MTI Global Inc.
TSX : MTI

MTI Global Inc.

August 12, 2009 19:26 ET

MTI Global Reports 2009 Second Quarter Results

MISSISSAUGA, ONTARIO--(Marketwire - Aug. 12, 2009) - MTI Global Inc. (TSX:MTI) today reported its financial results for the three month period ended June 30, 2009. Financial results are for the continuing operations of the Company. The continuing operations consist of Polyfab, Sterne, N.A. Silicone's Milton, Florida plant and the aerospace component of Leewood.

Q2 Highlights:

- Completed the sale of the majority of the assets of Leewood and N.A. Silicone's Richmond, Virginia plant with proceeds being largely used to strengthen the balance sheet through debt reduction.

- Sales for the three months ended June 30, 2009 were $10.4 million compared to last year's sales of $13.0 million due to broad based weakness in business activity in the markets in which the Company operates.

- The gross margin for the three months ended June 30, 2009 was $2.4 million, an increase of $179,000 or approximately 8.0% over the prior year.

- Earnings before interest expense, taxes, depreciation, and amortization ("EBITDA")(1) for the quarter was a loss of $1.2 million compared to a loss of $2.0 million in prior year.

- Total operating expenses for the three months ended June 30, 2009 of $3.6 million were $698,000 lower than in the same period in 2008.

- The net loss for the quarter was $1.4 million or five cents per share compared to a net loss in prior year of $4.2 million or fifteen cents per share.

Bill Neill, MTI Global's President and Chief Executive Officer stated: "While we saw a softening in overall sales volumes, we did achieve improved margins through proactive cost containment measures, a stabilization of material costs and favourable currency shifts."

Mr. Neill concluded "I am optimistic that we will continue to see improving results through the remainder of the year, and that operational improvements will result in better bottom line performance."

(1) EBITDA consists of earnings before interest expense, income taxes, depreciation, amortization, debt reclassification charge, long-lived asset impairment and non-controlling interest. MTI Global believes EBITDA is a useful measure in the evaluation of performance. EBITDA is not a measure recognized under Generally Accepted Accounting Principles ("GAAP") and does not have a standardized meaning as prescribed by GAAP. Therefore, EBITDA may not be comparable to similar measures presented by other entities. Investors are cautioned that EBITDA should not be construed as an alternative to net loss determined in accordance with GAAP.

Sales



Three months Six months
ended June 30, ended June 30,
2009 2008 2009 2008
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Polyfab
Aerospace $6,021 $6,795 $15,264 $13,032
Fabricated Products 540 749 1,140 1,834
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Total Polyfab 6,561 7,544 16,404 14,866

Silicone
N.A. Silicone 2,251 3,756 4,451 8,026
Leewood 151 400 265 573
Sterne 1,466 1,330 2,841 2,532
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Total $10,429 $13,030 $23,961 $25,997
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Income (loss) Before Non-controlling Interest



Three months Six months
ended June 30, ended June 30,
2009 2008 2009 2008
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Polyfab $90 $(392) $1,345 $(466)
N.A. Silicone (424) (615) (1,398) (639)
Leewood (159) (121) (273) (247)
Sterne 58 98 91 107
Corporate (1,375) (3,125) (2,652) (3,659)
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Total $(1,810) $(4,155) $(2,887) $(4,904)
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Second Quarter:

Sales for the three months ended June 30, 2009 were $10.4 million, approximately 20.0% lower than last year's sales of $13.0 million. This includes an increase of approximately $921,000, due to the impact of currency fluctuations.

Aerospace sales of $6.0 million for the quarter were lower than prior year's sales for the comparable period due to a decrease in sales volume offset by approximately $638,000 due to the higher U.S. dollar compared to exchange rates in effect last year.

Fabricated Products sales of $540,000 were approximately 27.9% lower than prior year's sales of $749,000 for the same period. This was primarily due to a decline in sales to the automotive and sporting goods markets.

N.A. Silicone sales of $2.3 million in 2009 decreased by $1.5 million or approximately 40.1% compared to sales of $3.8 million for the three months ended June 30, 2009. The decrease is primarily due to the continued decline in the North American automotive market and was offset by $273,000 as a result of the higher U.S. dollar compared to exchange rates in effect in 2008.

Leewood sales of $151,000 for the three months ended June 30, 2009 were lower than last year's sales of $400,000 for the comparable period due to a change in product mix and to delays on the A400M.

Sterne sales of $1.5 million for the three months ended June 30, 2009 were $136,000 higher than last year's sales of $1.3 million for the comparable period due to increased sales across all revenue sources, including clean room manufacturing, general manufacturing and distribution sales.

