OMT and according to terms favorable to its growth.

Change in Officer

Effective August 18, 2006, Scott Farr was no longer an appointed Officer of the Company, but he continues on as an employee.

Additional Information

Additional information related to the Company, including all public filings, is available on SEDAR. (www.sedar.com).

Unaudited Consolidated Financial Statements of

OMT INC.

Six Months June 30, 2006 and Six Months ended June 30, 2005 (Unaudited)

These interim consolidated financial statements have not been audited or reviewed by the Company's independent external auditors, Ernst & Young LLP.



OMT INC.
Consolidated Balance Sheets

June 30, 2006 and December 31, 2005
(Unaudited)

---------------------------------------------------------------
---------------------------------------------------------------
June December
---------------------------------------------------------------

Assets

Current assets:
Cash $ 64,845 $ 186,214
Accounts receivable 646,551 720,704
Inventory 104,174 175,352
Prepaid expenses 105,224 99,335
Current portion of lease receivable 7,000 7,000
---------------------------------------------------------------
927,794 1,188,605

Lease receivable 7,000 14,000

Property and equipment 86,233 137,252

Software and other intangible assets 48,810 54,203

Deferred financing costs 166,631 199,958

---------------------------------------------------------------
$ 1,236,468 $ 1,594,018
---------------------------------------------------------------
---------------------------------------------------------------

See accompanying notes to consolidated financial statements.


June 30, 2006 and December 31, 2005
(Unaudited)
---------------------------------------------------------------
---------------------------------------------------------------
June December
---------------------------------------------------------------

Liabilities and Shareholders'
Deficiency

Current liabilities:
Bank demand loan $ 30,000 $ -
Accounts payable and accrued
liabilities 410,295 483,495
Deferred revenue 348,353 529,471
Current portion of obligation under
capital lease 7,445 7,453
---------------------------------------------------------------
796,093 1,020,419
Long-term debt 3,346,081 3,216,297

Obligation under capital lease - 3,560
---------------------------------------------------------------
Total liabilities 4,142,174 4,240,276

Shareholders' deficiency:
Capital stock (note 2) 1,278,458 1,278,458
Other paid-in capital 693,579 693,579
Contributed surplus (note 2) 197,326 178,225
Deficit (5,075,069) (4,796,520)
---------------------------------------------------------------
(2,905,706) (2,646,258)

---------------------------------------------------------------
$ 1,236,468 $ 1,594,018
---------------------------------------------------------------
---------------------------------------------------------------

See accompanying notes to consolidated financial statements.

On behalf of the Board:

"Bill Baines" Director

" Laurie Goldberg" Director



OMT INC.
Consolidated Statements of Operations and Deficit

Six Months Ended June 30, 2006 and June 30, 2005
(Unaudited)

-------------- --------------
2006 2005
-------------- --------------

------------------------------------------------------------------------
------------------------------------------------------------------------
Q2 YTD Q2 YTD
------------------------------------------------------------------------

Sales $ 1,073,754 $ 2,002,419 $ 1,044,405 $ 1,932,827

Cost of sales 405,414 708,610 433,667 693,983
------------------------------------------------------------------------
Gross profit 668,340 1,293,809 610,738 1,238,844

Selling and
administrative 563,992 1,061,063 569,435 1,066,287
Research and
development 52,734 119,105 57,660 119,886
Other expense
(income) (8,868) 8,721 8,336 6,974
------------------------------------------------------------------------
607,858 1,188,889 635,431 1,193,147

------------------------------------------------------------------------
Income (loss) before
the undernoted 60,482 104,920 (24,693) 45,697

Other expenses:
Amortization 51,064 101,557 65,525 130,335
Interest 80,064 159,327 83,404 168,856
Foreign exchange
gain (8,420) (7,199) (2,936) (21,560)
Non-cash interest
accretion 64,892 129,784 64,946 129,919
------------------------------------------------------------------------
187,600 383,469 210,939 407,550

------------------------------------------------------------------------
Loss before income
taxes (127,118) (278,549) (235,632) (361,853)

Income taxes - - - -
------------------------------------------------------------------------
Loss for the period (127,118) (278,549) (235,632) (361,853)

Deficit, beginning
of period (4,947,951) (4,796,520) (4,253,304) (4,127,083)

------------------------------------------------------------------------
Deficit, end of
period $ (5,075,069) $ (5,075,069) $ (4,488,936) $(4,488,936)
------------------------------------------------------------------------
------------------------------------------------------------------------

