Reko International Group Inc.
TSX : REK

Reko International Group Inc.

March 05, 2010 10:44 ET

Reko Announces Second Quarter Results for Fiscal 2010

WINDSOR, ONTARIO--(Marketwire - March 5, 2010) - Reko International Group Inc. (TSX:REK) today announced results for its second quarter ended January 31, 2010.

Financial Highlights (complete statements follow):
 
  Three Months Six Months
  (unaudited) (unaudited)
  Fisca   Fiscal Fiscal   Fiscal
  2010   2009 2010   2009
Sales $8,795   $16,480 $18,050   $30,361
Net (loss) income (1,867 ) 875 (3,044 ) 1,312
EPS basic (0.29 ) 0.12 (0.47 ) 0.18
Working capital       13,981   16,649
Shareholders' equity       40,579   45,345
Shareholders' Equity per Share       6.32   6.43

Consolidated sales for the quarter ended January 31, 2010, were $8.8 million, compared to $16.5 million in the prior year, a decrease of $7.7 million or 46.7%. The decrease in sales in the quarter was primarily related to volume decreases, changes in the value of the U.S. dollar and depressed market prices. Consolidated sales for the six months ended January 31, 2010 were $18.0 million, compared to $30.4 million in the prior year, a decrease of 40.5%.

The gross loss for the three months ended January 31, 2010, was $0.6 million, or 7.0% of sales, compared to a gross profit of $3.9 million in the prior year. The significant decrease in gross profit over the prior year, of approximately $4.5 million, relates to an inability to secure sufficient sales to absorb overhead. The gross loss for the six months ended January 31, 2010 was $0.5 million, or 2.6% of sales, compared to a gross profit of $6.3 million, or 20.8% of sales, in the prior year.

Selling and administrative expenses for the three months ended January 31, 2010 were $1.6 million, or 17.9% of sales, compared to $2.3 million, or 14.4% of sales for the same period in the prior year. While the selling, general and administrative expenses declined 34%, year over year, they increased as a percentage of sales reflecting the abnormally low sales volumes experienced by Reko in the second quarter of the current year. Selling and administrative expenses for the six months ended January 31, 2010 were $3.0 million, or 16.8% of sales, compared to $3.9 million, 12.8% of sales, in the prior year.

Net loss for the quarter was $1.9 million or $0.29 per share, compared to income of $0.9 million, or $0.12 per share, in the same period of the prior year. Net loss for the six months ended January 31, 2010 was $3.0 million, or $0.47 per share, compared to income of $1.3 million, or $0.18 per share, in the same period of the prior year.

"Reko continues to face challenges in all the industries in which it operates. Nonetheless, we are working diligently to return to profitability and improve our market position," stated Diane St. John, C.E.O. "We have seen an increase in automotive activity, indicating that automotive OEM's recognize the need for model changes and enhancements to address customer demand as the economy recovers. We continue to diversify our customer base and product mix while maintaining our cost cutting programmes. Reko is optimistic that awarded business levels will improve in these times of transformation within our industry."

Founded in 1976, Reko International Group (TSX:REK) is a highly integrated, technology driven engineering and manufacturing firm providing engineered solutions for the plastics segment of the automotive, aerospace and consumer product markets. In its eight production facilities in Ontario, Reko designs and manufactures precision moulds and other related industrial tooling, in addition to its own proprietary line of CNC machining centres.

         
   
INTERIM CONSOLIDATED BALANCE SHEETS
As at January 31, 2010 with comparative figures for July 31, 2009 (in 000's)
    January 31,   July 31,
    (unaudited)   (audited)
    2010   2009
ASSETS        
Current        
  Cash and cash equivalents $ -- $ 3,084
  Accounts receivable   9,240   17,959
  Other receivables   216   204
  Non-hedging financial derivatives (Note 4)   870   1,522
  Income taxes receivable   146   24
  Work-in-progress   18,614   14,852
  Prepaid expenses and deposits   661   572
  Future income taxes   511   12
    30,258   38,229
 
Capital assets   35,307   37,512
Future income taxes   2,966   3,409
SR & ED tax credits   4,610   4,685
  $ 73,141 $ 83,835
 
LIABILITIES        
Current        
  Bank indebtedness $ 8,227 $ 12,500
  Accounts payable and accrued liabilities   5,350   6,148
  Current portion of long-term debt   2,700   2,640
    16,277   21,288
 
Long-term debt   13,514   15,181
Future income taxes   2,771   3,749
 
SHAREHOLDERS' EQUITY        
Share capital (Note 2)   18,772   18,772
Contributed surplus   1,748   1,742
Retained earnings   20,059   23,103
    40,579   43,617
  $ 73,141 $ 83,835
   