The gross margin for the three months ended June 30, 2009 was $2.4 million, an increase of $179,000 or approximately 8.0% over the prior year. The gross margin percentage increased to 23.3% from 17.3%.

The increase was primarily due to the following:

- Reduced costs associated with the outsourcing of Aerospace manufacturing to Mexico;

- Cost savings associated with the consolidation of N.A. Silicone's Groendyk and Milton plants;

- Change in product mix; and

- The increase in the U.S. dollar which increased margins by approximately $159,000 in MTI Polyfab compared to exchange rates in effect in the prior year.

The above factors were offset by a decrease in sales.

Total operating expenses for the three months ended June 30, 2009 of $3.6 million were $698,000 lower than in the same period in 2008. Plant and laboratory expenses of $616,000 were $58,000 or approximately 8.6% lower than in the same period last year and sales and marketing expenses of $814,000 were $65,000 or approximately 7.4% below the prior year primarily due to a reduction in salary costs as a result of the consolidation of N.A. Silicone's Groendyk and Milton plants. Administrative expenses of $1.4 million decreased $77,000 or approximately 5.2% from the same period last year. The decrease is primarily due to a reduction in salary costs offset by an increase in allowance for doubtful accounts of $235,000.

EBITDA for the three months ended June 30, 2009 was a loss of $1.2 million, an improvement of $877,000 from prior year.

The net loss for the quarter was approximately $1.4 million or five cents per share compared to a net loss in prior year of $4.2 million or fifteen cents per share.

Year to date:

Sales for the six months ended June 30, 2009 were $24.0 million, approximately 7.8% lower than last year's sales of $26.0 million. This includes an increase of approximately $3.1 million due to the impact of currency fluctuations.

Aerospace sales of $15.3 million for the period were $2.2 million or 17.1% higher than prior year's sales for the comparable period due to approximately $2.3 million from the higher U.S. dollar compared to exchange rates in effect last year.

Fabricated Products sales of $1.1 million were approximately 37.8% lower than prior year's sales of $1.8 million for the same period. This was primarily due to a decline in sales to the automotive and sporting goods markets.

N.A. Silicone sales of $4.5 million in 2009 decreased by $3.6 million or approximately 44.5% compared to sales of $8.0 million for the six months ended June 30, 2008. The decrease is primarily due to the continued decline in the North American automotive market and was offset by $697,000 as a result of the higher U.S. dollar compared to exchange rates in effect in 2008.

Leewood sales of $265,000 for the six months ended June 30, 2009 were lower than prior year's sales of $573,000 for the comparable period. This is primarily due to a change in product mix and to delays on the A400M.

Sterne sales of $2.8 million for the six months ended June 30, 2009 were $309,000 higher than last year's sales of $2.5 million for the comparable period due to increased sales across all revenue sources, including clean room manufacturing, general manufacturing and distribution sales. This includes an increase of approximately $109,000 due to the appreciation in the Euro.

The gross margin for the six months ended June 30, 2009 was $6.3 million, an increase of $1.3 million or approximately 25.7% over the prior year. The gross margin percentage increased to 26.3% from 19.3%. The factors for the increase were essentially the same factors as stated for the second quarter results above.

Total operating expenses for the six months ended June 30, 2009 of $7.4 million were $215,000 higher than the same period in 2008. Plant and laboratory expenses of $1.4 million were $67,000 or approximately 5.1% higher than in the same period last year. The increase is due to a reduction in deferred development costs capitalized compared to prior year, offset by a reduction in salary costs. Sales and marketing expenses of $1.8 million were $66,000 or approximately 3.8% ahead of prior year due to adoption of a new accounting policy requiring the expensing of certain prepaid expenses and deposits previously capitalized, offset by a reduction in salary costs. Administrative expenses of $3.0 million increased $147,000 or approximately 5.2% from the same period last year. The increase is primarily due to an increase in allowance for doubtful accounts of $567,000 offset by a reduction in salary costs.

EBITDA for the six months ended June 30, 2009 was a loss of $1.1 million, an improvement of $1.1 million from prior year.

For the six months ended June 30, 2009, the net loss was $6.2 million or twenty-two cents per share, compared to a net loss of $5.2 million or eighteen cents per share for the same period in prior year.