Basic and fully
diluted loss
per share
(note 2) $ (0.004) $ (0.010) $ (0.008) $ (0.012)
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



OMT INC.
Consolidated Statements of Cash Flows

Six Months ended June 30, 2006 and Six Months ended June 30, 2005
(Unaudited)

-------------- --------------
2006 2005
-------------- --------------

------------------------------------------------------------------------
------------------------------------------------------------------------
Q2 YTD Q2 YTD
------------------------------------------------------------------------

Cash provided by
(used in):

Operations:
Net Income (loss)
for the period $ (127,118) $ (278,549) $ (235,632) $ (361,853)
Items not involving
cash:
Amortization 51,064 101,557 65,525 130,335
Non-cash interest
accretion 64,892 129,784 64,946 129,919
Gain on sale of
capital assets - 422 - -
Stock-based
compensation - 19,101 - 5,021
Change in non-cash
operating working
capital (285,123) (107,870) 91,338 (192,215)
------------------------------------------------------------------------
(296,285) (135,555) (13,823) (288,793)

Financing:
Increase (decrease)
in bank demand loan 30,000 30,000 - (328,000)
Principal payments
on capital lease (1,821) (3,569) (10,719) (21,113)
Principal payments
on long-term debt - - (45,596) (143,096)
------------------------------------------------------------------------
28,179 26,431 (56,315) (492,209)

Investments:
Additions to
capital assets (773) (7,424) - (11,840)
Additions to
software and
intangible assets (2,747) (4,821) (7,142) (12,842)
------------------------------------------------------------------------
(3,520) (12,245) (7,142) (24,682)

------------------------------------------------------------------------
Decrease in cash
position (271,626) (121,369) (77,280) (805,684)

Cash position,
beginning of period 336,471 186,214 393,258 1,121,662

------------------------------------------------------------------------
Cash position,
end of period $ 64,845 $ 64,845 $ 315,978 $ 315,978
------------------------------------------------------------------------
------------------------------------------------------------------------

Supplementary
information:
Interest paid $ 80,939 $ 160,204 $ 83,404 $ 168,856

------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


OMT INC.
Notes to Consolidated Financial Statements

Six Months ended June 30, 2006 and Six Months ended June 30, 2005
(Unaudited)

------------------------------------------------------------------------
------------------------------------------------------------------------


General:

OMT Inc. (TSX VENTURE:OMT) (the Company), through its subsidiaries, OMT Technologies Inc. and Intertain Media Inc., provides media delivery systems and technology and solutions to the media and broadcast industry.

1. Significant accounting policies

(a) Basis of presentation and financial restructuring:

These consolidated financial statements have been prepared on a going concern basis in accordance with Canadian generally accepted accounting principles. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. There is significant doubt about the appropriateness of the use of the going concern assumption because the Company has experienced significant losses in the last three years.

The ability of the Company to carry on as a going concern is dependant upon achieving profitable operations which cannot be predicted at this time and the ability of the Company to obtain additional financing from other sources when its existing financing becomes due. The financial statements do not reflect adjustments that would be necessary if the going concern assumptions were not appropriate. If the going concern basis was not appropriate for these financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.

(b) Basis of consolidation:

The consolidated financial statements include the accounts of the Company and its two wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated on consolidation.

(c) Inventory:

Inventory consists of custom projects in process and computers and sound cards held for resale. Custom projects in process are recorded at the lower of cost, which includes direct project expenses, and net realizable value. Computers and sound cards held for resale are valued at the lower of cost, determined on a specific item basis, and net realizable value.

(d) Property and equipment:

Assets included in property and equipment are stated at cost less accumulated amortization. Amortization is provided for over the estimated useful lives of the assets using the following annual basis and rates:



-----------------------------------------------------
-----------------------------------------------------
Asset Basis Rate
-----------------------------------------------------

Computer hardware Straight-line 3 years
Furniture and equipment Straight-line 5 years
Assets under capital lease Straight-line 3 years

-----------------------------------------------------
-----------------------------------------------------


(e) Software and other intangible assets:

Software and other intangible assets are stated at cost less accumulated amortization and are amortized on a straight-line basis over their estimated useful lives as follows:



-----------------------------------------------------
-----------------------------------------------------
Asset Term
-----------------------------------------------------

Purchased intellectual properties 4 - 5 years
Other software 2 years
Other intangibles 5 years

-----------------------------------------------------
-----------------------------------------------------


Impairment of property and equipment and finite life intangible assets:

Impairment of property and equipment and finite life intangible assets is recognized when an event or change in circumstances causes the asset's carrying value to exceed the total undiscounted cash flows expected from its use and eventual disposition. The impairment loss is calculated by deducting the estimated fair value of the asset from its carrying value.

