TIR Systems Ltd.

TIR Systems Ltd.

May 12, 2005 15:30 ET

TIR Systems Reports Second Quarter Fiscal 2005 Results

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - May 12, 2005) - TIR Systems Ltd. (TSX:TIR) -

- Introduces the LEXEL™ to accelerate SSL adoption in the general lighting market

- Updates to revenue guidance

TIR Systems Ltd., a world leader in light enabling technology, today announces its financial results for the second quarter of fiscal 2005 ("Q2 2005"), ending March 31, 2005.

For Q2 2005, TIR's net loss was $2.9 million, or ($0.13) per share, versus net income of $370,700 or $0.02 per share, for the second quarter of 2004 ("Q2 2004"). On a fiscal year-to-date basis in 2005, TIR's net loss was $5.9 million, versus net income of $2.2 million for the same period in 2004. This equates to a basic and fully diluted per share loss of ($0.26) for the year-to-date 2005 versus basic per share income of $0.12 and a fully diluted per share income of $0.11 for the same period a year earlier.

Revenue in Q2 2005 was $3.4 million, compared to $8.1 million in Q2 2004. Year-to-date revenue for 2005 was $9.0 million compared to $18.1 million for the same period in 2004. The revenue decline in both periods was due primarily to a decrease in revenues from TIR's largest customer, BP, as its successful North American corporate re-imaging program is now complete.

Gross margins declined from 41% in Q2 2004 to 16% in Q2 2005, and from a gross margin of 42% year-to-date 2004 to 22% for the same period in 2005. The decline in gross margins was due to a number of factors, including the write-off of $189,100 of obsolete inventory in Q2 2005 and under-utilization of plant resources due to low revenues.

Operating expenses, prior to government assistance, increased to $3.7 million in the Q2 2005 from $3.5 million in Q2 2004 and to $7.3 million year-to-date 2005 from $6.5 million in 2004. The increase in operating expenses was due to higher sales and marketing, research and development, and general and administrative expenses, partially offset by a decrease in customer service and support expenses. The increase in sales and marketing and research and development expense was due to increased headcount and to the acceleration of plans to introduce LEXEL™, TIR's break-through new light-enabling platform technology, at Lightfair in New York.

Operating income for Q2 2005 decreased to a loss of $2.8 million from income of $177,100 in Q2 2004. Operating income year-to-date for 2005 decreased to a loss of $4.5 million from income of $2.3 million for the same period in 2004.

In commenting on the financial results, President & CEO Leonard Hordyk said: "We do not believe our current financial results are satisfactory, and are continuing to focus on a number of initiatives to significantly improve order flow, revenues and gross margins. These include enhancements to our products, the use of off-shore manufacturing facilities for certain modules, and multiple cost reduction initiatives. These actions are designed to improve the overall performance of current business lines."

Recent developments: LEXEL™ Technology introduced to the industry

Subsequent to March 31, 2005, TIR successfully introduced the LEXEL™ platform at Lightfair 2005, the industry's flagship event, held in New York from 12-14 April. Industry endorsement of this technology was overwhelmingly positive and the interest of potential partners in the platform and its applications have exceeded TIR's expectations.

Hordyk added, "Industry reaction to the LEXEL™ platform was very gratifying - the LEXEL™ may prove to be a technology which enables a more rapid introduction of SSL into the general illumination market. As we have said previously, we are continuing to invest in our early adopter markets of Corporate Identity and Architectural lighting as necessary steps in our long term strategy to participate in this market. The launch of the LEXEL™ substantially furthered this objective and as this platform is developed and introduced in products, we believe the associated revenue streams will become a disproportionate share of our overall revenue base. The market and customer information we have obtained from the investment in early adopter markets has been crucial to our progress on the LEXEL™ so far, and will be critical in our ability to introduce commercially viable LEXEL™-based products in a reasonable timeframe. We believe that the LEXEL™ is fundamentally different from the products we have introduced to date - rather than representing a finished lighting product in itself, it is an SSL-enabling lighting platform that could be incorporated into hundreds of lighting products by many manufacturers in the future."

Commenting on TIR's near-term performance outlook, Mr. Hordyk said, "Based on current visibility, our revenue outlook for fiscal 2005, ending September 30th, 2005, is in the range of $16 - $19 million. The reason for the decrease from our previously announced range is timing on large architectural deals and the continued time-lag involved in bringing prospective new Corporate Identity customers into a full re-imaging program. In addition, we are very committed to a number of initiatives to improve gross margins. However, based on our current level of business we are unlikely to achieve the previously announced range of 35-40% gross margins for the second half of the year."

Other business highlights for TIR's second quarter and at the time of reporting:

- Awarded 2 patents in solid state lighting technology by the USPTO. This brings TIR's total number of patents awarded to 4 with a further 43 patent applications filed globally.

- Launched Destiny SP - a new spot light product to add to the Destiny Series - and a series of optical enhancements to a number of Destiny products, thus expanding the functionality of the product line.

- Received two new orders valued at a combined $2.9 million to supply its Light Pipe products for the interior of Chicago O'Hare International Airport Terminal 2 and to replace an existing conventional lighting system in the Cobo Hall Tunnel in downtown Detroit, Michigan.

- Expanded its global sales team in Europe and the Middle East with the appointment of Alfred Vallaster as Director of Sales, Europe and the Middle East, Commercial / Industrial Markets.

- Received SSL technology validation as peers of TIR's Chief Research Scientist, Ian Ashdown, invited him to co-Chair the SPIE (The International Society of Optical Engineering) Fifth International Conference on Solid State Lighting.

Hordyk concluded, "While our current business performance is clearly behind our expectations, we are committed to improving on its performance and to achieving long term growth objectives. In a strategic context, we are ahead of plan on our long term goals - a fact which can often be lost in the focus on short term performance metrics. The market and customer information we obtain as part of the current investment in early adopter markets has been crucial to our progress on LEXEL™ Technology, and we now have an industry-leading technology platform that no competitor can match. This platform will serve as the basis for our efforts to foster significant strategic partnerships that can lead to LEXEL™-based commercial products in the near future. We believe these developments will help accelerate the overall growth of the SSL lighting industry as well as cement our leadership role in catalyzing this growth."

Teleconference Call

TIR Systems will be holding a teleconference call on Thursday 12th May, 2005 at 2:00 p.m. Pacific Time, (5:00 p.m. Eastern Time) to discuss the company's second quarter financial results. To listen and participate, please follow these instructions approximately 5 minutes before the conference call.

1. Dial 1-866-222-7968.

2. When prompted, enter the conference ID code: 20014850#.

3. When prompted, it is mandatory that you record your Name and Company in order to access the call, and then press any key to continue.

4. You will hear music until the moderator starts the conference.

A recording of the conference call will be available on the TIR Systems web site at http://www.tirsys.com from Monday 16th May.

TIR Systems Ltd., a world leader in light enabling technology, is building the foundations for tomorrow's lighting. Through sound innovation and proven technical capability, TIR is developing, designing and marketing the core technologies that will allow Solid State Lighting (SSL) to move to the forefront of mainstream lighting.

To find out more about TIR Systems Ltd. (TSX:TIR), visit http://www.tirsys.com.

This News Release contains forward-looking statements concerning anticipated developments in the Company's business, which statements can be identified by the use of forward-looking terminology such as "complete" and "continue" or the negative thereof or any other variations thereon or comparable terminology referring to future events or results. Forward-looking statements are statements about the future and are inherently uncertain, involving known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Forward-looking statements include, but are not limited to, those with respect to the anticipated value of orders for our products; the launch of our new products; and the patent litigation brought by Color Kinetics. Factors that could cause such actual events or results expressed or implied by such forward-looking statements to differ materially from any future results expressed or implied by such statements include, but are not limited to; the risk that we are dependent on a single customer for a significant portion of our sales revenue; future sales of our existing products and our new products may be less than expected; our future operating results are uncertain and likely to fluctuate; and the patent litigation initiated by Color Kinetics may be unfavourable and have an adverse impact on our financial results; manufacturing risks; product liability risks; the effect of competition may have an adverse impact on our sales and profitability; the Company's need for additional future capital, which may not be available in a timely manner or at all; exchange rate fluctuations between the US and Canadian currencies, which may decrease revenues reported in Canadian dollars; as well as a description of other risks and uncertainties affecting the Company and its business, as contained in the Company's most recent Annual Information Form and other subsequent news releases and filings with the Canadian Securities Regulatory Authorities, any of which could cause actual revenues to vary materially from the Company's anticipated future results. Forward-looking statements are based on the beliefs, opinions and expectations of the Company's management at the time they are made, and the Company does not assume any obligation to update its forward-looking statement if those beliefs, opinions or expectations, or other circumstances should change.

TIR Systems Ltd.
Incorporated under the laws of British Columbia

As at

March 31, September 30,
2005 2004
(Unaudited) $ $

Cash and cash equivalents 5,366,900 1,227,900
Accounts receivable 3,136,900 4,773,100
Government grants receivable 785,600 1,517,500
Other receivable 588,600 588,600
Inventory 5,238,000 5,083,200
Prepaid expenses 368,400 358,800
Future tax asset - 1,050,000
Total current assets 15,484,400 14,599,100
Capital assets 4,916,700 4,919,400
Deferred charges 313,100 447,800
Patents and acquired
intellectual property 553,000 500,800
Total assets 21,267,200 20,467,100

Accounts payable 1,842,800 2,851,800
Accrued liabilities 2,405,700 3,579,600
Customer deposits 458,900 985,200
Current portion of long term debt 234,400 224,300
Total current liabilities 4,941,800 7,640,900

Long term debt 1,522,800 1,645,000
Total liabilities 6,464,600 9,285,900

Commitments and contingencies

Shareholders' equity
Share capital 22,449,200 13,386,500
Contributed surplus 1,288,900 823,200
Deficit (8,935,500) (3,028,500)
Total shareholders' equity 14,802,600 11,181,200
Total liabilities and
shareholders' equity 21,267,200 20,467,100

TIR Systems Ltd.

Three Three Six Six
months months months months
ended ended ended ended
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
$ $ $ $

Revenue 3,384,700 8,122,600 8,976,500 18,073,000
Cost of sales 2,843,900 4,793,600 6,988,400 10,429,600
Gross profit 540,800 3,329,000 1,988,100 7,643,400

Sales and marketing 1,305,900 1,257,500 2,598,700 2,208,300
Customer service and
support 338,600 551,900 770,900 1,084,300
General and
administrative 1,042,500 977,400 2,070,500 1,688,400
Research and
development 973,400 744,600 1,819,900 1,539,300
Less government
assistance (360,700) (379,500) (725,900) (1,174,700)
3,299,700 3,151,900 6,534,100 5,345,600
Income (loss) from
operations (2,758,900) 177,100 (4,546,000) 2,297,800

Interest and other
income 30,700 20,900 57,300 25,600
Interest expense (35,100) - (71,700) (2,600)
Foreign exchange gain
(loss) (177,500) 238,700 (296,600) (5,400)
Income (loss) before
income taxes (2,940,800) 436,700 (4,857,000) 2,315,400

Provision for
(recovery of)
income taxes
Current - 66,000 1,050,000 66,000
Future - - - -
- 66,000 1,050,000 66,000
Net income (loss) (2,940,800) 370,700 (5,907,000) 2,249,400

Deficit, beginning of
period (5,994,700) (26,600) (3,028,500) (1,905,300)
Deficit, end of
period (8,935,500) 344,100 (8,935,500) 344,100

Earnings (loss)
per share
Basic (0.13) 0.02 (0.26) 0.12
Diluted (0.13) 0.02 (0.26) 0.11

TIR Systems Ltd.

Three Three Six Six
months months months months
ended ended ended ended
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
$ $ $ $
Net income (loss) (2,940,800) 370,700 (5,907,000) 2,249,400
Adjustments for
non-cash items:
Future income tax
expense - - 1,050,000 -
Depreciation and
amortization 318,100 171,700 620,500 336,100
Amortization of
deferred charges 67,900 57,600 134,700 199,600
compensation 213,700 266,600 465,700 318,700
Changes in non-cash
working capital balances:
Accounts receivable 959,800 713,100 1,636,200 1,410,400
Government grants
receivable (452,800) (383,600) 731,900 (1,329,100)
Inventory (133,200) (42,400) (154,800) (1,829,300)
Prepaid expenses (48,100) (309,600) (9,600) (193,000)
Accounts payable (434,600) (919,300) (944,600) (528,400)
Accrued liabilities (396,300) 3,090,900 (1,173,900) 3,085,600
Customer deposits 13,900 (2,121,600) (526,300) 1,064,800
Cash provided by
(used in) operating
activities (2,832,400) 894,100 (4,077,200) 4,784,800

Issue of common shares,
net 9,900 348,100 9,062,700 6,097,000
Deferred charges - - - (995,400)
Repayment of leasehold
improvement loan (14,900) - (29,600) -
Repayment of capital
lease obligations (41,400) - (82,500) -
Cash provided by
(used in) financing
activities (46,400) 348,100 8,950,600 5,101,600

Acquisition of capital
assets, net (356,300) (854,400) (652,500) (1,189,600)
Acquisition of patents
and acquired intellectual
property, net (67,400) (24,300) (81,900) (30,100)
Cash used in investing
activities (423,700) (878,700) (734,400) (1,219,700)

(Decrease) increase in
cash and cash
equivalents (3,302,500) 363,500 4,139,000 8,666,700
Cash and cash
beginning of period 8,669,400 11,615,900 1,227,900 3,312,700
Cash and cash
equivalents, end of
period 5,366,900 11,979,400 5,366,900 11,979,400
Supplemental disclosures
of cash flow information
Cash paid for interest 35,100 - 71,700 2,600

The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of the content of this News Release.

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