Financial Covenant Update:

The Company signed a forbearance agreement with its Bank on July 10, 2009 with an expiry date of September 30, 2009. Under the terms of the forbearance agreement, additional general covenants have been placed on the Company. However, the agreement did not waive the financial and general covenants and the Company continues to be in breach with its principal Canadian Bank (the "Bank") and with its subordinated debt holder, being a privately held specialty finance firm (the "Lender"). In particular, the Company did not achieve its December 31, 2008 earnings before interest, taxes and depreciation, fixed charge coverage and funded debt to earnings before interest, taxes and depreciation covenants or its March 31, 2009 and June 30, 2009 fixed charge coverage covenant. Furthermore, the Company is in breach of certain general covenants it was obligated to satisfy pursuant to waiver agreements entered into by the Company with its Bank and Lender based on its June 30, 2008 and subsequent interim monthly results. The covenant violation provides the Bank and the Lender with the right to demand repayment of their indebtedness.

Subsequent to June 30, 2009, the Company is in continuing discussions with the Lender seeking to obtain a waiver of the breaches including amended covenants. The Company has classified the subordinated debt as current.

Outlook:

Based on the sale, operational changes completed to date, and preliminary indications in the aerospace market, the Company remains cautiously optimistic that it will report improving results through the balance of 2009. The Company is increasingly confident about achieving improved results with most of its aerospace programs relocated to Mexico and the positive effect of the sale of the majority of the assets of Leewood and N.A. Silicone's Richmond, Virginia plant.

The results for the second quarter of 2009 were better than the prior year. Although revenues decreased, gross margin improved through increased volume in Aerospace at Polyfab and favourable exchange rates compared to the prior year. However, the Company continued to incur lower than expected revenues at N.A. Silicone due to the continued decline in the North American automotive market.

At Polyfab, management realized on gross margin improvements during the second quarter. Gross margins for the quarter were ahead of target and ahead of the prior year as the Company reduced costs associated with the outsourcing of most of its Aerospace manufacturing to Mexico, redundant costs associated with maintaining operations in Canada, and additional labour charges to reduce backlog. The Company expects the stable sales volumes and gross margins to continue through the balance of 2009 although there will be some changes in the mix of products. Despite recent pullbacks in the broader aerospace market, the Company remains well positioned to capitalize on opportunities in the regional jet, the resurgent turboprop markets, and the retrofit market.

In Fabricated Products, a decrease in sales volume was realized due to a softening in the sporting goods and automotive markets. The Company perceives potential opportunities to leverage its capabilities into the aerospace market as it seeks an expansion in the range of business services being offered to customers.

In N.A. Silicone, results deteriorated as a direct result of the downturn in the automotive industry. N.A. Silicone operates primarily in the automotive sector with unique reinforced silicone hose and sunroof sealing products. As such it is subject to the impact of the current downturn in auto manufacturing. The N.A. Silicone division also continues to experience the pressure of higher raw material prices and is still in the process of realizing synergies from the plant consolidation that occurred in 2008.

At Leewood, there was a decrease in year over year sales due to a decrease in sales volume.

At Sterne, management expects sales to continue to grow through 2009. Success will be primarily dependent on Sterne's ability to grow clean room manufacturing sales and to expand its distribution sales.

In order to strengthen the Company's balance sheet, address its liquidity requirements and the requirements of its lenders and to realize on its restructuring investments, the Company continues to consider and evaluate on an ongoing basis, all alternatives available to it. These alternatives include, without limitation, seeking additional sources of debt and equity financing, identifying and pursuing strategic partnerships, the disposition of certain assets and other value enhancing transactions. However, there can be no assurance that such efforts will result in the Company pursuing any such alternative or, if pursued, there can be no assurance any such alternative will be successfully completed and implemented.

About MTI Global:

MTI Global Inc. (TSX:MTI) designs, develops and manufactures custom-engineered products using silicone and other cellular materials. The Company serves a variety of specialty markets focused on two main areas: Silicone and MTI Polyfab, comprising, Aerospace and Fabricated Products. The Company designs and fabricates energy management systems from a variety of flexible, cellular materials. MTI Global also produces and distributes specialty silicone elastomer products. MTI Global's primary markets are aerospace and mass transit. Secondary markets include sporting goods, automotive, industrial, institutional, electronics, and the medical market through a 51% interest in MTI Sterne SARL of Cavaillon, France. MTI Global's head office and Canadian manufacturing operations are located in Mississauga, Ontario, with international manufacturing operations located in Bremen, Germany, Milton, Florida and a contract manufacturer venture in Ensenada, Mexico. The Company also maintains engineering support centres in Brazil and Toulouse, France. The Company's website is www.mtiglobalinc.com.

