Tranzeo Wireless Technologies Inc.
TSX : TZT

Tranzeo Wireless Technologies Inc.

March 28, 2007 09:00 ET

Rapid Growth Continues for Tranzeo Wireless in 2006

Tranzeo year to date fourth quarter results show revenue up 25%, net income up 65% and earnings before taxes up 143%

PITT MEADOWS, BRITISH COLUMBIA--(CCNMatthews - March 28, 2007) - The pattern of escalating revenues continues for B.C.'s Tranzeo Wireless Technologies Inc. (TSX:TZT), a leading producer of high-speed wireless broadband communication systems, according to results for the fourth quarter ended December 31, 2006.

Financial Highlights for the twelve months

- Revenue increased 25% to 18.1 million, year over year

- Net income increased 66% to $1.55 million, year over year

- Earnings before tax increased 143% to $2.3 million, year over year

- Gross profit improved 43% year over year to $6.4 million

"We have continued the trend of significantly improving our sales volume, customer base, gross profit and net earnings 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 For The Fiscal Year

Revenue for the fiscal year of 2006 increased by 25% to $18.1 million from $14.6 million for the same period in 2005. Revenue for the fourth quarter of 2006 and 2005 remained constant at $4.3 million.

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 $1.52 million for the fourth quarter of 2006 from $1.36 million for the same period in 2005, representing a 12% increase Gross margins were 35.1% for the fourth quarter of 2006, compared to 31.5% for the same period in 2005. Gross profit for the fiscal year of 2006 increased by 43% to $6.36 million from $4.46 million for the same period in 2005. 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 For The Fiscal Year

Earnings before tax for the fourth quarter of 2006 increased by 27% to $0.46 million from $0.36 million for the same period in 2005. Earnings after tax for the fourth quarter of 2006 decreased to $0.25 million from a non taxed $0.36 for the same period in 2005. As a percentage of revenue, earnings before tax represented 10.6% in the quarter of 2006, compared to 8.4% in the fourth quarter of 2005. As a percentage of revenue earnings after tax for the fourth quarter of 2006 represented 5.8% compared to a non taxed 8.4% in the fourth quarter of 2005. Earnings after tax for the fiscal year of 2006 increased by 66% to $1.55 million from a non taxed $0.94 million for the same period in 2005.

EBITDA for the fourth quarter of 2006 increased to $0.6 million from EBITDA of $0.4 million for the same period in 2005, representing a 43% increase. As a percentage of revenue, EBITDA represented 14% in the fourth quarter of 2006, compared to 10% in the fourth quarter of 2005. EBITDA for the fiscal year of 2006 increased by 123% to $2.8 million from $1.3 million for the same period in 2005.

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.

Consolidated Balance Sheet

Dec. 31, 2006 Dec. 31, 2005
------------------------------

Assets
Current assets:
Cash and cash equivalent $ 389,249 $ 1,161,939
Accounts receivable 1,472,965 824,758
Current portion of future income taxes
(Note 4) 412,729 -
Prepaid expenses 268,454 270,287
Inventories (Note 3) 4,208,724 4,218,401
-------------- --------------
6,752,121 6,475,375

Property, plant, and equipment (Note 5) 5,824,907 2,396,144
Deferred development expenses 226,041 -
-------------- --------------
$ 12,813,069 $ 8,871,529
-------------- --------------
-------------- --------------

Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities
(Note 9) $ 2,253,781 $ 1,880,078
Current portion of capital lease
obligation (Note 8) 513,843 -
-------------- --------------
2,767,624 1,880,078
Future income taxes (Note 4) 5,201 -
Capital lease obligation (Note 8) 971,668 -
-------------- --------------
3,744,493 1,880,076
-------------- --------------

Shareholders' equity:
Share capital (Note 6) 7,343,319 6,974,568
Contributed surplus 292,566 134,289
Retained earnings (deficit) 1,432,691 (117,406)
-------------- --------------
9,068,576 6,991,451
-------------- --------------
$ 12,813,069 $ 8,871,529
-------------- --------------
-------------- --------------

Commitments and Contingencies (Note 8)
Subsequent events (Note 12)

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


TRANZEO WIRELESS TECHNOLOGIES INC.