See accompanying notes to the interim consolidated financial statements

INTERIM CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME AND RETAINED EARNINGS

Three months and six months ended January 31, 2010 with comparative figures for January 31, 2009 (in 000's except per share data)

    For the three months     For the six months
    ended January 31,     ended January 31,
    (unaudited)              (unaudited)
    2010     2009     2010     2009
Sales $ 8,795   $ 16,480   $ 18,050   $ 30,361
Costs and expenses                      
  Cost of sales   8,212     11,450     16,258     21,683
  Selling and administrative   1,571     2,380     3,034     3,880
  Amortization   1,194     1,127     2,260     2,366
    10,977     14,957     21,552     27,929
(Loss) income before the following   (2,182 )   1,523     (3,502 )   2,432
   
Interest on long-term debt   263     258     541     516
Interest on other interest bearing obligations, net   104     39     216     179
    367     297     757     695
(Loss) income before income taxes   (2,549 )   1,226     (4,259 )   1,737
Income taxes (recovered)                      
  Current   --     (32 )   --     32
  Future   (682 )   383     (1,215 )   393
    (682 )   351     (1,215 )   425
 
Net (loss) income and comprehensive (loss) income   (1,867 )   875     (3,044 )   1,312
 
Retained earnings, beginning of period   21,926     23,341     23,103     22,904
Net (loss) income   (1,867 )   875     (3,044 )   1,312
Retained earnings, end of period $ 20,059   $ 24,216   $ 20,059   $ 24,216
(Loss) earnings per common share                      
Basic $ (0.29 ) $ 0.12   $ (0.47 ) $ 0.18
Diluted $ (0.29 ) $ 0.12   $ (0.47 ) $ 0.18
                       
See accompanying notes to the interim consolidated financial statements

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months and six months ended January 31, 2010 with comparative figures for January 31, 2009 (in 000's)

    For the three months     For the six months  
    ended January 31   ended January 31
    (unaudited )   (unaudited )
    2010     2009     2010     2009  
   
OPERATING ACTIVITIES                        
Net (loss) income for the period $ (1,867 ) $ 875   $ (3,044 ) $ 1,312  
Adjustments for:                        
  Amortization   1,194     1,127     2,260     2,366  
  Future income taxes   (682 )   383     (1,215 )   392  
  SR&ED credits   175     --     75     --  
  Loss (gain) on sale of capital assets   44     (18 )   (16 )   2  
  Stock option expense (Note 3)   2     3     6     10  
    (1,134 )   2,370     (1,934 )   4,082  
Net change in non-cash working capital   1,552     (544 )   4,803     1,847  
Cash provided by (used in) operating activities   418     1,826     2,869     5,929  
   
FINANCING ACTIVITIES                        
Net proceeds (payments) on bank indebtedness   757     (1,279 )   (1,189 )   (5,322 )
Payments on long-term debt   (595 )   (374 )   (1,606 )   (743 )
Cost of repurchase of shares   --     (40 )   --     (84 )
   
Cash provided by (used in) financing activities   162     (1,693 )   (2,795 )   (6,149 )
   
INVESTING ACTIVITIES                        
Investment in capital assets   (462 )   (162 )   (573 )   (358 )
Proceeds on sale of capital assets   (52 )   18     534     1,036  
   
Cash (used in) provided by investing activities   (514 )   (144 )   39     678  
Effect of foreign exchange rate changes on                        
cash and cash equivalents   (66 )   11     (35 )   (458 )
Cash and cash equivalents, beginning of period   --     --     --     --  
Cash and cash equivalents, end of period $ --   $ --   $ --   $ --  
                         
See accompanying notes to the interim consolidated financial statements  

Notes to unaudited interim consolidated financial statements for the three and six months ended January 31, 2010
(in 000's, except for share and per share figures)

  1. Significant accounting policies

    Management prepared these unaudited interim consolidated financial statements in accordance with Canadian generally accepted accounting principles using the historical cost basis of accounting and approximation and estimates based on professional judgment. These unaudited interim consolidated financial statements contain all adjustments that management believes are necessary for a fair presentation of the Company's financial position, results of operations and cash flows. These statements should be read in conjunction with the Company's most recent annual consolidated financial statements. The accounting policies and estimates used in preparing these unaudited interim consolidated financial statements are consistent with those used in preparing the annual consolidated financial statements, except as noted below.

    Changes in accounting policy

    Effective August 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") accounting standards Section 3064 "Goodwill and intangible assets." The Company adopted this new recommendation effective August 1, 2009 without restatement of prior periods.

  2. