MTI Global Inc.
TSX : MTI

MTI Global Inc.

March 24, 2009 01:33 ET

MTI Global Reports Fourth Quarter and Fiscal 2008 Year End Results and Purchase Agreement to Sell Leewood and Richmond Plants

MISSISSAUGA, ONTARIO--(Marketwire - March 24, 2009) - MTI Global Inc. (TSX:MTI) today reported financial results for the three months and year ended December 31, 2008.

Highlights:

- MTI Global reports 11.9% increase in revenue to $71.2 million for the year

- Aerospace sales were 24.3% ahead of prior year's sales

- European sales slowed due to customer delays and general industry downturn

- N.A. Silicone performance negatively impacted by continuing contraction of U.S. automotive market

- MTI Global takes long-lived asset impairment charge at Leewood of $4.1 million

- Net loss for the year of $18.1 million, or $0.65 per share of which $13.2 million was non-cash

- MTI Global entered into a binding asset purchase and sale agreement with Connecticut-based Rogers Corporation to sell the majority of the assets of Leewood and the N.A. Silicone Richmond, Virginia plant.

President and Chief Executive Officer, Bill Neill, commented: "MTI Global's results for 2008 were below expectations. While we achieved revenue improvements across all divisions, primarily, due to an increase in volume in Aerospace, more favourable exchange rates, and the acquisition of Mold-Ex, nevertheless profitability was adversely affected by significant non-cash charges."

Mr. Neill continued, "In addition, MTI Global's profitability was impacted by significant non-cash charges including goodwill impairment, long-lived asset impairment, and subordinated debt financing and warrant repricing charges.

"In N.A. Silicone, sales of MagniFoam, the principal product at our Richmond, Virginia plant were ahead of expectations. However, the Milton, Florida location suffered sales declines caused by the downturn in the automotive industry. The consolidation of the Buchanan plant into the Milton and Richmond plants was completed in September 2008."

"In Europe, although Leewood sales in dollars increased by 4.8% in 2008, the change in the Euro produced a 5.9% improvement over the same period. Leewood's performance was negatively impacted by significant customer delays on the Airbus A380. Furthermore, the decline across general European industry dampened performance. Sterne posted a profit in 2008 owing to improved sales of 18.1%. Sales increased across all sources including clean room manufacturing, general manufacturing, and distribution sales," he added.



Sales:

2008 2007
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Polyfab
Aerospace $ 27,980 $ 22,514
Fabricated Products 3,275 5,004
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Total Polyfab 31,255 27,518

Silicone
N.A. Silicone 22,171 19,691
Leewood 12,523 11,951
Sterne 5,253 4,447
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Total $ 71,202 $ 63,607
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Income (Loss) Before Income Taxes and
Non-controlling Interest:

2008 2007
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Polyfab $ (287) $ (724)
N.A. Silicone (2,057) (841)
Leewood (8,286) (3,548)
Sterne 80 260
Corporate (7,568) (3,016)
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Total $ (18,118) $ (7,869)
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Three Month Results:

Revenue for the three months ended December 31, 2008 was $18.0 million representing an increase of 13.9% over 2007.

Aerospace sales were $7.7 million, representing an increase of $2.5 million or approximately 47.2% over 2007. This included an increase of approximately $1.3 million due to the higher U.S. dollar compared to a year ago. Fabricated Products' sales of $0.6 million were $0.9 million or approximately 58.5% lower than the prior year. The decrease is primarily due to greater than anticipated decline in sales to the automotive and sporting goods markets.

N.A. Silicone sales were $5.3 million, approximately 3.2% lower than last year's sales of $5.5 million. This includes an increase of approximately $1.0 million due to the higher U.S. dollar. The sales decline is primarily due to the slowdown in U.S. automotive sales.

Leewood sales of $2.8 million were $0.3 million higher than prior year. Approximately $0.3 million of the increase was due to the higher Euro this year compared to a year ago.

Sterne sales of $1.6 million were $0.6 million higher than prior year due to increased sales across all revenue sources, including clean room manufacturing, general manufacturing and distribution sales. This includes an increase of approximately $0.2 million due to the increase in the Euro.

