Firan Technology Group Corporation
TSX : FTG

Firan Technology Group Corporation

September 28, 2005 16:55 ET

Firan Technology Group Announces Profitable and Substantially Improved Quarterly Results

TORONTO, ONTARIO--(CCNMatthews - Sept. 28, 2005) - Firan Technology Group Corporation (TSX:FTG) today announced the third quarter results for the period ending August 26, 2005.

The Company had operating earnings before tax in the quarter of $293,000, an improvement from the pre-tax operating profit of $166,000 in the second quarter of 2005. Included in operating earnings for the quarter is a charge of $385,000 related to severances in the FTG Circuits Toronto segment to right-size the business, and a recovery of $360,000 from a customer for costs incurred in prior quarters. The performance for the quarter resulted from substantially improved yields for FTG Circuits Toronto compared to the first and second quarter of 2005, and strong performance in FTG Circuits Chatsworth. FTG Aerospace continues to achieve positive performance, although sales and profit were less than the third quarter of 2004 and the second quarter of 2005.



Third Quarter Results (three months ended August 26, 2005
compared with three months ended August 27, 2004)

Q3 2005 Q3 2004
----------------------------

Sales $13,218,000 $13,361,000
Operating Earnings Before Tax $293,000 $758,000
Net Earnings $119,000 $758,000
Earnings per share - basic $0.01 $0.05
Earnings per share - diluted $0.01 $0.04

Year to Date Results (nine months ended August 26, 2005
compared with nine months ended August 27, 2004)

YTD 2005 YTD 2004
----------------------------

Sales $39,411,000 $36,177,000
Operating Loss Before Tax ($472,000) ($164,000)
Net Loss ($1,045,000) ($164,000)
Loss per share
- basic & diluted ($0.06) ($0.01)


Net sales for the third quarter of 2005 were $13,218,000, a decrease of 1% compared with $13,361,000 for the third quarter of 2004 and a 7% decrease over the second quarter of 2005. The strength in the Canadian dollar versus the prior year reduced reported sales for the quarter by approximately $1,000,000 and $2,900,000 on a year to date basis. On a year-to-date basis, net sales were $39,411,000, an increase of $3,234,000 or 9% over the comparable period in 2004.

The combined Circuits businesses' net sales for the quarter were $10,964,000, an increase of $163,000 or 2% over the prior year. The strength of the Canadian dollar compared to the prior year reduced sales by more than $900,000. Net sales recorded from the Chatsworth facility were $3,327,000 for the quarter. Although reported sales at the Toronto facility were lower than the prior year and the second quarter, yields improved substantially, resulting in substantially improved operating results. On a year-to-date basis, net sales for the Circuits segment were $32,659,000, an increase of $2,858,000 or 10% over the comparable period in 2004. The strength of the Canadian dollar has reduced reported sales for the Circuits' segment by approximately $2,500,000 on a year to date basis.

In the quarter, FTG Circuits Toronto renewed its agreement with a major long-term customer for a period of 3 years. This new agreement includes scope from additional divisions as compared to the previous agreement and is valued at $20 million to $30 million over the period.

Aerospace sales for the current quarter at $2,254,000 decreased 12% or were $306,000 lower than the same quarter last year. Shipments for Aerospace were lower for the quarter due to a shutdown in the month of August, change in the mix of products and a significant effort to support a key customer work through technical challenges on an important military product. However, Aerospace maintains a strong order backlog, and anticipates strong sales and shipment levels for the balance of the year. The book to bill ratio for Aerospace was 1.10 to 1 during the third quarter of 2005. On a year to date basis, net sales for Aerospace were $6,751,000 compared to $6,376,000 for the comparable period in 2004, an increase of 6%.

Net income for the third quarter was $119,000 or earnings of $0.01 per share ($0.01 per diluted share) as compared with net earnings of $758,000 or $0.05 per share ($0.04 earnings per diluted share) in the same period in 2004.

The balance sheet remained strong at the end of the third quarter. Net working capital at August 26, 2005 was $5,564,000 as compared to $6,026,000 at November 30, 2004. The slight decrease in working capital results from reclassification of over $2 million of debt to current liabilities, as it has less than 12 months to maturity, and is in the process of being renegotiated. In addition, the Company had a strong cash position at the end of the quarter with cash on hand of $1,943,000 and was undrawn on its' US and Canadian operating lines.

"While we have come through some difficult times, I am pleased with the positioning of our businesses for the future. We have substantially increased yields and reduced costs for FTG Circuits Toronto, and have dramatically improved operating results. FTG Circuits Chatsworth continues its strong performance, as it has since we acquired the business. The Aerospace business continues to benefit from strong demand, and we continue to increase resources to handle the demand.", stated Mr. Brad Bourne, President and Chief Executive Officer.

The Company will host a live conference call on Thursday September 29, 2005 at 8:30am (EDT) to discuss the results of the third quarter of 2005.

Anyone wishing to participate in the call should dial 416-695-9722 or 1-888-333-4519 and identify that you are calling into the FTG conference call. The Chairperson is Bradley Bourne. A replay of the call will be available until October 6, 2005. The number to call for a rebroadcast is 416-695-5275 or 1-866-518-1010.

ABOUT FIRAN TECHNOLOGY GROUP CORPORATION

FTG is an aerospace and defence electronics product and subsystem supplier to the North American marketplace. FTG has two operating units.

FTG Circuits is a manufacturer of high technology/high reliability printed circuit boards. Our customers are leaders in the aviation, defence, and high technology industries. FTG Circuits has operations in Toronto, Ontario and Chatsworth, California.

FTG Aerospace manufactures illuminated cockpit panels, keyboards and sub-assemblies for original equipment manufacturers of avionics products as well as airframe manufacturers.

The Company's shares are traded on the Toronto Stock Exchange under the symbol FTG.

This news release may contain certain forward-looking statements. Such statements are based on the current expectations of management of the Company and inherently involve numerous risks and uncertainties, known and unknown, including economic factors and the Company's industry, generally. The preceding list is not exhaustive of all possible factors. Such forward-looking statements are not guarantees of future performance and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the Company. The reader is cautioned to consider these and other factors carefully when making decisions with respect to the Company and not place undue reliance on forward-looking statements. The Company does not undertake and has no specific intention to update any forward-looking statements, written or oral that may be made from time to time by or on its behalf whether as a result of new information, future events or otherwise.



FIRAN TECHNOLOGY GROUP CORPORATION
Interim Consolidated Balance Sheets
(in thousands of dollars)
---------------------------------------------------------------------

August 26, 2005 August 27, 2004 November 30, 2004
----------------------------------------------------
(unaudited) (unaudited) (audited)
ASSETS

CURRENT
Cash $ 1,943 $ 2,790 $ 2,870
Accounts receivable 8,238 8,319 6,867
Inventories 6,954 5,037 4,363
Promissory note 1,500 1,500 1,500
Prepaid expenses 388 213 396
---------------------------------------------------------------------
19,023 17,859 15,996

PLANT AND EQUIPMENT 8,634 10,438 9,923
FUTURE INCOME TAXES 3,684 3,515 3,684
GOODWILL 4,214 1,039 1,039
OTHER ASSETS 181 108 177
---------------------------------------------------------------------
$ 35,736 $ 32,959 $ 30,819
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES

CURRENT
Accounts payable
and accrued
liabilities $ 6,861 $ 8,030 $ 7,059
Accrued restructuring
and severance
(Note 6 and 7) 469 1,093 663
Current portion of
long-term debt and
capital leases
(Note 4) 5,418 2,302 2,248
Income taxes payable 711 208 -
---------------------------------------------------------------------
13,459 11,633 9,970

LONG-TERM DEBT AND
CAPITAL LEASES (Note 4) 2,415 3,206 2,756

---------------------------------------------------------------------
15,874 14,839 12,726
---------------------------------------------------------------------

SHAREHOLDERS' EQUITY

SHARE CAPITAL
- COMMON SHARES
(Note 5(a)) 12,681 10,347 10,347
SHARE CAPITAL
- PREFERRED SHARES
(Note 5(b)) 2,218 2,218 2,218
CONTRIBUTED SURPLUS
(Note 5(c)) 7,577 6,798 6,798
CUMULATIVE TRANSLATION
ADJUSTMENT (12) - -
DEFICIT (2,602) (1,243) (1,270)
---------------------------------------------------------------------
19,862 18,120 18,093
---------------------------------------------------------------------
$ 35,736 $ 32,959 $ 30,819
---------------------------------------------------------------------
---------------------------------------------------------------------


FIRAN TECHNOLOGY GROUP CORPORATION
Interim Consolidated Statements of Operations
(in thousands of dollars except per share amounts)
---------------------------------------------------------------------

