Lyrtech continues to build a solid backlog

Lyrtech Inc. (TSX Venture Exchange: LYT), a worldwide leader in digital signal processing (DSP) technologies, is pleased to announce its financial results for the second quarter ended June 30, 2006.

Sales for the second quarter of 2006 totaled $3.7 million, which represents an 89% increase compared to sales of $1.95 million in the second quarter of 2005. Gross profit for the second quarter amounted to $1 million, representing a gross margin of 30%. The integration of the acquisition of Innovator Electronic Assembly in May 2006 and the consolidation of all manufacturing activities in the new facility in Pointe-Claire have been completed and we are confident to reach our 36% gross margin objective.

Lyrtech generated a net loss of $795,422 in the second quarter of 2006, or $(0.008) per share. This net loss includes stock-based compensation cost of $233,101, amortization of $292,360, financial expenses of $161,292 and a non-recurring expense of $107,056 related to the transfer of Lyrtech's Quebec City manufacturing operations to Innovator's facility in Montreal. "The combine companies have generated significant amount of new orders. We have had difficulty to process all of them during the integration process so we did not meet our goal of being profitable this quarter. The action taken to correct the inefficiencies and enhance our operations make us confident that our profitability objectives will be met in the next quarters ", stated Miguel Caron.

First Semester

For the 6-month period, Lyrtech generated revenues of $5.75 million, up 55% over $3.7 million in the first six months of 2005. Gross profit for the first half of 2006 stood at $1,874,996, representing a gross margin of 33%.

EBITDAS before stock-based compensation costs and excluding non-recurring costs related to the transfer of manufacturing operations for the first 6 months of the year stood at a positive $26,685 compared with a loss of $72,121 for the equivalent period of 2005.

Lyrtech generated a net loss of $1,022,840 or $(0.012) per share in the first six months of 2006. This net loss includes stock-based compensation cost of $286,491, amortization of $391,032, financial expenses of $264,946 and a non-recurring expense of $107,056.

Order Backlog

With the acquisition of Innovator, Lyrtech's strategy was to drive revenue growth and profitability through offering existing and new customers integrated advanced electronics engineering and manufacturing services. "This strategy has already begun to bear fruit. Lyrtech's outlook for the remainder of 2006 is positive, and as at August 18, 2006, Lyrtech's consolidated order backlog stood at $14.2 million. This is an increase of $2.7 million from May 17th which shows that the rational for the acquisition was sound and our cross selling strategy works", stated Miguel Caron.

Financial position

As of June 30, 2006, total assets amounted to $21.3 million, an increase over the $6.9 million recorded at the end of December 31, 2005. Current assets totaled $11.7 million as of June 30, 2006, compared to $5.1 million on December 31, 2005, an increase which is primarily due to the acquisition of Innovator. Tax credits receivable increased from $1.62 million on December 31, 2005 to $2.45 million on June 30, 2006. Total liabilities increased to $12.4 million as of June 30, 2006, from $4.5 million on December 31, 2005. The main variation resulted from the assumption of Innovator liabilities which represented $6.9 million at the time of acquisition. Working capital stood at $1.735 million on June 30, 2006 as compared to $0.977 million on December 31, 2005, corresponding to working capital ratios of 1.17 and 1.24 respectively.

The financial results of the second quarter have caused the Company to be in breach of the debt/EBITDA and the working capital ratio covenants in its banking facility. While the lender has not waived the covenant breach and retains the right to demand repayment and enforce its security at any time, the lender continues to make credit facilities available and is working with the Company towards a resolution of the matter.

Capital structure

In the quarter ended June 30, 2006, Lyrtech closed a brokered private placement of $6 million through the issuance of approximately 33.3 million units at an issue price of $0.18. Each unit is composed of 1 common share and 1 common share purchase warrant, with each warrant exercisable at $0.30 for a period of 4 years. The units are subject to the usual 4-month hold period and are not tradable until September 3, 2006.

Under the acquisition of Innovator, Lyrtech issued 10,216,950 common shares. 6,666,667 of these common shares are subject to a 2-year performance provision, and are payable in full only if the acquired business achieves a specified level of revenues in each of the two years following the acquisition.

As of June 30, 2006, Lyrtech had the following capital structure. The following table indicates changes in the Company's stock during the periods:

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2006

$ Number Amount

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Balance as of December 31, 2005 74,937,492 1,868,055

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Balance as of March 31, 2006 74,937,492 1,868,055

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Private placement issuance (less expense) 33,333,783 2,992,894

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Acquisition 10,217,505 1,839,151

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Balance as of June 30, 2006 118,488,780 6,698,556

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Warrants

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2006

$ Number Amount

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Outstanding as of December 31, 2005 16,333,000 0.33

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Cancelled (16,333,000) 0.33

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Granted as per financing 33,333,783 0.30

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Granted as per financing

(as a condition of sales) 2,000,027 0.30

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Outstanding as of June 30, 2006 35,333,810 0.30

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Conference call

A conference call is scheduled on September 1, at 14:00 (EST). Investors may participate to this conference call by dialing 1-800-814-4859.