Consolidated Statements of Operations and Deficit

Three Months Ended Year Ended
December 31 (Unaudited) December 31
2006 2005 2006 2005
------------------------------------------------------

Sales $ 4,344,288 $ 4,329,200 $ 18,148,189 $ 14,563,960
Cost of goods sold 2,820,385 2,964,558 11,789,340 10,106,123
------------ ------------ ------------ ------------
Gross Profit 1,523,903 1,364,642 6,358,849 4,457,837
------------ ------------ ------------ ------------

Expenses
Sales and marketing 331,534 357,682 1,247,837 1,177,952
Research and
development, net
of investment tax
credits (Note 4) 8,422 202,566 195,552 694,811
General and
administrative 567,824 372,752 2,080,007 1,259,375
Amortization 120,081 68,658 437,871 235,204
------------ ------------ ------------ ------------
1,027,861 1,001,658 3,961,267 3,367,342
------------ ------------ ------------ ------------

Earnings from
operations 496,042 362,984 2,397,582 1,090,495

Other (income)
expenses
Interest income (1,145) (8,651) (1,737) (8,651)
Interest on long
term debt 27,686 - 96,670 83,070
Interest accreted
on convertible
debentures - - - 10,978
Foreign exchange
loss 7,876 8,382 29,206 68,859
------------ ------------ ------------ ------------
34,417 (269) 124,139 154,256
------------ ------------ ------------ ------------

Net earnings before
income taxes 461,625 363,253 2,273,443 936,239

Future income tax
expense (Note 4) 208,099 - 723,346 -
------------ ------------ ------------ ------------

Net earnings 253,526 363,253 1,550,097 936,239

Retained earnings
(deficit), beginning
of period 1,179,165 (480,659) (117,406) (1,053,645)
------------ ------------ ------------ ------------
Retained earnings
(deficit), end of
year $ 1,432,691 $ (117,406) $ 1,432,691 $ (117,406)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Earnings per share
for the period
(Note 7)
Basic $ 0.01 $ 0.02 $ 0.07 $ 0.06
Diluted $ 0.01 $ 0.02 $ 0.06 $ 0.05
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Weighted average
number of shares 21,927,485 21,918,993 21,927,485 16,397,889

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


TRANZEO WIRELESS TECHNOLOGIES INC.

Consolidated Statements of Cash Flows

Three Months Ended Year Ended
December 31 (Unaudited) December 31
2006 2005 2006 2005
------------------------------------------------------

Cash flows from
operating
activities:
Net income for
the period $ 253,526 $ 363,253 $ 1,550,097 $ 936,239
Adjustments to
reconcile net
loss to net cash
from operating
activities:
Amortization 120,081 68,658 437,871 235,204
Accreted interest
on convertible
debentures - - - 10,978
Interest on
capital leases 27,686 - 96,670 -
Future income
taxes (210,960) - (38,777) -
Stock based
compensation 158,277 - 158,277 -
-------------------------- --------------------------
348,610 431,911 2,204,138 1,182,421

Changes in working
capital assets and
liabilities
Prepaid expenses 15,474 (28,708) 1,833 (212,296)
Accounts receivable 187,942 (246,988) (648,207) (557,275)
Accounts payable
and accrued
liabilities 77,789 (611,908) 373,703 1,095,818

Inventories (201,518) (1,155,791) 9,677 (3,137,488)

-------------------------- --------------------------
Net cash flows used
in operating
activities 428,297 (1,611,484) 1,941,144 (1,628,748)