(f) Deferred financing costs:

Deferred financing costs represent the cost of the issuance of the long-term debt. Amortization is provided on a straight-line basis over the term of the debt. Costs associated with debt that has been settled is written-off in the year of settlement.

(g) Income taxes:

The Company uses the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the substantively enacted tax rates expected to apply to taxable earnings in the year in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the date of enactment or substantive enactment.

(h) Revenue recognition:

The Company recognizes revenue when there is evidence a sales arrangement exists, the sales price is fixed and determinable, collectibility is reasonably assured and title has passed. For software, computer hardware and other product sales, these criteria are usually met upon delivery or shipment of the product. Provision is made at the time revenue is recognized for estimated product returns and warranties based on historical experience.

A system sale often includes four elements: hardware, software, training and future support fees. Hardware and software revenue are normally recognized after delivery. Training revenue is recognized when completed. Support fees are deferred and recognized over the term of the contract.

Custom software sales are recognized pursuant to the contract terms and on a percentage of completion basis. Service revenues are recognized over the contract life on a straight-line basis.

Revenue billed in advance of its recognition is reflected as deferred revenue.

(i) Government assistance:

Government assistance in connection with research and business development activities is recognized as an expense reduction in the year that the related expenditure is incurred. Government assistance in connection with capital expenditures is treated as a reduction of the cost of the applicable asset.

(j) Stock-based compensation plan:

The Company has a stock option plan. Under the fair--value-based method, compensation cost is measured at fair value at the date of grant using the Black-Scholes option pricing model. Compensation cost is expensed over the award's vesting period. Any consideration paid by option holders upon exercise of stock options is recorded as an increase in share capital.

(k) Foreign currency:

Monetary items denominated in foreign currency are translated into Canadian dollars at exchange rates in effect at the balance sheet date and non-monetary items are translated at rates of exchange in effect when the assets were acquired or obligations incurred. Revenues and expenses are translated at rates in effect at the time of the transactions. Foreign exchange gains and losses are included in income.

(l) Use of estimates:

The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.

(m) Research and development expenses:

Research expenses are charged to income in the year they are incurred, net of related tax credits. Development costs are charged to operations in the period of the expenditure, unless a development project meets the criteria under Canadian generally accepted accounting principles for deferral and amortization. As of June 30, 2006 and December 31, 2005, no development costs have been deferred.

(n) Earnings (loss) per share:

The calculation of earnings (loss) per share is based on net income divided by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflect the assumed conversion of all dilutive securities using the treasury stock method. Under the treasury stock method, the weighted-average number of common shares outstanding is calculated assuming that the proceeds from the exercise of options and warrants are used to repurchase common shares at the average price during the year. For the 6 months ended June 30, 2006, 2,212,000 options (2005 - 847,000) were excluded from the calculation of diluted earnings per share because the effect of including these shares would be to reduce the loss per share.

(o) Leases:

Leases are classified as either capital or operating. Leases which transfer substantially all the benefits and risks of ownership of the asset to the Company are accounted for as capital leases. Capital lease obligations reflect the present value of future lease payments, discounted at the appropriate interest rate. All other leases are accounted for as operating leases whereby rental payments are expensed as incurred.

2. Capital stock:

(a) Authorized:

Authorized share capital consists of an unlimited number of common voting shares with no par value and an unlimited number of redeemable, cumulative, convertible 8 1/2% preferred voting shares issuable in series.

(b) Issued common shares are summarized below:



Number of shares Amount
------------------------------------------------------------------------

Balance at December 31, 2003 11,844,250 $ 82,672

Common shares issued in conjunction with
the redemption of the preferred shares 17,027,840 $ 1,191,950
---------- -----------

Balance at December 31, 2004 28,872,090 $ 1,274,622

Common shares issued on conversion of
Convertible debentures at the discounted
value 50,000 $ 3,836

------------------------------------------------------------------------
Balance at December 31, 2005 and June
30, 2006 28,922,090 $ 1,278,458
------------------------------------------------------------------------
------------------------------------------------------------------------


Holders of the $995,000 of convertible, 8% debentures may choose to convert them to common shares at the authorized rate then in effect until maturity on December 20, 2008. During 2005, debentures with a face value of $5,000 were converted to common shares at the rate of $0.10 which amounted to 50,000 common shares.

