Cygnal Technologies announces Fiscal 2006 Financial Results

    MARKHAM, ON, March 23 /CNW/ - Cygnal Technologies Corporation (TSX:CYN)
("Cygnal" or "the Company"), a leading Canadian provider of network
communication solutions, today announced its financial results for the three
months and the year ended December 31, 2006.

    Fiscal 2006 Summary

    -   Revenues were $121.7 million in fiscal 2006, down from $125.8 million
        in 2005.
    -   Gross margin was 22.3%, up from 21.4% a year earlier.
    -   Selling, general and administrative expenses, before severance, were
        $32.1 million, a significant improvement from $36.8 million in 2005.
    -   EBITDA loss was $6.1 million, compared to an EBITDA loss of
        $10.8 million in the previous year.
    -   Interest expense was $4.7 million in 2006, of which $1.6 million
        represented non-cash charges, compared to an interest expense of
        $1.7 million a year earlier.
    -   Net loss was $17.6 million, or $0.61 per share, compared to a net
        loss of $27.6 million or $1.02 per share in 2005. The 2006 net loss
        included a $5.2 million goodwill impairment charge, while the 2005
        net loss included an $8.0 million goodwill impairment charge and a
        $5.2 million future income tax asset write-down.

    "We made solid progress in 2006 towards positioning Cygnal to return to
profitable growth," said Jos Wintermans, President and CEO, Cygnal
Technologies Corporation. "We achieved 14% growth in revenue in our
Communications Services segment by refocusing on its core business. In our
Network Operations segment we accomplished our main priority of realizing
significant operational and cost improvements. Much of the revenue decrease in
that segment came from the lower margin areas of the business, while we
continued to build the higher margin, recurring CygnalConnex revenue base. We
expect to see growth in both segments in 2007, driven in part by the
increasing adoption of new technologies like IP telephony."

    Fiscal 2006 Financial Review

    Cygnal's revenues for the year ended December 31, 2006 were
$121.7 million, a decrease of $4.1 million or 3.3% from revenues of $125.8
million in fiscal 2005. Revenues in the Network Operations segment decreased
by $11.3 million to $64.6 million, due to the completion of the Niagara
Regional Broadband Network ("NRBN") contract early in the year, lower MAC
(move, add and change) and maintenance revenue, offset by increases in
CygnalConnex and project work revenue. The Communications Services segment
grew by $7.2 million to $57.1 million, driven by new product lines, and strong
growth in its wireless and audio segments.
    Despite the overall revenue decrease, gross profit increased to
$27.1 million in 2006 from $26.9 million the previous year. Expressed as a
percentage of revenue, gross margin was 22.3% in 2006, compared to 21.4% in
2005. Both the Network Operations and Communications Services segments
experienced improved margins due to changes in sales mix.
    Cygnal's SG&A expenses, prior to severance costs, decreased by
$4.7 million or 12.8% to $32.1 million, compared to $36.8 million in 2005. The
decrease was driven by reductions in staffing levels, commission expense,
professional fees, insurance costs and occupancy costs. Severance costs for
the year increased by $67,000 to $1.0 million.
    EBITDA improved by $4.7 million during the fiscal year to a loss of
$6.1 million, compared to a loss of $10.8 million in 2005. The improvement was
attributable to the decline in SG&A expenses and the improved gross margin.
    The term "EBITDA" refers to earnings before deducting interest, taxes,
depreciation, amortization, and other expenses. The Company believes that
EBITDA is a measure of how well the Company's operations are performing. The
Company believes that EBITDA is useful supplemental information as it provides
an indication of the results generated by the Company's continuing business
activities prior to taking into consideration how those activities are
financed and taxed and also prior to taking into consideration asset
depreciation. EBITDA is not a recognized measure under generally accepted
accounting principles and, accordingly, investors are cautioned that EBITDA
should not be construed as an alternative to net earnings or loss determined
in accordance with generally accepted accounting principles as an indicator of
the financial performance of the Company or as a measure of the Company's
liquidity and cash flows. The Company's method of calculating EBITDA may
differ from other issuers and, accordingly, EBITDA may not be comparable to
similar measures presented by other issuers.
    Net loss for the year was $17.6 million, an improvement of $10.0 million
from a $27.6 million net loss in 2005. The improvement is attributable to the
$4.7 million EBITDA improvement, a $2.8 million reduction in the goodwill
impairment charge incurred for the year, and the absence of a $5.1 million
income tax provision recorded in 2005, partially offset by a $3.0 million
increase in interest expense in 2006.
    Cygnal used $8.4 million of cash for operating activities in 2006,
compared to $1.8 million of cash used in the prior year. The Company used
$0.6 million of cash for investing activities in 2006, compared to $1.6
million used in 2005. Financing activities provided $8.4 million of cash in
2006, compared to $4.7 million provided the year earlier. Financing activities
in 2006 included the placement of a two year US$5 million loan in January, a
short term US $2.95 million loan in June which was repaid in October, a
further $1.2 million advance on a two year term loan in October, and the
issuance of 3,936,313 common shares in a private placement in September for
net proceeds of $2.5 million. Cygnal's cash balance at December 31 was

