Cygnal Technologies Corporation (TSX:CYN) ("Cygnal" or "the Company"), a leading Canadian provider of network communication solutions, today announced its financial results for the three months and the year ended December 31, 2005.

2005 Summary

- Revenues were $125.8 million in fiscal year 2005, down from

$140.1 million in 2004.

- Network Operations revenues increased $1.9 million to $75.9 million,

while Communications Services revenues decreased $16.2 million to

$49.9 million.

- Gross margin was 21.4% in 2005, up from 20.8% the prior year.

- Selling, general and administrative expenses, prior to severance

costs, were $36.8 million, compared to $34.3 million the previous

year.

- EBITDA was a loss of $10.8 million, compared to an EBITDA loss of

$7.0 million in 2004.

- Cash used for operating activities was $1.8 million in 2005 versus

$7.7 million in 2004, an improvement of $5.9 million.

- Net loss was $27.6 million, or $1.02 per share, compared to a loss of

$7.2 million or $0.29 per share the prior year.

- Net loss for the year was impacted by a number of non-cash charges,

including an $8.0 million goodwill impairment charge, a $5.2 million

provision related to the write-down of the future income tax asset,

and increases in allowances of $0.5 million. Cash charges impacting

net loss included $1 million of severance costs.

- The Company's debt was successfully restructured through a series of

financing arrangements completed in September 2005.

- In the fourth quarter Cygnal appointed a new President and CEO, Jos

Wintermans, and a new Chief Financial Officer, James Shannon.

"Our 2005 results are obviously disappointing, but I believe the difficulties are largely behind us," said Jos Wintermans, President and CEO, Cygnal Technologies. "In spite of these difficulties our Network Operations revenue actually grew, and the revenue drop in our Communications Services division was the result of a decrease in a non-strategic, low margin part of its business. The core business in each segment was flat or growing on the year."

Mr. Wintermans continued: "I have been encouraged by the results of our Productivity Improvement Programme ("PIP") since the fourth quarter of 2005. We have reduced overhead in our Network Operations business. With a renewed focus on execution and Cygnal's existing core strengths and capabilities, I believe we are very well positioned to capitalize on market opportunities in 2006."

Fiscal 2005 Financial Review

Cygnal's revenues for year ended December 31, 2005 were $125.8 million, a decrease of $14.3 million or 10.2% from 2004 revenues of $140.1 million. Revenue in Cygnal's Network Operations segment grew by $1.9 million to $75.9 million, while revenue in the Communications Services segment decreased by $16.2 million to $49.9 million. The major cause of the decrease in Communications Services revenue was a reduced sales volume of certain low margin, discounted telecom hardware products. Network Operations represented 60.3% of 2005 revenues, compared to 52.8% in 2004. Communications Services revenues represented 39.7% of the 2005 total, compared to 47.2% the previous year.

Gross profit was $26.9 million in 2005, representing a $2.2 million decline largely attributable to the decrease in sales. As a percentage of revenue, gross margin was 21.4% in 2005, up from 20.8% a year earlier. The main driver of improved gross margin was the revenue mix within Communications Services, particularly a decrease in lower margin telecom hardware sales and an increase in higher margin wireless products.

SG&A expenses, exclusive of severance costs, increased $2.5 million to $36.8 million in 2005. The increase was largely due to higher professional services fees, including consulting fees related to the PIP, and higher compensation costs. In addition, the Company recorded $1.0 million of severance charges in 2005, compared to $1.8 million in 2004.

Cygnal recorded an EBITDA loss of $10.8 million in 2005, compared to an EBITDA loss of $7.0 million the previous year. The decline in EBITDA resulted from lower gross profit and increased SG&A expenses.

The term "EBITDA" refers to earnings before deducting interest, taxes, depreciation and amortization. The Company believes that EBITDA is a measure of how well the Company's operations are performing. The Company believes that EBITDA is useful supplemental information as it provides an indication of the results generated by the Company's continuing business activities prior to taking into consideration how those activities are financed and taxed, and also prior to taking into consideration asset depreciation. EBITDA is not a recognized measure under GAAP and, accordingly, investors are cautioned that EBITDA should not be construed as an alternative to net earnings or loss determined in accordance with GAAP as an indicator of the financial performance of the Company or as a measure of the Company's liquidity and cash flows. The Company's method of calculating EBITDA may differ from other issuers and, accordingly, EBITDA may not be comparable to similar measures presented by other issuers.

