Solar Integrated Reports 2005 First Half Results Delivers 292% revenue growth, 27% gross profit margins and positive EBITDA

London, England, September 28, 2005 – Solar Integrated Technologies, Inc. (AIM:  SIT.LN), a leading provider of building integrated photovoltaic (BIPV) roofing systems, today announced its unaudited financial results for the six months ended June 30, 2005.

“During the first half of 2005, we achieved our performance goals and positioned the company for continued growth,” commented Jon W. Slangerup, Chief Executive Officer of Solar Integrated.  “We delivered record revenue of $14.4 million.  The strong increase in revenue, coupled with 27% gross profit margin, contributed to $0.1 million in EBITDA (a non-IFRS measure) for the first half of the year.”

“During 2005, we have made our criteria for project classification as confirmed sales order backlog more stringent.  While we continue to have master purchase agreements with customers that contemplate additional projects in the future, our sales order backlog now relates only to confirmed purchase orders against which we are in the process of delivering.  With our more stringent classification in place, our sales order backlog is currently in excess of $30 million and our sales pipeline is currently in excess of an additional $100 million.  Coupled with our planned build-up of critical inventory, we are positioned for continued robust revenue growth in the second half of 2005 and into 2006.”

“The first half of 2005 was not without its challenges,” stated Mr. Slangerup.  “Our cash liquidity has been very tight, particularly given our reduced banking line of credit.  Our top priority over the remainder of 2005 is to strengthen the Company’s financial position.  We are currently in negotiations for a new credit facility with another financial institution, and we are also evaluating other sources of financing.”

Revenue for the six months ended June 30, 2005 was $14.4 million, an increase of $10.7 million compared to $3.7 million for the same period in 2004.  Gross profit margin contribution for the first half of 2005 was $3.8 million, or 27%, compared to $0.1 million, or 2%, for the same period for 2004.  EBITDA for the first half of 2005 was $0.1 million, or 1% of revenue, an improvement from an EBITDA loss of ($1.7) million in the same period in 2004.

Net loss for the first half of 2005 was ($1.8) million, a 20% improvement from a net loss of ($2.2) million for the same period in 2004.  The reduction in net loss was primarily the result of increased revenue and improved gross profit margin.  Cash, cash equivalents and cash restricted increased from $0.4 million at December 31, 2004 to $0.7 million at June 30, 2005.

Selling, General and Administrative expenses for the first half of 2005 was $4.0 million, which included a non-recurring write-down of $0.7 million of accounts receivables in connection with certain aged rebates, up from $1.4 million in the same period in 2004.  The increase is primarily a result of increased staffing, marketing and legal costs incurred to support growth.  Revenue per employee, an important productivity metric, was approximately $350,000 for the first half of 2005, a 150% increase over the first half of 2004.

Strategic Alliances

“During the first half of 2005, our platform for growth was powerfully enhanced by our continued progress with our strategic alliances program, as we concluded important agreements with GE Commercial Finance Energy Financial Services and Sarnafil International AG,” commented Mr. Slangerup.

In April 2005, the Company announced that it had collaborated with GE Commercial Finance Energy Financial Services on an innovative solar roofing project for San Diego Unified School District (SDUSD).  After an initial investment of approximately $17 million for the project, GE Commercial Finance Energy Financial Services has the right of first refusal on up to $500 million to fund existing and prospective solar roofing projects from Solar Integrated.  “Our relationship with GE Commercial Finance Energy Financial Services is groundbreaking in the solar energy sector.  It will help accelerate our expansion into the $20 billion-plus global industrial roofing market,” said Mr. Slangerup.

In April 2005, the Company also announced that it had signed a formal cooperation agreement with Swiss-based Sarnafil International AG, a division of Sarna Polymer Holdings Inc.  Under the terms of the agreement, Sarnafil’s sales force exclusively markets Solar Integrated’s branded BIPV roofing systems to customers in Germany, believed to be Europe’s most highly developed market for photovoltaic products.  Sarnafil manufactures high performance polymer-based industrial membranes and is one of the Company’s principal component suppliers.  Sarnafil operates a well established sales and marketing infrastructure across the United States, Europe and Asia.  This agreement further strengthens the Company’s strategic relationship with Sarnafil, including the supply agreement that the Company entered into with Sarnafil in April 2004.  Under the supply agreement, Sarnafil supplies to the Company, including on an exclusive basis in the United States, single-ply roofing membranes for integration into non-domestic photovoltaic roofing products. 

