Tranzeo Wireless Technologies Inc.
TSX : TZT

Tranzeo Wireless Technologies Inc.

April 19, 2007 17:02 ET

Growth Continues for Tranzeo Wireless in Q1 2007

Tranzeo's first quarter results show gross profit up 32%, earnings before tax up 21% and gross margin % up by 24%

PITT MEADOWS, BRITISH COLUMBIA--(CCNMatthews - April 19, 2007) - Tranzeo Wireless Technologies Inc. (TSX:TZT), a leading producer of high-speed wireless broadband communication systems, reports positive results for the first quarter ended March 31, 2007.

Financial Highlights for the Quarter

- Revenue increased 6% to 4.8 million, year over year

- Earnings before tax increased 21% to $0.55 million, year over year

- Gross profit improved 32% year over year to $1.9 million

- Gross margin % improved 24% year over year to 39% of sales

"We have continued the trend of significantly improving our sales volume, customer base, gross profit and earnings before tax from the previous year," said Jim Tocher, President and CEO of Tranzeo. "The results of this quarter again substantiate that the wireless market place recognizes Tranzeo as the premier provider of high quality, reliable cost-effective wireless solutions."

Revenues Increased

Revenue for the first quarter of 2007 increased to $4.8 million from $4.5 million for the same period in 2006, representing a 6% increase. Revenue for the period was 9% higher than the previous three months ended December 31, 2006.

Tranzeo attributes the increase to ongoing growth in demand for its wireless products, competitive pricing and accelerating expansion of its dealer and distributor base.

"Gross Profit Improved"

Gross profit increased to $1.9 million for the first quarter of 2007 from $1.4 million for the same period in 2006, representing a 32% increase. Gross margins were 39.3 % for the first quarter of 2007, compared to 31.7 % for the same period in 2006. The continual increase in gross margins is attributable to lower manufacturing costs, achieved by bringing additional manufacturing processes in house away from third party supplier manufacturing. Larger component purchases - fuelled by increased sales - have brought further cost savings. Management expects further cost saving improvements will be achieved.

Earnings Stronger

Earnings before tax for the first quarter of 2007 increased by 21% to $0.55 million from $0.45 million for the same period in 2006. Earnings after tax for the first quarter of 2007 decreased to $0.34 million from a partially taxed $0.40 for the same period in 2006. As a percentage of revenue, earnings before tax represented 12% in the first quarter of 2007, compared to 10% in the first quarter of 2006. As a percentage of revenue, earnings after tax for the first quarter of 2007 represented 7% compared to a partially taxed 9% in the first quarter of 2006.

EBITDA for the first quarter of 2006 increased to $0.72 million from EBITDA of $0.56 million for the same period in 2006, representing a 30% increase. As a percentage of revenue, EBITDA represented 15% in the first quarter of 2007, compared to 12% in the first quarter of 2006.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. We use words such as "anticipate", "plan", "expect", "believe", "intend" and similar expressions to identify forward-looking statements that relate to our business, management, operating results and financial condition. These statements are not historical facts, but reflect our current expectations regarding future results or events. 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, including the matters discussed under "Risk Factors" and other sections of our prospectus which may be found on SEDAR at www.sedar.com.

About Tranzeo

At the forefront of the growing fixed wireless industry, Tranzeo Wireless Technologies Inc. (TSX:TZT) designs, builds and distributes a full range of high-bandwidth wireless data network products, including WiMax products. Our innovative approach and in-house expertise ensures our products are reliable yet affordable, offer state-of-the-art features, and are easy to install, operate and deploy. We are continually adding products and features to provide our customers with the latest available innovations and end-to-end fixed wireless solutions, through a growing global network of distributors. For more information about our company and our products, visit www.tranzeo.com.

TRANZEO WIRELESS TECHNOLOGIES INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED MARCH 31 2007

(Unaudited)

(IN CANADIAN DOLLARS)

INTERIM CONSOLIDATED BALANCE SHEETS

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS



TRANZEO WIRELESS TECHNOLOGIES INC.

