Tranzeo Wireless Technologies Inc.
TSX : TZT

Tranzeo Wireless Technologies Inc.

August 13, 2007 09:00 ET

Growth Continues for Tranzeo Wireless in Q2 2007

Tranzeo's second quarter results show revenue up 11% over Q2 2006 and 12% over Q1 2007, gross profit up 18%, and net earnings up 18% over Q1 2007

PITT MEADOWS, BRITISH COLUMBIA--(Marketwire - Aug. 13, 2007) - Tranzeo Wireless Technologies Inc. (TSX:TZT), a leading producer of high-speed wireless broadband communication systems, reports positive results for the second quarter ended June 30, 2007.

Financial Highlights for the Quarter

- Revenue increased 11% to 5.3 million, year over year

- Earnings after tax increased 18% to $0.4 million, from Q1 2007

- Gross profit improved 18% year over year to $2.1 million

- Gross margin % improved 7% year over year to 39.4% of sales

"We have continued the trend of significantly improving our sales volume, customer base, gross profit and net earnings from the prior quarter," 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 second quarter of 2007 increased to $5.3 million from $4.8 million for the same period in 2006, representing an 11% increase. Revenue for the period was 12% higher than the previous three months ended March 31, 2007.

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

Gross Profit Improved

Gross profit increased to $2.1 million for the second quarter of 2007 from $1.8 million for the same period in 2006, representing an 18% increase. Gross margins were 39.4% for the second quarter of 2007, compared to 36.8% 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 after tax for the second quarter of 2007 increased by 18% to $0.4 million from $0.34 million for the previous three months ended March 31, 2007. As a percentage of revenue, earnings after tax represented 7.6% in the second quarter of 2007, compared to 7.2% in the first quarter of 2007. EBITDA for the second quarter of 2007 increased to $0.79 million from EBITDA of $0.72 million for the first quarter of 2007, representing a 9% increase. As a percentage of revenue, EBITDA represented 15% in the first and second quarter of 2007.

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 JUNE 30, 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

June 30, 2007
(Unaudited) Dec. 31, 2006
-----------------------------
-----------------------------
Assets
Current assets:
Cash and cash equivalent $ 3,681,773 $ 389,249
Accounts receivable 2,952,238 1,472,965
Current portion of future income taxes 217,584 412,729
Prepaid expenses 486,852 268,454
Inventories (Note 3) 5,547,827 4,208,724
------------- --------------
12,886,274 6,752,121

Property, plant, and equipment 10,124,659 5,824,907
Deferred development costs 840,904 236,041
Future income taxes 218,540 -
------------- --------------
$ 24,070,377 $ 12,813,069
------------- --------------
------------- --------------

Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 2,587,166 $ 2,253,781
Current portion of capital
lease obligation (Note 7) 489,420 513,843
------------- --------------
3,076,586 2,767,624
Future income taxes - 5,201
Capital lease obligation (Note 7) 757,911 971,668
------------- --------------
3,834,497 3,744,493
------------- --------------

Shareholders' equity:
Share capital (Note 5) 17,505,578 7,343,319
Contributed surplus 555,445 292,566
Retained earnings 2,174,857 1,432,691
------------- --------------
20,235,880 9,068,576
------------- --------------
$ 24,070,377 $ 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 Six Months Ended
June 30 June 30
2007 2006 2007 2006
--------------------------------------------------

Sales $ 5,308,409 $ 4,803,112 $10,060,526 $ 9,280,209
Cost of goods sold 3,216,617 3,033,849 6,099,578 6,091,904
----------- ----------- ----------- -----------
Gross Profit 2,091,792 1,769,263 3,960,948 3,188,305
----------- ----------- ----------- -----------

Expenses
Sales and marketing 407,687 303,205 752,230 665,404
Research and
development (Note 4) 273,689 40,115 519,380 149,674
General and
administrative 622,077 526,745 1,179,879 918,776
Amortization 148,034 122,997 281,942 216,638
----------- ----------- ----------- -----------
1,451,487 993,062 2,733,431 1,950,492
----------- ----------- ----------- -----------