Investors, analysts and the media are invited to participate in a conference call to discuss the 2009 second Quarter results on Thursday, August 13, 2009, at 11 a.m. (Eastern). To join the conference call, please dial 1-800-732-1073 (Canada and U.S). The conference call can also be accessed via the web at www.newswire.ca. A replay of the conference call will be available for one week by dialing 416-640-1917 (Toronto area only) or 1-877-289-8525 and entering reservation no. 21312902#.

The foregoing press release contains forward-looking information within the meaning of applicable securities laws, including statements relating to improved sales, better bottom line performance, capitalization by Polyfab on opportunities in certain markets, expanded range of business services offered by Fabricated Products and growth in sales at Sterne. In particular, the Outlook section of this press release includes certain future-oriented financial information which is intended to provide readers with an indication as to management's plans, expectations and objectives for the balance of 2009. However, readers are cautioned that it may not be appropriate for any other purpose. Terms and phrases such as "continue", "improving", "expects", "seeks", "increasingly confident", "achieving" and "capitalize", or words or phrases of a similar nature are intended to identify forward-looking statements and information. These statements and information are derived from MTI Global's current expectations and assumptions regarding past experience, historical trends and current conditions including existing business prospects and opportunities, reduction and elimination of costs and labour charges, proposed expansion in range of services offered by Fabricated Products, expected synergies from plant consolidations, ability of Sterne to grow clean room manufacturing sales as well as prevailing exchange rates. Although MTI Global believes that the expectations and assumptions reflected in any forward-looking information are reasonable, the results or events predicted in these statements may differ materially from actual results or events, many risks, uncertainties and other factors could cause results or events to differ from current expectations, including the impact of price and product competition, general industry and market conditions, inability to successfully plan and execute business improvement strategies, opportunities in aerospace specified markets fail to materialize, restrictions and covenants contained in credit agreements and existence of defaults under such covenants, fluctuations in currency, exchange and interest rates and commodity prices, reliance on key customers and ability of Sterne to grow sales as well as the other factors described elsewhere in this press release and in MTI Global's filings with applicable securities regulatory authorities, including its most recently filed Annual Information Form, which are available at www.sedar.com. Consequently, these factors should be considered carefully and readers should not place undue reliance on MTI Global's forward-looking information. MTI Global disclaims any intention or obligation to update or revise any forward-looking information, except as required by applicable law.

Financial Statements Follow



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MTI Global Inc.
Unaudited Interim Consolidated Balance Sheets
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As at As at
June 30, 2009 December 31, 2008
(In thousands of Canadian dollars) $ $
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Restated
ASSETS
Current
Cash and cash equivalents 1,036 1,704
Restricted cash 926 750
Short-term investment - 109
Accounts receivable 8,068 12,269
Income taxes recoverable 106 111
Inventories 6,779 7,073
Prepaid expenses 357 413
Assets of discontinued operations - 12,812
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17,272 35,241

Property, plant and equipment, net 4,651 5,194
Goodwill 6,729 6,729
Intangibles, net 117 604
Deferred development costs, net 6,696 7,619
Asset held for sale 584 611
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36,049 55,998
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Bank indebtedness 2,048 8,288
Accounts payable and accrued expenses 6,898 10,010
Subordinated debt 7,000 7,000
Current portion of long-term debt - 556
Liabilities of discontinued operations - 865
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15,946 26,719
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Long-term debt - 2,059
Non-controlling interest 420 393
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16,366 29,171
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Commitments and contingencies

Shareholders' equity
Share capital 55,102 55,102
Contributed surplus 1,189 1,143
Warrants 1,474 1,474
Accumulated other comprehensive income 427 1,400
Deficit (38,509) (32,292)
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19,683 26,827
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36,049 55,998
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MTI Global Inc.
Unaudited Interim Consolidated Statements of Deficit
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Six months ended June 30,
2009 2008
(In thousands of Canadian dollars) $ $
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Deficit, beginning of period (32,292) (14,442)
Cumulative effect of adopting new
accounting standards - 212
Net loss for the period (6,217) (5,151)
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Deficit, end of period (38,509) (19,381)
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MTI Global Inc.
Unaudited Interim Consolidated Statements of Operations
----------------------------------------------------------------------------

Three months Six months
ended June 30, ended June 30,(In thousands of Canadian dollars, 2009 2008 2009 2008
except per share amounts) $ $ $ $
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Restated Restated