“As we look to continued growth in the second half of 2005 and into 2006, we now have a much stronger strategic and competitive footing,” stated Mr. Slangerup.

Operations

In the first half of 2005, the Company executed a total of 21 projects.  As part of these projects, the Company completed 12 of 14 planned new solar roofing projects with San Diego Unified School District, with two remaining projects deferred until the second half of 2005.

In June 2005, the Company announced the completion of a solar roof at a Wal-Mart Supercentre in McKinney, Texas.  The Company sold its BIPV roofing system as part of the many environmental technologies Wal-Mart is evaluating in cooperation with Oak Ridge National Laboratory.

In May 2005, the Company received Frito-Lay North America’s 2004 Capital Supplier of the Year Award.  This prestigious award recognizes the contributions Solar Integrated has made during the past year in providing Frito-Lay with BIPV roofing systems at multiple sites in North America.

European Market Penetration

In the first half of 2005, the Company was awarded both International Electrotechnical Commission and CE certifications for its commercial solar roofing systems.  Within three months of obtaining these certifications, the Company secured seven orders, including its six initial orders for German projects and its first order for a French project.

The six German orders are for projects aggregating 236 kilowatts of commercial solar roofing systems.  “Our key distribution channels into this important market are starting to show solid results – four of these projects were sold through our Cooperation Agreement with our strategic partner, Sarnafil International AG, and two projects were sold through our German partner, Dachland GmbH,” stated Mr. Slangerup.

The Company’s first sale in France is from ProLogis France IX EURL, a subsidiary of ProLogis (NYSE:  PLD), a leading global provider of distribution facilities and services.  “ProLogis is a very important new global customer for us,” commented Mr. Slangerup.  “We are delighted to have won this prestigious contract, which extends our European presence into the growing French solar market.”

Organizational Changes

During the first half of 2005, the Company significantly strengthened its management team with the appointment of Jon W. Slangerup as Chief Executive Officer and the appointment of Frederik W. Mowinckel as Chief Operating Officer of European Operations.  In September 2005, the Company named

R. Randall MacEwen as Executive Vice President, Corporate Development, General Counsel and Corporate Secretary.

Outlook

“Market conditions for our products remain positive, fueled by increased concerns about energy security in the context of record oil prices and renewed concerns about environmental integrity,” commented Mr. Slangerup.  “We believe that the increase in the U.S. federal solar tax credit from 10% to 30% for 2006 and 2007will expand and accelerate our commercial opportunities in the growing U.S. solar market.  We also expect to build on our early success in the European market.  Our line of sight is focused on enhancing shareholder value through market leadership and improved financial performance and positioning.”

“With our tight cash liquidity during the first half of the year, our top priority over the remainder of 2005 is to strengthen the Company’s financial position.  We are currently in negotiations for a new credit facility with a major financial institution.  Management continues to monitor and assess potential financing actions to improve the Company’s financial profile.  Other strategic priorities during the remainder of 2005 include increasing our sales order backlog and pipeline, maintaining security of critical supply, continued operational and customer service excellence, and adhering to our disciplined approach to managing our costs,” said Mr. Slangerup.

About Solar Integrated

Solar Integrated Technologies, Inc. (AIM:  SIT.LN) is a leader in the manufacture and development of building integrated photovoltaic (BIPV) systems for commercial roofing and mobile power applications enabling the production of reliable, renewable and economic electrical power.  Customers include Coca Cola Enterprises, Frito-Lay, Prologis, San Diego Unified School District, Wal-Mart and other municipal and blue chip companies. 

