Cygnal Technologies announces Q2 2007 financial results

    MARKHAM, ON, Aug. 15 /CNW/ - Cygnal Technologies Corporation (TSX:CYN), a
leading Canadian provider of network communication solutions, today announced
its financial results for the three months ended June 30, 2007. The Company
also announced a $US 5 million debt financing, and a retraction of its
guidance for fiscal 2007.

    Summary of Q2 2007 Results

    -   Revenues were $29.7 million, up marginally from $29.6 million in the
        second quarter of 2006.

    -   Gross margin was 21.8%, compared to 23.9% for the same period a year

    -   Selling, general and administrative expenses declined by 22% or
        $1.6 million to $5.8 million.

    -   EBITDA(1) was $0.5 million, an improvement of $1.3 million over an
        EBITDA loss of $0.8 million in Q2 2006.

    -   Net loss was $1.1 million, or $0.03 per share, compared to a net loss
        of $2.3 million or $0.08 per share a year earlier.

    -   Cygnal completed two financing transactions during the quarter,
        raising an aggregate of $1.74 million of equity through private
        placement and US$2.0 million of debt.

    "Revenue performance in 2007 has been slower than expected," said Jos
Wintermans, President and CEO, Cygnal Technologies Corporation. "We continue
to work towards growing revenues for future periods, and we recently added a
number of senior salespeople to our Network Operations business."

    Financial Review

    Revenues for the three months ended June 30, 2007 increased by
$0.1 million to $29.7 million, compared to $29.6 million in Q2 2006. Revenues
in the Network Operations segment grew by 5% to $15.4 million, with increases
in project and Connex revenues offsetting lower revenues in the outside plant,
CATV and structured cabling lines of business. Communications Services
revenues decreased by 5% to $14.3 million, due to a lack of product
availability and the loss of lines in the audio division.
    Gross profit was $6.5 million in the second quarter, compared to
$7.1 million in the same period of 2006. The gross margin declined by 2.1% to
21.8%. Margins in both segments were negatively impacted by sales mix, and
Communications Services also experienced pricing pressure for certain
    SG&A expenses decreased 22% or $1.6 million to $5.8 million in the second
quarter of 2007. The reduction was comprised of $1 million in foreign exchange
gains, lower compensation and office costs, and reduced professional fees.
    EBITDA(1) improved by $1.3 million to $0.5 million, compared to a
$0.8 million EBITDA loss in the same period of 2006. The improvement was
attributable to the decrease in SG&A expense.
    Net loss was $1.1 million, or $0.03 per share, compared to a loss of
$2.3 million or $0.08 per share in Q2 2006. The weighted average basic shares
outstanding for the quarter ended June 30, 2007 was 32,968,547 versus
27,623,367 for the quarter ended June 30, 2006.

    Debt Financing

    On August 14, 2007, Laurus Master Funds Ltd. ("Laurus") agreed to provide
a one-year overadvance facility for up to US$5 million. The overadvance bears
interest at 24% per annum.
    Under the terms of the agreement, the Corporation will only have access
to US$2 million of the facility within the first 30 days of the facility term.
Thereafter, the facility is available in full.
    The agreement with Laurus also provides for the issuance of warrants. The
warrants will be issued at three tranche stages: 120 and 240 days into the
facility term, and at end of term. The number of warrants issued shall be
calculated by dividing 25% of the maximum advanced amount in the particular
tranche period ended, by the conversion price. Upon closing of this facility,
warrants will be issued based on an assumed draw of US$2 million, and will be
adjusted within 120 days of closing should the Corporation draw more than US$2
million on the facility during the first warrant tranche period. The
conversion price will be calculated as the three day average closing share
price prior to each advance. All warrants issued will carry a five-year term
from the date of issuance and have an exercise price which will equal the
conversion price.


    Management is retracting the guidance it provided at year-end and the
first quarter of 2007 on fiscal 2007 revenue growth and EBITDA amounts.
    The Company intends to continue to reduce its selling, general and
administration expenses and to increase its operating margin by further
improving labour efficiencies. The Company has also placed an increased focus
on revenue generation by improving sales management processes and by
strengthening its sales force. The Company believes that the market size and
scope within the industry in which it operates is such that the Company should
be able to generate sufficient revenues to return to profitability. The
Company is actively pursuing various financing options with existing and
potential lenders and investors which, if accepted, will enable the Company to
achieve its business plans.
    Further details on Cygnal's results and business outlook are available in
the Company's Consolidated Financial Statements and Management Discussion and
Analysis which are being filed on August 15, 2007 at

    Notice of Conference Call

    Cygnal's senior management team will hold an investor conference call to
further discuss the Company's second quarter financial results August 15, 2007
at 9:00 am (EDT). To participate, dial 416-644-3433 or 1-800-589-8577. A taped
replay will be available until midnight on August 22, 2007 at 416-640-1917 or
1-877-289-8525, reference number 21243932. The call will be webcast live and
archived at and at

    (1) 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.

