MTI Global Inc.
TSX : MTI

MTI Global Inc.

November 14, 2007 19:21 ET

MTI Global Reports Fiscal 2007 Third Quarter and Nine Months Loss

Reports on Progress Achieved in Migrating Aerospace Production to Mexico

MISSISSAUGA, ONTARIO--(Marketwire - Nov. 14, 2007) - MTI Global Inc. (TSX:MTI)('MTI') today reported financial results for the three and nine-month periods ended September 30, 2007. MTI Global also announced the consolidation of the majority of Aerospace production in Mexico and the consolidation options of recently acquired Mold-Ex silicone division with MTI's current US production facilities.

Third Quarter Highlights:

- MTI reports third quarter net loss of $2.1 million, or eight cents per share

- MTI Global in breach of bank covenants - in discussion to rectify

- Company implementing additional initiatives for improved financial performance

- Increased sales for both North American Silicone and European Silicone

- Aerospace sales negatively affected by Canadian dollar exchange rate but effect mitigated by Lean initiatives

- Migration of Aerospace production from Canada to MTI de Baja, Mexico progressing

- Completed acquisition of Mold-Ex Silicone contributing $1.8 million to revenues

- MTI Global awarded two new Bombardier contracts valued at $20 million

- Subsequent to the quarter end, MTI Global awarded transit seating contracts valued at approximately $750,000

President and Chief Executive Officer, Bill Neill commented, "Third quarter results were disappointing to say the least. While we expected some continued pressures on results due to the rising Canadian dollar, we did not anticipate the sharp dramatic rise in such a short period of time. To put this into context, during the third quarter, the strengthening Canadian dollar eroded approximately $427,000 in Aerospace sales alone."

Mr. Neill commented, "Over the past year, we have implemented a number of cost cutting and efficiency initiatives to mitigate industry and economic pressures. In light of the current pressures and to further those initiatives, we are implementing a shorter term plan focused specifically on improving and streamlining customer and sales relationships; achieving more stringent discipline with respect to processes; and tighter management of working capital including inventory and overall financial performance. This is the next logical step building on existing measures."

"We took decisive action earlier on in the year to mitigate the effects of the rising Canadian dollar - including moving production of most Aerospace programs to Mexico - and the full benefits of this action will be fully reflected starting with the first quarter of fiscal 2008," he added.

In Aerospace, we maintained our single source supply status with Bombardier Aerospace by securing two new contracts to supply thermal and acoustic insulation systems: one for the CRJ1000 NextGen regional jet, the other for the Learjet 60 XR business jet. The contracts are valued at $20 million.

"On the silicone side, we have made good progress during the quarter in both the European Silicone and North American Silicone divisions from a sales perspective, and by adding new products and capitalizing on cross-selling among our companies. For example in Europe, MTI Sterne is producing U.S.$750,000 worth of silicone extrusions for train windows, a contract won with the help of our North American silicone division."

During the quarter, we added the recently acquired (July 12, 2007) silicone division of Mold-Ex to the North American Silicone division. This complementary acquisition contributed approximately $1.8 million to revenues to this division. MTI Global previously announced it would review consolidation alternatives for this division with a view to maximizing efficiencies and cost reductions. The Company will announce the consolidation decision in the coming weeks - after discussions with unions and non union personnel at both plants have been completed.

Subsequent to the third quarter end, North American Silicone and European Silicone won new mass transit seating contracts. MTI Global was awarded the Maryland Rail Commuter refurbishment program which includes not only our MF1™ product for seat cushions, but also our MagniLite™ melamine product for back cushions.

In European Silicone, MTI was awarded a further seating contract for the North London Line and the East London Line new car build. Bill Neill commented, "We are pleased to see that the trend has reversed upwards in mass transit, especially considering that our work towards winning these programs began nearly one year ago. Production will begin in December 2007. In addition to these two new contracts, valued at approximately $750,000 over the next 12 months, we have a smaller contract win for trains in Norway and a number of submissions for similar projects in China, South Korea and Japan."

"In Asia, there are encouraging developments in China and in Japan. For China, we are now in final negotiations for a new Beijing Underground project to start in January 2008. In Japan, we have also won a small contract for women transit drivers. This is our first sale in Japan, and will help develop the credibility we need in this large market".

