Sirit Reports Second Quarter 2008 Financial Results



    TORONTO, Aug. 5 /CNW/ - 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."

    About Sirit Inc.

    Sirit Inc. (TSX: SI) is a leading provider of Radio Frequency
Identification (RFID) technology worldwide. Harnessing the power of Sirit's
enabling-RFID technology, customers are able to more rapidly bring high
quality RFID solutions to the market with reduced initial engineering costs.
Sirit's products are built on more than 14 years of RF domain expertise
addressing multiple frequencies (LF/HF/UHF), multiple protocols and are
compliant with global standards. Sirit's broad portfolio of products and
capabilities can be customized to address new and traditional RFID market
applications including Supply Chain & Logistics, Cashless Payment (including
Electronic Tolling), Access Control, Automatic Vehicle Identification, Near
Field Communications, Inventory Control & Management, Asset Tracking and
Product Authentication. For more information, visit www.sirit.com.

    Cautionary Note Regarding Forward-Looking Statements

    Safe Harbor Statement under the United States Private Securities
Litigation Reform Act of 1995: Except for the statements of historical fact
contained herein, the information presented constitutes "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and Canadian provincial securities legislation. These forward-looking
statements relate to, among other things, Sirit's objectives, goals,
strategies, intentions, plans, beliefs, expectations and estimates, and can
generally be identified by the use of words such as "may", "will", "could",
"should", "would", "suspect", "outlook", "expect", "intend", "estimate",
"anticipate", "believe", "plan", "forecast", "objective" and "continue" (or
the negative thereof) and words and expressions of similar import, and may
include statements concerning possible or assumed future results, financial
outlook and/or future-oriented financial information. Although Sirit believes
that the expectations reflected in such forward-looking statements are
reasonable, such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievement of Sirit to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements. Actual results may differ materially from
those indicated by these forward-looking statements as a result of risks and
uncertainties impacting Sirit's business. Important factors that could cause
actual results to differ materially from expectations include but are not
limited to: Sirit's ability to achieve commercialization and/or commercial
acceptance of its RFID technology; the evolution of, and adoption rate in, the
RFID market; changes in Sirit's strategic relationships; Sirit's dependence on
resellers, distributors and significant customers; the utility of research and
development expenditures undertaken by Sirit; product defects; increased
levels of competition; changes in laws and regulations; foreign exchange
fluctuations; and Sirit's overall liquidity and capital resources. These and
other important risks are discussed in further detail in the section entitled
"Risks Factors" in Sirit's Annual Information Form dated March 14, 2008 and in
Sirit's management's discussion and analysis found in its 2007 annual report
as filed with the securities regulatory authorities in Canada via SEDAR.
Although Sirit has attempted to identify important factors that could cause
actual results to differ materially, there may be other factors that cause
results not to be as anticipated, estimated or intended. Sirit does not
undertake any obligation to update any forward-looking statements contained in
this news release as a result of new information, further events or otherwise.
This cautionary statement expressly qualifies the forward-looking information
in this news release.

    "Sirit", the Sirit Design and "vision beyond sight" are all trademarks of
Sirit Inc. All other names of actual companies and products mentioned herein
may be the trademarks of their respective owners.



    
    Sirit Inc.
    Interim Consolidated Balance Sheets
    (expressed in thousands of Canadian dollars)

    Unaudited

                                                            As at      As at
                                                          June 30   December
                                                             2008    31 2007
                                                         ---------  ---------

    Assets
      Current Assets
        Cash and cash equivalents                        $  4,735   $  8,855
        Accounts receivable                                 3,546      2,951
        Inventory                                           3,071      2,450
        Prepaids, deposits and other                          472        233
                                                         ---------  ---------
                                                           11,824     14,489

      Property and equipment                                3,025      1,070
      Intangible assets                                     7,452      1,205
      Goodwill                                              3,905      3,905
                                                         ---------  ---------

                                                         $ 26,206   $ 20,669
                                                         ---------  ---------
                                                         ---------  ---------

    Liabilities
      Current Liabilities
        Bank indebtedness                                $  2,451   $      -
        Accounts payable and accrued liabilities            4,464      4,178
        Deferred revenue                                      194        306
        Warranty obligations                                   60        134
        Related party debt                                    509          -
        Capital lease obligations                             379          -
                                                         ---------  ---------
                                                            8,057      4,618

      Long-term deferred revenue                              519        569
      Long-term warranty obligations                          206        124
      Long-term capital lease obligations                     971          -
      Contingent liability                                  1,743          -
                                                         ---------  ---------
                                                           11,496      5,311
                                                         ---------  ---------

    Shareholders' Equity
      Share capital                                        50,474     47,852
      Contributed surplus                                   2,921      2,699
      Deficit                                             (38,685)   (35,193)
                                                         ---------  ---------
                                                           14,710     15,358
                                                         ---------  ---------

                                                         $ 26,206   $ 20,669
                                                         ---------  ---------
                                                         ---------  ---------




    Sirit Inc.
    Interim Consolidated Statements of Operations, Comprehensive Loss and
    Deficit
    (expressed in thousands of Canadian dollars except per share amounts)

    Unaudited

                                    Three Months Ended     Six Months Ended
                                         June 30               June 30
                                      2008       2007       2008       2007
                                   ---------  ---------  ---------  ---------

    Revenue                        $  4,752   $  6,964   $  9,058   $ 13,463
    Cost of sales                     3,328      4,465      6,077      8,701
                                   ---------  ---------  ---------  ---------
    Gross profit                      1,424      2,499      2,981      4,762
                                   ---------  ---------  ---------  ---------

    Expenses
      Selling, general and
       administrative                 2,122      2,118      4,074      4,307
      Stock-based compensation          112        195        229        367
      Development                       754        568      1,677      1,172
      Amortization                      541        232        713        455
      Foreign exchange loss/(gain)       84        867       (165)       976
                                   ---------  ---------  ---------  ---------
                                      3,613      3,980      6,528      7,277
                                   ---------  ---------  ---------  ---------
    Operating loss                   (2,189)    (1,481)    (3,547)    (2,515)

      Gain on sale of long-term
       investment                         -          -          -      1,401
      Interest (expense)/income,
       net                              (17)        89         55        185
                                   ---------  ---------  ---------  ---------
    Net loss and comprehensive
     loss for the period           $ (2,206)  $ (1,392)  $ (3,492)  $   (929)

      Deficit, beginning of period  (36,479)   (31,212)   (35,193)   (31,675)
                                   ---------  ---------  ---------  ---------

    Deficit, end of period         $(38,685)  $(32,604)  $(38,685)  $(32,604)
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------

    Basic and diluted loss per
     share                         $  (0.01)  $  (0.01)  $  (0.02)  $  (0.01)
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------



    Sirit Inc.
    Interim Consolidated Statements of Cash Flows
    (expressed in thousands of Canadian dollars)

    Unaudited

                                    Three Months Ended     Six Months Ended
                                          June 30               June 30
                                      2008       2007       2008       2007
                                   ---------  ---------  ---------  ---------

    Cash provided by/(used in):
    Operating Activities
      Net loss for the period      $ (2,206)  $ (1,392)  $ (3,492)  $   (929)
      Items not involving cash and
       cash equivalents                 740        427      1,029       (579)
      Foreign exchange loss/(gain)       84        740       (165)       740
                                   ---------  ---------  ---------  ---------
                                     (1,382)      (225)    (2,628)      (768)

      Net change in non-cash
       working capital items         (1,747)       791     (2,835)      (152)
                                   ---------  ---------  ---------  ---------
                                     (3,129)       566     (5,463)      (920)
                                   ---------  ---------  ---------  ---------
    Investing Activities
      Additions to property and
       equipment                       (134)       (17)      (162)      (210)
      Acquisition of RSI ID
       Technologies, Inc., net         (205)         -       (205)         -
      Proceeds on sale of
       long-term investment               -          -          -      2,140
                                   ---------  ---------  ---------  ---------
                                       (339)       (17)      (367)     1,930
                                   ---------  ---------  ---------  ---------
    Financing Activities
      Increase in bank
       indebtedness                   1,441          -      1,441          -
      Issuance of common shares
       upon exercise of stock
       options                           15          8         15         22
      Capital lease obligations,
       net                               11          -         11          -
                                   ---------  ---------  ---------  ---------
                                      1,467          8      1,467         22
                                   ---------  ---------  ---------  ---------

    Exchange rate impact on cash
     and cash equivalents               (89)      (740)       243       (740)
                                   ---------  ---------  ---------  ---------

    (Decrease)/increase in cash
     and cash equivalents            (2,090)      (183)    (4,120)       292
      Cash and cash equivalents,
       beginning of period            6,825      9,872      8,855      9,397
                                   ---------  ---------  ---------  ---------

    Cash and cash equivalents,
     end of period                 $  4,735   $  9,689   $  4,735   $  9,689
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------

    Cash and cash equivalents
     consist of:
      Cash                         $    777   $  2,455   $    777   $  2,455
      Short-term commercial paper     3,958      7,234      3,958      7,234
                                   ---------  ---------  ---------  ---------

                                   $  4,735   $  9,689   $  4,735   $  9,689
                                   ---------  ---------  ---------  ---------
                                   ---------  ---------  ---------  ---------
    





For further information:

For further information: Anastasia Chodarcewicz, Sirit Inc., (416)
367-1897 x227, achodarcewicz@sirit.com

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