Interim Consolidated Balance Sheet

March 31,
2007 Dec. 31,
(Unaudited) 2006
---------------------------
Assets
Current assets:
Cash and cash equivalent $ 5,242,150 $ 389,249
Accounts receivable 2,125,844 1,472,965
Current portion of future income taxes 304,610 412,729
Prepaid expenses 392,976 268,454
Inventories (Note 3) 4,532,931 4,208,724
---------------------------
12,598,511 6,752,121

Property, plant, and equipment 8,872,648 5,824,907
Deferred development costs 483,951 236,041
Future income taxes 213,919 -
---------------------------
$ 22,169,029 $ 12,813,069
---------------------------
---------------------------

Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 1,713,620 $ 2,253,781
Current portion of capital lease
obligation (Note 7) 501,749 513,843
---------------------------
2,215,369 2,767,624

Future income taxes - 5,201
Capital lease obligation (Note 7) 871,752 971,668
---------------------------
3,087,121 3,744,493
---------------------------

Shareholders' equity:
Share capital (Note 5) 16,807,626 7,343,319
Contributed surplus 500,447 292,566
Retained earnings 1,773,835 1,432,691
---------------------------
19,081,908 9,068,576
---------------------------
$ 22,169,029 $ 12,813,069
---------------------------
---------------------------

Commitments and Contingencies (Note 7)

The accompanying notes are an integral part of these consolidated financial
statements.


TRANZEO WIRELESS TECHNOLOGIES INC.

Interim Consolidated Statements of Operations and Deficit

(Unaudited)

Three Months Ended
March 31,
2007 2006
---------------------------

Sales $ 4,752,117 $ 4,477,097
Cost of goods sold 2,882,961 3,058,055
---------------------------
Gross profit 1,869,156 1,419,042
---------------------------

Expenses
Sales and marketing 344,543 362,199
Research and development 245,691 109,559
General and administrative 557,802 392,030
Amortization 133,908 93,641
---------------------------
1,281,944 957,429
---------------------------

Earnings before other items 587,212 461,613
---------------------------

Other (income) expenses
Interest income (20,588) -
Interest on long term debt 41,300 9,238
Foreign exchange loss (gain) 15,528 (1,520)
---------------------------
36,240 7,718
---------------------------

Net earnings before income taxes 550,972 453,895

Income tax expense (Note 4) 209,828 51,933
---------------------------

Net earnings 341,144 401,962
Retained earnings (deficit),
beginning of year 1,432,691 (117,406)

---------------------------
Retained earnings, end of year $ 1,773,835 $ 284,556
---------------------------
---------------------------

Earnings per share for the period (Note 7) ---------------------------
Basic $ 0.01 $ 0.02
---------------------------
---------------------------
Diluted $ 0.01 $ 0.02
---------------------------
---------------------------

---------------------------
Weighted average number of shares
outstanding for the year 24,087,375 21,927,485
---------------------------
---------------------------

The accompanying notes are an integral part of these consolidated financial
statements.


TRANZEO WIRELESS TECHNOLOGIES INC.

Interim Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended
March 31,
2007 2006
---------------------------

Cash flows from operating activities:
Net income for the period $ 341,144 $ 401,962

Adjustments to reconcile net loss
to net cash from operating activities:
Amortization 133,908 93,641
Interest on capital leases 41,300 9,238
Future income taxes - current 108,119 -
Stock based compensation 64,638 -
---------------------------
689,109 504,841
Changes in working capital
assets and liabilities
Prepaid expenses (124,522) (36,370)
Future income taxes (219,120) -
Accounts receivable (652,879) (908,214)
Accounts payable and accrued liabilities (540,161) 181,990
Inventories (324,207) 438,791
---------------------------

Net cash flows used in operating activities (1,171,780) 181,038
---------------------------

Cash flows from investing activities:
Additions to property, plant, and equipment (3,181,649) (672,335)
Deferred development expenses (247,910) -
---------------------------

Net cash flows used in investing activities (3,429,559) (672,335)
---------------------------

Cash flows from financing activities:
Repayment of capital lease obligations (153,310) (162,449)
Issuance of common shares for
asset acquisition 2,000,000 -
Issuance of common shares for
public offering, net (Note 5) 7,576,916 -
Issuance of common shares from options
and warrants exercised 30,634 -
---------------------------

Net cash flows from financing activities 9,454,240 (162,449)

---------------------------

Net increase (decrease) in cash 4,852,901 (653,746)
Cash and cash equivalents,
beginning of year 389,249 1,161,939
---------------------------

Cash and cash equivalents, end of year $ 5,242,150 $ 508,193
---------------------------
---------------------------
--------------------------------------------------------------------------

CASH PAID FOR
Interest $ 41,300 $ 9,238
---------------------------
---------------------------
Income taxes $ - $ -
---------------------------
---------------------------

The accompanying notes are an integral part of these consolidated financial
statements.