Three Months Ended Year to Date
August 26, August 27, August 26, August 27,
2005 2004 2005 2004
---------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

SALES $ 13,218 $ 13,361 $ 39,411 $ 36,177

COST OF SALES 10,052 9,744 31,313 27,206
---------------------------------------------------------------------
3,166 3,617 8,098 8,971
---------------------------------------------------------------------

EXPENSES
Selling, general
and administrative 1,488 1,902 4,888 5,380
Amortization of
plant and equipment 887 887 2,664 2,662
Interest expense on
long-term debt 106 70 350 206
---------------------------------------------------------------------
2,481 2,859 7,902 8,248
---------------------------------------------------------------------
OPERATING EARNINGS
BEFORE UNDERNOTED 685 758 196 723
---------------------------------------------------------------------

RESTRUCTURING COSTS
(Note 6) 7 - 7 (313)

SEVERANCE COSTS (Note7) 385 - 661 1,200

---------------------------------------------------------------------
OPERATING EARNINGS
(LOSS) BEFORE TAX 293 758 (472) (164)
---------------------------------------------------------------------

INCOME TAX PROVISION 174 - 573 -
---------------------------------------------------------------------
NET EARNINGS (LOSS) $ 119 $ 758 $ (1,045) $ (164)
---------------------------------------------------------------------

EARNINGS (LOSS)
PER SHARE
Basic $ 0.01 $ 0.05 $ (0.06) $ (0.01)
Diluted $ 0.01 $ 0.04 $ (0.06) $ (0.01)
---------------------------------------------------------------------
---------------------------------------------------------------------


FIRAN TECHNOLOGY GROUP CORPORATION
Interim Consolidated Statements of Deficit
(in thousands of dollars)
---------------------------------------------------------------------

Three Months Ended Year to Date
August 26, August 27, August 26, August 27,
2005 2004 2005 2004
---------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Deficit, beginning
of period $ (2,721) $ (2,001) $ (1,270) $ (1,079)
Change in accounting
policy (Note 2) - - (287) -
Deficit, beginning
of period,
as restated (2,721) (2,001) (1,557) (1,079)
Net earnings (loss)
for the period 119 758 (1,045) (164)
---------------------------------------------------------------------
Deficit, end of
period $ (2,602) $ (1,243) $ (2,602) $ (1,243)
---------------------------------------------------------------------
---------------------------------------------------------------------


FIRAN TECHNOLOGY GROUP CORPORATION
Interim Consolidated Statements of Cash Flows
(in thousands of dollars)
---------------------------------------------------------------------

Three Months Ended Year to Date
August 26, August 27, August 26, August 27,
2005 2004 2005 2004
---------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

NET INFLOW (OUTFLOW)
OF CASH RELATED
TO THE FOLLOWING
ACTIVITIES

OPERATING
Net earnings (loss) $ 119 $ 758 $ (1,045) $ (164)
Items not affecting
cash
Stock based
compensation expense 37 - 116 -
Issuance of warrants - - - 45
Amortization of
other assets 7 (20) 32 70
Amortization of
plant and equipment 887 887 2,664 2,662
---------------------------------------------------------------------
1,050 1,625 1,767 2,613

Changes in non-cash
operating working
capital 200 413 (1,027) (865)
---------------------------------------------------------------------
1,250 2,038 740 1,748
---------------------------------------------------------------------

INVESTING
Acquisition of Young
Electronics (Note 3) - - (6,202) -
Additions to plant
and equipment (201) (353) (940) (858)
---------------------------------------------------------------------
(201) (353) (7,142) (858)
---------------------------------------------------------------------

Issuance of share
capital - - 2,710 -
Term loan financing 250 5,216 3,776 9,289
Increase in financing
costs - - (35) -
Repayment of long-term
debt and capital
leases (572) (5,296) (932) (7,428)
---------------------------------------------------------------------
(322) (80) 5,519 1,861
---------------------------------------------------------------------
Effects of exchange
rate changes on cash (37) - (44) -
---------------------------------------------------------------------

(DECREASE) INCREASE
IN CASH 690 1,605 (927) 2,751

CASH, BEGINNING OF
PERIOD 1,253 1,185 2,870 39

---------------------------------------------------------------------
CASH, END OF PERIOD $ 1,943 $ 2,790 $ 1,943 $ 2,790
---------------------------------------------------------------------
---------------------------------------------------------------------

DISCLOSURE OF CASH
PAYMENTS
Interest $ 124 $ 77 $ 347 $ 200
Income tax $ - $ - $ - $ -


NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Accounting Policies

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles on a basis consistent with those followed in the 2004 audited financial statements of Firan Technology Group Corporation. These unaudited interim consolidated financial statements do not include all the information and note disclosures required by Canadian generally accepted accounting principles for annual financial statements and therefore should be read in conjunction with the said audited financial statements and the notes below.