(c) Warrants:

In August 2001, the Company issued 2,500,000 warrants to purchase common shares. The warrants are exercisable at $0.50 until August 2006 at which time they will expire. None have been exercised to date.

A total of 1,000,000 warrants were issued to brokers in conjunction with the financing activities that closed on December 20, 2004. Each broker warrant entitles the holder thereof to purchase one common share of the Company at a price of $0.10 for a period of two years from the date of issuance. None have been exercised to date.

(d) Options:

At the annual general meeting of shareholders dated June 2, 2005 a new stock option plan was ratified. Under the new plan 4,330,813 options for purchase of common shares are reserved. Terms of the options will be determined by the Board of Directors, but in any case, must expire no more than 5 years from the date of the grant. Normal vesting is one third upon issue and one third in each of the following two years.

The Company has stock options outstanding to directors and officers to purchase up to 2,175,000 common shares and to employees to purchase up to 37,000 common shares.

Information related to the stock options outstanding at June 30, 2006 and December 31, 2005 is presented below:



2006 2005
---------------------------------------------------
Number Weighted- Number Weighted-
of average of average
shares exercise price shares exercise price
$ $
------------------------------------------------------------------------

Outstanding at
beginning of
year 2,219,500 0.14 733,500 0.20
Granted - - 1,848,500 0.10
Exercised - - - -
Cancelled (7,500) - (362,500) 0.20
------------------------------------------------------------------------
Outstanding at
June 30, 2006 2,212,000 0.14 2,219,500 0.20
------------------------------------------------------------------------
------------------------------------------------------------------------

Options
exercisable at
June 30, 2006 1,129,165 0.18 962,166 0.20
------------------------------------------------------------------------
------------------------------------------------------------------------


The following table summarizes information about share options
outstanding at June 30, 2006:

Options Outstanding Options Exercisable
------------------------------------------------------------------------
Weighted-
average Weighted- Weighted-
Year remaining average average
Exercise of Number contractual exercise Number exercise
price grant outstanding life price outstanding price
$ (years) $ $
------------------------------------------------------------------------

0.40 2002 200,000 0.2 0.40 200,000 0.40
0.25 2003 100,000 1.5 0.25 100,000 0.25
0.12 2003 35,000 2.0 0.12 35,000 0.12
0.10 2003 28,500 2.3 0.10 28,500 0.10
0.11 2005 448,500 3.6 0.11 298,999 0.11
0.11 2005 1,400,000 4.4 0.11 466,666 0.11
------------------------------------------------------------------------
2,212,000 3.7 0.14 1,129,165 0.18
------------------------------------------------------------------------
------------------------------------------------------------------------


Stock based compensation has been calculated on the options vested to employees, officers and directors. During the first quarter, the number of options vested used to calculate Stock Based Compensation was 664,835, which represents all the options that will vest in 2006. The value of options granted is based on the price at the date of the grant, volatility of price in the future (based on volatility over the past twelve months), and the risk free interest rate at that time. Stock prices at the dates of the grants were $0.06, $0.06 and $0.05 respectively. Option price was $0.10 in each case. Volatility is estimated at 75% and the interest rate used was 3%.

Stock based compensation in the amount of $57,304 has been calculated for the options issued in 2005, with $19,101 attributable to 2006 and expensed in the first quarter. Amount of the expense is added to contributed surplus.

(e) Escrowed shares:

On February 16, 2006, 681,842 shares were released in accordance with the Surplus Security Escrow Agreement. As at June 30, 2006, an aggregate of 2,045,524 (December 31, 2005 - 2,727,366) of the common shares remain held in escrow. While these common shares are held in escrow, the holder has full voting rights. The remaining common shares will be released at a rate of 681,842 shares semiannually on August 16(th) and February 16(th).

(f) Per share amounts:

The weighted average number of common shares outstanding for the 3 months ended June 30, 2006 was 28,922,090 (2005 - 28,879,825).

3. Segment Information:

The Company manages its business and evaluates performance based on two operating segments. The commercial segment is primarily intended for automation of commercial radio stations. The retail segment is primarily intended to enhance the shopping experience of customers in retail businesses. The accounting policies of the Company's operating segments are the same as those described in note 1. There are no significant inter-segment transactions. The following charts present results of operations for both the three and six month periods ended June 30, 2006 and June 30, 2005 and identifiable assets at June 30, 2006 and December 31, 2005.



