TIR Systems Ltd.
TSX : TIR

TIR Systems Ltd.

August 15, 2005 16:15 ET

TIR Systems Reports Third Quarter Fiscal 2005 Results

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 15, 2005) - TIR Systems Ltd. (TSX:TIR), a world leader in light enabling technologies for Solid State Lighting, today announces its financial results for the third quarter of fiscal 2005 (Q3 2005), ending June 30, 2005.

For Q3 2005, TIR's net loss was $3.0 million, or ($0.13) per share, versus a net loss of $1.8 million or ($0.09) per share, for the third quarter of 2004 (Q3 2004). On a fiscal year-to-date basis in 2005, TIR's net loss was $8.9 million, versus net income of $461,700 for the same period in 2004. This equates to a basic and fully diluted per share loss of ($0.40) for the year-to-date 2005 versus basic and fully diluted per share income of $0.02 for the same period a year earlier.

Revenue in Q3 2005 was $3.4 million, compared to $6.3 million in Q3 2004. Year-to-date revenue for 2005 was $12.3 million compared to $24.4 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 45% in Q3 2004 to 17% in Q3 2005, and from a gross margin of 43% year-to-date 2004 to 21% for the same period in 2005. The gross margin decline in both periods was due to lower revenues, resulting in lower utilization of our production facility, a shift in our product mix, and inventory adjustments primarily due to obsolescence.

Operating expenses, prior to government assistance, decreased to $4.0 million in Q3 2005 from $4.7 million in Q3 2004. Year-to-date 2005 operating expenses were $11.2 million which was the same as year-to-date 2004. The decrease in quarterly operating expenses was due to lower sales and marketing, customer service and support and general and administrative expenses, partially offset by an increase in research and development expenditure.

Loss from operations in Q3 2005 increased to a loss of $3.1 million from a loss of $1.8 million in Q3 2004. Year-to-date loss from operations for 2005 increased to a loss of $7.6 million from operating income of $472,800 for the same period in 2004. Management estimates that future cash receipts, in addition to funds on hand and TIR's borrowing capacity under a line of credit, are sufficient to fund the Company's cash requirements through the end of the calendar year. TIR is actively pursuing additional financing, and has entered into a binding term sheet to sell $10 million aggregate principal amount of secured convertible debentures. The completion of the financing is subject to various conditions, including execution of definitive agreements, a satisfactory due diligence review and receipt of all applicable regulatory approvals. This binding term sheet is described in more detail in a separate press release.

In commenting on the financial results for the quarter, President & CEO Leonard Hordyk said: "The third quarter of 2005 was a time of mixed results for TIR. We accomplished one of the most significant milestones in our history when we demonstrated our superior technological leadership to the industry with the introduction of the LEXEL™ at Lightfair in April. It was well received by the industry and we believe that the future value of the business will be related to the revenues and profits we can generate from the LEXEL™. At the same time we recognize that our current business performance is insufficient. We took steps during the quarter to improve its prospects, and will continue to do so. We believe the best indicators of a turnaround in our existing SSL businesses will be an improvement in our revenue and gross margins which we believe we will begin to see in Q4." He reaffirmed, "Our revenue outlook for fiscal 2005, ending September 30th, 2005, remains in the range of $16 - $19 million."

Further to the launch of the LEXEL™ in April, TIR is in active negotiations with lighting fixture manufacturers around partnering opportunities to bring LEXEL™ technology to market in commercially viable products. Additionally TIR has initiated discussions with leading LED manufacturers in preparation for LEXEL™ commercialization.

"Our negotiations with these potential partners are promising and ongoing, and while there can be no guarantee of success, the industry response to the LEXEL™ increases our conviction that this breakthrough could truly transform the lighting industry," said Hordyk. He added, "We are on track with our plan to commercialize the LEXEL™. To date and to our knowledge, no competitors have introduced a technology that rivals the LEXEL™'s potential to bring Solid State Lighting (SSL) to the general illumination market."

One representative observation came from Dr. Robert Steele, the Director of Optoelectronics Programs for Strategies Unlimited, whom many view as the most prominent thought leader in the SSL lighting market. Dr. Steele said of the LEXEL™, "I prefer not using the expressions 'breakthrough' and 'paradigm shift' because they are so often misused; but the LEXEL™ is truly a breakthrough technology. Congratulations to TIR - I believe that the LEXEL™ is the most advanced fully integrated SSL technology in the world."

