First Quarter 2006: ORTHOsoft Inc. Continues To Increase Software Sales And Reduce Loss

MONTREAL, May 17 /PRNewswire-FirstCall/ - ORTHOsoft Inc. , a computer assisted orthopaedic surgery company that develops and markets software, instruments and computer systems that increase the accuracy of knee, hip and spine surgery, today announced its financial results for the first quarter ended March 31, 2006.

First quarter revenues increased to $2.35 million, representing a growth of approximately 10% over the same quarter in 2005. This increase is mainly attributable to the significant increase in the Company's new universal software product line, offset by the decrease mainly in software development revenues for implant manufacturers. The decrease in software development revenues is explained by the Company focusing on developing proprietary products.

Revenues from the sale of software applications were $0.52 million, up by approximately 220% related to the increased sales of application licences following the release of the universal software beginning in late 2005; hardware amounted to $1.48 million, slightly down by 5%; and development revenues were $0.18 million down by 54% compared with the first quarter of 2005. Results are in keeping with the Company's focus more on developing proprietary universal applications for its own co-marketing and direct sales to hospitals, in addition to developing applications for orthopaedic implant companies. ORTHOsoft's universal knee and hip applications are more attractive to hospital purchasers because they can be used by several surgeons using several different knee and hip implants.

In the first quarter of 2006, the gross profit margin increased to approximately 66% of revenues from 54% for the same quarter in 2005, mainly due to the increase in revenues from the sale of software applications as well as to reduced manufacturing costs of the new ORTHOsoft computerized system.

First quarter operating expenses were $2.25 million, a decrease of approximately 29% over the same quarter last year. The significant decrease in operating expenses is attributable to the Company's commitment to a cost reduction strategy to optimize productivity, balanced by a new investment in designing proprietary universal applications and building its sales and marketing effort. Excluding the effect of stock-based compensation expense, operating expenses would amount to $2.15 million, down by 22% over the same quarter last year.

Net loss in the quarter was $0.70 million, or $0.02 per share, compared with a net loss of $2.03 million, or $0.05 per share in the first quarter of last year.

Cash and cash equivalents stand at $3.72 million as at March 31, 2006. The Company has no current debt and has a $2.75 million credit facility from a major Canadian Chartered Bank. As at March 31, 2006, this facility was available but not utilized.

"We are on track in developing our ORTHOsoft branded universal hip and knee applications and building the sales team to sell these applications in specific regions of the United States and Europe," said John F. Feilders, President and Co-Chief Executive Officer of ORTHOsoft. "In the first quarter, our software has guided 100% more surgical procedures than this time last year," added Dr. Louis-Philippe Amiot, Chairman and Co-Chief Executive Officer.

Orthopaedic Surgery Market

In North America and Europe, surgeons perform close to over one million orthopaedic knee and hip implant surgeries annually. Many leading orthopaedic surgeons predict that computer assisted surgery will become a standard of care in implant surgery. To date, ORTHOsoft's computer assisted surgery systems have guided surgeons in more than 35,000 hip and knee surgeries in Europe and North America, and ORTHOsoft is well positioned to become a leader in the orthopaedic surgery market.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release. About ORTHOsoft

ORTHOsoft Inc. , www.orthosoft.ca, founded in 1995, develops and markets best-in-class medical software, instruments and computerized systems to assist orthopaedic surgeons to increase accuracy in hip, knee and spine implant surgery. FDA cleared, ORTHOsoft's patented software solutions are developed by surgeons for surgeons, resulting in intuitive and easy-to-use navigation that tracks surgical flow and provides surgeons with real-time data that helps to improve the surgical process and patient outcomes. To date, ORTHOsoft's software applications have navigated more than 35,000 surgical procedures in Europe and North America. For more information about ORTHOsoft, please visit www.orthosoft.ca.

Certain statements contained in this news release, other than statements of fact that are independently verifiable at the date hereof, may constitute forward-looking statements. Such statements, inherently involve numerous risks and uncertainties, known and unknown, many of which are beyond the control of ORTHOsoft, Inc. Such risks include, but are not limited to: the impact of general economic conditions, general conditions in the medical industry, and changes to the competitive environment in the jurisdictions in which ORTHOsoft does business, regulatory changes to the health care industry, and adequate protection of the proprietary interests of the Company. Consequently, actual future results may differ materially from the anticipated results expressed in the forward-looking statements. The reader should not place undue reliance on the forward-looking statements included in this press release. These statements speak only as of the date made, and ORTHOsoft is under no obligation and disavows any intention to update or revise such statements as a result of any event, circumstances, or otherwise.

Complete financial statements and the Interim Management's report for the quarter ended March 31, 2006 will soon be available on ORTHOsoft's web site and filed on SEDAR (www.sedar.com).

<< Statements of Loss (unaudited) ------------------------------------------------------------------------- ------------------------------------------------------------------------- For the three-month period ended March 31, ----------------------------- 2006 2005 $ $ Revenues 2,352,591 2,147,640 Cost of sales 795,568 995,185 ------------------------------------------------------------------------- 1,557,023 1,152,455 ------------------------------------------------------------------------- Research and development expenses, net 825,568 1,142,687 Sales and marketing expenses 745,380 884,650 General and administrative expenses 517,121 1,042,620 Amortization 199,296 161,483 Financial (income) expenses, net (33,619) (51,746) ------------------------------------------------------------------------- 2,253,746 3,179,694 ------------------------------------------------------------------------- Loss before income taxes (696,723) (2,027,239) ------------------------------------------------------------------------- Income taxes recovery - - ------------------------------------------------------------------------- Net loss (696,723) (2,027,239) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net loss per share-basic and fully diluted (0.02) (0.05) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding 41,360,532 41,360,532 Balance Sheets ------------------------------------------------------------------------- ------------------------------------------------------------------------- As at As at March 31 December 31 ------------ ------------ 2006 2005 $ $ (unaudited) (audited) Assets Current assets Cash and cash equivalents 3,723,903 4,344,957 Short-term deposits 167,400 167,400 Accounts and other receivable, net of allowance for doubtful accounts 2,110,873 2,387,089 Tax credits receivable 1,112,725 939,674 Inventory 928,099 986,154 Prepaid expenses 389,208 124,000 ------------------------------------------------------------------------- 8,432,208 8,949,274 Capital assets, net 1,334,874 1,253,534 Patents, net 985,374 933,237 Future income taxes 353,184 353,184 ------------------------------------------------------------------------- 11,105,640 11,489,229 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities Current liabilities Accounts payable and accrued liabilities 2,152,712 1,980,102 Future income taxes 25,314 25,314 Deferred revenues 139,026 99,373 ------------------------------------------------------------------------- 2,317,052 2,104,789 Future income taxes 327,870 327,870 ------------------------------------------------------------------------- 2,644,922 2,432,659 ------------------------------------------------------------------------- Shareholders' equity Share capital 18,679,340 18,679,340 Contributed surplus 1,680,480 1,579,609 Deficit (11,899,102) (11,202,379) ------------------------------------------------------------------------- 8,460,718 9,056,570 ------------------------------------------------------------------------- 11,105,640 11,489,229 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>

CONTACT: ORTHOsoft Inc., Peggy Katsiroumbas, CA, Chief Financial Officer,(514) 861-4074 ext. 221, peggy.katsiroumba@orthosoft.ca; ORTHOsoft Inc.,John F. Feilders, PhD, President and Co-CEO, (514) 861-4074 ext.222,john.feilders@orthosoft.ca; Echoes Financial Network Inc., Investors andMedia, Dominic Sicotte, 1 (866) 633-9551, dsicotte@roadshows.tv