MTI Global Inc.
TSX : MTI

MTI Global Inc.

March 27, 2008 19:05 ET

MTI Global Reports Financial Results for the Fourth Quarter and Fiscal 2007 Year End

MTI Also Provides Update on Bank Covenant and Cost Cutting Initiatives

MISSISSAUGA, ONTARIO--(Marketwire - March 27, 2008) - MTI Global Inc. (TSX:MTI) today reported financial results for the three months and year ended December 31, 2007.

Highlights:

- MTI reports 3.3% increase in revenue to $63.6 million for the year

- Net loss for the year of $8.1 million, or $0.29 per share

- MTI Global takes goodwill impairment charge at MTI Leewood of EUR1.8 million ($2.6 million)

- The Company finalized a new forbearance agreement with its Bank and, subsequent to year end, new security registrations have been completed

- The Company signed a term sheet for $7 million of mezzanine financing scheduled to close in April subject to completion of due diligence and documentation

- Aerospace sales negatively affected by Canadian dollar exchange rate but effect mitigated by migration of Aerospace production from Canada to MTI de Baja

- Good growth achieved in European Silicone, improving upon last year's results

- Reduced sales of transit seating in North American Silicone negatively impacted top and bottom lines

-- North American Silicone facility consolidation planning is well underway

-- Awarded transit seating contracts valued at approximately $750,000 in Q4

President and Chief Executive Officer, Bill Neill, commented: "MTI Global had a challenging year with the continued strength of the Canadian dollar eroding profitability. We are active across all of our business lines to improve sales, cut costs, and regain profitability in 2008."

Mr. Neill continued, "At MTI Polyfab we are in the final stages of transferring production to Mexico that will mitigate the impact of the Canadian dollar. We are pleased with the quality of parts from our Mexican sub contract operation and its rapid certification with our major airline customers. In Fabricated Products, we have added to the sales force and expect to see a reverse in the decline in sales we've experienced because of the automotive market slow down.

"In North American Silicones, we increased our scale through the acquisition of Mold-Ex which immediately contributed to revenue and EBITDA. Mold-Ex operates primarily in the automotive sector with unique reinforced silicone hose and sun roof sealing products. As such it is subject to the impact of the current downturn in the North American automotive industry. We have modified our expectations for the growth of this part of our business portfolio. In addition, a decision to consolidate three silicone plants into two will improve margins and overall profitability. This consolidation will occur in the second half of fiscal 2008".

"In Europe, while Leewood sales in Euros have increased 3.6% in 2007, our performance was dampened by delays in the installation of the new continuous oven line. The new equipment is now operational but not yet on a continuous basis. While we have begun selling and shipping silicone materials from the line on a limited basis, we expect full production to begin in fiscal 2008. At Sterne, we experienced an unexpected softening of fourth quarter sales. No customers were lost but orders from current customers were lower than expected. While this persisted through January 2008 we do not see this impacting the year overall. In summary, we expect both Leewood and Sterne to produce double digit sales increases while reducing costs with processing and distribution improvements over the course of fiscal 2008," he added.



Sales:
------
3 Months Ended 3 Months Ended Year Ended Year Ended
December 31 December 31 December 31 December 31
$000s 2007 2006 2007 2006
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MTI Polyfab:
Aerospace $ 5,201 $ 5,311 $22,514 $22,672
Fabricated
Products 1,488 1,041 5,004 5,308
Silicone:
North American
Silicones 5,484 4,980 19,691 18,714
Leewood 2,566 3,122 11,951 11,484
Sterne 1,034 859 4,447 3,411
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Total $15,773 $15,313 $63,607 $61,589
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Income (loss) Before Income Taxes and Non-controlling Interest:
---------------------------------------------------------------

3 Months Ended 3 Months Ended Year Ended Year Ended
December 31 December 31 December 31 December 31
$000s 2007 2006 2007 2006
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MTI PolyFab $ (849) $ (170) $(1,202) $ 933
North American
Silicones (563) (28) (841) 949
Leewood (3,004) (766) (3,548) (1,279)
Sterne (93) 139 260 217
Corporate Expenses (817) (358) (2,538) (2,160)
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Total $(5,326) $(1,183) $(7,869) $(1,340)
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Three Month Results:

Revenue for the three months ended December 31, 2007 was $15.8 million representing an increase of $460,000 or 3.0% over 2006.

Aerospace sales were $5.2 million, representing a decrease of $110,000 or approximately 2.1% over 2006. This included a decrease of approximately $645,000 due to the lower U.S. dollar compared to a year ago. Fabricated Products' sales of $1.5 million were $447,000 or approximately 42.9% higher than prior year. The increase is primarily due to a new customer obtained in the fourth quarter of 2007.

North American Silicones sales were $5.5 million, approximately 10.1% higher than last year's sales of $5.0 million. This was primarily due to the acquisition of the silicone division of Mold-Ex (in July 2007) which contributed sales in the fourth quarter of $1,788,000.

European Silicone sales were $3.6 million, $381,000 lower than prior year. The decrease is primarily due to a general slowdown in the European marketplace.

MTI PolyFab's loss before income taxes in the fourth quarter was $849,000 compared to $170,000 in prior year. The impact of the lower U.S. dollar compared to last year, increased the reported loss by approximately $387,000 in fiscal 2007. North American Silicone's loss of $563,000 was higher than last year's loss of $28,000. In Europe, the loss of $3,097,000 was $2,470,000 higher than prior year's loss of $627,000.

The net loss for the fourth quarter of fiscal 2007 was $5.2 million or $0.19 per share compared to a loss of $828,000 or $0.03 per share for the same period in 2006.

Year End Results

Revenue for the year ended December 31, 2007 was $63.6 million, an increase of approximately 3.3% compared to revenues of $61.6 million for the year ended December 31, 2006. Revenue in 2007 includes a decrease of approximately $1.9 million due to the impact of currency fluctuations.

Aerospace sales were $22.5 million for the fiscal 2007, marginally behind last year's sales of $22.7 million for the comparable period. This is despite sales being reduced by approximately $1.5 million due to the lower U.S. dollar compared to exchange rates in effect last year.

Fabricated Products sales were $5.0 million, a decrease of approximately 5.7% compared to the previous year. The decrease in fiscal 2007 was primarily due to an anticipated decline in sales to the automotive market.

North American Silicones sales of $19.7 million in fiscal 2007, an increase of $977,000 or approximately 5.2% compared to sales of $18.7 million for the fiscal 2006. Sales of $3.6 million were generated from the acquisition of the silicone division of Mold-Ex (acquired in July 2007). These sales were offset by $920,000 as a result of the effect of the lower U.S. dollar compared to exchange rates in 2006 as well as lower transit seating sales.

European Silicone sales for the year ended December 31, 2007 were $16.4 million, an increase of approximately $1.5 million, or 10.1% compared to sales of $14.9 million for the period ended December 31, 2006. European Silicone sales in 2007 include a net increase of approximately $535,000 due to the increase in the Euro. In Euros, Leewood's gross sales increased approximately 3.6% compared with the prior year. Sales at Sterne, in Euros, increased approximately 25.7% due to increased sales across all revenue sources, including clean room manufacturing, general manufacturing and distribution sales.

Of total 2006 sales, Aerospace accounted for 35.4%, North American Silicone accounted for 31.0%, European Silicone 25.8% and Fabricated Products 7.9%.

Total operating expenses for the year ended December 31, 2007 of $21.4 million were $1.6 million, higher than in the same period in 2006. Plant and laboratory expenses were $8.5 million, approximately $668,000 or approximately 8.5% higher than in the same period last year. The increase was due to additional operating expenses as a result of the acquisition of Mold-Ex during the third quarter of 2007 and MTI PolyFab costs associated with the Mexican contract manufacturing operation.

Sales and marketing expenses were $5.5 million, approximately $279,000 or approximately 5.4% higher than in the same period last year due to the acquisition of Mold-Ex and higher personnel costs in Leewood attributed to adding experienced personnel.