Earnings from
operations 640,305 776,201 1,227,517 1,237,813

Other expenses (income)
Interest Income (38,452) - (59,040) -
Interest on long
term debt 38,556 31,024 79,856 40,262
Foreign exchange loss 3,153 12,613 18,681 11,093
----------- ----------- ----------- -----------
3,257 43,637 39,497 51,355
----------- ----------- ----------- -----------

Earnings before
income taxes 637,048 732,564 1,188,020 1,186,458

Income taxes (Note 4) 236,026 249,950 445,854 301,883
----------- ----------- ----------- -----------

Net earnings 401,022 482,614 742,166 884,575

Retained Earnings
(deficit), beginning
of period 1,773,835 284,557 1,432,691 (117,404)
----------- ----------- ----------- -----------

Retained earnings,
end of period $ 2,174,857 $ 767,171 $ 2,174,857 $ 767,171
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Earnings per share for
the period (Note 6)
Basic $ .02 $ .02 $ .03 $ .04
Diluted $ .01 $ .02 $ .03 $ .04
----------- ----------- ----------- -----------

Weighted average
number of shares
- basic 26,263,038 21,927,485 25,181,131 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 Six Months Ended
June 30 June 30
2007 2006 2007 2006
--------------------------------------------------
Cash flows from
operating activities:
Net income for
the period $ 401,022 $ 482,614 $ 742,166 $ 884,575
Adjustments to
reconcile net loss to
net cash from operating
activities:
Amortization 148,034 122,997 281,942 216,638
Amortization of deferred
development costs 19,650 - 19,650 -
Interest on capital
leases 38,556 31,024 79,856 40,262
Future income taxes
- current 87,026 - 195,145 -
Stock based
compensation 55,000 - 119,638 -
----------- ----------- ----------- -----------
749,288 636,635 1,438,397 1,141,475

Changes in working
capital assets and
liabilities:
Prepaid expenses (93,876) 61,652 (218,398) 25,281
Accounts receivable (826,394) (336,159) (1,479,273) (1,244,373)
Accounts payable and
accrued liabilities 873,546 328,310 333,385 510,302
Future income taxes (4,621) 164,832 (223,741) 164,832
Inventories (1,014,897) (183,117) (1,339,103) 255,674
----------- ----------- ----------- -----------
Net cash flows used
in operating
activities (316,954) 672,153 (1,488,733) 853,191
----------- ----------- ----------- -----------

Cash flows from
investing activities
Additions to property,
plant and equipment (1,400,045) (481,688) (4,581,694) (1,154,023)
Deferred development
expenses (376,603) - (624,513) -
----------- ----------- ----------- -----------
Net cash flows used
in investing
activities (1,776,648) (481,688) (5,206,207) (1,154,023)
----------- ----------- ----------- -----------

Cash flows from
financing activities:
Repayment of capital
leases obligations (164,726) (96,445) (318,036) (258,894)
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 warrants
and options exercised 697,951 - 728,584 -
----------- ----------- ----------- -----------
Net cash flows from
financing activities 533,225 (96,445) 9,987,464 (258,894)
----------- ----------- ----------- -----------

Net increase
(decrease) in cash (1,560,377) 94,020 3,292,524 (559,726)

Cash, beginning
of period 5,242,150 508,193 389,249 1,161,939
----------- ----------- ----------- -----------

Cash, end of period $ 3,681,773 $ 602,213 $ 3,681,773 $ 602,213
----------- ----------- ----------- -----------

Supplementary cash
information
Cash paid for
interest $ 38,556 $ 31,024 $ 79,856 $ 40,262

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


TRANZEO WIRELESS TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

(Unaudited)

June 30, 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 Technologies (EMC Labs) Inc. and Tranzeo Wireless Technologies (USA) Inc. 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 stock-based awards and compensation. Financial results as determined by actual events could differ from those estimates.