Migration of Aerospace Production to Mexico:

As previously reported, MTI continued the migration of its Aerospace production to MTI de Baja, Mexico, starting with the Boeing 787 program. To date, nearly 40% of the planned Aerospace production transfers have been completed with the remaining 60% on target to be completed by year end. During the quarter, MTI Global incurred expenses of approximately $1 million associated with the migration of programs to Mexico. The Company also expects a further $500,000 in related expenses to be incurred in the fourth quarter with the full financial benefits and meaningful effects on results to begin in the first quarter of fiscal 2008.



MTI Global Sales:
-----------------

Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
$000s 2007 2006 2007 2006

MTI PolyFab:
Aerospace 4,793 5,554 17,312 17,361
Fabricated Products 944 1,028 3,516 4,267
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5,737 6,582 20,828 21,628
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Silicone:
N.A. Silicone 5,723 4,407 14,207 13,734
European Silicone 4,081 3,860 12,798 10,914
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9,804 8,267 27,005 24,648
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15,541 14,849 47,833 46,276
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MTI Global Loss Before Income Taxes and Non-controlling Interest:
-----------------------------------------------------------------

Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
$000s 2007 2006 2007 2006

MTI PolyFab (1,025) 180 (353) 1,350
N.A. Silicone (354) 219 (278) 977
European Silicone (4) (315) (191) (435)
Corporate (583) (699) (1,810) (2,049)
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(1,966) (615) (2,632) (157)
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Three Months Results:

Sales for the three months ended September 30, 2007 were $15.5 million, an increase of 5% compared with last year's sales of $14.8 million. Sales included a decrease of approximately $700,000 attributable to the impact of the decline in the U.S. dollar compared with the currency rates for the same period in 2006.

Aerospace sales for the third quarter of fiscal 2007 were $4.8 million compared with sales of $5.6 million for the comparable period last year. Sales reflect a decrease of $427,000 related to the weakening U.S. dollar compared with last year.

Fabricated Products sales for the period were $944,000 or 8% lower than sales of $1 million for the third quarter of fiscal 2006. The decrease was attributable to an anticipated decline in automotive market sales.

North American Silicone sales for the third quarter of fiscal 2007 increased by 30%, or $1.3 million, to $5.7 million, compared with $4.4 million for the same period last year. The increase is due to revenues of $1.8 million from the acquisition of Mold-Ex during the quarter, offset by $300,000 in the quarter due to the lower exchange rate in effect this year as well as overall reduced activity in the transit market.

European Silicone sales increased by $221,000, or 6% to $4.1 million for the third quarter of 2007 compared with sales of $3.9 million for the same period last year. The sales improvement included a modest $27,000 gain, or 1% attributable to the increase in the Euro.

On a percentage basis, Aerospace accounted for 31% of total sales, compared with 37% for the same period last year. Silicone sales represented 63% of total sales compared to 56% for the comparable period last year. Fabricated Products accounted for 6% of total sales compared with 7% for last year.

The gross margin for the third quarter in 2007 was $4.5 million, a $550,000 or 11% decrease, compared with the third quarter last year. The gross margin as a percentage, decreased to 29% from 34%, mostly due to redundant costs at MTI PolyFab resulting from subcontracting the majority of Aerospace manufacturing to Mexico and the decrease in the U.S. dollar. Offsetting the decrease in gross margin was a positive contribution of $745,000 from the inclusion of the Mold-Ex silicone results.

Total operating expenses for the three months ended September 30, 2007 were $5.3 million, $478,000 higher than the same period in 2006. Plant and laboratory expenses were $2.2 million, $280,000 or 15% higher than the same period last year. The increase is due to additional operating expenses resulting from the acquisition of Mold-Ex during the quarter and MTI PolyFab costs associated with the Mexican contract manufacturing operation. These were offset by the effect of translating foreign currencies. Sales and marketing expenses were $1.3 million, consistent with the prior year. Administrative expenses were $1.6 million, a decrease of $30,000 or 2% from the same period last year. This is primarily due to U.S. currency translation and decreases at MTI PolyFab, partially offset by an increase in management positions at Leewood and MTI Sterne. During the quarter, MTI Global accrued restructuring costs of $227,000 related to termination costs associated with staff reductions at MTI PolyFab in Canada.

MTI PolyFab's loss before income taxes and non-controlling interest for the three months ended September 30, 2007 of $1.0 million was $1.2 million below last year's income for the third quarter. The decrease in the U.S. dollar contributed approximately $256,000 to the decrease in income. MTI PolyFab also suffered reduced income due to redundant costs incurred as a result of outsourcing a portion of its Aerospace manufacturing to Mexico and restructuring costs booked during the quarter.