2. Change in Accounting Policy

Effective December 1, 2004, the Company adopted the amended recommendations in CICA Handbook Section 3870 ("Section 3870"), "Stock Based Compensation and Other Stock-Based Payments" which require fair value accounting for employee awards granted on or after February 1, 2002. Amounts expensed for the current period and year to date are disclosed in note 9.Stock-based compensation has been included in selling, general and administrative costs.

Based on the transitional provisions of Section 3870, the Company restated the opening deficit for employee awards that was previously included in the Canadian GAAP pro forma note disclosures for 2004, 2003 and 2002 amounting to $287,000.

3. Acquisition Of Young Electronics ("Chatsworth")

On December 10, 2004, the Company acquired from Ambitech International Inc. all of the shares of SnS Enterprises Inc. (operating as Young Electronics), a U.S. printed circuit board manufacturer based in Los Angeles, California. FTG financed the cash purchase price of US$5,000,000 by a combination of a private placement of units of FTG consisting of common shares and warrants, and secured bank debt.

To facilitate the financing of the transaction, the Company completed a private placement and obtained new secured bank debt. The private placement offering consisting of 2,142,600 units for gross proceeds of approximately C$3,000,000 (C$1.40 per unit). Each unit is comprised of one common share in the capital of FTG and one-half common share purchase warrant. Each whole warrant entitles the holder to purchase one common share at a price of C$1.75 until December 10, 2006.

The secured bank debt consists of a US$3,000,000 term facility and a US$1,000,000 revolving operating facility made available to SnS Enterprises on normal commercial terms and guaranteed by FTG (See Note 4).

The preliminary allocation of the purchase price is as follows:



Fair value of identifiable net assets:

Accounts receivable $ 2,116,000
Inventory 1,975,000
Plant and equipment 440,000
Prepaids 89,000
Accounts payable (1,571,000)
Capital lease (22,000)
Goodwill 3,175,000
---------------
Purchase price $6,202,000
---------------


Chatsworth is considered a self sustaining subsidiary. Accordingly, the assets and liabilities are translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during each month. The resulting translation adjustment is accumulated as a separate component of shareholders' equity.

4. Long-Term Debt



August 26, 2005 November 30, 2004
-----------------------------------
(000's)
Promissory notes, interest
free, repayable at $100,000
annually to acquire certain
assets $ 100 $ 200

Term loan secured by a first
charge on certain property,
with interest at bank prime
plus 2.00%, payable in monthly
payments of interest only
to September 30, 2005 1,500 1,500

Term loan in U.S. dollars secured
by a first charge on certain
property, with interest at bank
prime plus 2.35%, payable in
monthly payments of interest
and principal of U.S. $50,000
due November 30, 2006. 3,140 -

Term loan in Canadian dollars for
purchase of certain manufacturing
equipment, with interest at bank
prime plus 2.35% per annum, secured
by a first charge on certain
property, due July 19, 2006 250 -

Capital leases in U.S. dollars for
certain manufacturing equipment,
with interest at 6.0%, payable
in blended monthly interest and
principal payments of U.S. $58,712
to July 19, 2006. 2,843 3,304
---------------------------------------------------------------------

7,833 5,004
Less amounts due within one year 5,418 2,248
---------------------------------------------------------------------
$ 2,415 $ 2,756
---------------------------------------------------------------------
---------------------------------------------------------------------


Machinery and equipment includes assets under capital lease with a cost of $8,292,000 and accumulated amortization of $5,819,000 at August 26, 2005.

In addition to the bank term loans above (subject to a maximum borrowing limit of the lesser of $5,750,000 and a portion of accounts receivable and inventory, minus amounts outstanding under the Canadian dollar term loan noted above,), the Company has available an authorized line of credit of $5,000,000 bearing interest at a rate of prime plus 0.5%, which was undrawn at August 26, 2005. The line of credit is secured by a first charge on certain property. The bank has extended the expiry date on this facility to November 15, 2005. Negotiations are currently underway to renew this facility.

