DragonWave Inc.
TSX : DWI
AIM : DWI

DragonWave Inc.

January 10, 2008 17:27 ET

DragonWave Announces Third Quarter Fiscal 2008 Results

139% growth in revenue sets new record of $11.5 Million

OTTAWA, CANADA--(Marketwire - Jan. 10, 2008) - DragonWave Inc. ("DragonWave"), (TSX:DWI)(AIM:DWI) a leading global supplier of next-generation wireless networks, today issued financial results for its third quarter of fiscal year 2008 ended November 30, 2007. All figures are prepared in accordance with Canadian generally accepted accounting principles (GAAP) and are reported in Canadian dollars.

Revenue for the third quarter was $11.5 million, compared with $4.8 million for the same period of the last fiscal year, an increase of 139%. Sequential growth from the second quarter of fiscal year 2008 was 17%. These results reflect another record for quarterly revenues.

Revenue from customers in North America grew to $5.7 million, a 70% increase from the $3.4 million reported in the same quarter of fiscal year 2007. Revenue from outside North America grew to $5.8 million, up from $1.4 million in the same quarter of fiscal year 2007, representing an increase of 300% year-over-year.

Gross margin for the third quarter was 39%, up 2% over the second quarter, and consistent with the third quarter of fiscal year 2007.

For the third quarter fiscal year 2008, the loss from operations was $1.3 million, compared to a loss of $1.5 million in the third quarter of fiscal year 2007. Expenses increased from $3.4M to $5.8M due to increased staffing levels, sales and marketing activities required to support the growing international business, market driven R&D associated with major near term opportunities and the engineering activity to comply with local certification and approval processes. Net loss for the quarter was $1.2 million versus $2.5 million in Q3 fiscal 2007.

"DragonWave made good progress during the quarter as we've continued to execute our strategy. We've seen very strong growth in all markets, but particularly outside North America, while continuing to improve our gross margins. We have captured another carrier class customer and we are seeing excellent traction for our Horizon product line. We continue to be well positioned as a leader in the high growth IP Ethernet based, high capacity wireless backhaul equipment market" said Peter Allen, President and CEO of DragonWave.

The DragonWave management team will discuss the full results on a conference call to be held on January 11, 2008 at 8:30 a.m. eastern time (1:30 p.m. BST).

Presentation material and a webcast link will be made available from the Investor Relations portal of DragonWave's web site at http://www.dragonwaveinc.com/financialreports.asp.

Conference Call Details:

- Beginning at 8:30 a.m., EST, (1:30 p.m. BST)

- Local call: 416-915-9040

- Toll free North American: 1-866-261-3038

- Toll free United Kingdom: 08-08-234-1382

A replay of the call will be made available at http://www.dragonwaveinc.com, through the Investor Relations portal.

To review Management's Discussion and Analysis for the quarter, please go to www.sedar.com.

About DragonWave

DragonWave™ is a leading provider of high-capacity wireless Ethernet equipment used in emerging IP networks. DragonWave designs, develops, and markets carrier-grade microwave radio frequency networking equipment that wirelessly transmit broadband voice, video and other data. DragonWave's wireless Ethernet products, which are based on a native Ethernet platform, function as a wireless extension to an existing fibre-optic core telecommunications network. The principal application for DragonWave's products is the backhaul function in a wireless communications network. Additional applications for DragonWave's products include point-to-point transport in private networks, including municipal and enterprise networks. DragonWave's corporate headquarters is located in Ottawa, Ontario, with sales locations in Europe, Middle East and North America. The company's Web site is http://www.dragonwaveinc.com

FORWARD LOOKING STATEMENTS

This release contains certain forward-looking statements. Readers are cautioned not to place undue reliance upon any such forward-looking statements. Forward-looking statements are based on the company's current expectations and assumptions that are subject to a variety of risks and uncertainties that are difficult to predict and that may be beyond DragonWave's control.

Actual results could differ materially from those expressed in any forward-looking statements due to factors including the following:



- DragonWave's growth is dependent on the development and growth of the
market for broadband wireless access.
- DragonWave faces intense competition from several competitors and if it
does not compete effectively with these competitors, its revenues may not
grow and could decline. DragonWave also faces competition from indirect
competitors.
- DragonWave's success depends on its ability to develop new products and
enhance existing products.
- DragonWave has a history of losses and cannot provide assurance that it
will attain profitability.
- If DragonWave is required to change its pricing models to compete
successfully, its margins and operating results may be adversely
affected.
- DragonWave relies on a small number of customers for a large percentage
of its revenue.
- DragonWave's ability to sell products and services is dependent upon it
establishing and maintaining relationships with channel partners.
- DragonWave's quarterly revenue and operating results can be difficult to
predict and can fluctuate substantially.
- DragonWave has a lengthy and variable sales cycle.

Additional risks which can also impact upon forward looking statements are
identified in DragonWave's Annual Information Form which is available
online at www.sedar.com. DragonWave assumes no obligation to update these
forward-looking statements as a result of new information or future events.