Cash flows from
investing activities
Additions to
property, plant
and equipment (498,676) (978,647) (2,024,303) (1,796,928)
Deferred development
expenses (236,041) (236,041)
-------------------------- --------------------------
Net cash flows used in
operating activities (734,717) (978,647) (2,260,344) (1,796,928)
-------------------------- --------------------------

Cash flows from
financing activities:
Repayment of capital
lease obligations (107,447) - (453,490)
Issuance of common
shares net 3,704,900 4,614,200

-------------------------- --------------------------
Net cash flows from
financing activities (107,447) 3,704,900 (453,490) 4,614,200

Net increase (decrease)
in cash (413,867) 1,114,769 (772,690) 1,188,524

Cash (Deficiency),
beginning of period 803,116 47,170 1,161,939 (26,585)

Cash, end of period $ 389,249 $ 1,161,939 $ 389,249 $ 1,161,939
-------------------------- --------------------------
-------------------------- --------------------------

CASH PAID FOR
Cash paid for
interest 27,686 - $ 96,670 $ 85,397
Cash paid for
income taxes -

SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS (NOTE 11)

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


TRANZEO WIRELESS TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

Year Ended December 31, 2006 and 2005

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 June 30, 2005, the Company entered into an agreement to amalgamate with its controlling shareholder, JAT Ventures Ltd. ("JAT"). On completion of the amalgamation, all common shares (6,883,700) of the Company previously held by JAT were held directly by the former shareholders of JAT. The amalgamation did not result in any change in the number of outstanding shares of the Company and did not result in a change to the Company's net assets.

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) Principles of Consolidation

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

(c) 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.

(d) Cash Equivalents

The Company considers cash equivalents to be cash as well as all highly liquid short-term investments with a maturity of 90 days or less at the date of acquisition.

(e) Inventories

Inventories consist of raw materials, work-in-progress and finished goods, and are recorded at the lower of cost or net realizable value. Cost includes direct costs and applicable overhead allocation for finished goods and work-in-progress.

(f) Amortization of property, plant and equipment

Property, plant and equipment are stated at cost less accumulated amortization. Amortization is provided at various rates designed to amortize the assets over the estimated useful lives. The amortization rates are follows:



Automobiles 30% declining balance
Computer equipment 20% declining balance
Computer software 100% declining balance
Equipment 10% declining balance
Warehouse and tenant Straight line over ten years
improvements


The carrying value of property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate the recoverable value may be less than the carrying amount. Recoverable value determinations are based on management's estimates of undiscounted and discounted future net cash flows expected to be recovered from specific assets or groups of assets through use or future disposition. Impairment charges are recorded in the period in which determination of impairment is made by management.

(g) Asset retirement obligations

CICA Handbook, section 3110, Asset retirement obligations requires, where determinable, recognition and measurement of liabilities related to legal obligations associated with the retirement of property, plant and equipment. Under this standard, such obligations are initially measured at fair value and subsequently adjusted for any changes resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. Any recognized asset retirement cost is to be capitalized to the related asset and amortized into earnings over time. Management has determined that there are no material asset retirement obligations that would be recorded under the standard.

(h) Revenue recognition

Revenue from product and service sales is recognized when the amount is fixed or determinable, title has transferred or initial services have been performed, and collection is reasonably assured.

(i) Cost of sales

Cost of sales includes materials, direct labour and overhead cost allocations associated with the manufacture of the Company's products.

(j) Research and development

Research costs are expensed as incurred. Development costs are expensed as incurred unless specific criteria for deferral and amortization under Canadian generally accepted accounting principals ("GAAP") have been met. The Company capitalizes the costs for development meeting the criteria up to the date the project has reached commercial production. Incidental recoveries and sales of test products prior to commercial production are offset against capitalized costs. Prior to commercial production management reviews the carrying value of capitalized development costs and the Company records impairment charges as appropriate whenever events or changes in circumstances indicate an impairment may have occurred.