Three months ended June 30, 2006 and June 30, 2005

2006 2005
------------------------------ ------------------------------
Commercial Retail Common Total Commercial Retail Common Total
$ $ $ $ $ $ $ $
------------------------------------------------------------------------
(000's) (000's)
------------------------------------------------------------------------

Revenues 879 195 - 1,074 798 247 - 1,045
------------------------------------------------------------------------
Expenses
Cost of
sales 332 74 - 406 309 125 - 434
Selling,
general
and
adminis-
trative 250 120 178 548 305 64 207 576
Research
& devel-
opment 33 20 - 53 23 34 - 57
Amortiz-
ation 11 24 16 51 26 23 16 65
Interest - - 144 144 - - 149 149
------------------------------------------------------------------------
626 238 338 1,202 663 246 372 1,281

------------------------------------------------------------------------

Net income
(loss)
for the
period 253 (43) (338) (128) 135 1 (372) (236)
------------------------------------------------------------------------
------------------------------------------------------------------------



Six months ended June 30, 2006 and June 30, 2005

2006 2005
------------------------------ ------------------------------
Commercial Retail Common Total Commercial Retail Common Total
$ $ $ $ $ $ $ $
------------------------------------------------------------------------
(000's) (000's)
------------------------------------------------------------------------

Revenues 1,480 522 - 2,002 1,549 384 - 1,933
Expenses
Cost of
sales 495 214 - 709 508 186 - 694
Selling,
general
and
adminis-
trative 494 233 336 1,063 568 98 386 1,052
Research
& devel-
opment 68 51 - 119 56 64 - 120
Amortiz-
ation 21 47 33 101 52 45 33 130
Interest - - 289 289 - - 299 299
------------------------------------------------------------------------
1,078 545 658 2,281 1,184 393 718 2,295

------------------------------------------------------------------------
Net income
(loss)
for the
period 402 -23 (658) (279) 365 (9) (718) (362)
------------------------------------------------------------------------
------------------------------------------------------------------------



2006 2005
------------------------------ ------------------------------
Commercial Retail Common Total Commercial Retail Common Total
$ $ (000's) $ $ $ (000's) $
-----------------------------------------------------------------------

Tangible
assets 25 61 - 86 38 99 - 137

Intangible
assets 4 45 - 49 7 47 - 54

Additions
to
property,
plant and
equipment,
intangible
assets,
and
goodwill 4 8 - 12 - 7 - 7
-----------------------------------------------------------------------


Geographic information about the Company's revenue is based on the product shipment destination or the location of the contracting organization. Assets are based on their physical location as at June 30, 2006 and December 31, 2005.



2006 2005
----------------------- -----------------------
Property, plant Property, plant
and equipment, and equipment,
Revenue and goodwill Revenue and goodwill
$ (000's) $ $ (000's) $
------------------------------------------------------------------------

Canada 861 135 615 191

United States 1,141 - 1,318 -
------------------------------------------------------------------------
2,002 135 1,933 191
------------------------------------------------------------------------


Sales to four significant customers in the second quarter represent 55% (2005 -- 50%) of the total revenue.

For the six months ended June 30, 2005, sales to 6 significant customers represents 45% (2005 -- 35%) of the total revenue.

4. Financial instruments:

(i) Credit risk:

The Company's accounts receivable potentially subjects the Company to credit and foreign exchange risk, as collateral is generally not required and exchange rates to US funds can change significantly. There is also a risk as three large customers account for 66% of the total accounts receivable. However, the risk of loss is limited due to the Company's policy of collecting a deposit before any project is commenced. The Company also bills in advance for service and support contracts.

(ii) Fair value:

The carrying amounts of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values because of the short-term maturity of these instruments. The carrying amount of all other long-term debt approximates their fair values, as the obligations bear interest at rates that approximate market rates.

5. Contingency:

The financing transaction that was concluded by the Company in December 2004 involved the outstanding preferred shares, and was initially described as a redemption of preferred shares. The intent of all parties was to repurchase the preferred shares on a tax neutral basis. Unfortunately, the wording used did not support the original intent and could result in a possible tax liability. Correcting this required a rectification order (the "Order"), with the proper wording, to be issued by the Manitoba Court of Queen's Bench. The rectification order with the proper wording has been issued in our favor. It is possible that Canada Revenue Agency (CRA) might appeal the Order, but management does not expect this to happen because the original intent was for the transaction to be tax neutral. If CRA were to appeal the order or the revised transaction and, if such appeals were successful, the Company could face a potential income tax liability of approximately $600,000. If such appeals were filed by CRA, the Company would vigorously defend its position.

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