CONSOLIDATED INTERIM BALANCE SHEETS
(Expressed in Cdn $000's)


As at As at
November 30, February 28,
2007 2007
$ $
------------------------------------------------------------------
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(unaudited)
ASSETS
Current
Cash and cash equivalents 6,338 1,334
Short term investments 34,436 -
Accounts receivable 10,027 7,677
Other receivables 942 986
Inventory 7,806 6,898
Prepaid expenses 522 332
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Total current assets 60,071 17,227
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Deferred financing charges - 2,735
Property and equipment 2,197 578
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2,197 3,313
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62,268 20,540
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LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current
Line of credit 556 4,443
Accounts payable and accrued liabilities 9,574 8,647
Deferred revenue 1,520 630
Convertible debt - 13,020
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Total current liabilities 11,650 26,740
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Debt component of redeemable
preferred shares - 18,004
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11,650 44,744
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Commitments

Shareholders' equity (deficiency)
Capital stock 119,435 21,753
Contributed surplus 806 17,662
Deficit (69,623) (63,619)
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Total shareholders' equity (deficiency) 50,618 (24,204)
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62,268 20,540
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CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS,
COMPREHENSIVE LOSS, AND DEFICIT
(Expressed in Cdn $000's except share and per share amounts) (unaudited)


Three months ended Nine months ended
November 30, November 30, November 30, November 30,
2007 2006 2007 2006
$ $ $ $
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REVENUE 11,548 4,830 30,062 16,244
Cost of sales 7,016 2,939 18,894 10,858
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Gross profit 4,532 1,891 11,168 5,386
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EXPENSES
Research and
development 2,662 1,511 7,572 4,379
Selling and
marketing 2,392 1,502 6,130 4,408
General and
administrative 846 572 2,894 1,896
Investment tax credits (50) (244) (442) (625)
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5,850 3,341 16,154 10,058
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Loss from
operations (1,318) (1,450) (4,986) (4,672)

Interest income 350 - 655 -
Interest expense (34) (75) (192) (183)
Interest expense on
debt component of
redeemable
preferred shares
and convertible debt - (963) (500) (2,739)
Amortization of
deferred
financing charges - (78) - (94)
Gain on disposal
of property and
equipment 34 34
Foreign exchange
loss (206) (16) (981) (403)
--------------------------------------------------------------------------
Loss before income
taxes (1,208) (2,548) (6,004) (8,057)
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Net loss and
comprehensive loss (1,208) (2,548) (6,004) (8,057)
--------------------------------------------------------------------------
Deficit, beginning
of period (68,415) (58,404) (63,619) (52,895)
--------------------------------------------------------------------------
Deficit, end of
period (69,623) (60,952) (69,623) (60,952)
--------------------------------------------------------------------------
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Loss per share
Basic and fully
diluted (0.04) (0.71) (0.27) (2.23)
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Basic and diluted
weighted average
number of shares
outstanding 27,646,025 3,610,491 22,063,836 3,617,737
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CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Expressed in Cdn $000's)

(unaudited)
Three months ended Nine months ended
November 30, November 30, November 30, November 30,
2007 2006 2007 2006
$ $ $ $
--------------------------------------------------------------------------

OPERATING ACTIVITIES
Net loss (1,208) (2,548) (6,004) (8,057)
Items not
affecting cash:
Amortization of
property and
equipment 159 124 366 398
Interest expense
on debt
component of
preferred shares - 598 350 1,744
Amortization of
deferred
financing costs - 78 - 94
Interest expense
on debt
component of
convertible debt - 365 150 995
Gain on disposal
of property and
equipment - (34) - (34)
Stock-based
compensation
expense and other
stock based awards 191 29 264 60
Unrealized foreign
exchange loss 145 (82) 459 39
Accrued interest
on fair value of
short term
investments (85) - (85) -
Changes in
non-cash
working
capital items (968) (481) 1,149 (281)
--------------------------------------------------------------------------
Cash flows used
in operating
activities (1,766) (1,951) (3,351) (5,042)
--------------------------------------------------------------------------

INVESTING ACTIVITIES
Acquisition of
property and
equipment (678) (118) (1,985) (272)
Proceeds on the
disposal
of property and
equipment - 34 - 34
Increase in short
term investments (34,351) - (34,351) -
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Cash flows used
in investing
activities (35,029) (84) (36,336) (238)
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FINANCING ACTIVITIES
Repayment of
capital
lease obligations - - - (12)
Repayment of line
of credit (1,889) (916) (3,887) 161
Issuance of
convertible debt - 3,000 - 3,000
Issuance of
common stock
net of stock
issuance costs 22,103 - 49,037 -
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Cash flows
provided by
financing
activities 20,214 2,084 45,150 3,149
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Effect of foreign
exchange on
cash and cash
equivalents (145) 82 (459) (39)

Net increase
(decrease) in cash
and cash
equivalents (16,726) 131 5,004 (2,170)
Cash and cash
equivalents
at beginning of
period 23,064 2,820 1,334 5,121
Cash and cash
equivalents
at end of period 6,338 2,951 6,338 2,951
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Cash paid during
the period for:
Interest 34 75 192 183
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