(k) Foreign exchange

The Company's functional currency and reporting currency is the Canadian dollar. Foreign denominated monetary assets and liabilities are translated to their Canadian dollar equivalents using foreign exchange rates that prevailed at the balance sheet date. Non-monetary items are translated at historical exchange rates, except for items carried at market value, which are translated at actual or average rates of exchange during the year. Exchange gains or losses arising on foreign currency translation are included in the determination of operating results for the year.

(l) Earnings per Share

As required by Section 3500 of the CICA Handbook, the Company applies the treasury stock method in computing earnings per share. Pursuant to the treasury stock method, the Company determines the dilutive effect of stock options and other dilutive instruments. The treasury stock method assumes that proceeds received from in-the-money stock options are used to repurchase common shares at the average market price for the reporting period. Basic earnings per share figures have been calculated using the weighted average number of shares outstanding during the respective periods. Diluted earnings per share figures are equal to those of basic earnings per share for each year as the effects of the convertible debenture have been excluded since they are anti-dilutive.

(m) Future income taxes

The liability method of tax allocation is used in accounting for income taxes. Under this method an enterprise would recognize a future income tax liability whenever recovery or settlement of the carrying amount of an asset or liability would result in future income tax outflows. Similarly, an enterprise would recognize a future income tax asset whenever recovery or settlement of the carrying amount of an asset or liability would generate future income tax reductions. In the case of unused tax losses, income tax reductions, and certain items that have a tax basis but cannot be identified with an asset or liability on the balance sheet, the recognition of future income tax benefits is determined by reference to the likely realization of a future income tax reduction.

(n) Stock based compensation

The Company reports and records all stock-based transactions following the guidelines of CICA Handbook Section 3870 using a fair-value methodology for recording all stock-based compensation to employees or directors and consultants. The fair value of options and other stock based awards to employees or consultants, issued or altered in the period, are determined using the Black-Scholes option pricing model. The fair value of stock options and warrants are determined at the date of grant and charged to operations over the period of vesting.

(o) Related party transactions

Related party transactions have been recorded at their exchange amount that is the amount of consideration agreed to by both parties which, unless otherwise indicated, approximates fair market value.

(p) Research and development tax credit

Research and development tax credits are accounted for using the cost reduction method. Accordingly, tax credits are recorded as a reduction of the related expenses or capital expenditures when recoverability is reasonably assured.

(q) Risk Management

Currency risk

A significant proportion of the Company's business is conducted in the United States and the majority of its purchases are from sources outside of Canada. The Company does not currently hedge its foreign currency exposure and therefore may be at risk for foreign currency exchange fluctuations.

Technology risk

The Company operates in an environment primarily driven by electronic technologies. Equipment, inventories and operations are subject to risk of obsolescence resulting from technological advancements.

(r) Financial Instruments

The fair values of the Company's cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable approximate their carrying amounts due to their immediate or short-term maturity.

Management has determined that the carrying amounts for financial instruments approximate their fair value.

3. INVENTORIES



--------------------------------------------------------------------------
December 31, December 31,
2006 2005
--------------------------------------------------------------------------
$ $
Raw materials 3,412,308 3,735,645
Finished goods 795,966 482,756
--------------------------------------------------------------------------

4,208,274 4,218,401
--------------------------------------------------------------------------
--------------------------------------------------------------------------


4. FUTURE INCOME TAXES

(a) The tax effects of temporary differences that give rise to significant future tax assets and future tax liabilities at December 31, 2006 and December 31, 2005 are presented below:



--------------------------------------------------------------------------
December 31, December 31,
2006 2005
--------------------------------------------------------------------------
$ $

Current portion of future income tax assets
IPO Financing costs (See Note 6) 65,461 -
Research and development non-refundable
investment tax credits 347,268 -
--------------------------------------------------------------------------
412,729 -
--------------------------------------------------------------------------