LEXEL™ is the first SSL solution that can realistically bring the benefits of SSL to the US$78 billion general lighting market. With technological advances in the key areas of thermal management, drive and control, the LEXEL™ offers:

- As much light as conventional lighting, but with 50-90% less energy use.

- Controllable and consistent color temperature.

- Reliable performance for decades.

- Simple universal platform designed to support all lighting applications.

Business highlights for TIR's third quarter and at the time of reporting:

- Outsourced component production with the initiation of a partnership for sub-assembly manufacture in China with cost reductions anticipated in FY 06.

- Gained traction through its distribution network - receipt of additional orders further cemented TIR's partnerships with the Robert Horne Group, a leading sign company supplier in Europe.

- Launched a new version of LightScript to the Corporate Identity market and Destiny SP in the Commercial and Industrial market.

- Received four major new orders for products from the Destiny® Series and ColorTrace valued at a combined $1.5 million to supply projects in Asia, Europe and Latin America.

- Awarded three patents in solid state lighting technology by the USPTO and UK Patent Office. This brings TIR's total number of patents awarded to five with a further 53 patent applications filed globally.

- Increased non-BP Corporate Identity business by 77% in Q3 FY 2005 over Q2 FY 2005. Year-to-date, this business has grown over 475% from last year.

- Commercial and Industrial SSL business grew 127% compared to Q3 FY 2004, as product acceptance of the Destiny® series continues.

Hordyk stated, "While we believe that the majority of TIR's future value will be generated by widespread adoption of the LEXEL™ platform, we remain firmly committed to supporting the revenue growth of our existing SSL markets. They are of crucial strategic importance as they bring us access to distribution channels and are a means of establishing and maintaining the close working relationships with the lighting industry and market-leading customers. These relationships allow us to intimately understand the needs and requirements of the market. They are also a source of new product ideas and information and provide ongoing direction in our goal of making the promise of LEXEL™ a reality." He added, "We believe they will grow and turn profitable in their own right once we achieve sufficient product breadth and scale to serve customers in these markets across a range of their lighting needs."

He concluded, "In a strategic context, we are ahead of plan on our long term goals - we now have an industry-leading technology platform that no competitor can match. Our challenge ahead is to balance the rapid commercialization of this platform with the need to improve our base business at a faster rate. We believe strongly that this is the right strategy for TIR and its shareholders, and are committed to making these two goals happen."

Teleconference Call

TIR Systems will be holding a teleconference call on Monday 15th August, 2005 at 2:00 p.m. Pacific Time, (5:00 p.m. Eastern Time) to discuss the company's third quarter financial results. To listen and participate, please dial in on 416 620 5683.

A playback will be available from 4pm (Pacific Time) on Monday 15th August until 29th August. Call 416 626 4100 and quote reference number: 21257901.

A recording of the conference call will be available on the TIR Systems web site at www.tirsys.com from Tuesday 16th August.

About TIR Systems Ltd.

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 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; we are a capital intensive business and have a history of operating losses, our ability to continue to operate beyond the end of our fiscal year will depend on our success in raising additional capital through debt and equity financing, and there can be no assurance that we will be successful in raising the necessary additional capital, 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.



Incorporated under the laws of British Columbia
Balance Sheets
Unaudited
As at June 30, Sept 30,
2005 2004
$ $
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ASSETS
Current
Cash and cash equivalents 3,178,400 1,227,900
Accounts receivables 2,765,000 4,773,100
Government grants receivable 904,100 1,517,500
Other receivable 588,600 588,600
Inventory 4,674,900 5,083,200
Prepaid expenses 322,100 358,800
Future tax asset 0 1,050,000
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Total current assets 12,433,100 14,599,100
Capital assets 4,657,600 4,919,400
Deferred charges 245,600 447,800
Patents and acquired intellectual
property 781,700 500,800
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Total assets 18,118,000 20,467,100
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Liabilities and shareholders' equity
Current
Accounts payable 1,229,000 2,851,800
Accrued liabilities 2,561,600 3,579,600
Customer deposits 541,000 985,200
Current portion of long term debt 237,800 224,300
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Total current liabilities 4,569,400 7,640,900

Long term debt 1,462,000 1,645,000
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Total liabilities 6,031,400 9,285,900
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Commitments and contingencies

Shareholders' equity
Share capital 22,452,900 13,386,500
Contributed surplus 1,528,200 823,200
Deficit (11,894,500) (3,028,500)
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Total shareholders' equity 12,086,600 11,181,200
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Total liabilities and shareholders'
equity 18,118,000 20,467,100
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See accompanying notes