This release includes forward -looking statements which are based on certain assumptions and reflect management’s current expectations as contemplated under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.  These forward -looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations.  Some of these factors include:  general global economic conditions; general industry and market conditions and growth rates; uncertainty as to whether our strategies and business plans will yield the expected benefits; increasing competition; availability and cost of capital; the ability to identify, develop and achieve commercial success for new products, services and technologies; changes in technology; changes in laws and regulations, including government incentive programs; intellectual property rights; our ability to secure and maintain strategic relationships, including key supply relationships; the availability of, and our ability to retain, key personnel; and the failure of the Company to effectively integrate acquisitions.  Additional factors are discussed in our public disclosure materials from time to time.  We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For more information, please contact:

Solar Integrated
Jon W. Slangerup      Chief Executive Officer      London, England      +44.20.7153.3500		R. Randall MacEwen Executive Vice President, Corporate Development Los Angeles, California +1.323.231.0411
Gavin Anderson & Company
Ken Cronin or Deborah Walter, London      (0)20 7554 1400

Solar Integrated Technologies, Inc.
Interim Consolidated Balance Sheets

(in thousands of U.S. dollars)
(unaudited)

	June 30, 2005			December 31, 2004
Assets
Current assets
Cash and cash equivalents	$		489	$	438
Cash restricted			251		-
Trade receivables			6,041		5,875
Lease receivables, current portion  (note 4)			6,396		-
Amount due from related party  (note 6)			1,802		1,015
Inventories  (note 5)			17,164		9,054
Costs in excess of billings for contracts in progress			4,290		7,138
Prepaid expenses and other current assets			191		232
Total current assets			36,624		23,752
Lease receivables  (note 4)			8,537		-
Plant and equipment, net			3,608		3,812
Investments  (note 3)			1,805		-
Structured finance transaction fees, net of amortization  (note 4)			1,329		-
Deposits			115		120
Other assets			361		-
Total assets	$		52,379	$	27,684
Liabilities
Current Liabilities
Borrowings under line of credit  (note 8)	$		12,899	$	6,000
Notes payable to bank, current portion  (note 9)			530		530
Trade and other payables			9,461		6,387
Unearned income, current portion  (note 4)			13		-
Loans payable, current portion  (note 4)			5,907		-
Total current liabilities			28,810		12,917
Notes payable to bank  (note 9)			1,769		2,036
Notes payable to shareholder  (note 7)			1,400		-
Unearned income  (note 4)			2,843		-
Loans payable  (note 4)			5,694		-
Total liabilities	$		40,516	$	14,953
Shareholders’ equity
Share capital			21,370		20,643
Accumulated deficit			(9,507)		(7,912)
Total shareholders’ equity			11,863		12,731
Total liabilities and shareholders’ equity	$		52,379	$	27,684

The accompanying notes form an integral part of these interim financial statements.

Solar Integrated Technologies, Inc.
Interim Statement of Operations

(in thousands of U.S. dollars, except share and per share amounts)
(unaudited)

	Six months ended June 30
	2005		2004
Revenue  (note 2)	$	14,441	$	3,686
Cost of sales
Cost of products sold		10,606		3,614
Gross profit		3,835		72
Operating expenses
Research, development and start-up costs		39		382
Selling, general and administrative		3,962		1,670
Stock-based compensation expense  (note 10)		46		-
Income (loss) from operating activities		(212)		(1,980)
Interest expense  (note 4, 7, 8, 9)		1,239		221
Equity in loss from investment  (note 3)		144		-
Income (loss) before income taxes	$	(1,768)	$	(2,201)
Income tax expense		-		-
Net income (loss)	$	(1,595)	$	(2,201)
Earnings per share:
Basic and diluted earnings (loss) per share in dollars  (note 11)	$	(0.05)	$	(0.08)
Weighted average number of shares outstanding (basic and diluted)	33,462,710		27,276,327

The accompanying notes form an integral part of these interim financial statements.

Solar Integrated Technologies, Inc.
Interim Statement of Shareholders’ Equity

(in thousands of U.S. dollars, except share amounts)
(unaudited)

	Common Stock				Paid in Capital	Accumulated Deficit
	Shares		Amount					Total
Balance at December 31, 2003	1,000		$ 2,000		-	$   (1,748)		$     252
Effect of stock split	24,933,000		(1,998)		1,998	-		-
Issue of common stock	8,529,710		1		21,657	-		21,657
Expenses incurred in connection with the issuance of common stock	-		-		(3,014)	-		(3,014)
Net loss for the six months ended June 30, 2004	-		-		-	(2,203)		(2,203)
Balance at June 30, 2004	33,462,710		$         3		$  20,640	$  (3,950)		$ 16,693
Net loss for the six months ended December 31, 2004	-		-			(3,962)		(3,962)
Balance at December 31, 2004	33,462,710		$         3		$  20,640	$  (7,912)		$ 12,731
Issuance of warrants  (note 10)	-		-		681	-		681
Issuance of stock options  (note 10)	-		-		46	-		46
Net loss for the six months ended June 30, 2005	-		-		-	(1,595)		(1,595)
Balance at June 30, 2005	33,462,710		$         3		$  21,367	$  (9,507)		$ 11,863

The accompanying notes form an integral part of these interim financial statements.

Solar Integrated Technologies, Inc.
Interim Statement of Cash Flows

(in thousands of U.S. dollars)
(unaudited)

	Six months ended June 30
	2005		2004
Cash flows from operating activities:
Income (loss) from operating activities	$	(212)	$	(1,980)
Items not affecting cash
Depreciation and amortization		354		264
Stock-based expense  (note 10)		727		-
Warranty provision		8		35
Amortization of loan fees		47		65
Changes in operating assets and liabilities:
Accounts receivable		(166)		(1,094)
Lease receivable  (note 4)		(14,933)		-
Amount due from related party  (note 6)		(787)		(387)
Inventories  (note 5)		(8,110)		(660)
Costs in excess of billings for contracts in process		2,848		(4,256)
Prepaid expenses, deposits and other assets		(1,692)		(96)
Trade and other payables		2,510		1,528
Accrued expenses		556		118
Unearned income  (note 4)		2,856		-
Loan payable  (note 4)		11,601		-
Billings in excess of costs for contracts in process		-		(59)
Cash used in operating activities	$	(4,393)	$	(6,522)
Interest paid  (note 4,7, 8, 9)		(1,239)		(221)
Equity in loss from investment  (note 3)		(144)		-
Net cash used in operating activities	$	(5,776)	$	(6,743)
Cash flows from investing activities:
Proceeds from certificate of deposit		-		500
Acquisition of plant and equipment		(150)		(52)
Investment in minority interest  (note 3)		(1,805)		-
Net cash used in investing activities	$	(1,955)	$	448
Cash flows from financing activities:
Repayment of bank debt  (note 9)		(267)		(2,885)
Proceeds from bank loan  (note 9)		-		3,000
Borrowings from line of credit  (note 8)		15,000		4,613
Repayment of line of credit  (note 8)		(8,101)		(1,363)
Repayment of amount due to related party		-		(2,891)
Borrowings from related party  (note 7)		1,400		-
Issuance of common stock, net of costs		-		18,662
Net cash provided by financing activities	$	8,032	$	19,136
Increase in cash during the period	$	301	$	12,841
Cash, beginning of period		438		30
Cash, end of period	$	739	$	12,871

The accompanying notes form an integral part of these interim financial statements.

Solar Integrated Technologies, Inc.
Notes to Interim Financial Statements

(unaudited)

• Formation and operations of the Company

Solar Integrated Technologies, Inc. (the “Company” or “SIT”) was incorporated in the State of Delaware in the United States of America on January 24, 2002 to design, manufacture and install proprietary building integrated photovoltaic (BIPV) solar roof systems for commercial roofing and mobile power applications.

• Basis of presentation

The accompanying interim financial statements of Solar Integrated Technologies Inc. and its subsidiaries have been prepared in accordance with the applicable International Reporting Standards (IFRS) in effect at December 31, 2004 and under the historical cost convention for interim financial statements. Accordingly, they do not include all the information and footnotes required by IFRS for annual financial statements. These interim results are presented in U.S. dollars, unless otherwise noted

The interim financial statements as of June 30, 2005 and for the six-month periods ended June 30, 2005 and 2004 are unaudited. In the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly in accordance with accounting principles generally accepted with IFRS the financial position, results of operations and cash flows for all periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

The interim financial statements follow the same accounting policies and methods of application as the financial statements for the year ended December 31, 2004 except as described below. These interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s 2004 Annual Report. Certain prior year amounts have been reclassified to conform with current period presentation.