North American Silicone's loss before income taxes and non-controlling interests was $354,000, compared to a profit of $219,000 in the same period last year. The decrease was mainly due to sales decreases in the quarter and a change in product mix thereby reducing gross margin. This was offset by net income in Mold-Ex of $110,000.

European Silicone posted a loss before tax and non-controlling interest for the quarter of $4,000 compared to a loss last year of $315,000. MTI Sterne increased its profits on the strength of increased sales, and Leewood through slightly improved gross margins.

The net loss for the third quarter of 2007 was $2.1 million, or eight cents per share, compared with a net loss of $463,000 or two cents per share for the same period last year.

Nine Months Results:

Sales for the nine months ended September 30, 2007 were $47.8 million, 3% ahead of last year's sales of $46.3 million. This includes a decrease of approximately $529,000 due to the impact of currency fluctuations.

Aerospace sales of $17.3 million for the nine-month period were marginally behind last year's sales for the comparable period. This is despite sales being reduced by approximately $851,000 due to the lower U.S. dollar compared to exchange rates in effect last year.

Fabricated Products year-to-date sales were $3.5 million, 18% less than last year for the same period. This decrease was primarily due to an anticipated decline in sales to the automotive market.

North American Silicone sales for the nine-month period of fiscal 2007 were $14.2 million in 2007, an increase of $473,000 or 3% compared to sales of $13.7 million for the same period last year. This included a $1.8 million contribution from Mold-Ex during the quarter. Sales for the period were also offset by $332,000 resulting from the lower U.S. dollar and lower transit seating sales compared with last year.

European Silicone sales for the period were $12.8 million, $1.9 million or 17% higher than last year's sales of $10.9 million. This included a net increase of approximately $654,000 due to the increase in the Euro. In Euros, Leewood's gross sales increased approximately 10% compared to the prior year while sales at MTI Sterne, in Euros, increased by approximately 33%.

The gross margin for the nine months ended September 30, 2007 was $15.7 million, a decrease of $1.3 million or 7%. The gross margin as a percentage decreased to 32% from 36% in the same period of 2006 because of duplication of costs in Mexico and margin erosions due to currency fluctuations.

Total operating expenses for the nine months ended September 30, 2007 were $15.1 million, $580,000 or 4% higher than the same comparable period last year. Mold-Ex was responsible for $560,000 in operating expenses. Sales and marketing expenses of $4.0 million were $186,000 higher than the same period last year with $36,000 of the increase attributable to Mold-Ex and the balance to increased sales activity. Administrative expenses of $4.8 million were consistent with the same period last year.

The loss before income taxes and non-controlling interest for the nine months ended September 30, 2007 was $2.6 million compared to a loss of $157,000 last year.

For the nine months ended September 30, 2007, the net loss was $2.8 million, or ten cents per share, compared to a net loss of $348,000, or one cent per share, for the same period last year.

As at September 30, 2007, the Company had working capital of $7.2 million - including cash and cash equivalents, plus cash deposited as collateral totaling $0.7 million - compared with $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 is taking active measures including better inventory management to improve working capital.

Subsequent to the release of the second quarter results, the Company was notified by its Canadian chartered bank ("Bank") that it was in breach of a financial covenant in its credit facility agreement as at June 30, 2007. Specifically, the Company did not comply with the debt service coverage ratio of 1.25 calculated on a rolling twelve month basis. Furthermore, the Company was in breach of a general covenant concerning the transfer of certain inventory and equipment to the Company's contract manufacturer in Mexico without first receiving the Bank's prior written consent. The Company has received a written notice of waiver of the June 30, 2007 breaches through November 30, 2007 and has requested the Bank's written consent for ongoing transfers of inventory and equipment in compliance with the terms of its loan agreement. Concurrent with this press release, the Company has re-filed its interim financial statements for the three months and six months ended June 30, 2007, to disclose the breach in debt covenants as at June 30, 2007. There was no impact on the June 30, 2007 balance sheet nor to the statements of operations and cash flows for the three month and six month periods then ended.

Due to unfavourable financial results in the third quarter, the Company remains in breach of the same debt service coverage ratio as at September 30, 2007. Accordingly, the credit facilities consisting of an operating and term loan with the Bank are in default and have both been reflected in current liabilities. The Company also expects to be in breach of the debt service covenant at December 31, 2007.

The Company has commenced discussions with the Bank with respect to the breaches and has requested that the Bank waive the default for September 30, 2007. There can be no assurance that the Bank will not exercise its respective rights and remedies during the continuance of any defaults under the loan agreement. In addition, if the Bank exercises its rights and remedies, there can be no assurance that a replacement loan facility can be obtained in order to permit the repayment of indebtedness under the agreement, or that, if such a replacement facility is obtained, it will be obtained at costs, or on terms and conditions comparable to those of the Company's current indebtedness.

Outlook - Fourth Quarter 2007:

"This was just not the kind of quarter we expected, said Bill Neill. "While the benefits of the move of our Aerospace production to Mexico will not be fully realized during the fourth quarter, we expect that during the first quarter of 2008, we will see a materialization of those benefits. The majority of our Aerospace programs will have been moved and associated expenses will have been taken into the fiscal 2007 financials. So we'll start with a clean slate on the Aerospace front."

"In the mass transit sector, we continue to see an upward trend with increasing activity in this market. We were pleased with the new contracts MTI Global was awarded shortly after the quarter end, the Maryland Rail Commuter refurbishment program and the London Rail contract. We look forward to reporting back to our shareholders on the Beijing Underground and other seating projects."

"In North American Silicone, we continue to expect increased sales and profits right through fiscal 2008, particularly with the addition of the silicone division of Mold-Ex to the MTI Global portfolio."

Mr. Neill continued, "We are pleased with the continued progress in Europe. At MTI Leewood, while we were affected by delays in completing the installation of the continuous oven line, we have nonetheless been fulfilling and shipping orders - but not as cost effectively as we will be able to when the continuous oven line is fully operational in the first quarter of 2008. At MTI Sterne, we continue to generate substantial growth in top and bottom line. MTI Sterne continues to broaden its product offering focusing on clean room manufacturing but has now also begun to distribute MTI Leewood products. We expect MTI Sterne to keep generating double digit growth in the fourth quarter and in fiscal 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 the Q3 fiscal 2007 results on Thursday, November 15, 2007, at 11:00 a.m. (Eastern). To join the conference call, please dial 1-800-732-1073 (Canada and U.S). The Q3 fiscal 2007 conference call can also be accessed at http://www.newswire.ca. 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. 21253095#.

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.

Financial Statements Follow



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MTI Global Inc.
Unaudited Interim Consolidated Balance Sheets
---------------------------------------------------------------------------

(In thousands of Canadian As at As at
dollars) September 30, 2007 December 31, 2006

Assets

Current assets
Cash and cash equivalents $151 $1,479
Cash deposited as collateral 654 689
Accounts receivable 12,501 11,482
Income taxes recoverable - 435
Inventories 10,133 8,880
Prepaid expenses and deposits 819 522
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24,258 23,487

Property, plant and equipment 13,473 14,503
Goodwill 12,317 12,329
Intangibles 741 -
Deferred charges 10,051 10,231
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$60,840 $60,550
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Liabilities and Shareholders' Equity

Current liabilities
Bank indebtedness $5,022 $1,746
Accounts payable and accrued expenses 7,260 6,637
Income taxes payable 24 -
Current portion of long-term debt 4,765 883
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17,071 9,266

Long-term debt 942 2,960
Future income tax liabilities - 102
Non-controlling interest 303 198
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18,316 12,526
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Commitments and contingencies

Shareholders' equity
Share capital 55,102 55,102
Contributed surplus 999 929
Accumulated other comprehensive loss (4,373) (1,623)
Deficit (9,204) (6,384)
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42,524 48,024
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$60,840 $60,550
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MTI Global Inc.
Unaudited Interim Consolidated Statements of Deficit
---------------------------------------------------------------------------

Nine months ended Nine months ended
(In thousands of Canadian dollars) September 30, 2007 September 30, 2006
---------------------------------------------------------------------------
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Deficit, beginning of period $(6,384) $(5,208)

Net loss for the period (2,820) (348)
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Deficit, end of period $(9,204) $(5,556)
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MTI Global Inc.
Unaudited Interim Consolidated Statements of Operations
---------------------------------------------------------------------------
Three Three Nine Nine
(In thousands months months months months
of Canadian ended ended ended ended
dollars, except September September September September
per share amounts) 30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Sales $15,541 $14,849 $47,833 $46,276