Notes to the Consolidated Financial Statements
(Unaudited)
March 31, 2007

1. OPERATIONS

Tranzeo Wireless Technologies Inc. (the "Company") was incorporated on December 6, 2000 under the Company Act, British Columbia, and was continued as a Canadian Federal Corporation on April 1, 2004 under the Canada Business Corporations Act. The Company was formed for the purpose of developing and selling wireless internet connectivity solutions.

On October 4, 2005, the Company's common shares were listed and called for trading on the Toronto Stock Exchange ("TSX") under the symbol TZT after completing an initial public offering.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

These financial statements are expressed in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles.

(b) Interim financial statements

These interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2006. The disclosure in these interim consolidated financial statements do not meet all disclosure requirements of Canadian generally accepted accounting principles for annual financial statements.

(c) Principles of Consolidation

These financial statements have been prepared on a consolidated basis and include the accounts of the Company and its two wholly owned subsidiaries, Tranzeo Wireless EMC and Tranzeo Wireless USA. All significant inter-company balances, revenues and expenditures have been eliminated.

(d) Use of Estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to allocation of overhead and other indirect costs to cost of sales and inventory, the allocation of direct costs to research and development, the determination of impairment of assets and useful lives for depreciation and amortization, fair values of financial instruments, future income tax valuation allowance and fair value for stockbased awards and compensation. Financial results as determined by actual events could differ from those estimates.

3. INVENTORIES



-------------------------------------------------------------
March 31, 2007 Dec 31, 2006
-------------------------------------------------------------
Raw materials 3,393,836 1,139,095
Finished goods 3,412,758 795,966
-------------------------------------------------------------
4,532,931 4,208,724
-------------------------------------------------------------
-------------------------------------------------------------


4. INCOME TAXES

A reconciliation of current income taxes at statutory rates with the reported taxes is as follows:



--------------------------------------------------------------------------
Quarter Ended Quarter Ended
March 31, 2007 March 31, 2006
--------------------------------------------------------------------------
$ $
Income before income taxes 550,972 453,894
Stock based compensation - non deductible
Income for tax purposes 64,638 -
-----------------------------
615,610 453,894
Tax provision at statutory rates-34.12% 209,828 154,868
Benefit of tax losses not previously recognized - (102,935)
--------------------------------------------------------------------------
Income taxes 209,828 $51,933
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Refundable Tax Credits:

The Company is entitled to claim certain tax credits from the federal and provincial governments in respect of qualifying expenditures incurred in carrying out Scientific Research and Experimental Development (SR&ED) in Canada. The Company recorded $100,992 of non refundable tax credits which was applied to reduce research and development expenses in the current quarter (March 31, 2006 -$122,000).

5. SHARE CAPITAL

On May 19, 2005, the Company amended its authorized share capital from 100,000,000 common shares to an unlimited number of common shares without par value and an unlimited number of preferred shares without par value. Preferred shares are entitled to priority over the common shares with respect to priority in the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Company.



Authorized:
Unlimited voting common shares, no par value
Unlimited preferred shares, no par value
Issued:
----------------------
Common $
Balance at December 31, 2006 21,927,485 7,343,319
Issued for asset acquisition 840,337 2,000,000
Public Equity Financing 3,200,000 8,000,000
Agents Warrants from IPO exercised 2,333 5,133
Stock Options exercised 25,500 25,500
Agency fees (480,000)
Agency warrant - stock based compensation
to Contributed Surplus (143,241)
Financing costs (162,205)
----------------------
Balance at March 31,2007 25,995,655 16,588,506
Tax benefit recognized on share financing
charges 219,120
----------------------
Balance at March 31, 2007 25,995,655 16,807,626
----------------------
----------------------


Stock Options

The following table summarizes stock option transactions that occurred during the period:



---------------------------------------------------------
Number of Weighted
Common Average
Shares subject Exercise Price
to Options per Share
---------------------------------------------------------
Balance, December 31, 2006 1,708,000 1.18
Granted 420,110 2.47
Exercised (25,500) 1.00
Expired - -
Cancelled - -
---------------------------------------------------------
Balance, March 31 2007 2,102,610 1.44
---------------------------------------------------------
---------------------------------------------------------


The weighted average remaining life of the options as at December 31, 2006 was 9.75

Share Purchase Warrants

The following table summarizes outstanding warrants:



--------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Price Remaining Life
Warrants $ (Years)
--------------------------------------------------------------------------
Breakdown at December 31, 2006

Warrants from initial public
offering(Note b) 1,196,412 $ 2.50 0.01
Agent warrants 298,503 $ 2.00 0.05
------------------------------------------
Balance as at December 31
2006 1,494,915 $ 2.40 0.11
Current Quarter Activity
Agents warrants from Feb 14
share offering 192,000 $ 2.50 0.90
Agents Warrants from IPO
exercised (2,333) $ 2.20
--------------------------------------------------------------------------

Balance at March 31 2007 1,684,582 $ 2.41 0.11
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Note:
a) An Over-allotment option was granted to the agents of the February 14,
2007 share offering to purchase 480,000 shares at $2.50 with an expiry
date of March 14, 2007. All of these options have expired as at
March 31, 2007.

b) On April 3,2007 282,750 warrants from the initial public offering
(1,196,412) were exercised, the residual of 913,662 expired
April 4, 2007.


6. EARNINGS PER SHARE

The following is a reconciliation of basic and diluted net earnings per share:



--------------------------------------------------------------------------
March 31, March 31
2007 2006
--------------------------------------------------------------------------
$ $
Net income available to shareholders 341,144 401,962

Weighted average shares outstanding 24,087,375 21,927,485
Effect of dilutive securities, stock
options and warrants 940,302 620,279
--------------------------------------------------------------------------
25,027,677 22,547,764
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Basic earnings per share $ 0.01 $ 0.02
Diluted earnings per share $ 0.01 $ 0.02
--------------------------------------------------------------------------


7. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company has operating lease commitments for office premises, office equipment, and vehicles, requiring payments in each of the next five years as follows (see Note 9 - Related Party Transactions):



$
---------
2007 401,730
2008 340,013
2009 290,209
2010 240,188
2011 240,188
---------

1,512,328
---------
---------


Capital Lease Obligations

The following is a schedule of future minimum lease payments under the capital leases expiring July 31 2010 together with the balance of the obligation under capital lease.



Year ending December 31 $
---------
2007 505,796
2008 550,919
2009 461,032
2010 85,416
---------
Total minimum lease payments as at
December 31 2006 1,603,163
Amount representing interest at 13.5% (229,662)
---------
Balance of the obligation 1,373,501
Current Portion 501,749
---------
Long term portion 871,752
---------
---------


8. RELATED PARTY TRANSACTIONS

The Company paid or accrued total rent of $60,048 in the current quarter (March 31, 2005 - $66,048) to companies owned by the President of the Company. Included in lease commitments (Note 8) is $960,752 that will be payable to these related companies over the next five years.

The Company purchased raw materials of $427,715 (2005 - $57,686) in the current quarter from a company whose chief executive officer is a director of the Company. Included in accounts payable is $156,684 (2006 - $44,426) payable to the same related company.

9. SEGMENTED INFORMATION



-------------------------------------------------------------------------
Canada US Other Total
$ $ $ $
-------------------------------------------------------------------------
March 31, 2007
Sales 872,905 3,076,772 802,440 4,752,117

Property, plant and equipment 8,872,648 8,872,648

March 31, 2006
Sales 776,705 3,318,668 381,724 4,477,097
Property, plant and equipment 3,877,302 3,877,302


10. ASSET ACQUISTION

(a) On January 31, 2007 the Company completed the acquisition of all of the assets of Sensoria Corporation ("Sensoria") relating to Sensoria's wireless mesh networks technology for broadband applications. The assets acquired included Sensoria's patents and intellectual property. In addition, the Company has hired most of Sensoria's employees. The Company issued 840,337 common shares at an aggregate value of $2,000,000 and paid cash consideration of $798,120 ($675,000 US) as consideration for the acquisition of the assets. In addition to a statutory hold period, the common shares issued are subject to a contractual hold period such that after 120 days following their issuance 25% of the shares will be released, then in each of the subsequent eight months an additional 9.375% of the shares issued will be released.

The allocation by management of the total purchase price is approximately as follows:



Technology / Source Code $2,585,288
Patents 118,240
Inventory 89,862
Equipment / Other 4,730
--------------------------------------------

Total Purchase Price $2,798,120
--------------------------------------------
--------------------------------------------


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