Revenue recognition

On January 1, 2005, the Company changed its revenue recognition policy from percentage of completion to completed contract.  Revenue is now recognized when there is persuasive evidence of an arrangement, the goods have been delivered, the fee is fixed or determinable, and collection is reasonably assured.  For sales of BIPV systems where installation will be conducted by third parties, revenue is typically recognized at time of shipment according to the contractual arrangements with the customer.  For sales where the customer has contracted for the Company to install its BIPV roofing system, revenue is typically recognized when the system begins to generate electricity and the customer has accepted the system.

Also during the first half of 2005, the Company created a product sales process and related structured financing (note 4) that is considered a leasing type transaction.  During the period ended June 30, 2005, $12.7 million of the Company’s revenue was recognized under this arrangement.  These transactions transfer substantially all of the risks and rewards of ownership to the customer and are classified as sales-type leases and are recorded as equipment revenue as a result of meeting the criteria established in International Accounting Standard No. 17 ”Leases”.  The revenue associated with sales-lease type transactions is equal to the total lease receivable net of unearned income.

Solar Integrated Technologies, Inc.
Notes to Interim Financial Statements

(unaudited)

• Equity method investments

On January 1, 2005, the Company acquired a 30% interest in Dachland GmbH, a German company that specializes in installing single-ply, green and photovoltaic roofing systems, from its existing shareholders for $1,949,000 (€1.5million) in cash.  The Company has the option to acquire the remaining 70% of Dachland’s outstanding share capital by April 2006 at an acquisition cost that ranges from a minimum consideration of approximately $4,550,000 (€3.5million) to a maximum consideration of approximately $6,500,000 (€5.0million) depending on the achievement by Dachland of certain performance criteria.  The purchase price on this option is payable with 75% of the consideration payable in cash and the remaining 25% payable in the Company’s common shares.  In the event that the Company does not exercise its option to acquire the remaining 70% of Dachland during this period, the other shareholders of Dachland have the right to repurchase the Company’s 30% interest in Dachland.  This repurchase option may be exercised at (i) a fair value to be agreed upon between the parties, or (ii) a price that is lower than the Company’s acquisition cost if Dachland has achieved certain performance criteria for the year ending December 31, 2005.

In addition to the cash consideration for its acquisition of its 30% interest in Dachland from Dachland’s existing shareholders, the Company also indemnified these other shareholders and certain related parties in connection with certain personal guarantees and land-charges securing outstanding bank loan facilities up to a maximum amount of $4,095,000 (€3.15million).  The Company’s indemnification will terminate when the Company is no longer a shareholder of Dachland.  The Company has covenanted to substitute these personal guarantees with the guarantee of an international bank by December 31, 2005 or when it owns more than 50% of the share capital of Dachland, in which case the indemnification to the other shareholders will terminate.  As of the date of the issuance of these interim results, no claims were asserted against the Company pursuant to these indemnification provisions.

The Company’s 30% share in Dachland’s loss for the six months ended June 30, 2005 was $144,000 and was accounted for under the equity method as a reduction in the Company’s investment in Dachland.

• Structured financing

In April 2005, the Company through a subsidiary entered into a Master Purchase and Lease Agreement and related agreements with a subsidiary of GE Commercial Finance Energy Financial Services (GE EFS), a unit of General Electric Capital Corporation, to provide structured financing for the installation of the Company’s BIPV projects on certain buildings owned by the San Diego Unified School District (SDUSD).  As part of these arrangements, GE EFS has an exclusive, worldwide right of first refusal to provide the financing for the next $500 million of solar projects developed by the Company.  During the six months ended June 30, 2005, the Company completed 12 projects for SDUSD under this structured financing arrangement.  The Company expects a majority of its fiscal 2005 revenue to be derived from projects financed under these arrangements.