Administrative expenses of $7.0 million increased $649,000, or approximately 10.3% from the same period last year. The increase is primarily due to an increase in management positions at Leewood and Sterne, the acquisition of Mold-Ex and an increase in professional fees.

During fiscal 2007, the Company incurred restructuring costs of $478,000 related to termination costs associated with staff reductions at MTI PolyFab and certain other costs pursuant to changes in the business operations and forbearance arrangements with the Bank.

During fiscal 2007, the Company assessed the fair value of all the operating segments to which underlying goodwill is attributed. As a result of this assessment, a EUR1.8 million ($2.6 million) write down was recorded due to impairment in the carrying value of goodwill at Leewood. Operating results of the Leewood reporting unit did not meet expectations in 2007 largely due to delays in aerospace customer deliveries resulting in unrealized sales.

The net loss for the year ended December 31, 2007 was $8.1 million, or $0.29 per share compared to a net loss of $1.2 million, or four cents per share compared to last year.

As at December 31, 2007, the Company had working capital of $5.8 million, including cash and cash equivalents, plus cash deposited as collateral totaling $700,000 compared to $14.2 million at December 31, 2006. Working capital has decreased due to an increase in bank indebtedness and an increase in the current portion of long-term debt.

The Company has a demand line of credit, of a maximum $7 million and a term loan of $2.9 million with its Canadian chartered bank ("Bank"). The demand line of credit is subject to working capital limits, bearing interest at the Bank's prime rate plus 2.00%, the effective interest rate at December 31, 2007 was 8.00% . As part of the Bank's facility agreement for the demand line of credit and term loan, certain subsidiaries of the Company have provided a general security agreement and collateral security over assets. As part of the Bank's facility agreement, certain subsidiaries of the Company have provided a general security agreement over assets. The amount of bank indebtedness outstanding at December 31, 2007 was $5,989,000 compared with $300,000 at December 31, 2006.

Financial Covenant Update:

As previously disclosed, the Company breached financial and general covenants in its loan facility agreement with its Bank as at June 30, 2007, September 30, 2007, and December 31, 2007. The Company signed a forbearance agreement with the Bank on December 5, 2007 with an expiry date of March 31, 2008. The Company and its bank entered into an amended forbearance agreement on February 22, 2008, where the Company has until May 31, 2008 to amend its credit facilities with the Bank. Under the revised terms, amended covenants and stricter reporting requirements have been placed on the Company. The agreement also commits the Company to raising capital sufficient to repay the term loan then outstanding with the Bank and meet its other liquidity needs. The Company has initiated a process to meet all requirements of the amended forbearance agreement. The Company has entered into a non-binding agreement with a private capital source, subject to completing due diligence by both parties, which is currently underway and expected to be completed in April. Under this agreement the company will obtain $7.0 million dollars in mezzanine financing. Subject to completion the Company intends to repay the term loan of $2.7 million resulting from the acquisition of the silicone division of Mold-Ex in July 2007. The Company will also utilize funds to consolidate its US silicone operations and provide operating capital. The Company is also considering a rights offering to current shareholders to provide stability to its current balance sheet.

Fiscal 2008 Outlook:

"2007 was the toughest year the Company has gone through. Results were substantially below our expectations stemming from the escalating strength of the Canadian dollar, customer delays redundancy costs etc. As we complete the transfer of our aerospace programs to Mexico, we expect to see significant improvements in mitigating the impact of currency change. In 2008 new programs are expected to begin shipping from Mexico including all Canadian aerospace programs. The Boeing 787 Dreamliner, the Eclipse VLJ programs, and Embraer Regional Jet programs are already in production in Mexico. The Airbus A400 M and Chinese ARJ21 will remain in production in Canada for the present. With the transfer of aerospace programs expected to be completed by May 2008, we believe the outlook for 2008 is positive beginning in the second quarter.

In Fabricated Products, with the addition of sales staff, we expect to see improvements in 2008 from prior years as we continue to place more emphasis on new industrial programs and decrease reliance on automotive market products.

In North American Silicones, activity from transit seating foam customers began to increase in the latter weeks of the third quarter, giving some optimism for early 2008. The Company remains cautiously optimistic for a full recovery occurring in the second half of the year. This recovery also depends on the calander oven line operating on a continuous basis. While the equipment is operational at this time and materials are being produced and sold, it is not operating on a fully efficient basis.

In Europe, our performance was dampened by a delay in the installation of new continuous oven line and an unexpected softening of fourth quarter sales at Sterne. Aerospace sales, in particular were significantly affected by customer delays in the production of the A380 and A400M. However in 2008 we expect both Leewood and Sterne to produce double digit sales increases while reducing costs with processing and distribution improvements.

Overall in 2008, we expect a combination of increased revenues and consolidation of operations to grow both top line and bottom line performance. The Company expects to report the completion of its secondary financing and an improvement in sales and a return to profitability through 2008 predicated on the following factors: Firstly Performance and Cost management will be key in translating sales into better results. Secondly, mitigating the impact of the Canadian dollar by moving most aerospace programs to Mexico. Thirdly, realization of operating improvements from key investments.

The Company and its management are confident that these factors can be realized and that MTI will return to profitability in 2008.

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 three main product categories: Silicone, Aerospace and Fabricated Products. MTI's manufacturing divisions develop and produce silicone foam using patented technology. The Company designs and fabricates energy management systems from a variety of flexible, cellular materials. MTI also produces and distributes specialty silicone elastomer products. MTI'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's head office and Canadian manufacturing operations are located in Mississauga, Ontario, with international manufacturing operations located in Richmond and Buchanan, Virginia; Pensacola, Florida; Bremen, Germany; and a contract manufacturer venture in Ensenada, Mexico. The Company also has sales operations in England and Sweden, and an engineering support centre in Brazil. The Company's website is www.mtiglobalinc.com.

Investors, analysts and the media are invited to participate in a conference call to discuss Fiscal 2007 Fourth Quarter and Year End results on Friday, March 28, 2007, at 11:00 a.m. (Eastern). To join the conference call, please dial 1-800-731-6941 (Canada and U.S). The conference call can also be accessed via the web at www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2206380. A replay of the conference call will be available for one week by dialing 416-640-1917 (Toronto area) or 1-877-289-8525 (Canada and U.S.) and entering reservation no. 21266918#.

The foregoing press release contains forward-looking statements and is subject to important risks and uncertainties. Although MTI Global believes that the expectations reflected in any forward-looking statements are reasonable, the results or events predicted in these statements may differ materially from actual results or events. Forward looking statements are based on estimates and assumptions derived from past experience, historical trends, current conditions and expected future developments. Many factors could cause results or events to differ from current expectations, including the impact of price and product competition, general industry and market conditions and growth rates and reliance on key customers. For additional information with respect to these and other factors, see the reports filed by MTI Global Inc. with the applicable securities regulatory authorities at www.sedar.com. MTI Global Inc. disclaims any intention or obligation to update or revise any forward-looking statements.



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MTI Global Inc.
Consolidated Balance Sheets
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As at As at
(In thousands of Canadian dollars) December 31, 2007 December 31, 2006
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Assets
Current assets
Cash and cash equivalents $ 1,254 $ 1,479
Cash deposited as collateral 651 689
Accounts receivable 11,774 11,482
Income taxes recoverable 20 435
Inventories 9,967 8,880
Prepaid expenses and deposits 424 522
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24,090 23,487

Property, plant and equipment 13,240 14,503
Goodwill 9,930 12,329
Intangibles 689 -
Deferred charges 10,046 10,231
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$57,995 $60,550
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Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness $ 7,255 $ 1,746
Accounts payable and accrued
expenses 7,389 6,637
Current portion of long-term debt 3,670 883
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18,314 9,266

Long-term debt 1,852 2,960
Future income tax liabilities - 102
Non-controlling interest 264 198
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20,430 12,526
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Commitments and contingencies

Shareholders' equity
Share capital 55,102 55,102
Contributed surplus 1,022 929
Accumulated other comprehensive loss (4,117) (1,623)
Deficit (14,442) (6,384)
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37,565 48,024
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$57,995 $60,550
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MTI Global Inc.
Consolidated Statements of Deficit
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Year Ended Year Ended
(In thousands of Canadian dollars) December 31, 2007 December 31, 2006
--------------------------------------------------------------------------
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Deficit, beginning of year $ (6,384) $(5,208)

Net loss for the year (8,058) (1,176)
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Deficit, end of year $(14,442) $(6,384)
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MTI Global Inc.
Consolidated Statements of Operations
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(In thousands of Canadian dollars, Year ended Year ended
except per share amounts) December 31, 2007 December 31, 2006
--------------------------------------------------------------------------
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Sales $63,607 $61,589

Cost of sales 43,252 39,854

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Gross margin 20,355 21,735
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Operating expenses
Plant and laboratory 8,496 7,828
Sales and marketing 5,485 5,206
Administrative 6,965 6,316
Restructuring costs 478 488
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21,424 19,838
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Operating income (loss) before the
following items (1,069) 1,897
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Amortization of property, plant and
equipment 1,733 1,701
Amortization of intangibles 101 -
Amortization of deferred charges 1,413 1,251
Goodwill impairment 2,562 -
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5,809 2,952
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Loss before other items (6,878) (1,055)
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Other items

Interest on long-term debt 401 235
Other interest expense 305 138
Interest and other income (162) (178)
Foreign exchange loss 447 90
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991 285
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Loss before income taxes and
non-controlling interest (7,869) (1,340)
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Income taxes
Current income tax expense 79 154
Future income tax expense (recovery) 28 (396)
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107 (242)
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Loss before non-controlling interest (7,976) (1,098)

Non-controlling interest 82 78

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Net loss for the year $(8,058) $(1,176)

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Loss per share
- Basic and diluted $ (0.29) $ (0.04)
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MTI Global Inc.
Consolidated Statements of Comprehensive Income (Loss)
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Year ended Year ended
(In thousands of Canadian dollars) December 31, 2007 December 31, 2006
--------------------------------------------------------------------------
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Net loss for the year $ (8,058) $ (1,176)
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Other comprehensive income (loss)
Net change in cumulative translation
adjustment (2,649) 1,468
Unrecognized gain on foreign currency
forward contracts 247 -
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(2,402) 1,468
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Comprehensive income (loss) $(10,460) $ 292
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MTI Global Inc.
Consolidated Statements of Cash Flows
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Year ended Year ended
(In thousands of Canadian dollars) December 31, 2007 December 31, 2006
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Cash flows from operating activities
Net loss for the year $(8,058) $(1,176)
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Adjustments for non-cash items

Amortization 3,247 2,952
Future income tax 28 (396)
Unrealized foreign exchange loss (gain) 90 (117)
Stock option expense 93 170
Goodwill impairment 2,562 -
Non-controlling interest 82 78
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(1,956) 1,511

Net change in non-cash working
capital balances (note 20) (51) 1,747
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Cash provided by (used in) operating
activities (2,007) 3,258
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Cash flows from investing activities
Purchase of property, plant and
equipment (760) (2,371)
Acquisition (3,245) -
Deferred charges capitalized (1,573) (2,918)
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Cash used in investing activities (5,578) (5,289)
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Cash flows from financing activities
Repayments of long-term debt (1,000) (692)
Increase in bank indebtedness 5,509 19
Proceeds from stock options exercised - 20
Proceeds from term loan 3,000 -
Reduction in cash deposited as
collateral 38 -
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Cash provided by (used in) financing
activities 7,547 (653)
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Foreign exchange on cash and cash
equivalents (187) 47
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Net decrease in cash during the year (225) (2,637)


Cash and cash equivalents, beginning
of year 1,479 4,116
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Cash and cash equivalents, end of
year $ 1,254 $ 1,479
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Supplemental cash flow information
Cash paid for interest $ 663 $ 373
Cash paid for income taxes $ 114 $ 254
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Contact Information

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