MTI Polyfab's income before income taxes in the fourth quarter was $756,000 compared to a loss of $849,000 in the prior year. The improvement is due to reduced costs associated with the outsourcing of Aerospace manufacturing to Mexico, redundant costs associated with maintaining operations in Canada and additional labour charges to reduce backlog. N.A. Silicone's loss of $570,000 was higher than last year's loss of $563,000 due to excess labour and overhead costs as a result of the consolidation of N.A. Silicone. Leewood's loss of $4.6 million was higher than prior year's loss of $3.0 million primarily due to long-lived asset impairment charges in 2008 of $4.1 million offset by an increase in technical and sales personnel to support aerospace programs, long-lived asset impairment and amortization of deferred charges. Sterne's income of $48,000 was higher than prior year's loss of $93,000 primarily due to an increase in sales volume.

The net loss for the fourth quarter of fiscal 2008 was $6.1 million or $0.23 per share compared to a loss of $5.2 million or $0.19 per share for the same period in 2007.

Year End Results

Revenue for the year ended December 31, 2008 was $71.2 million, an increase of approximately 11.9% compared to revenues of $63.6 million for the year ended December 31, 2007. Revenue in 2008 includes an increase of approximately $870,000 due to the impact of currency fluctuations.

Aerospace sales were $28.0 million for fiscal 2008, well ahead of last year's sales of $22.5 million. This is despite sales being reduced by approximately $0.1 million due to the lower U.S. dollar compared to exchange rates in effect last year.

Fabricated Products sales were $3.3 million, a decrease of approximately 34.6% compared to the previous year. The decrease in fiscal 2008 was primarily due to a decline in sales to the automotive and sporting goods market.

N.A. Silicone sales of $22.2 million in fiscal 2008, an increase of $2.5 million or approximately 12.6% compared to sales of $19.7 million for the fiscal 2007. The increase was generated from the acquisition of the silicone division of Mold-Ex (acquired in July 2007). These sales were offset by $0.1 million as a result of the effect of the lower U.S. dollar compared to exchange rates in 2007 and lower transit seating sales, as well as a decline in sales to the U.S. automotive market.

Leewood sales of $12.5 million for the year ended December 31, 2008 were $572,000 or approximately 4.8% higher than last year's sales of $11.9 million. This includes an increase of approximately $707,000 due to the increase in the Euro offset by a general slowdown in the European economy.

Sterne sales of $5.3 million for the year ended December 31, 2008 were $806,000 higher than last year's sales of $4.5 million due to increased sales across all revenue sources, including clean room manufacturing, general manufacturing and distribution sales. This includes an increase of approximately $321,000 due to the increase in the Euro.

Of total 2008 sales, Aerospace accounted for 39.3%, N.A. Silicone accounted for 31.1%, Leewood 17.6%, Sterne 7.4%, and Fabricated Products 4.6%.

Total operating expenses for the year ended December 31, 2008 of $19.4 million were $3.8 million, higher than in the same period in 2007 and include $3.6 million of restructuring charges attributable to changes in business operations, forbearance and banking arrangements, and the subordinated debt financing.

Plant and laboratory expenses were $2.9 million, approximately $0.8 million or approximately 35.2% 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, additional research staff in Leewood, and Polyfab costs associated with the Mexican contract manufacturing operation.

Sales and marketing expenses were $6.2 million, approximately $0.8 million or approximately 14.8% 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 $7.6 million increased $0.4 million, or approximately 6.2% from the same period last year. The increase is primarily due to the acquisition of Mold-Ex, an increase in professional fees and an increase in the allowance for bad debts as a result of the continued decline in the economy.

During fiscal 2008, the Company incurred restructuring costs of $3.6 million primarily related to the consolidation of the Company's N.A. Silicone plants from three locations into two, forbearance and banking arrangements, and the subordinated debt financing.

As at September 30, 2008, due to changes in economic circumstances and the performance of Company, the Company assessed the fair value of all the operating segments to which underlying goodwill is attributed. As a result of this assessment, the Company determined that there had been an impairment in the carrying value of N.A. Silicone's and Leewood's goodwill and, accordingly, a $3.4 million write down was recorded.