Under the Company’s Energy Services Agreements (ESA) with SDUSD, SDUSD has agreed to pay a subsidiary of the Company, on a monthly basis over a 20 year period, the electricity generated from the BIPV roofing systems installed on SDUSD’s buildings.  These transactions with SDUSD are considered sales-type lease transactions under International Accounting Standard No. 17.  The Company records a lease receivable to reflect the future stream of energy services payments from SDUSD over the 20 year period.  See note 2. 

Upon completion of a project with SDUSD, the Company subsequently enters into an agreement with GE EFS to provide non-recourse financing to the Company collateralized by the lease receivables payable to the Company by SDUSD.  The amounts of the loans payable to GE EFS under these arrangements are based on the net present value of the future lease receivables from SDUSD.

Solar Integrated Technologies, Inc.
Notes to Interim Financial Statements

(unaudited)

Legal, accounting, financing and consulting costs incurred by the Company associated with the establishment of the structured financing arrangement were $1,376,000 which has been capitalized with an amortization period of 20 years.  In the six month period ending June 30, 2005, amortization of structured finance transaction fees was $47,000 which were charged to interest expense.

•  Inventories

	June 30		December 31
	2005		2004
		(000’s)		(000,s)
Raw materials	$	3,896	$	2,857
Work-in-progress		-		1,176
Finished goods		13,268		5,021
	$	17,164	$	9,054

• Related party transactions

The Company has entered into transactions with another entity, SCR Group, Inc. (“SCR”) that fall within the definition of a related party under International Accounting Standard No. 24 “Related Party Disclosures”. The Company’s two majority shareholders and co-founders are also 100% shareholders of SCR, and both companies are under common management control.  At the balance sheet dates, amounts due from/to SCR were as follows:

	June 30		December 31
	2005		2004
		(000’s)		(000,s)
Amounts due from SCR	$	1,802	$	1,015

During the period ending June 30, 2005, SCR subcontracted the Company to perform certain roofing contracts that totaled $1.4 million.  During the period ended June 30, 2005, SCR paid the Company approximately $600,000 for these services.  The balance of these payments is treated as a trade receivable to the Company, due on demand with no interest rate implicit in the receivable.

• Notes payable to shareholder

During the six months ended June 30, 2005 and subsequent to this period, in order to assist the Company with its working capital and liquidity requirements (see note 8), Bruce M. Khouri, a founder, significant shareholder, director and officer of the Company, advanced the Company an aggregate amount of $2,925,000, including $1,400,000 during the six months ended June 30, 2005.  As consideration for these advances, the Company intends to issue to Mr. Khouri unsecured, subordinated convertible notes bearing interest at 9.5% per annum payable quarterly.  The notes will mature on December 31, 2008 unless payment is otherwise demanded earlier by Mr. Khouri and payment of such demand is consented to by the holders of the Company’s senior indebtedness.  Subject to the required shareholder approval noted below and subject to certain prepayment rights in favor of the Company, all unpaid principal and accrued and unpaid interest will be convertible, any time and from time to time, at Mr. Khouri’s option, into common shares of the Company at a conversion rate to be fixed by reference to the closing, mid-market price of the Company’s common shares on the date of the release of these interim financial statements.  In connection with these advances, the Company also agreed to pay Mr. Khouri an origination fee of 2.0%.  On the basis of the proposed terms of the loan notes, as at June 30, 2005, $63,000 had been accrued in interest and origination fees. 

Solar Integrated Technologies, Inc.
Notes to Interim Financial Statements

(unaudited)

Conversion of the notes into common shares is subject to the approval of the Company’s shareholders at the Company’s next annual general meeting when the Company intends to put forward resolutions to, among other things, amend the Company’s articles to increase its maximum number of authorized common shares.  Mr. Khouri’s shares will not be permitted to vote on the relevant resolution.

The terms of these related party transactions were reviewed and approved by the Audit Committee of the Board of Directors, comprised of the Board’s two independent directors, and the Board of Directors (Mr. Khouri abstaining), which believes, having consulted with KBC Peel Hunt Ltd., the Company’s Nominated Adviser, that the terms of the notes are fair and reasonable in so far as shareholders are concerned.