STATEMENTS OF INCOME (LOSS)
AND DEFICIT
Unaudited Three months ended Nine months ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
$ $ $ $
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Revenue 3,369,700 6,327,700 12,346,200 24,400,700
Cost of Sales 2,782,100 3,464,400 9,770,500 13,894,000
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Gross Profit 587,600 2,863,300 2,575,700 10,506,700
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Expenses
Sales and
marketing 1,402,900 1,761,400 4,001,600 3,969,700
Customer service
and support 407,800 653,800 1,178,700 1,738,100
General and
administrative 1,224,200 1,401,400 3,294,700 3,089,800
Research and
development 929,400 862,400 2,749,300 2,401,700
Less government
assistance (317,400) 9,300 (1,043,300) (1,165,400)
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3,646,900 4,688,300 10,181,000 10,033,900
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Income (loss)
from operations (3,059,300) (1,825,000) (7,605,300) 472,800

Interest and
other income 33,100 14,100 90,400 39,700
Interest expense (36,600) (24,800) (108,300) (27,400)
Foreign exchange
gain (loss) 103,800 100,000 (192,800) 94,600
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Income (loss)
before income
taxes (2,959,000) (1,735,700) (7,816,000) 579,700

Provision for
(recovery of)
income taxes
Current 0 (286,000) 0 858,000
Future 0 338,000 1,050,000 (740,000)
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0 52,000 1,050,000 118,000
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Net income
(loss) (2,959,000) (1,787,700) (8,866,000) 461,700

Deficit,
beginning of
period (8,935,500) 344,100 (3,028,500) (1,905,300)
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Deficit, end of
period (11,894,500) (1,443,600) (11,894,500) (1,443,600)
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Earnings (loss)
per share
Basic (0.13) (0.09) (0.40) 0.02
Diluted (0.13) (0.09) (0.40) 0.02
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STATEMENT OF CASH FLOWS
Unaudited Three months ended Nine months ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
$ $ $ $
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Operating
Activities
Net income
(loss) (2,959,000) (1,787,700) (8,866,000) 461,700
Adjustments for
non-cash items:
Future income
tax expense 0 52,000 1,050,000 52,000
Depreciation and
amortization 326,100 293,800 946,600 629,900
Amortization of
deferred
charges 67,500 0 202,200 199,600
Stock-based
compensation 239,300 198,800 705,000 569,500
Gain on
disposal of
capital assets (12,000) 0 (12,000) 0
Changes in
non-cash
working capital
balances:
Accounts
receivable 371,900 (1,671,900) 2,008,100 (261,500)
Government grants
receivable (118,500) 0 613,400 (1,329,100)
Inventory 563,100 (679,300) 408,300 (2,508,600)
Prepaid expenses 46,300 93,500 36,700 (99,500)
Accounts payable (587,100) (627,300) (1,531,700) 112,100
Accrued
liabilities 155,900 (1,800,400) (1,018,000) 1,779,900
Customer deposits 82,100 (2,095,500) (444,200) (1,030,700)
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Cash (used in)
operating
activities (1,824,400) (8,024,000) (5,901,600) (1,424,700)
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FINANCING
ACTIVITIES
Issue of common
shares,net
of share
issue costs 3,700 40,600 9,066,400 6,137,600
Deferred charges 0 0 0 (995,400)
(Repayment)
of leasehold
improvement
loan (15,400) (13,900) (45,000) (13,900)
(Repayment)
of capital lease
obligations (42,000) 857,000 (124,500) 857,000
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Cash provided
by (used in)
financing
activities (53,700) 883,700 8,896,900 5,985,300
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INVESTING
ACTIVITIES
Acquisition of
capital assets,
net (84,400) (649,300) (736,900) (3,653,400)
Proceeds from
disposal of
capital assets 22,900 0 22,900 0
Acquisition of
patents and
intellectual
property, net (248,900) (208,200) (330,800) (238,300)
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Cash (used)
in investing
activities (310,400) (857,500) (1,044,800) (3,891,700)
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(Decrease)
increase in
cash and cash
equivalents (2,188,500) (7,997,800) 1,950,500 668,900
Cash and cash
equivalents,
beginning of
period 5,366,900 11,979,400 1,227,900 3,312,700
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Cash and cash
equivalents,
end of period 3,178,400 3,981,600 3,178,400 3,981,600
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Supplemental
disclosures of
cash flow
information
Cash paid for
interest 36,600 24,800 108,300 27,400
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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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