Long term portion of future income tax
assets (liabilities)
Property, Plant and Equipment (350,549) (48,716)
IPO Financing costs (See Note 6) 161,980 331,379
Scientific research and experimental
development expenditure pool carryforwards - 115,700

Research and development non-refundable
investment tax credits 183,368 160,529
--------------------------------------------------------------------------

(5,201) 558,892
--------------------------------------------------------------------------
407,528 558,892
Valuation allowance - (558,892)
--------------------------------------------------------------------------
407,528 -
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The net future tax asset is calculated at a rate of 34.12% (2005 - 25.9%) to reflect substantially enacted tax rate changes for federal and provincial taxes, based on estimates of when temporary differences will reverse.

(b) The Company's provision for income tax is comprised of:



-------------------------------------------------------------------------
December 31, December 31,
2006 2005
-------------------------------------------------------------------------
$ $
Provision for income taxes based on combined
basic Canadian, federal and provincial
income tax rate of 34.12% (2005 - 25.9%) 775,699 242,486
Increase (decrease) in tax resulting from:
Non-capital losses utilized - (242,486)
Stock based compensation expense 50,592
Scientific research and experimental
development expenditure pool carryforwards (115,700) -

Other 12,755 -
-------------------------------------------------------------------------

723,346 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------


(c) 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 $1,029,283 of tax credits which was applied to reduce research and development expenses in the current year.

5. PROPERTY, PLANT AND EQUIPMENT



---------------------------------------------------------------------------
December 31, 2006 2005
--------------------------------------------
Accumulated Net Book Net Book
Cost amortization Value Value
---------------------------------------------------------------------------
$ $ $ $
Automobile 53,588 22,173 31,415 28,959
Computer equipment 692,136 116,201 575,935 521,281
Computer software and website 667,925 127,012 540,913 181,460
Equipment 4,306,424 443,250 3,863,174 927,042
Warehouse and tenant
improvements 1,002,718 189,248 813,469 737,402
---------------------------------------------------------------------------
6,722,791 897,884 5,824,907 2,396,144
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Included in equipment above is equipment acquired under capital leases as follows:



---------------------------------------------------------------------------
December 31, 2006 2005
--------------------------------------------
Accumulated Net Book Net Book
Cost amortization Value Value
---------------------------------------------------------------------------
$ $ $ $
Equipment (See Note 8) 1,842,331 46,272 1,796,059 -
---------------------------------------------------------------------------
---------------------------------------------------------------------------


6. 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, 2004 11,913,700 778,340

Issued for cash by private placements at
$1.00 per share 909,300 909,300

Issued for asset acquisition 250,000 62,500
Conversion of convertible debentures 6,461,660 1,653,817
Initial public offering 2,392,825 4,785,650
Agency fess (358,924)
Agency warrant (134,289)
Financing costs (721,826)
-------------------------
Balance at December 31, 2005 21,927,485 6,974,568

Tax benefit recognized on share financing
charges (i) 368,751
-------------------------

Balance at December 31, 2006 21,927,485 7,343,319
-------------------------
-------------------------

(i) The tax benefit recognized relates to costs incurred in 2005 in
respect of the Company's initial public offering. Under Canadian tax
regulations these costs are deductible over a five year period and
accordingly a timing basis difference gives rise to a potential future
tax benefit. The potential future tax asset associated with this basis
difference was offset by a 100% valuation allowance in the prior year
as sufficient likelihood of future profitability to recognize the
benefit could not be established at that time. In the current year the
company has reversed the valuation allowance and recognized the
associated future tax asset and recorded the benefit as a capital
transaction.


Escrow Shares

Under the terms of an escrow agreement signed during the 2005 year, a total of 6,755,944 shares ("Escrowed Securities") were subject to escrow restrictions. The Escrowed Securities are subject to an 18 month automatic time release escrow. Twenty-five percent of the Escrowed Securities were released on the date the Company's common shares were listed on the TSX, with the balance release in three equal amounts at six month intervals.