• Due to bank

	June 30		December 31
	2005		2004
		(000’s)		(000,s)
Borrowings under line of credit	$	12,899	$	6,000
Current portion of long term note  (note 9)		530		530

In December 2003, the Company entered into a business loan agreement with a bank with a maturity date of December 31, 2004.  This loan agreement was amended in May 2004 and the expiration date was extended to May 31, 2005.

In January 2005, the Company entered into a new asset-based business loan agreement, promissory note and commercial security agreement with the same bank with a maturity date of December 31, 2005.  The loan agreement provided the Company with a maximum principal line of credit of $15 million, bearing a variable interest rate at the higher of (i) the published Wall Street Journal prime rate, and (ii) 5.25%.  The borrowings under this loan agreement are secured by the Company’s trade receivables and inventories.  In addition, as additional security, the bank obtained personal guarantees and subordinations from the Company’s two majority shareholders, who are also directors of the Company, as well as a guarantee from SCR, a related party (see note 6).  In connection with this new loan agreement, the Company paid the bank an origination fee of $51,000.

Under the loan agreement, the Company is required to comply with certain covenants.  As of June 30, 2005, the Company was not in compliance with certain of these covenants.

In May 2005, the loan agreement was amended for the first time to, among other things, (i) shorten the maturity date of amounts due thereunder to July 31, 2005, (ii) revise the terms of the Company’s borrowing base to effectively reduce the maximum amount of the line of credit available to the Company on a staged basis, and (iii) to obtain the bank’s consent to the allow the Company to engage the structured finance arrangements with GE EFS (see note 4).  In connection with this amendment, the Company paid the bank a fee of $50,000.  In connection with this amendment, the two personal guarantors reaffirmed their guarantees to the bank for the Company’s indebtedness.

In July 2005, the loan agreement was amended for the second time to, among other things, (i) revise the terms of the Company’s borrowing base to effectively reduce the maximum amount of the line of credit available to the Company on a staged basis from $13,000,000 to $11,250,000, and (ii) issue to the bank an executed warrant certificate for warrants to purchase 721,745 common shares at an exercise price of £1.71 and with an expiry date of May 12, 2008.   The aggregate fair value of these warrants at the time of grant was $680,500 (see note 10).  In connection with this amendment, the Company paid the bank a fee of $50,000 and reimbursed the bank for legal costs incurred by the bank in an amount of $74,000.  In connection with this amendment, Bruce M. Khouri, a founder, significant shareholder, director and officer of the Company, reaffirmed his guarantee to the bank for the Company’s indebtedness.

Solar Integrated Technologies, Inc.
Notes to Interim Financial Statements

(unaudited)

In August 2005, the loan agreement was amended for the third time to, among other things, (i) extend the maturity date of the amounts due thereunder to September 30, 2005, (ii) revise the terms of the Company’s borrowing base to effectively reduce the maximum amount of the line of credit available to the Company on a staged basis to $10,250,000, and (iii) require that 50% of any accounts receivable and 42% of agency rebates related to photovoltaic installations collected by the Company be paid to the bank to lower the amount of the line of credit.  In connection with this amendment, the Company paid the bank a fee of $100,000 and reimbursed the bank for legal costs incurred by the bank in an amount of $17,000.  In connection with this amendment, Bruce M. Khouri, a founder, significant shareholder, director and officer of the Company, reaffirmed his guarantee to the bank for the Company’s indebtedness.

As of the date of issuance of the financial statements, the Company has paid the bank an aggregate amount of $342,000 in fees and legal costs of which $101,000 has been paid in the six month period ended June 30, 2005. These costs have been classified as interest costs in the financial statements.

As of the date of issuance of the financial statements, the Company is in negotiations with the bank to extend the loan agreement until October 31, 2005 on certain negotiated terms.

In August 2005, the Company entered into a non-binding term sheet with another financial institution in connection with a replacement credit facility, comprised of a line of credit and term loan.  The Company expects to close this credit facility before October 31, 2005 and expects this new credit facility to be used to (i) repay in full the Company’s existing bank facility, and (ii) provide the Company with additional financing to fund its working capital requirements.  The Company expects that, as additional consideration for the financial institution to provide the credit facility, the Company will be required to grant common share purchase warrants to such financial institution. If the Company is not able to finalize the replacement credit facility prior to the existing bank demanding repayment on the current bank facility, the impact on the Company’s operations would be severe.