Cost of sales 11,038 9,796 32,195 29,381

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Gross margin 4,503 5,053 15,638 16,895
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Operating expenses
Plant and laboratory 2,206 1,926 6,067 5,899
Sales and marketing 1,262 1,261 4,060 3,874
Administrative 1,606 1,636 4,772 4,773
Restructuring costs 227 - 227 -
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5,301 4,823 15,126 14,546
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Operating income (loss)
before the following items (798) 230 512 2,349
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Amortization of property,
plant and Equipment 425 449 1,324 1,297
Amortization of intangibles 52 - 52 -
Amortization of deferred
charges 408 322 1,073 928
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885 771 2,449 2,225
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Income (loss) before
other items (1,683) (541) (1,937) 124
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Other items

Interest on long-term debt 96 58 263 178
Other interest expense 43 40 154 113
Interest and other income - (20) (146) (155)
Foreign exchange loss (gain) 144 (4) 424 145
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283 74 695 281
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Loss before income taxes
and non-controlling interest (1,966) (615) (2,632) (157)
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Income taxes
Current income tax expense 33 22 57 59
Future income tax expense
(recovery) 83 (154) 5 102
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116 (132) 62 161
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Loss before non-controlling
interest (2,082) (483) (2,694) (318)

Non-controlling interest 48 (20) 126 30
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Net loss for the period $(2,130) $(463) $(2,820) $(348)
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Loss per share
- Basic $(0.08) $(0.02) $(0.10) $(0.01)
- Diluted $(0.08) $(0.02) $(0.10) $(0.01)
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MTI Global Inc.
Unaudited Interim Consolidated Statements of Comprehensive Loss
---------------------------------------------------------------------------
Three Three Nine Nine
months months months months
ended ended ended ended
(In thousands of September September September September
Canadian dollars) 30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------------------------------
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Net loss for the period $(2,130) $(463) $(2,820) $(348)
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Other comprehensive income
(loss)
Net change in cumulative
translation adjustment (1,227) (167) (3,048) (176)
Unrecognized gain (loss)
on foreign currency
forward contracts 162 - 390 -
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(1,065) (167) (2,658) (176)
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Comprehensive loss $(3,195) $(630) $(5,478) $(524)
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MTI Global Inc.
Unaudited Interim Consolidated Statements of Cash Flows
---------------------------------------------------------------------------
Three Three Nine Nine
months months months months
ended ended ended ended
(In thousands of September September September September
Canadian dollars) 30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------------------------------
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Cash flows from operating
activities
Net loss for the period $(2,130) $(463) $(2,820) $(348)
---------------------------------------------------------------------------
Adjustments for
non-cash items
Amortization 885 771 2,449 2,225
Future income tax 83 (154) 5 102
Unrealized foreign
exchange loss (gain) 87 (71) 359 17
Stock option expense
(recovery) (9) 42 70 127
Non-controlling interest 48 (20) 126 30
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(1,036) 105 189 2,153
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Net change in non-cash
working capital balances (268) 2,010 (2,143) 1,632
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Cash provided by (used in)
operating activities (1,304) 2,115 (1,954) 3,785
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Cash flows from investing
activities
Purchase of property,
plant and equipment (80) (803) (696) (1,443)
Acquisition (3,245) - (3,245) -
Deferred charges capitalized (389) (793) (1,316) (2,281)
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Cash used in investing
activities (3,714) (1,596) (5,257) (3,724)
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Cash flows from financing
activities
Repayments of long-term debt (245) (260) (791) (573)
Increase (decrease) in
bank indebtedness 1,393 (18) 3,686 61
Proceeds from stock
options exercised - - - 20
Proceeds from term loan 3,000 - 3,000 -
Reduction (increase) in
cash deposited as collateral (9) - 35 -
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Cash provided by (used in)
financing activities 4,139 (278) 5,930 (492)
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Foreign exchange on cash
and cash equivalents (7) (91) (47) (122)
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Net increase (decrease)
in cash during the period (886) 150 (1,328) (553)

Cash and cash equivalents,
beginning of period 1,037 3,413 1,479 4,116
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Cash and cash equivalents,
end of period $151 $3,563 $151 $3,563
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Supplemental cash flow
information
Cash paid for interest $157 $98 $445 $291
Cash paid for income taxes $2 - $17 $155
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Contact Information

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