As at December 31, 2006, 1,688,977 shares remained in escrow (December 31, 2005 - 5,066,995).

Stock Options

In May 2005, the Company adopted a stock option plan (the "Plan") having the following significant terms: The Plan permits the Company to grant stock options to directors, executive officers, employees and other service providers. The maximum number of options that may be granted under the Plan shall not exceed 10% of the then issued and outstanding common shares. The exercise price of stock options granted under the Plan, as determined by the Board of Directors, shall not be less than the "market price" of the shares (as defined by the policies of the Toronto Stock Exchange ("TSE") or, if the shares are no longer listed for trading on the TSE, then such other exchange or quotation system on which the shares are listed or quoted for trading. Upon expiry of an option, or in the event an option is otherwise terminated for any reason, without having been exercised in full, the number of shares in respect of the expired or terminated option shall again be available for the purposes of the Plan. All options granted under the Plan may not have an expiry date exceeding ten years from the date on which the Board of Directors grant and announce the granting of the option. If the option holder ceases to be a director of the Company or its subsidiaries or ceases to be employed by the Company or its subsidiaries (other than by reason of death or cause), as the case may be, then the option granted shall expire no later than the 90th day following the date that the option holder ceases to be a director or ceases to be employed by the Company or its subsidiaries, subject to the terms and conditions set out in the Plan. In the event of dismissal of the option holder from employment or service for cause, all options held by the option holder, whether or not vested at the date of dismissal, will immediately terminate without any right of the option holder to exercise any of the options. Options granted pursuant to the Plan are non-transferable and may be subject to vesting provisions determined by the Board of Directors.

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, 2004 - -
Granted 1,506,000 1.00
Exercised - -
Expired - -
Cancelled - -
---------------------------------------------------------------------------

Balance as at December 31, 2005 1,506,000 1.00
Granted 320,000 2.02
Exercised - -
Expired - -
Cancelled (118,000) 1.17
---------------------------------------------------------------------------

Balance, end of period 1,708,000 1.18
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The weighted average remaining life of the options as at December 31, 2006 was 9.75 (2005 - 8.86).

A total of 1,506,000 stock options were granted on May 30, 2005 to employees of the Company, prior to the company being a publicly traded entity. The options vest at the rate of 25% every three months, starting 15 months after October 4, 2005, and expire on October 4, 2015. The total fair value of these options at the date of grant was estimated to be $259,611 using the Black-Scholes option pricing model and the following assumptions: an expected life of three years, a risk free interest rate of 3.5% and expected volatility of 20%. The fair value amount adjusted for expiry and new grants will be expensed to operations upon vesting, all of which occurs in the 2007 fiscal year.

In 2006 the company granted a total of 320,000 share purchase options to employees with exercise prices ranging from $2.00 to $2.25 per share for a term of ten years. The options vest 25% every three months, starting 15 months after the date of grant, and expire in 10 years. The total fair value of these options at the date of grant was estimated to be $120,404 using the Black-Scholes option pricing model with an expected life of three years, a risk free interest rate of 3.5% and an expected volatility of 55%, and will be expensed upon vesting of the underlying options.

Share Purchase Warrants

The following table summarizes outstanding warrants:



--------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Price Remaining Life
Warrants $ (Years)
--------------------------------------------------------------------------
Balance at December 31, 2004 - - -

Warrants from initial public
offering 1,196,412 $ 2.50 0.25
Agent warrants 298,503 $ 2.00 0.76
--------------------------------------------------------------------------

Balance at December 31, 2005
and 2006 1,494,915 $ 2.40 0.36
--------------------------------------------------------------------------
--------------------------------------------------------------------------


7. EARNINGS PER SHARE

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



--------------------------------------------------------------------------
December 31, December 31,
2006 2005
--------------------------------------------------------------------------
$ $
Net income available to shareholders 1,549,460 936,239