Cygnal has future tax assets related to losses carried forward and other temporary differences, which are subject to periodic recoverability assessments. As the Company has recorded losses in the past three years, it no longer meets the criteria required to recognize a future tax asset. Accordingly, the Company has increased its valuation allowance against the related future tax asset and has correspondingly recorded a net non-cash tax provision of $5.2 million for the year ended December 31, 2005. The tax losses of $22.2 million remain available to the Company to offset future taxes payable.

Cygnal assesses the possible impairment of goodwill and other intangible assets when events indicate that it may not be possible to recover the carrying value and, in any event, with respect to goodwill, annually at November 30. If the net recoverable value of the asset is less than the carrying value, the difference is recorded as an impairment charge. This year's assessment indicated that there was an impairment of its goodwill. While management believes in its core business and the ability of the business to generate profits in the future, the current assessment models indicate an impairment charge of $8.0 million is required. Goodwill has no tax value and is not an asset used in any of the Company's borrowing bases or covenants.

Net loss was $27.6 million in 2005, an increase of $20.4 million from a loss of $7.2 million in 2004. The loss per share, basic and diluted, was $1.02 in 2005, compared to a loss per share of $0.29 the previous year.

Fourth Quarter 2005 Financial Review

Revenue for the three month period ended December 31, 2005 was $31.4 million, a decrease of $3.5 million from $34.9 million recorded the previous year. Network Operations revenue was $18.2 million, down from $20.4 million in Q4 2004. Revenue in this segment was lower than expected primarily due to a reduction in scope in the Niagara Regional Broadband Network (NRBN) project. Communications Services revenue declined by $1.3 million to $13.2 million, due to a reduction in sales of certain low margin, discounted telecom hardware products.

Gross profit in the fourth quarter of 2005 was $5.9 million, representing 18.8% of revenues, compared to $8.6 million or 24.6% of revenues in the same period in 2004. Gross profit was negatively impacted by the reduced Network Operations sales relative to semi-fixed labour costs, and by the NRBN scope reduction. In addition, the Company increased its inventory allowance and established a warranty provision, and both amounts were included in cost of goods sold for Q4 2005.

SG&A expenses were $11.1 million in the fourth quarter, an increase of $2.5 million from the prior year. The change is primarily due to increased termination costs of $0.7 million, $0.6 million of costs related to the PIP in the Network Operations business, and $0.2 million of additional allowance for doubtful accounts.

EBITDA loss in Q4 2005 was $5.2 million, compared to breakeven EBITDA a year earlier. The decrease primarily resulted from the $2.7 million decrease in gross profit and the $2.5 million increase in SG&A expenses. Excluding costs related to the execution of the PIP, EBITDA loss for the quarter was $3.9 million, below the Company's November 14, 2005 guidance of breakeven EBITDA on the same basis.

Net loss was $22.2 million or $0.82 per share in the fourth quarter, compared to a loss of $0.8 million or $0.03 per share in the fourth quarter of 2004. The increase in net loss was primarily due to non-cash charges including an $8.0 million charge for goodwill impairment, a $7.7 million provision relating to write-down of future income tax assets and increases in allowances.

Liquidity and Resources

Cash used in operating activities was $1.8 million in fiscal 2005, compared to $7.7 million of cash used the previous year, an improvement of $5.9 million. The Company used $1.6 million of cash for investing activities for the year, compared with $1.8 million of cash used for investing in 2004. Cash provided by financing activities totaled $4.7 million, compared with cash provided of $9.5 million in 2004.

Cygnal's unrestricted cash and equivalents was $0.7 million at December 31, 2005, compared to $nil a year earlier.

In the third quarter of 2005, Cygnal completed a debt restructuring that enabled the Company to pay out its operating line of credit and enter into two separate long-term financing agreements. Under the Laurus Master Fund Ltd. financing arrangement, the Company's Network Operations business has access to US$9.5 million, subject to certain borrowing base restrictions and covenants, of which the Company had drawn on US$9.3 million as at December 31, 2005. Under the financing arrangement with LaSalle Business Credit, a division of ABN AMRO Bank, N.V. Canada Branch, the Company's Communications Services business has access to a maximum of $15 million of a revolving loan of which the Company had used $8.1 million as at December 31, 2005 and which is subject to certain borrowing base restrictions and covenants. LaSalle has also provided a two year term loan of $2.0 million repayable in 24 equal installments and subject to certain terms and conditions.

Subsequent to the end of the fiscal year, Laurus agreed to provide an additional revolving loan of up to US$5 million bearing interest at prime plus 2%. Cygnal intends to use the proceeds for general working capital purposes.