The net loss for the year ended December 31, 2008 was $18.1 million, or $0.65 per share compared to a net loss of $8.1 million, or $0.29 per share compared to last year.

As at December 31, 2008, the Company had working capital of $1.1 million, including cash and cash equivalents, plus restricted cash totaling $0.8 million, compared with $5.8 million at December 31, 2007. Despite an increase in current assets through revenue growth, working capital has decreased due to an increase in bank indebtedness, and accounts payable used to finance operations and subordinated debt.

The Company has a demand line of credit, with a maximum of $6.0 million. The demand line of credit is subject to working capital limits, bearing interest at the Bank's prime rate plus 2.00%. The effective rate at December 31, 2008 was 5.50%. As part of the Bank's facility agreement for the demand line of credit, certain subsidiaries of the Company have provided a general security agreement and collateral security over substantially all assets of Polyfab and N.A. Silicone. The amount of bank indebtedness outstanding at December 31, 2008 was $5.9 million compared with $6.0 million at December 31, 2007.

Financial Covenant Update:

As previously disclosed, the Company entered into a new agreement with its Bank dated June 3, 2008. Under the terms of the new agreement, similar financial and general covenants and more restrictive reporting requirements have been placed on the Company. The Company signed a waiver of its second quarter breach of financial and general covenants with its Bank and Lender on August 15, 2008. Under the terms of the waiver, the Company agreed to additional general covenants and to amend the pricing of the warrants issued in connection with the June 3, 2008 financing. The Company signed an amended waiver on October 21, 2008, that included amendments to the general covenants in the original waiver.

The Company is in breach of financial and general covenants with the Bank and 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. 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 violations provide the Bank and the Lender with the right to demand repayment of its indebtedness. The Company is in continuing discussions with the Bank and the Lender to obtain a waiver of the breaches.

Purchase and Sale Agreement:

MTI Global Inc. and certain of its subsidiaries have entered into a binding asset purchase and sale agreement with Connecticut-based Rogers Corporation to sell the majority of the assets of Leewood and the N.A. Silicone Richmond, Virginia plant. The purchase price is US$7.4 million. Closing of the transaction, which is expected to occur within 30 days, remains subject to a number of customary conditions.

MTI Global's President and Chief Executive Officer, Bill Neill, commented: "This sale was a very difficult decision to make, but it is absolutely the right one for the Company. In the face of continuing economic challenges, MTI's management and Board are committed to reducing the Company's debt obligations and stem ongoing losses. This sale will generate capital to reduce debt and allow the Company to re-focus on its primary business."

Mr. Neill added: "In addition, the Company intends to divest itself of the remaining silicone assets in Milton, Florida and Cavaillon, France (Sterne) when an appropriate opportunity presents itself. We will be judicious in seeking the right buyer at the right price at the right time. Meanwhile, we will continue to manage those divisions efficiently and appropriately. In time, this planned further disposition of assets will ensure a complete and orderly exit from the silicone business. Going forward MTI Global will focus on Aerospace as its core line of business, which has excellent future growth prospects."

Fiscal 2009 Outlook:

2008 was a challenging year for the Company. The Company did post improved sales results across all divisions. However, the Company continued to incur higher than expected outsourced manufacturing costs as material and conversion costs remained elevated and incurred significant restructuring costs related to the consolidation of N.A. Silicone and forbearance and banking arrangements. In addition, significant non-cash charges such as goodwill impairment, long-lived asset impairment and subordinated debt financing and warrant re-pricing charges negatively impacted the results for the year.

Looking to 2009, MTI Global will be a transformed company with a major focus on the aerospace market. The 2009 outlook, therefore, is predicated on the successful closing of this transaction to sell the majority of the assets of Leewood and the N.A. Silicone Richmond, Virginia plant.

The disposition of these assets will allow MTI Global to reduce its debt obligations and improve the health of the Company's balance sheet.

It is also the Company's goal to sell its remaining silicone assets in Milton, Florida and Cavaillon, France (Sterne) when an appropriate opportunity presents itself. As the Company pursues this goal, the remaining N.A. Silicone operations at Milton will be run as efficiently as possible with cost cutting measures introduced in early 2009. At Sterne, management expects sales to continue to grow in 2009 and the division to remain profitable.