    Fourth Quarter 2006 Financial Review

    Cygnal's revenues for the three months ended December 31, 2006 were
$30.0 million, a decrease of $1.4 million from revenues of $31.4 million in
the fourth quarter of 2005. Communications Services revenues grew by $0.4
million to $13.6 million, compared to the same quarter in 2005. Network
Operations revenues declined $1.8 million to $16.4 million compared to the
same quarter in 2005, due to the absence of the NRBN contract, a decrease in
MAC revenue offset by an increase in project work and Cygnal Connex revenues.
    Gross profit was $6.1 million in the fourth quarter, representing 20.3%
of revenues, compared to $5.9 million or 18.9% of revenues in Q4 2005. The
increases were due to ongoing process improvements and cost monitoring at
Network Operations, as Communications Services margins were slightly lower in
the period.
    Cygnal's SG&A expenses decreased by $1.6 million or 14.3% to $9.6 million
in the fourth quarter of 2006, from $11.2 million for the same period in the
prior year. The decrease was attributable to lower costs in the Network
Operations division, offset by a $0.8 million increase in non-cash foreign
exchange losses.
    EBITDA improved by $1.8 million to a loss of $3.5 million in Q4 2006,
compared to a loss of $5.3 million in the fourth quarter of 2005. The
improvement was mainly due to the increase in gross profit and the decrease in
SG&A expenses.
    Net loss for the fourth quarter was $10.3 million, or $0.33 per share,
compared to $22.2 million or $0.82 per share in Q4 2005. Excluding the impact
of goodwill and future tax assets, fourth quarter net loss decreased to
$5.1 million from $6.6 million in the previous year. The improvement was due
to higher margins and lower SG&A costs, offset by a primarily non-cash
increase in foreign exchange losses and higher interest costs. The Company
recorded a non-cash goodwill impairment charge of $5.2 million in the fourth
quarter of 2006 versus a charge of $8.0 million in 2005.
    Cygnal had 31,648,988 shares outstanding at December 31, 2006.


    Cygnal reaffirms the outlook it first disclosed in February, 2007. The
Company expects revenues to grow by 5 to 10 percent on an annual basis in
fiscal 2007, due to positive trends in bookings in Network Operations and
indications of increasing demand for Communications Services products. At this
level of revenue, the Company expects to generate EBITDA ranging from $3 to
$6 million in 2007. The Company's goal is to grow revenue at similar rates in
2008 and generate EBITDA of approximately $6 to $10 million in that year.
    Further details on Cygnal's results and business outlook will be
available in the Company's Consolidated Financial Statements and Management
Discussion and Analysis which will be filed on March 28, 2007 at

    Notice of Conference Call

    Cygnal's senior management team will hold an investor conference call to
further discuss the Company's third quarter financial results March 23, 2007
at 9:00 am (EDT). To participate, dial 416-644-3419 or 1-800-731-5774. A taped
replay will be available until midnight on Friday, March 30, 2007 at
416-640-1917 or 1-877-289-8525, reference number 21223631. The call will be
webcast live and archived at and at

    About Cygnal

    Cygnal Technologies Corporation is a leading Canadian provider of network
communication solutions including the design, integration, installation,
maintenance and management of wired and wireless solutions and networks. The
Company offers a full range of technologies and solutions for service
providers and enterprise customers. Cygnal has expertise in voice, video and
data solutions over traditional and next generation converged technologies.
    Cygnal Technologies Corporation is headquartered in Markham, Ontario and
supports end-user customers and business partners through 12 offices across
Canada, including Vancouver, Edmonton, Calgary, Winnipeg, London, Burlington,
Toronto, Ottawa, Montreal, Quebec City and Halifax. Cygnal common shares are
listed on the Toronto Stock Exchange under the symbol CYN.

    This news release contains forward-looking statements. Often, but not
always, forward looking statements can be identified by the use of words such
as "plans", "expects" or "does not expect", "is expected", "budget",
"scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not
anticipate", or "believes", or variations of such words and phrases or state
that certain actions, events or results "may", "could", "would", "might" or
"will" be taken, occur or be achieved. Forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of Cygnal to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Examples of such statements
include, but are not limited to: factors relating to trends in the
communications equipment and services industry, including (1) Cygnal's ability
to maintain and grow its revenues; (2) the opportunity for greater competition
to build network infrastructure; (3) the trend toward building next generation
core networks; (4) outsourcing by businesses of the design, build and
maintenance of their network infrastructure; and (5) an increased demand for
private broadband networks. 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 news release. Such
forward-looking statements are based on a number of assumptions which may
prove to be incorrect, including, but not limited to: Cygnal's ability to meet
its obligations under its debt facilities; full implementation of Cygnal's
cost reduction plan; Cygnal's ability to compete and to adapt to technological
development; the continuation of the Company's relationships with its
suppliers; Cygnal's ability to recruit and retain qualified personnel; the
continuation of positive economic and market conditions, and the ability of
provisions in service agreements to limit exposure to potential claims. While
Cygnal anticipates that subsequent events and developments may cause its views
to change, Cygnal specifically disclaims any obligation to update these
forward-looking statements. These forward-looking statements should not be
relied upon as representing Cygnal's views as of any date subsequent to the
date of this news release.
    Although Cygnal has attempted to identify important factors that could
cause actual actions, events or results to differ materially from those
described in forward-looking statements, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or intended.
There can be no assurance that forward-looking statements will prove to be
accurate, as actual results and future events could differ materially from
those anticipated in such statements. Accordingly, readers should not place
undue reliance on forward-looking statements. These factors are not intended
to represent a complete list of the factors that could affect Cygnal.

    Consolidated Statements of Loss and Deficit
    For the periods ended December 31, 2006 and 2005

                           Three months ended          Twelve months ended
                               December 31                 December 31
                           2006          2005          2006          2005
                             $             $             $             $
    REVENUE             29,950,846    31,412,519   121,651,635   125,773,084
    COST OF SALES       23,865,685    25,488,189    94,544,334    98,875,813
                         6,085,161     5,924,330    27,107,301    26,897,271

     EXPENSES            9,203,520    10,456,039    32,131,944    36,776,288
    SEVERANCE COSTS        371,045       720,026     1,029,825       963,198
                        (3,489,404)   (5,251,735)   (6,054,468)  (10,842,215)

      Amortization of
       capital and
       intangible assets   482,471       551,837     1,839,419     1,942,893
      Interest expense   1,154,710       751,084     4,672,325     1,670,264
       impairment        5,190,000     7,976,936     5,190,000     7,976,936
                         6,827,181     9,279,857    11,701,744    11,590,093

     INCOME TAXES      (10,316,585)  (14,531,592)  (17,756,212)  (22,432,308)
     INCOME TAXES                -     7,670,000      (120,367)    5,131,361
    NET LOSS           (10,316,585)  (22,201,592)  (17,635,845)  (27,563,669)

     OF PERIOD         (53,132,013)  (23,611,161)  (45,812,753)  (18,249,084)
     OF PERIOD         (63,448,598)  (45,812,753)  (63,448,598)  (45,812,753)

     PER SHARE              ($0.33)       ($0.82)       ($0.61)       ($1.02)
     PER SHARE              ($0.33)       ($0.82)       ($0.61)       ($1.02)

    Consolidated Balance Sheets
    December 31, 2006 and 2005


                                                     2006           2005
                                                -------------- --------------

      Cash and cash equivalents                 $     615,258  $     728,928
      Restricted cash                                  90,730        575,691
      Accounts receivable                          19,289,891     23,881,898
      Inventory                                    19,556,705     19,778,272
      Prepaid expenses and deposits                   948,734        875,041
                                                   40,501,318     45,839,830
    DEFERRED FINANCING CHARGES                      1,352,070      1,356,188
    CAPITAL ASSETS                                  3,826,864      4,996,247
    GOODWILL                                       16,109,990     21,299,990
    INTANGIBLE ASSETS                                       -         61,125
                                                $  61,790,242  $  73,553,380