Impact on assumed conversion of convertible
debentures
Interest paid on convertible debt - 83,070
Interest accreted on convertible debt - 10,978
--------------------------------------------------------------------------
1,549,458 1,030,287
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Weighted average shares outstanding 21,927,485 16,397,889
Effect of dilutive securities and stock
options and warrants 3,419,990 3,000,915
--------------------------------------------------------------------------
25,347,475 19,398,804
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Basic earnings per share $ 0.07 $ 0.06
Diluted earnings per share $ 0.06 $ 0.05
--------------------------------------------------------------------------
--------------------------------------------------------------------------


8. 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 659,105
2008 550,919
2009 461,032
2010 85,416
Total minimum lease
payments as at
December 31 2006 1,756,473
Amount representing
interest at 13.5% (270,962)
--------------
Balance of the obligation 1485,511
Current Portion 513,843
--------------
Long term portion 971,668
--------------
--------------


9. RELATED PARTY TRANSACTIONS

The Company paid or accrued total rent of $248,188 in the current year ($128,247 December 31, 2005) to companies owned by the President of the Company. Included in lease commitments (Note 8) is $1,200,940 that will be payable to these related companies over the next five years.

The Company purchased raw materials of $2,107,276 (2005 - 1,468,887) in the current year from a company whose chief executive officer is a director of the Company. Included in accounts payable is $418,948 (2005 - 115,494) payable to the same related company.

10. SEGMENTED INFORMATION



--------------------------------------------------------------------------
Canada US Other Total
$ $ $ $
--------------------------------------------------------------------------
December 31, 2006
Sales 3,322,748 12,537,414 2,288,027 18,148,189
Property, plant and
equipment 5,824,907 - - 5,824,907

December 31, 2005
Sales 2,603,206 10,961,121 999,633 14,563,960
Property, plant and
equipment 2,396,144 - - 2,396,144


11. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS

During the years ended December 31, 2006 and 2005, the Company entered into certain noncash transactions that have been excluded from the statement of cash flows as follows:

Year ended December 31, 2006:

a. Recorded stock based compensation expenses in the amount of $158,277 with respect to the stock options issued during the year.

b. Recorded the future income tax effect relating to the future deductions of the share issue costs recorded in the prior year. The tax benefit results in an increase in the share capital balance of $368,751.

Year ended December 31, 2005:

a) Issued 250,000 common shares for the acquisition of E-Net at a deemed price per share of $0.25 representing a total value of $62,500.

b) Issued 6,461,660 common shares at $0.25 per share for conversion of outstanding debentures having a face value of $1,653,817.

c) Issued 298,503 agents warrants in connection with the initial public share offering with an estimated value of $134,289 that has been charged to financing costs and credited to contributed surplus.

12. SUBSEQUENT EVENTS

Subsequent to December 31, 2006 the Company entered into the following transactions:

(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
--------------
--------------


The technology / source code asset cost will be recognized as a percentage of revenue generated from the fully commercialized product over a period of ten years. Patents will be amortized on a straight line basis over twenty years.

(b) On February 14, 2007 the Company completed a share offering of 3,200,000 units at $2.50 per unit for total proceeds of $8,000,000, and net proceeds of $7,449,000.

The Company has agreed to grant its agents Orion Securities Inc., Raymond James Ltd. and Paradigm Capital Inc. (collectively, the "Agents") an over-allotment option to purchase at the offering price a number of additional units equal to 15% of the number of units issued under the offering. The over-allotment option shall be exercisable for 30 days following the closing of the offering. The agents will receive a cash commission of 6% of the gross proceeds of the offering, including the over-allotment option. In addition, the Company has granted the Agents compensation warrants to purchase 192,000 common shares at a price of $2.50 per share, exercisable for a period of 12 months from the date of closing.

(c) As of March 15, 2007, Agents warrants exercised were 2,333 shares at $2.20 for total proceeds of $5,133.

Contact Information