In addition to the Company’s negotiations to extend the Company’s amended loan arrangements with its existing bank lender and to complete the expected new credit facility with the other financial institution, the Company is also evaluating additional financing transactions to strengthen the Company’s financial position.

During the six month period ended June 30, 2005 and subsequent to such period, Bruce M. Khouri, a founder, significant shareholder, director and officer of the Company, has made advances to the Company in an aggregate amount of $2,925,000 to assist the Company with its working capital and liquidity requirements (see note 7).

• Interest bearing liabilities – long term portion

	June 30		December 31
	2005		2004
		(000’s)		(000,s)
Note payable to bank	$	2,299	$	2,566
Less current portion		530		530

In addition to the credit facility with its existing banker referred to under note 8, the Company’s existing bank lender has provided the Company with an equipment finance loan.  The $3,000,000 term note payable is collateralized by equipment of the Company.  The note bears interest at a variable interest rate at the higher of (i) the bank’s prime lending rate, and (ii) 5.50%.  The note requires 59 monthly payments of $57,530 and one final payment of all outstanding principal and accrued interest on February 20, 2009. 

Solar Integrated Technologies, Inc.
Notes to Interim Financial Statements

(unaudited)

• Stock-based compensation expense

During the six months ended June 30, 2005, the Company granted 1,300,000 stock options to officers and employees of the Company with a weighted average fair value of $0.86 as at the date of grant. Of the 1,300,000 stock options granted in the period, 330,000 were granted at a strike price that was equal to the market price on the date of grant. The remaining 970,000 were granted with prices that were higher than the market price at the date of grant.

Stock options issued during the six months ended June 30, 2005 were valued using the Black-Scholes option pricing model with the following assumptions:

			June 30
			2005
Risk free interest rate (%)				6.11%
Expected volatility (%)				28%
Expected life (in years)				10
Expected dividends				Nil

Effective June 30, 2005, the Company issued 721,745 warrants to purchase common shares with an aggregate value of $680,500 to its bank in connection with its line of credit (see note 8).  Each warrant is exercisable for one common share of the Company at a price of $3.15 (?1.71) per share.  The fair value of the common share purchase warrants issued amounted to $680,500 and was determined using the Black-Scholes pricing model with a risk-free rate of 6.11%, a 3 year term and a volatility of 33%.

No options or warrants have been granted prior to the six month period ending June 30, 2005.

• Net loss per share

For the six months ended June 30, 2005, the weighted average number of common shares outstanding was 33,462,710.  No effect has been given to the potential exercise of stock options and warrants in the calculation of diluted net loss per share as the effect would be anti-dilutive.

• Subsequent events

In July 2005 and in August 2005, the Company amended its business loan agreement with its bank lender, including an extension of the loan agreement to September 30, 2005.  As of the date of issuance of the financial statements, the Company is in negotiations with the bank to extend the loan agreement until October 31, 2005 on certain negotiated terms.

In August 2005, the Company entered into a non-binding term sheet with another financial institution in connection with a replacement credit facility, comprised of a line of credit and term loan.  The Company expects to close this credit facility before October 31, 2005 and expects this new credit facility to be used to (i) repay in full the Company’s existing bank facility, and (ii) provide the Company with additional financing to funds its working capital requirements.  The Company expects that, as additional consideration for the financial institution to provide the credit facility, the Company will be required to grant common share purchase warrants to such financial institution.

In addition to the Company’s negotiations to extend the Company’s amended loan arrangements with its existing bank lender and to complete the expected new credit facility with the other financial institution, the Company is also evaluating additional financing transactions to strengthen the Company’s financial position.

See note 8 for further details on these amendments and negotiations.

Solar Integrated Technologies, Inc.
Notes to Interim Financial Statements

(unaudited)

During the six month period ended June 30, 2005 and subsequent to such period, Bruce M. Khouri, a founder, significant shareholder, director and officer of the Company, has made advances to the Company in the aggregate amount of $2,925,000 to assist the Company with its working capital and liquidity requirements (see note 7).