Sales 10,429 13,030 23,961 25,997
Cost of sales 8,001 10,781 17,667 20,988
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Gross margin 2,428 2,249 6,294 5,009
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Operating expenses
Plant and laboratory 616 674 1,373 1,306
Sales and marketing 814 879 1,799 1,733
Administrative 1,398 1,475 2,986 2,839
Restructuring costs 373 1,179 1,079 1,327
Foreign exchange loss (gain) 381 73 145 (38)
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3,582 4,280 7,382 7,167
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Operating loss before the following
items (1,154) (2,031) (1,088) (2,158)
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Amortization of property, plant and
equipment 17 50 34 161
Amortization of intangibles 29 50 91 100
Amortization of deferred development
costs 343 421 705 732
Long-lived asset impairment - - 403 -
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389 521 1,233 993
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Loss before other items (1,543) (2,552) (2,321) (3,151)
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Other items
Interest on long-term debt - 58 - 119
Interest on subordinated debt 223 63 443 63
Other interest expense 46 103 125 201
Debt reclassification charge - 1,389 - 1,389
Interest and other income (2) (10) (2) (19)
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267 1,603 566 1,753
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Loss before non-controlling
interest (1,810) (4,155) (2,887) (4,904)
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Non-controlling interest 16 45 44 53
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Loss from continuing operations (1,826) (4,200) (2,931) (4,957)
Income (loss) from discontinued
operations 412 (37) (3,286) (194)
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Net loss for the period (1,414) (4,237) (6,217) (5,151)
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Net loss per share, basic and
diluted
Continuing operations (0.07) (0.15) (0.11) (0.18)
Discontinued operations 0.02 (0.00) (0.11) (0.00)
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(0.05) (0.15) (0.22) (0.18)
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MTI Global Inc.
Unaudited Interim Consolidated Statements of Comprehensive Loss
----------------------------------------------------------------------------

Three months Six months
ended June 30, ended June 30,
2009 2008 2009 2008
(In thousands of Canadian dollars) $ $ $ $
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Net loss for the period (1,414) (4,237) (6,217) (5,151)
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Other comprehensive loss
Net change in cumulative translation
adjustment (1,619) (290) (973) 1,837
Unrealized loss on foreign exchange
forward contracts - (16) - (155)
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(1,619) (306) (973) 1,682
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Comprehensive loss (3,033) (4,543) (7,190) (3,469)
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MTI Global Inc.
Unaudited Interim Consolidated Statements of Cash Flows
----------------------------------------------------------------------------

Three months Six months
ended June 30, ended June 30,
2009 2008 2009 2008
(In thousands of Canadian dollars) $ $ $ $
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Restated Restated

Operating activities
Loss from continuing operations (1,826) (4,200) (2,931) (4,957)
Add items not involving cash:
Amortization 528 710 1,118 1,318
Unrealized foreign exchange loss 394 236 475 480
Long-lived asset impairment - - 403 -
Debt reclassification charge - 1,389 - 1,389
Stock compensation expense 23 37 46 65
Non-controlling interest 16 45 44 53
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(865) (1,783) (845) (1,652)
Cumulative effect of adopting new
accounting standards - - - 55
Net change in non-cash working
capital balances 3,962 1,129 4,293 (130)
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Cash provided by (used in) operating
activities 3,097 (654) 3,448 (1,727)
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Investing activities
Purchase of property, plant and
equipment (28) (40) (79) (115)
Deferred development costs
capitalized (59) (181) (104) (352)
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Cash used in investing activities (87) (221) (183) (467)
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Financing activities
Repayments of long-term debt - (2,699) - (2,850)
Increase (decrease) in bank
indebtedness (3,940) 1,297 (4,000) 1,019
Proceeds from subordinated debt - 7,000 - 7,000
Decrease (increase) in short-term
investment - (3,000) 109 (3,000)
Decrease (increase) in restricted
cash (191) 9 (176) (55)
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Cash provided by (used in)
financing activities (4,131) 2,607 (4,067) 2,114
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Foreign exchange on cash and cash
equivalents (167) - (86) 11
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Net increase (decrease) in cash
during the period from continuing
operations (1,288) 1,732 (888) (69)
Net increase (decrease) in cash
during the period from
discontinued operations (263) (223) 220 324
Cash and cash equivalents, beginning
of period 2,587 - 1,704 1,254
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Cash and cash equivalents, end
of period 1,036 1,509 1,036 1,509
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Supplemental cash flow information
Interest paid 327 363 706 609
Income taxes paid - 38 - 38
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Contact Information

  • MTI Global Inc.
    Bill Neill
    Chief Executive Officer
    (905) 564-9700
    www.mtiglobalinc.com
    or
    Fleishman-Hillard Canada
    Alison Ford
    Investor Relations
    (416) 214-0701