Appointment of Corporate Secretary

Lyrtech is pleased to announce the appointment of Vitale A. Santoro as corporate secretary of the Company. Mr. Santoro is a partner of Fraser Milner Casgrain LLP, counsel to the Company.

Stock Option Grants

Lyrtech reports that it has granted 683,333 stock options to certain of its executive officers. The stock options are exercisable at $0.30 per share for a period of ten years, subject to the Company's stock option plan.

Stock Option Plan

Lyrtech has received approval from the TSX Venture Exchange in order to increase the number of shares available for reserved issuance pursuant to its stock option plan. Subject to shareholder approval, the number of shares reserved for issuance will be increased from 10,000,000 to 12, 000,000.

Forward-looking statements

All the statements in this management report that do not directly and exclusively relate to historical facts constitute forward-looking statements. These statements represent the intentions, plans, expectations, and beliefs of Lyrtech, and are subject to risks, uncertainties, and other factors, of which many are beyond the company's control. These factors might cause actual results to differ materially from such forward-looking statements. Lyrtech disclaims any intention or obligation to update or revise any forward-looking statements as a result of new information, future events, or otherwise.

About Lyrtech

Lyrtech develops and manufactures advanced digital signal processing solutions for companies worldwide, a vital technology to network and wireless communications, audio and video processing, as well as electronic systems in all fields of technology. Lyrtech offers a full range of DSP-FPGA development platforms, as well as design, prototyping, and manufacturing of electronic products through its Innovator division.

From the company's state-of-the-art 50,000 ft. facility in Montreal, Lyrtech offers prototyping services, new product introduction, turnkey assembly, box build assembly, and other electronic manufacturing services, providing customers with a quality production run of highly complex products with a fast turnaround.

Lyrtech works in partnership with industry leaders such as Texas Instruments, The MathWorks and Xilinx. Lyrtech's customers include companies operating in the consumer electronics, telecommunications, aerospace and defence fields, such as BAE Systems, Defence Research and Development Canada (DRDC), European Aerospace Defence and Space Company (EADS), Fujitsu, Harris, ITT, Motorola, Neural Audio, NTT DoCoMo and Samsung-Thales.

Financial highlights

All amounts are in Canadian dollars, unless stated otherwise.

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2006 2005 2006 2005

For the periods

that ended

June 30 (6 months) (6 months) (3 months) (3 months)

$ $ $ $

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Sales 5,752,525 3,686,333 3,690,218 1,952,220

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Gross profit 1,874,996 1,840,129 1,093,677 897,235

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Sales and

marketing

expenses 685,019 819,641 413,461 425,045

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Administrative

expenses 1,507,614 1,129,114 926,624 636,778

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Research and

development

costs, net

of tax credits 46,710 (41,823) 47,565 (166,196)

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EBITDAS (before

non recurring

closing cost) 26,685 (72,121) (1,614) 96,893

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Stock-based

compensation

costs 286,491 99,774 233,101 (18,375)

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Financial expenses 264,946 272,119 161,292 180,837

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Net income

(loss) (1,022,840) (438,696) (795,423) (160,854)

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Basic and diluted

income per share (0.012) (0.006) (0.008) (0.002)

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Basic weighted

average number

of shares

outstanding 88,896,443 74,119,616 102,701,999 74,934,513

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As of June 30, December 31,

2006 2005

$ $

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Accounts receivable 5,120,690 2,276,448

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Current assets 11,722,559 5, 079,993

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Capital assets 3,666,664 551,567

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Total assets 21,345,327 6,854,796

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Bank loan 2,182,703 975,000

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Accounts payable 5,143,174 2,818,489

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Current liabilities 9,987,388 4,102,734

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Long-term debt 2,375,249 401,319

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Total liabilities 12,362,638 4,504,053

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Shareholder equity 8,982,690 2,350,743

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>>

TSX Venture Exchange has neither approved nor disapproved the information

contained herein and accepts no responsibility for it.

%SEDAR: 00014715EF

For further information: Alain Landry, Chief Financial Officer, Lyrtech, alain.landry@lyrtech.com, (418) 877-4644, F (418) 877-7710; Miguel Caron, President and Chief Executive Officer, Lyrtech, miguel.caron@lyrtech.com, (418) 877-4644, F (418) 877-7710

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