3. INVENTORIES



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June 30, 2007 Dec 31, 2006
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Raw materials 4,905,266 3,412,758
Finished goods 642,561 795,966
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$ 5,547,827 $ 4,208,724
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4. INCOME TAXES

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



--------------------------------------------------------------------------
Quarter Ended Quarter Ended
June 30, 2007 June 30, 2006
--------------------------------------------------------------------------
$ $
Income before income taxes 637,047 732,564
Stock based compensation - non deductible 55,000 -
----------------------------
Income for tax purposes 692,047 732,564
Tax provision at statutory rates-34.12% 236,026 249,950
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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 $150,000 of non refundable tax credits which was applied to reduce research and development expenses in the current quarter (June 30, 2006 - $237,000) and $100,992 on the first quarter of 2007 (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
Share Warrants from IPO exercised 282,750 706,875
Agency fees (480,000)
Agency warrant - stock based compensation to
Contributed Surplus (143,241)
Financing costs (175,749)
----------------------
Balance at June 30, 2007 26,278,405 17,281,837
Tax benefit recognized on share financing charges 223,741
----------------------
Balance at June 30, 2007 26,278,405 17,505,578
----------------------
----------------------


Stock Options

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



--------------------------------------------------------------------------
--------------------------------------------------------------------------
Number of Weighted Average
Common Shares Exercise Price per
subject to Options Share
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Balance, December 31, 2006 1,708,000 1.18
Granted 420,110 2.47
Exercised (25,500) 1.00
Expired - -
Cancelled (165,162) 1.58
--------------------------------------------------------------------------

Balance, June 30, 2007 1,937,448 1.43
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--------------------------------------------------------------------------


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

Warrants from initial public offering
(Note a) 1,196,412 $ 2.50 -
Agent warrants 298,503 $ 2.20 0.26
--------------------------------
Balance as at December 31, 2006 1,494,915 $ 2.44 0.26
Current Year Activity
IPO Warrants exercised (282,750) $ 2.50
IPO Warrants expired (913,662) $ 2.50
Agents warrants from Feb 14 share
offering 192,000 $ 2.50 0.63
Agents Warrants from IPO exercised (2,333) $ 2.20
--------------------------------------------------------------------------

Balance at June 30, 2007 488,170 $ 2.32 0.41
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--------------------------------------------------------------------------

Note:

a) 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:



--------------------------------------------------------------------------
--------------------------------------------------------------------------
June 30, 2007 June 30, 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
$ $
Net income available to shareholders 401,022 482,614

Weighted average shares outstanding 26,236,038 21,927,485
Effect of dilutive securities, stock
options and warrants 582,269 620,279
--------------------------------------------------------------------------
26,845,307 22,547,764
--------------------------------------------------------------------------
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Basic earnings per share $ 0.02 $ 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 341,184
2008 550,919
2009 461,032
2010 85,416
---------
Total minimum lease payments as at December 31 2006 1,438,551
Amount representing interest at 13.5% (191,220)
---------
Balance of the obligation 1,247,331
Current Portion 489,420
---------
Long term portion 757,911
---------
---------


8. RELATED PARTY TRANSACTIONS

The Company paid or accrued total rent of $60,048 in the current quarter (June 30, 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 $433,425 (2005 - $732,097) in the current quarter from a company whose chief executive officer is a director of the Company. Included in accounts payable is $125,707 (2006 - $220,628) payable to the same related company.

9. SEGMENTED INFORMATION



---------------------------------------------------------------------------
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Canada US Other Total
$ $ $ $
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June 30, 2007

Sales 1,687,482 6,565,304 1,807,740 10,060,526
Property, plant and
equipment 10,124,659 10,124,659

June 30, 2006

Sales 1,524,513 6,918,457 837,245 9,280,209
Property, plant and
equipment 4,505,062 4,505,062

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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
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Total Purchase Price $ 2,798,120
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