Business Outlook

Cygnal has adopted a policy that it will not issue revenue or income forecasts. Management's goal is to return the Company's Network Operations segment to sustainable profitability and increase the profitability of its Communications Services segment. It believes the core business model is sound and the Company operates in exciting industry segments that have significant opportunities for growth.

Further details on Cygnal's results and business outlook can be found in the Company's Consolidated Financial Statements and Management's Discussion and Analysis to be filed on or before March 31, 2006 at www.sedar.com.

Notice of Conference Call

Cygnal's senior management team will hold an investor conference call to further discuss the Company's year end financial results today, March 28, 2006 at 9:00 am (EST). To participate, dial 416-644-3426 or 1-866-250-4910. A taped replay will be available until midnight on Tuesday, April 4, 2006 at 416-640-1917 or 1-877-289-8525, reference number 21181989. The call will be webcast live and archived at www.newswire.ca and at www.cygnal.ca.

About Cygnal

Cygnal Technologies Corporation is a leading Canadian provider of network communication solutions including the design, integration, installation, maintenance and management of wired and wireless communication networks. The Company offers a full range of technologies and solutions for service providers and enterprise customers. Cygnal has expertise in voice, video and data solutions over traditional and next generation converged technologies.

Cygnal Technologies Corporation is headquartered in Markham, Ontario and supports end-user customers and business partners through 12 offices across Canada, including Vancouver, Edmonton, Calgary, Winnipeg, London, Burlington, Toronto, Ottawa, Montreal, Quebec City and Halifax. Cygnal common shares are listed on the Toronto Stock Exchange under the symbol CYN.

No stock exchange or regulatory authority has approved or disapproved of information contained herein. Certain information included in this news release is forward-looking and is subject to important risks and uncertainties. When used in this news release, the words "believe", "intend", "estimate", "expect", "plan", "anticipate" and similar expressions are intended to identify forward-looking statements, although not all forward- looking statements contain such words. These forward-looking statements are based on current expectations. The results, performance or events predicted in these statements may differ materially from actual results, performance or events. Factors which could cause results or events to differ from current expectations include, among other things, the ability of the Company to meet its obligations under its debt facilities , the impact of price and product competition, the ability of the Corporation to complete the integration of the operations and technologies of acquired businesses in an effective manner, general industry and market conditions and growth rates, the impact of consolidations in the telecommunications industry, and stock market volatility. For additional information with respect to certain of these and other factors, see the reports filed by Cygnal Technologies with applicable Canadian securities administrators. Cygnal Technologies disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

CYGNAL TECHNOLOGIES CORPORATION

Consolidated Balance Sheets

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2005 2004

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

ASSETS

CURRENT

Cash and cash equivalents $ 728,928 $ -

Restricted cash 575,691 -

Accounts receivable 23,881,898 29,113,391

Inventory 19,778,272 20,749,874

Income taxes recoverable - 216,315

Prepaid expenses and deposits 875,041 1,698,527

Future income taxes - 1,423,030

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45,839,830 53,201,137

DEFERRED FINANCING CHARGES 1,356,188 -

FUTURE INCOME TAXES - 4,222,909

CAPITAL ASSETS 4,996,247 5,204,027

GOODWILL 21,299,990 29,276,926

INTANGIBLE ASSETS 61,125 152,937

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$ 73,553,380 $ 92,057,936

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LIABILITIES

CURRENT

Bank indebtedness $ - $ 14,875,735

Accounts payable and accrued liabilities 24,457,645 22,643,708

Income taxes payable 120,367 -

Current portion of long-term debt 1,331,890 579,699

Deferred revenue 5,049,665 4,246,324

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30,959,567 42,345,466

LONG-TERM DEBT 18,821,785 580,665

DEFERRED GAIN ON SALE-LEASEBACK TRANSACTION 1,072,063 1,220,496

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50,853,415 44,146,627

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SHAREHOLDERS' EQUITY

SHARE CAPITAL 64,545,691 64,700,081

WARRANTS AND CONVERTIBLE NOTE OPTIONS 2,258,788 734,820

CONTRIBUTED SURPLUS 1,708,239 725,492

DEFICIT (45,812,753) (18,249,084)

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22,699,965 47,911,309

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$ 73,553,380 $ 92,057,936

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CYGNAL TECHNOLOGIES CORPORATION

Consolidated Statements of Earnings and Deficit

For the periods ended December 31, 2005 and 2004

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Three months ended Twelve months ended

December 31 December 31

2005 2004 2005 2004

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

$ $ $ $

REVENUE 31,412,519 34,870,810 125,773,084 140,065,740

COST OF SALES 25,488,189 26,308,290 98,875,813 110,973,805

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5,924,330 8,562,520 26,897,271 29,091,935

