Cygnal Technologies Corporation announces Financial Results for the Period Ended September 30, 2007



    MARKHAM, ON, Dec. 6 /CNW/ - Cygnal Technologies Corporation (TSX:CYN)
today announced its financial results for the three-month period ended
September 30, 2007. Cygnal's Financial Statements and Management's Discussion
and Analysis for the interim period ended September 30, 2007 were filed on
SEDAR yesterday. A summary of these results is provided below. Unless
otherwise indicated, references in this press release to the "Company" are
references to Cygnal Technologies Corporation, its subsidiaries and White
Radio LP or, where appropriate, predecessors to such entities, and references
to "Cygnal Technologies" are references to Cygnal Technologies Corporation.

    CCAA Restructuring

    On November 14, 2007 (the "Filing Date"), Cygnal Technologies obtained an
order (the "Initial Order") from the Ontario Superior Court of Justice (the
"Court") granting it relief under the Companies' Creditors Arrangement Act
("CCAA"). The Initial Order may be amended throughout the CCAA proceedings on
motions by Cygnal Technologies, its creditors, or other interested
stakeholders. The Court proceedings cover Cygnal Technologies Corporation and
its wholly-owned subsidiaries, Cygnal Technologies Ltd. and Accord
Communications Ltd. (collectively the "Applicants"). The Initial Order does
not cover Cygnal Technologies' other subsidiaries, White Radio GP Inc. and
White Radio LP, neither of which is participating in the proceedings. During
the stay period, the Applicants are authorized to continue operations.
PricewaterhouseCoopers Inc. (the "Monitor") has been appointed by the Court as
monitor in the proceedings and will be reporting to the Court from time to
time on the Applicants' cash flow and other developments during the
proceedings.
    The Initial Order has provided for a stay of proceedings against the
Applicants and their property, for an initial period of 30 days, which may be
extended from time to time to such later dates as the Court may order. The
purpose of the Initial Order and stay of proceedings is to provide the
Applicants with relief designed to stabilize their operations and business
relationships with their customers, suppliers, employees, and creditors and to
provide the Applicants with an opportunity to develop a plan of arrangement to
propose to creditors for the restructuring of, among other things, some or all
of the Applicants' liabilities (the "Plan"). Cygnal Technologies expects to
seek an extension of the initial stay period prior to December 14, 2007.
    Cygnal Technologies and the other Applicants are in the process of
developing a revised business plan, which will serve as the basis for
discussions with stakeholders. During the proceedings, the Applicants will
seek input from their creditors and other stakeholders, with a view to
developing a comprehensive restructuring plan to return the Applicants to
viability. The restructuring plan will likely include strategic, operational,
financial, and corporate elements. As part of the restructuring plan, a formal
Plan under the CCAA will be prepared and, in the absence of a sale of the
Company or all or substantially all of its assets or business, submitted to
affected creditors, who will vote on the Plan, and to the Court for approval.
Under the CCAA plan of arrangement, claims against the Applicants will be
divided into classes, and each class will vote on the Plan as it pertains to
that class. No determinations or rulings have been made to date as to the
classification of affected creditors.
    The Company is continuing its efforts to solicit proposals from third
parties for an alternative transaction, including a sale of the Company or all
or substantially all of its assets or business. The Company has retained a
financial advisor to assist it in this process. There can be no assurance that
those efforts will be successful.
    The CCAA proceedings have triggered defaults under substantially all debt
and lease obligations of the Applicants, including debt owing under various
financing arrangements with Laurus Master Fund, Ltd. ("Laurus"). The Initial
Order generally stays actions against the Applicants, including steps to
collect indebtedness incurred by the Applicants prior to the Filing Date,
actions to exercise control over the Applicants' property and actions for
breach of contractual or other obligations, subject to certain exceptions
described below. Under the terms of the Initial Order, Laurus is unaffected by
the stay of proceedings imposed by the Initial Order and will be entitled to
demand payment of advances under the debtor-in-possession credit facility (the
"DIP Facility") provided by Laurus in accordance with the Initial Order and
all other secured indebtedness of Cygnal Technologies owing to Laurus upon
notice to Cygnal Technologies following the occurrence of an event of default
under the DIP Facility. The Applicants and Laurus have entered into a
forbearance agreement pursuant to which Laurus has agreed that during the
period commencing on the Filing Date and ending on the earlier of the maturity
date of the DIP Facility and the date of acceleration of obligations owing
under the DIP Facility, Laurus will not take any further steps to enforce its
rights and remedies under Cygnal Technologies' existing loan agreements with
Laurus or in connection with any existing security or guarantees granted by
any of the Applicants in favour of Laurus, in each case with respect to any
event of default which had occurred as of the Filing Date and had been
disclosed by Cygnal Technologies to Laurus as of the Filing Date, so long as
Cygnal Technologies makes all principal payments to Laurus otherwise payable
under Cygnal Technologies' existing loan agreements with Laurus.
    The Applicants continue their operations under the provisions of the
Initial Order. The Applicants are undertaking an operational, commercial, and
financial restructuring to prioritize their initiatives, reduce costs not
directly associated with selling and developing the Company's products and
services, decrease discretionary spending and improve efficiency. This
restructuring has included a workforce reduction of approximately 100
employees, a consolidation of 3 excess facilities (London, Edmonton and
Ottawa) and the re-engineering of certain business functions. The Company
expects to record significant restructuring expenses directly associated with
the rearranging of its business affairs while under the protection of the
Court pursuant to the CCAA proceedings. These restructuring expenses are
expected to be in the following areas: aggregate workforce reduction; and
consolidation and/or disposition of excess facilities and non-productive
property and equipment.
    Should the stay period and any subsequent extensions, if granted, not be
sufficient to develop and present its Plan, or should the Plan not be accepted
by the affected creditors and, in any such case, the Applicants lose the
protection of the stay of the proceedings, substantially all debt obligations
will then be due and payable immediately, or subject to acceleration, creating
an immediate liquidity crisis which would in all likelihood lead to the
liquidation of the Applicants' assets.
    The successful emergence of the Applicants from the CCAA proceedings and
full implementation of a CCAA plan of arrangement are expected to be subject
to numerous conditions and approvals, including approval by Laurus, other key
stakeholders and the Court. There can be no assurance that all required
conditions will be met and all required approvals obtained nor that the
Applicants will ultimately emerge from the CCAA proceedings. If the Applicants
fail to implement a CCAA plan of arrangement within the time granted by the
Court and required by Laurus under the terms of the Forbearance Agreement,
substantially all of debt obligations will become immediately due and payable,
or subject to immediate acceleration, which would create an immediate
liquidity crisis and would, in all likelihood, lead to the liquidation of the
Applicants' assets.
    While Cygnal Technologies continues its restructuring under the CCAA,
investments in the common shares of the Company will be highly speculative.
Although the Company's common shares continue to trade on the TSX, the trading
prices of the common shares may have little or no relationship to the actual
recovery, if any, by the holders of the Company's common shares under any
eventual Court-approved Plan. The opportunity for any recovery by holders of
the Company's common shares under a Plan is uncertain and the Company's common
shares may be cancelled without any compensation pursuant to such Plan.

    Results of Operations

    For the three months ended September 30, 2007, revenues decreased by
$5.2 million to $26.4 million from $31.6 million for the same period a year
ago. This was comprised of a decrease in revenue at the Company's
Communications Services business segment of $4.0 million, and a decrease in
the revenue at the Company's Network Services business segment of
$1.2 million. The decrease in Communications Services was impacted by limited
cashflow, leading to constraints on product availability, combined with the
loss of certain product lines. The decrease in revenue at Network Services was
caused by a decrease in volume of large enterprise voice solution projects.
    For the nine months ended September 30, 2007, revenues decreased by
$8.8 million to $82.9 million from $91.7 million for the same period in 2006.
This was comprised of a decrease in revenue at Communications Services of
$5.3 million, and a decrease in the revenue of Network Services of
$3.5 million. The decrease in Communications Services was impacted by limited
cashflow, leading to constraints on product availability, combined with the
loss of certain product lines. The decrease in revenue at Network Services was
caused by a decrease in volume of large enterprise voice solution projects,
and a decline in revenues in infrastructure projects due to the completion of
the Niagara Region Broadband Network in the first quarter of 2006.

    Gross Profit

    For the quarter ended September 30, 2007, gross profit decreased
$1.8 million to $5.5 million from $7.3 million in 2006. Gross profit,
expressed as a percentage of revenue, was lower at 20.7% in 2007 versus 23.0%
in 2006. Communications Services margins were stable when compared to the same
reporting period in 2006. Network Services margins decreased due to a larger
proportion of revenues coming from lower margin business lines, such as
structured cabling, versus higher margin enterprise voice solution projects.
For the nine months ended September 30, 2007, gross profit decreased
$3.2 million to $17.8 million from $21.0 million in 2006. Gross profit,
expressed as a percentage of revenue, was lower at 21.5% in 2007 versus 23.0%
in 2006. Communications Services margins were down when compared to the same
reporting period in 2006 due to changes in sales mix and competition in the
marketplace. Network Services margins decreased due to a larger proportion of
revenues coming from lower margin business lines, such as structured cabling,
versus higher margin enterprise voice solution projects.

    Selling, General and Administrative Expenses

    SG&A expenses, including the impact of foreign currency translation,
decreased by $1.5 million or 21% to $5.6 million in the third quarter of 2007
from $7.0 million for the same period in the prior year. The reduction was
comprised of $1.4 million of increased foreign exchange gains, offset by
increased recruiting fees and lower bad debts recoveries. SG&A expenses
decreased by $5.1 million or 21% to $18.5 million during the nine months ended
September 30, 2007 from $23.6 million for the same period in the prior year.
The reduction was comprised of $2.7 million of increased foreign exchange
gains, a reduction in staff termination costs, a reduction in professional
fees, and a reduction in staff employment costs.

    Gain from Foreign Currency Translation

    During the three and nine months ended September 30, 2007, the Company
recorded foreign exchange gains of $1.7 million and $3.6 million respectively
(three and nine months ended September 30, 2006, $0.3 million and $0.9 million
respectively). These gains primarily relate to the translation of US dollar
denominated debt.

    Interest Expense

    Interest expense for the three months ended September 30, 2007 was
$1.3 million, compared with $1.5 million from the same period the previous
year. Of this interest in 2007, $0.4 million represents non-cash amortization
of deferred financing charges and accretion of the convertible note discount.
The decrease is caused by the amortization of warrant costs relating to the
June 16, 2006 $2.95 million advance from Laurus. These costs were fully
amortized in the third quarter of 2006.
    Interest expense for the nine months ended September 30, 2007 was
$3.5 million, compared with $3.5 million from the same period the previous
year. Of this interest in 2007, $1.2 million represents non-cash amortization
of deferred financing charges and accretion of the convertible note discount.

    Amortization of Capital Assets

    Amortization of capital assets for the third quarter ended September 30, 
2007 was $0.4 million, and $0.5 million in the third quarter of 2006.
Amortization of capital assets for the nine months ended September 30, 2007
was $1.2 million, compared with $1.4 million during the same period of 2006.

    Net Loss

    The net loss for the quarter was $2.0 million, or $0.06 per share,
compared to a loss of $1.7 million or $0.06 per share in the third quarter of
2006, a $0.3 million or 17.6% increase in the loss. The net loss for the nine
months ended September 30, 2007 was $5.6 million, or $0.17 per share, compared
to a loss of $7.3 million or $0.26 per share during the same period in 2006, a
$1.7 million or 23.3% improvement.

    Liquidity

    As at September 30, 2007, the Company had cash and cash equivalents of
$0.1 million on a consolidated basis. As at September 30, 2007, the Applicants
had cash and cash equivalents of $0.4 million, $0.1 million of which was
restricted. In connection with the issuance of the Initial Order pursuant to
the CCAA, the Applicants entered into the DIP Facility. As at December 5,
2007, Cygnal Technologies had drawn $4.6 million of the available
$7.415 million operating line under the DIP Facility.
    As a result of the Applicants' CCAA filing on November 14, 2007, defaults
were triggered on substantially all of the Applicants' then existing debt and
lease obligations. The Initial Order stayed all actions against the Applicants
(other than actions by Laurus), including actions to collect pre-filing
indebtedness, and under the terms of the Forbearance Agreement Laurus has
agreed that it will not exercise its rights under the Existing Laurus Credit
Agreements during the Forbearance Period provided that an event of default
under the DIP Facility does not occur and that the Company continues to make
principal payments in accordance with the terms of the Existing Laurus Credit
Agreements. As a result, Cygnal Technologies has ceased making payments of
interest on all of its outstanding debt. Rental payments have generally
recommenced under leases for Cygnal Technologies remaining facilities.
    Cygnal Technologies' current sources of cash consist of cash flow from
its Network Services business operations and borrowings under the DIP
Facility. White Radio's current sources of cash consist of cash flow from its
operations. White Radio anticipates that it will require additional external
financing to fund its working capital requirements in the short term. Failure
to obtain that financing could result in the delay or abandonment of some of
White Radio's business plans, which could negatively impact the Company's
results of operations.
    Under the terms of the Forbearance Agreement, Cygnal Technologies is
required to continue to make all principal payments to Laurus otherwise
payable under the Existing Laurus Credit Facilities and, under the terms of
the DIP Facility, Cygnal Technologies is required to make monthly interest
payments to Laurus. Those principal and interest payments will be funded with
advances under the portion of the DIP Facility available for those purposes.
    As a result of the CCAA filing, the liquidity of the Company will be
determined by the outcome of the restructuring process; the continued
availability of advances under the DIP Facility; the ability of the Company to
generate sufficient revenues from the operations of its Network Services
business; the ability of the Company to reduce operating costs; the ability of
the Company to continue to attract and retain qualified personnel; actions by
third parties; and general industry, market and economic conditions.

    About Cygnal

    Cygnal is in the business of providing network communications solutions
including the design, integration, installation, maintenance and management of
wired and wireless solutions and networks. Cygnal has expertise in voice,
video and data solutions over traditional and next generation converged
technologies.
    Cygnal Technologies Corporation is headquartered in Markham, Ontario.

    This press release contains forward-looking statements. Forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements, including
the risks, uncertainties and other factors discussed in this press release,
risks associated with Cygnal Technologies' restructuring process and the
risks, uncertainties and other factors discussed in the Company's filings with
securities regulatory authorities. Actual results and developments are likely
to differ, and may differ materially, from those expressed or implied by the
forward-looking statements contained in this press release. The Company
specifically disclaims any obligation to update these forward-looking
statements. These forward-looking statements should not be relied upon as
representing the Company's views as of any date subsequent to the date of this
press release.

    %SEDAR: 00000748E




For further information:

For further information: Jeff Codispodi, Investor Relations, The Equicom
Group Inc., (416) 815-0700 ext. 261, jcodispodi@equicomgroup.com

Organization Profile

CYGNAL TECHNOLOGIES CORPORATION

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