The Company entered into a new U.S credit facility to help facilitate the acquisition and support the ongoing operations of Chatsworth. The US$4,000,000 facility is made up of both operating and term facilities. The term loan is in the amount US$3,000,000 and is for a term of two years, expiring November 30, 2006, with a five-year loan amortization at bank rate plus 2.35%. The US$1,000,000 operating line is for a term of one year, expiring November 30, 2005 and is at bank rate plus 0.5%. The operating line was undrawn at August 26, 2005. All current and future borrowings are secured by a first charge on all assets of the U.S wholly owned subsidiary of the Company, as well as a guarantee by the Company.

Principal payments required on long-term debt in each of the next two years are as follows:



(thousands of dollars)
-----------------------------------------------------------
2006 $ 5,418
2007 2,415
-----------------------------------------------------------
$ 7,833
-----------------------------------------------------------

5. Share Capital

(a) Common Shares

2005
------------------------------
Number of Stated
Shares Capital
------------------------------
(000's)

Balance, beginning of year 15,657,627 $ 10,347
Issuance of new shares 2,142,600 2,334
--------------------------------------------------------------------
Balance, as at August 26, 2005 17,800,227 $ 12,681
--------------------------------------------------------------------
--------------------------------------------------------------------


In connection with the purchase of Chatsworth (see Note 3), the Company completed a private placement offering consisting of 2,142,600 units for gross and net proceeds of $3,000,000 ($1.40 per unit) and $2,710,000 respectively. Each unit is comprised of one common share in the capital of FTG and one-half common share purchase warrant. Each whole warrant entitles the holder to purchase one common share at a price of $1.75 until December 10, 2006. The fair value of the warrants issued was estimated at the date of the grant using the Black-Scholes valuation model with the following assumptions: risk-free rate of 5%; expected life of two years; volatility of 55% and a dividend yield of nil. The fair value of the warrants was determined to be $0.35 per warrant resulting in a fair value of $376,000. This amount was recorded to contributed surplus and a reduction of share capital.

(b) Preferred Shares

The Company has 1,775,000 voting convertible preferred shares outstanding. The voting convertible preferred shares have the same voting rights as common shares, will pay no dividends and are convertible into common shares of the Company on a one for one basis for no additional proceeds.

(c) Contributed Surplus




(in thousands of dollars) August 26, November 30,
2005 2004
--------------------------
Balance, beginning of period 6,798 6,753
Change in accounting policy (Note 2) 287 -
Stock option expense - year to date 116 -
Issuance of warrants 376 45
--------------------------
Balance, end of period 7,577 6,798
--------------------------
--------------------------


6. Restructuring

The Company recorded a $2,567,000 restructuring charge in the third quarter of 2003 related to the integration of Firan Technology Group Corporation Inc. with Circuit World Corporation. The restructuring costs are comprised of workforce reduction costs of $1,205,000 related to employee severances and benefits; charges of $884,000 related to redundant assets; $250,000 for relocation costs and $228,000 for data migration.

A continuity of the restructuring accrual is as follows:




Severance Redundant Relocation Data
(000's) and benefits assets costs migration Total
--------------------------------------------------------
Initial Charge
August 2003 $1,205 $884 $250 $228 $2,567
Payments or
draw down
during the
period (85) (884) (53) (77) (1,099)
--------------------------------------------------------

November 30,
2003 1,120 - 197 151 1,468
Payments or
draw down
during the
first quarter
of 2004 (249) - (30) (159) (438)
Revision to
previous
estimates - (313) (45) 45 (313)
Payments or
draw down
the last nine
months of 2004 (568) 313 (102) (37) (394)
--------------------------------------------------------

November 30,
2004 303 - 20 - 323
Payments or
draw down
during the
period (130) - (5) - (135)
--------------------------------------------------------

February 25,
2005 173 - 15 - 188
Payments or
draw down
during the
period (101) - - - (101)
Revision to
previous
estimates 15 - (15) - -
--------------------------------------------------------

May 27, 2005 87 - - - 87
Payments or
draw down
during the
period (37) - - - (37)
Revision to
previous
estimates 7 - - - 7
--------------------------------------------------------

August 26,
2005 $57 - - - $57
---------------------------------------------------------------------
---------------------------------------------------------------------


7. Severance Costs

During the first quarter of 2004 Firan Technology Group Corporation terminated the employment of several individuals. The cost of these terminations was $1,200,000 with $898,000 paid out in 2004 and the remaining $302,000 settled in 2005. These costs relate to the merger occurring in 2003. In addition, $38,000 of severance liabilities unrelated to the merger was outstanding at the end of 2004, and settled in the first nine months of 2005.