SELLING,

GENERAL AND

ADMINISTRATIVE

EXPENSES 10,456,039 8,554,560 36,776,288 34,284,841

SEVERANCE COSTS 720,026 - 963,198 1,780,652

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(5,251,735) 7,960 (10,842,215) (6,973,558)

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Amortization

of capital

and intangible

assets 551,837 544,049 1,942,893 1,863,721

Interest expense 751,084 242,070 1,670,264 977,374

Goodwill

impairment 7,976,936 - 7,976,936 -

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9,279,857 786,119 11,590,093 2,841,095

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LOSS BEFORE

INCOME TAXES (14,531,592) (778,159) (22,432,308) (9,814,653)

PROVISION FOR

(RECOVERY OF)

INCOME TAXES 7,670,000 60,818 5,131,361 (2,599,666)

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NET LOSS (22,201,592) (838,977) (27,563,669) (7,214,987)

DEFICIT,

BEGINNING OF

PERIOD (23,611,161) (17,410,107) (18,249,084) (11,034,097)

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DEFICIT, END

OF PERIOD (45,812,753) (18,249,084) (45,812,753) (18,249,084)

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BASIC LOSS

PER SHARE ($0.82) ($0.03) ($1.02) ($0.29)

DILUTED LOSS

PER SHARE ($0.82) ($0.03) ($1.02) ($0.29)

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CYGNAL TECHNOLOGIES CORPORATION

Consolidated Statement of Cash Flows

For the periods ended December 31, 2005 and 2004

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Three months ended Twelve months ended

December 31 December 31

2005 2004 2005 2004

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NET (OUTFLOW)

INFLOW OF CASH

RELATED TO THE

FOLLOWING

ACTIVITIES

OPERATING

Net loss $ (22,201,592) $ (838,977) $ (27,563,669) $ (7,214,987)

Adjustments

for non-cash

items

Amortization

of capital

assets and

intangible

assets 551,837 544,049 1,942,893 1,863,721

Stock-based

compensation 149,424 118,494 659,311 455,534

Amortization

of cash

paid deferred

financing

charges 73,523 - 73,523 -

Amortization

of non-cash

deferred

financing

charges 49,791 - 49,791 -

Impairment of

goodwill 7,976,936 - 7,976,936 -

Accretion of

convertible

note discount 99,951 - 99,951 -

Gain on sale

of assets (74,319) (22,644) (74,319) (31,050)

Future income

taxes 7,620,000 57,517 5,155,939 (2,832,220)

Amortization

of deferred

gain on

sale-leaseback

transaction (37,103) (37,110) (148,433) (148,434)

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(5,791,552) (178,671) (11,828,077) (7,907,436)

Changes in

non-cash

working

capital

items 5,513,320 863,722 9,980,541 184,234

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Cash provided

by (used for)

operating

activities (278,232) 685,051 (1,847,536) (7,723,202)

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INVESTING

Business

acquisitions

(net of cash

acquired) - (100,000) - (566,241)

Acquisition

of capital

assets (459,496) (67,283) (1,686,156) (1,862,082)

Proceeds on

sale of assets 117,174 106,372 117,174 611,935

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Cash used for

investing

activities (342,322) (60,911) (1,568,982) (1,816,388)

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FINANCING

Proceeds from

long-term

debt 2,258,471 (158,509) 18,893,360 (2,945,180)

Deferred

financing

costs (53,062) - (882,011) -

Issuance of

common shares,

broker purchase

warrants and

convertible

note options 163,374 (141,926) 1,585,523 8,794,157

(Decrease)

increase in

operating line

of credit (919,371) (323,705) (14,875,735) 3,690,613

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Cash provided

by (used for)

financing

activities 1,449,412 (624,140) 4,721,137 9,539,590

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NET INCREASE IN

CASH POSITION

FOR THE YEAR 828,858 - 1,304,619

Cash position,

beginning of

period 475,761 - - -

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Cash position,

end of

period $ 1,304,619 $ - $ 1,304,619 $ -

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%SEDAR: 00000748E

For further information: please contact: James Shannon, Chief Financial Officer, Cygnal Technologies Corporation, (905) 944-6572, jshannon@cygnal.ca; Jeff Codispodi, Investor Relations, The Equicom Group Inc., (416) 815-0700 ext. 261, jcodispodi@equicomgroup.com; To request a free copy of this organization's annual report, please go to http://www.newswire.ca and click on Tools for Investors.

Source: newswire