    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", "guidance", "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 Balance Sheets
                                                     As at          As at
                                                    June 30      December 31
                                                      2007           2006
                                                -------------- --------------
    ASSETS                                         (Unaudited)     (Audited)
      Cash and cash equivalents                  $    803,640   $    615,258
      Restricted cash                                  89,000         90,730
      Accounts receivable                          18,908,172     19,289,891
      Inventory                                    19,019,882     19,556,705
      Prepaid expenses and deposits                 1,448,223        948,734
      Derivative instruments                              901              -
                                                   40,269,818     40,501,318

    DEFERRED FINANCING CHARGES                        871,062      1,352,070
    CAPITAL ASSETS                                  3,405,820      3,826,864
    GOODWILL                                       16,109,990     16,109,990
                                                 $ 60,656,690   $ 61,790,242
      Accounts payable and accrued liabilities   $ 19,524,266   $ 20,619,490
      Note payable                                    858,928              -
      Current portion of long-term debt             6,441,790      1,409,840
      Revolving convertible note                    9,599,341     10,282,603
      Revolving loan                                        -      5,826,500
      Deferred revenue                              5,137,455      4,333,250
      Derivative instruments                          161,833              -
                                                   41,723,613     42,471,683
    LONG-TERM DEBT                                 10,768,740      9,329,962
    DEFERRED GAIN ON SALE-LEASEBACK TRANSACTION       849,413        923,630
                                                   53,341,766     52,725,275
    SHARE CAPITAL                                  68,975,082     67,834,878
    WARRANTS AND CONVERTIBLE NOTE OPTIONS           2,684,770      1,971,924
    CONTRIBUTED SURPLUS                             3,002,456      2,706,763
    DEFICIT                                       (67,347,384)   (63,448,598)
                                                    7,314,924      9,064,967
                                                 $ 60,656,690   $ 61,790,242

    Consolidated Statements of Operations and Deficit
    For the periods ended June 30, 2007 and 2006
                           Three months ended           Six months ended
                                 June 30                     June 30
                           2007          2006          2007          2006
                               (Unaudited)                 (Unaudited)
                             $             $             $             $
    REVENUE             29,736,192    29,628,587    56,575,945    60,096,184

    COST OF SALES       23,246,647    22,539,033    44,237,905    46,334,770
                         6,489,545     7,089,554    12,338,040    13,761,414

     EXPENSES            5,807,648     7,442,798    12,585,444    15,958,628
    SEVERANCE COSTS        192,556       425,342       234,416       533,974
                           489,341      (778,586)     (481,820)   (2,731,188)

      Amortization of
       capital and
       assets              416,892       438,623       817,276       889,636
      Interest expense   1,193,782     1,118,572     2,279,624     1,995,507
      Change in fair
       value of
       instruments          14,859             -        19,579             -
                         1,625,533     1,557,195     3,116,479     2,885,143

     TAXES              (1,136,192)   (2,335,781)   (3,598,299)   (5,616,331)
     INCOME TAXES                -             -             -             -
     LOSS               (1,136,192)   (2,335,781)   (3,598,299)   (5,616,331)
      As originally
       reported        (66,211,192)  (49,093,303)  (63,448,598)  (45,812,753)
      Impact of change
       in accounting
       for financial
       instruments on
       January 1, 2007           -             -      (300,487)            -
      As restated      (66,211,192)  (49,093,303)  (63,749,085)  (45,812,753)
     PERIOD            (67,347,384)  (51,429,084)  (67,347,384)  (51,429,084)

     LOSS PER SHARE         ($0.03)       ($0.08)       ($0.11)       ($0.20)

    Consolidated Statements of Cash Flows
    For the periods ended June 30, 2007 and 2006
                           Three months ended           Six months ended
                                 June 30                     June 30
                           2007          2006          2007          2006
                               (Unaudited)                 (Unaudited)
      Net loss        $ (1,136,192) $ (2,335,781) $ (3,598,299) $ (5,616,331)
      Adjustments for
       non-cash items
         of capital
         and intang-
         ible assets       416,892       438,623       817,276       889,636
         compensation      145,859       163,644       295,693       337,231
        Gain on sale
         of assets               -        (5,500)            -        (5,500)
         of cash paid
         charges           100,360        93,641       197,123       172,281
         of non-cash
         charges           143,495       140,305       283,885       250,472
        Change in
         fair value
         of derivative
         instruments        14,859             -        19,579             -
        Accretion of
         note discount     113,472       112,574       202,055       214,070
         of deferred
         gain on sale-
         transaction       (37,110)      (37,109)      (74,217)      (74,217)
                          (238,365)   (1,429,603)   (1,856,905)   (3,832,358)
    Changes in non-cash
     working capital
     items                (187,158)      278,671     1,128,046    (3,529,614)
    Cash used for
     activities           (425,523)   (1,150,932)     (728,859)   (7,361,972)
      Acquisition of
       capital assets     (200,565)      (96,697)     (396,232)     (218,311)
      Proceeds on sale
       of assets                 -         5,500             -         5,500
      Cash used for
       activities         (200,565)      (91,197)     (396,232)     (212,811)
      Net proceeds
       (repayment) of
       revolving debt   (2,280,495)    1,873,039    (1,572,561)    7,606,570
      Proceeds of
       term loan         2,126,800             -     2,126,800             -
      Repayment of
       term loan          (275,000)     (250,000)     (550,000)     (500,000)
      Repayment of
       short term
       note payable       (141,084)            -      (141,084)            -
       charges                   -      (255,367)            -    (1,120,023)
      Capital lease
       financing, net      (28,827)        4,327       (51,262)      (58,250)
      Net issuance
       (redemption) of
       note options              -             -             -      (123,931)
      Issuance of
       common shares
       and warrants      1,499,850       193,560     1,499,850       918,060
      Decrease in bank
       indebtedness              -      (446,859)            -             -
      Cash provided by
       activities          901,244     1,118,700     1,311,743     6,722,426
    Net increase
     (decrease) in
     cash position         275,156      (123,429)      186,652      (852,357)
    Cash position,
     beginning of
     period                617,484       575,691       705,988     1,304,619
    Cash position,
     end of period    $    892,640  $    452,262  $    892,640  $    452,262

    Cash and cash
     equivalents      $    803,640  $    192,537       803,640       192,537
    Restricted cash         89,000       259,725        89,000       259,725
                      $    892,640  $    452,262  $    892,640  $    452,262

    %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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