In addition, the Company incurred additional severance costs of $276,000 during the first quarter of 2005, and $385,000 in the third quarter of 2005. The total severance obligation outstanding at August 26, 2005 is $412,000 ($340,000 at November 30, 2004).

8. Segmented Information

The Company reports segmented information based on the two operating segments within the Corporation.



(in thousands Operating Segments
of dollars) -------------------------------------------------------
Three Months
Ended August 26, 2005 August 27, 2004
-------------------------------------------------------
Circuits Aerospace Total Circuits Aerospace Total
-------------------------------------------------------

Sales $ 10,964 $ 2,254 $13,218 $ 10,801 $ 2,560 $13,361
Amortization
of plant and
equipment 815 72 887 799 88 887
Interest
expense on
long-term
debt 106 - 106 70 - 70
Income tax
provision 174 - 174 - - -
Net earnings 27 92 119 352 406 758

Segment assets 30,520 5,216 35,736 27,230 5,729 32,959
Goodwill 4,214 - 4,214 1,039 - 1,039
Additions to
plant and
equipment 206 (5) 201 344 9 353

-------------------------------------------------------
Nine Months
Ended August 26, 2005 August 27, 2004
-------------------------------------------------------
Circuits Aerospace Total Circuits Aerospace Total
-------------------------------------------------------

Sales $ 32,660 $ 6,751 $39,411 $ 29,801 $ 6,376 $36,177
Amortization
of plant and
equipment 2,448 216 2,664 2,398 264 2,662
Interest
expense on
long-term
debt 350 - 350 206 - 206
Income tax
provision/
(recovery) 623 (50) 573 - - -
Net (loss)/
earnings (1,439) 394 (1,045) (976) 812 (164)

Segment assets 30,520 5,216 35,736 27,230 5,729 32,959
Goodwill 4,214 - 4,214 1,039 - 1,039
Additions to
plant and
equipment 785 155 940 836 22 858

---------------------------------------------------------------------
Geographic Location August 26, 2005 August 27, 2004
---------------------------------------------------------------------
(in thousands of
dollars)
Three Months Ended
United United
Canada States Total Canada States Total
--------------------------------------------------
Sales (by location
of customer) 1,357 11,861 13,218 1,567 11,794 13,361
Goodwill (by
location of
division) 1,039 3,175 4,214 1,039 - 1,039
Segment Assets
(by location
of division) 27,326 8,410 35,736 32,959 - 32,959
---------------------------------------------------------------------

August 26, 2005 August 27, 2004
--------------------------------------------------
Nine Months Ended
United United
Canada States Total Canada States Total
--------------------------------------------------
Sales (by
location of
customer) 4,234 35,177 39,411 4,350 31,827 36,177
Goodwill (by
location of
division) 1,039 3,175 4,214 1,039 - 1,039
Segment Assets
(by location of
division) 27,326 8,410 35,736 32,959 - 32,959
---------------------------------------------------------------------
---------------------------------------------------------------------


9. Stock Based Compensation

The Company recognized a compensation expense in the consolidated statement of operations of approximately $ 37,000 in the third quarter of 2005, and $116,000 for the nine months ended August 26, 2005. Of these amounts, $1,000 for the quarter and $3,000 year to date relates to 30,000 options granted during the first quarter of 2005. The remainder of the amount relates to amortization of compensation expense for options granted in 2004 and 2003. This amount was expensed in the current period and credited to contributed surplus. The fair value of options granted was estimated at the date of the grant using the Black-Scholes valuation model with the following assumptions: risk-free rate of 5%; expected life of three years; volatility of 55% and a dividend yield of nil. During the first quarter of 2005, 30,000 options were granted with a fair value of $0.55 per option.

10. Foreign Currency Risk

As at August 26, 2005, the Company had entered into U.S. dollar forward sales contracts maturing in the fourth quarter of 2005 of U.S.$2,000,000 at rates between $1.1934 and $1.2137. The fair value and unrealized gain of the contracts was $13,000 and was recorded in the consolidated statement of operations as a decrease in selling, general and administration costs.

11. Scientific Research and Experimental Development ("SR&ED") Tax Credits

The Company has filed but not recorded the benefit of SR&ED tax credits in the amount of $606,000.

12. Comparative Figures

Certain comparative figures have been reclassified to conform to the current period's presentation.

Contact Information