Business News

Sirit Reports Second Quarter 2008 Financial Results

Tuesday 05. August 2008 - Sirit Inc. ("Sirit") (TSX: SI), a leading provider of radio frequency identification ("RFID") technology, reports its financial results for the second quarter ended June 30, 2008. All amounts are stated in Canadian Dollars unless otherwise noted.

Q2 2008 Corporate Highlights

The following highlights key activities during the quarter:

– The Company announced it had completed the acquisition of RSI ID
Technologies, Inc. (“RSI”), an industry leading, vertically
integrated manufacturer of antennas, inlays and tags for specialized,
passive RFID applications. The deal was structured as an all stock
transaction with an initial payment of 10 million Sirit Common Shares
plus potential additional shares to be issued over a 21 month period
based on achieving certain financial targets. The deal, which closed
as scheduled on April 1, 2008, allows the combined entity to offer
integrated solutions across a number of passive tag applications, in
particular to address the electronic vehicle registration
opportunities worldwide.

– Sirit launched its next generation INfinity 110 high frequency (“HF”)
reader module designed for embedded RFID applications. This new
offering leverages Sirit’s long history of supplying HF embedded
reader solutions by supporting more tag protocols than competitive
products in a compact footprint.

– Sirit’s INfinity 510 UHF RFID reader (“IN510”) was announced as being
part of an expanded rollout at METRO Group’s Real brand hypermarket
stores. 200 Real locations will be equipped with Checkpoint portals
powered by Sirit readers at the loading doors to track incoming
goods.

– Sirit announced that the IN510 was selected for Finland’s postal
delivery service RFID implementation. Readers have been installed
across the country as part of a system to monitor and quantify the
speed and accuracy of real-time postal deliveries.

Q2 2008 Financial Results



Total revenue for the three months ended June 30, 2008 reached $4.8 million (US$4.7 million) compared to $7.0 million (US$6.1 million) in the second quarter of 2007. For the first half of 2008, total revenue is $9.1 million compared to $13.5 million from the first half of 2007. The decline in revenue continues to result primarily from lower toll transponder sales during the first six months of 2008 when compared to 2007, as well as foreign exchange impacts with a stronger Canadian Dollar in 2008. Year-to-date the total decline in US Dollar revenue is 23% compared to a reported decline in revenue in Canadian Dollars of almost 32%.

During the second quarter of 2008, Sirit’s Automatic Vehicle Identification (“AVI”) applications contributed $3.3 million (US$3.2 million) or 70% of the total revenue, down from $5.2 million (US$4.5 million) or 74% in the second quarter of 2007. Radio Frequency Solutions (“RFS”) applications revenue contributed $1.5 million (US$1.5 million) compared to $1.8 million (US$1.6 million) in the second quarter of 2007. This represented a 50% increase from the first quarter of 2008 at $1.0 million (US$1.0 million). Revenue from the operations of RSI acquired on April 1, 2008 are consolidated within either AVI or RFS based on the nature of the application.

“As previously announced, Sirit continued to experience delays in toll transponder orders from our largest toll customer. However, expenses in the second quarter remained consistent with the first quarter, even with the acquisition of RSI,” commented Anastasia Chodarcewicz, Chief Financial Officer, Sirit Inc. “In light of the continued slower revenue generation, Sirit has already implemented actions to reduce operating expenses for the second half of 2008.”

Gross profit in the second quarter of 2008 was 30% compared to almost 36% in the second quarter of 2007. The change is the result of an overall lower revenue level available to absorb fixed overhead costs as well as the inclusion of manufacturing costs associated with the operations of RSI.

Operating expenses during the quarter, excluding foreign exchange and amortization, were $3.0 million, consistent with both the first quarter of 2008 and second quarter of 2007. Even with the inclusion of the new RSI operations, significant effort was placed on the control of expenses. Additional expense reductions have been taken to bring costs more in-line with the lower revenue levels currently being experienced. Development expenses now include RSI development efforts and are also anticipated to decrease in the second half of 2008. Amortization expense has increased with the assumption of manufacturing assets and creation of intangible assets, both associated with the acquisition of RSI.

Operating loss for the quarter was $2.2 million compared to a $1.5 million loss in the same period last year. Net loss for the quarter was $2.2 million compared to a $1.4 million loss in the second quarter of 2007.

The Company incurred approximately $2.5 million in short-term debt during the quarter and ended the quarter with $4.7 million in cash compared to $6.8 million at the beginning of the quarter. Of the total cash spent during the quarter, approximately $1.8 million was to repay liabilities of RSI assumed upon the acquisition.

Second Half 2008 Perspective

We remain confident about the growth opportunities for Sirit across all application areas. We are seeing, especially in AVI, some of the biggest opportunities we have faced in our history for applications such as Electronic Vehicle Registration and Electronic Tolling from emerging countries. We are however, now forecasting a continued slowdown in Q3 from our largest toll customer which will delay our return to a position of growth until the fourth quarter. In light of this delay, the Company has accelerated the streamlining and consolidation of the RSI acquisition and has reduced spending with the goal to return to a near cash neutral position by the end of 2008.

“Even with the delays experienced in our traditional tolling market, we are excited about the very large opportunities Sirit is pursuing. As an example, we have been working very closely with 3M on new toll and electronic vehicle registration opportunities worldwide as we recently announced with the deployment of our toll technology with 3M in Brazil. We have also recognized the need to more closely align our spending with revenue levels and have taken actions to control expenses until revenue growth returns,” added Norbert Dawalibi, President and CEO, Sirit Inc. “Overall, I continue to be confident about the future for Sirit and I look forward to high growth and achieving profitability in 2009 as we expect to see new application areas become a reality for Sirit.”