      Accounts payable and accrued liabilities  $  20,619,490  $  24,457,645
      Income taxes payable                                  -        120,368
      Current portion of long-term debt             1,409,840      1,331,890
      Convertible note                             10,282,603      9,574,522
      Revolving loan                                5,826,500              -
      Deferred revenue                              4,333,250      5,049,664
                                                   42,471,683     40,534,089
    LONG-TERM DEBT                                  9,329,962      9,247,263
    DEFERRED GAIN ON SALE-LEASEBACK TRANSACTION       923,630      1,072,063
                                                   52,725,275     50,853,415
    SHARE CAPITAL                                  67,834,878     64,545,691
    WARRANTS AND CONVERTIBLE NOTE OPTIONS           1,971,924      2,258,788
    CONTRIBUTED SURPLUS                             2,706,763      1,708,239
    DEFICIT                                       (63,448,598)   (45,812,753)
                                                    9,064,967     22,699,965
                                                $  61,790,242  $  73,553,380

    Consolidated Statement of Cash Flows
    For the periods ended December 31, 2006 and 2005

                          Three months ended          Twelve months ended
                             December 31                  December 31
                          2006          2005          2006          2005

      Net loss        $(10,316,585) $(22,201,592) $(17,635,845) $(27,563,669)
      Adjustments for
       non-cash items
        of capital and
        assets             482,472       551,837     1,839,420     1,942,893
         compensation      165,227       149,424       673,524       659,311
        Amortization of
         cash paid
         charges            96,765        73,523       491,192        73,523
        Amortization of
         charges           140,257        49,791       657,947        49,791
        Impairment of
         goodwill        5,190,000     7,976,936     5,190,000     7,976,936
        Accretion of
         discount          136,815        99,951       458,451        99,951
        Gain on sale of
         capital assets          -       (74,319)      (25,934)      (74,319)
        Future income
         taxes                   -     7,620,000             -     5,155,939
        Amortization of
         deferred gain on
         transaction       (37,109)      (37,103)     (148,433)     (148,433)
                        (4,142,158)   (5,791,552)   (8,499,678)  (11,828,077)
    Changes in non-cash
     working capital
     items               5,264,960     5,513,320        64,944     9,980,541
    Cash provided by
     (used for)
     activities          1,122,802      (278,232)   (8,434,734)   (1,847,536)
      Acquisition of
       capital assets     (425,683)     (459,496)     (875,825)   (1,686,156)
      Proceeds on
       sale of
       capital assets            -       117,174       292,847       117,174
      Cash provided by
       activities         (425,683)     (342,322)     (582,978)   (1,568,982)
      Net proceeds
       (repayment) of
       revolving debt     (230,045)    2,435,526     7,495,621    19,090,518
      Repayment of
       term loan          (275,000)     (250,000)   (1,024,999)     (250,000)
      Deferred financing
       charges             (25,000)      (53,062)     (293,658)     (882,011)
      Capital lease
       financing, net      (68,011)       72,945      (233,843)       52,842
      Net issuance
       (redemption) of
       convertible note
       options                   -       163,374       (88,727)    1,336,297
      Issuance of
       common shares
       and warrants              -             -     2,564,687       249,226
      Decrease in bank
       indebtedness              -      (919,371)            -   (14,875,735)
      Cash provided by
       (used for)
       activities         (598,056)    1,449,412     8,419,081     4,721,137
    Net increase
     (decrease) in
     cash position          99,063       828,858      (598,631)    1,304,619
    Cash position,
     of period             606,925       475,761     1,304,619             -
    Cash position,
     end of period    $    705,988  $  1,304,619  $    705,988  $  1,304,619
    Cash and cash
     equivalents      $    615,258  $    728,928  $    615,258  $    728,928
    Restricted cash         90,730       575,691        90,730       575,691
                      $    705,988  $  1,304,619  $    705,988  $  1,304,619

    %SEDAR: 00000748E

For further information:

For further information: James Shannon, Chief Financial Officer, Cygnal
Technologies Corporation, (905) 944-6572,; Jeff Codispodi,
Investor Relations, The Equicom Group Inc., (416) 815-0700 ext. 261,

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