At Polyfab, management realized on expected sales growth in Aerospace during fiscal 2008. Sales for the year were on target and ahead of the prior year. Margins were lower than expected as the Company incurred higher than expected material conversion costs and service costs, both of which the Company is addressing. The Company expects the higher sales volumes to continue as well as an improvement in margin trends for the first quarter of 2009. The improvement in margins will be driven by actions taken to improve the effectiveness of manufacturing processes in Mexico.

In Fabricated Products, a lower than expected sales volume was realized due to a softening in the sporting goods market and in automotive. The Company has reinforced the sales group in Fabricated Products and continues to seek an expansion in the range of business services being offered to customers.

The focus of the Company will be to strengthen its balance sheet and return ongoing operations to full profitability. 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 non-core 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.

In summary, based on the operational changes announced and preliminary indications in the aerospace market, the Company remains cautiously optimistic that it will report improving results into 2009. In view of the Canadian dollar value against the U.S. dollar, the Company is increasingly confident about achieving improved results with all of its aerospace programs relocated to Mexico.

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 Global'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 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 Richmond 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 2008 Fourth Quarter and Year end results on Tuesday, March 24, 2009, at 10:50 a.m. (Eastern). To join the conference call, please dial 1-800-594-3790 (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 1-800-718-6306 and entering reservation no. 21301088#.

The foregoing press release contains forward-looking information within the meaning of applicable securities laws, including statements relating to MTI Global's expectations with respect to the range of services offered by Fabricated Products, improved margins and reduced operating costs at N.A. Silicone, and Leewood, increased sales at Sterne, the prospects for Aerospace and overall improved results and return to profitability in 2009. In addition, the Fiscal 2009 Outlook section of this press release also 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 ensuing financial year, and readers are cautioned that it may not be appropriate for any other purpose. Terms and phrases such as "expects", "anticipates", "will", "continues", "intends", "to begin", "improving results" and "increasingly confidents" 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, current conditions, business prospects and opportunities and other expected future developments. 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, the possible failure to successfully plan and execute business improvement strategies, restrictions and covenants contained in MTI Global's credit agreements and the existence of defaults under such covenants, fluctuations in currency and exchange rates, commodity prices or interest rates, reliance on key customers and the inability to successfully complete the sale of the Leewood assets and the N.A. Silicone Richmond, Virginia plant, 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 statements. MTI Global disclaims any intention or obligation to update or revise any forward-looking statements, except as required by applicable law.

Financial Statements Follow



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MTI Global Inc.
Consolidated Balance Sheets
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As at As at
December 31, December 31,
(In thousands of Canadian dollars) 2008 2007
---------------------------------------------------------------------------
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Assets
Current assets
Cash and cash equivalents $ 1,704 $ 1,254
Restricted cash 750 651
Short-term investment 109 -
Accounts receivable 13,017 11,774
Income taxes recoverable 111 20
Inventories 11,721 9,967
Prepaid expenses and deposits 413 424
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27,825 24,090

Property, plant and equipment, net 12,244 13,240
Asset held for sale 611 -
Goodwill 6,729 9,930
Intangibles, net 604 689
Deferred development costs, net 7,985 10,046
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$ 55,998 $ 57,995
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Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness $ 8,288 $ 7,255
Accounts payable and accrued expenses 10,875 7,389
Subordinated debt 7,000 -
Current portion of long-term debt 556 3,670
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26,719 18,314
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Long-term debt 2,059 1,852
Non-controlling interest 393 264
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29,171 20,430
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Commitments and contingencies

Shareholders' equity
Share capital 55,102 55,102
Contributed surplus 1,143 1,022
Warrants 1,474 -
Accumulated other comprehensive loss 1,400 (4,117)
Deficit (32,292) (14,442)
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26,827 37,565
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$ 55,998 $ 57,995
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MTI Global Inc.
Consolidated Statements of Deficit
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Year ended Year ended
December 31, December 31,
(In thousands of Canadian dollars) 2008 2007
---------------------------------------------------------------------------
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Deficit, beginning of year $ (14,442) $ (6,384)
Cumulative effect of adopting new accounting
standards 212 -
Net loss for the year (18,062) (8,058)
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Deficit, end of year $ (32,292) $ (14,442)
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MTI Global Inc.
Consolidated Statements of Operations
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Year ended Year ended
(In thousands of Canadian dollars, December 31, December 31,
except per share amounts) 2008 2007
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Sales $ 71,202 $ 63,607

Cost of sales 56,692 50,835

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Gross margin 14,510 12,772
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Operating expenses
Plant and laboratory 2,886 2,135
Sales and marketing 6,238 5,434
Administrative 7,558 7,118
Restructuring costs 3,551 478
Foreign exchange loss (gain) (829) 447
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19,404 15,612
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Operating loss before the following items (4,894) (2,840)
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Amortization of property, plant and equipment 231 409
Amortization of intangibles 213 101
Amortization of deferred development costs 2,168 1,413
Goodwill impairment 3,426 2,562
Long-lived asset impairment 4,087 -
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10,125 4,485
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Loss before other items (15,019) (7,325)
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Other items
Interest on long-term debt 329 401
Interest on subordinated debt 512 -
Other interest expense 558 305
Write-down deferred development costs 78 -
Write-down of property, plant and equipment 257 -
Subordinated debt financing and warrant re-pricing
charges 1,474 -
Interest and other income (109) (162)
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3,099 544
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Loss before income taxes and non-controlling interest (18,118) (7,869)
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Income taxes
Current income tax expense (recovery) (130) 79
Future income tax expense - 28
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(130) 107
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Loss before non-controlling interest (17,988) (7,976)
Non-controlling interest 74 82
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Net loss for the year $ (18,062) $ (8,058)
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Loss per share
Basic and diluted $ (0.65) $ (0.29)
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MTI Global Inc.
Consolidated Statements of Comprehensive Loss
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Year ended Year ended
December 31, December 31,
(In thousands of Canadian dollars) 2008 2007
---------------------------------------------------------------------------
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Net loss for the year $ (18,062) $ (8,058)
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Other comprehensive loss
Net change in cumulative translation adjustment 5,672 (2,649)
Unrealized gain (loss) on foreign exchange forward
contracts (155) 247
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5,517 (2,402)
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Comprehensive loss $ (12,545) $ (10,460)
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MTI Global Inc.
Consolidated Statements of Cash Flows
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Year ended Year ended
December 31, December 31,
(In thousands of Canadian dollars) 2008 2007
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Operating Activities
Net loss for the year $ (18,062) $ (8,058)
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Add (deduct) items not involving cash

Amortization 4,186 3,247
Future income tax - 28
Unrealized foreign exchange loss (gain) (370) 90
Stock option expense 121 93
Subordinated debt financing and warrant re-pricing
charges 1,474 -
Goodwill impairment 3,426 2,562
Long-lived asset impairment 4,087 -
Write-down deferred development costs 78 -
Write-down of property, plant and equipment 257 -
Non-controlling interest 74 82
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(4,729) (1,956)
Cumulative effect of adopting new accounting
standards 212 -
Net change in non-cash working capital balances 1,943 (51)
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Cash used in operating activities (2,574) (2,007)
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Investing Activities
Purchase of property, plant and equipment (602) (760)
Acquisition - (3,245)
Deferred development costs capitalized (1,223) (1,573)
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Cash used in investing activities (1,825) (5,578)
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Financing Activities
Repayment of long-term debt (3,385) (1,000)
Increase in short-term investment (109) -
Increase in bank indebtedness 1,033 5,509
Proceeds from subordinated debt 7,000 -
Proceeds from term loan - 3,000
Decrease (increase) in restricted cash (99) 38
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Cash provided by financing activities 4,440 7,547
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Foreign exchange on cash and cash equivalents 409 187
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Net increase (decrease) in cash during the year 450 (225)

Cash and cash equivalents, beginning of year 1,254 1,479
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Cash and cash equivalents, end of year $ 1,704 $ 1,254
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Supplemental cash flow information
Interest paid $ 1,409 $ 663
Income taxes paid $ 49 $ 114
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Contact Information

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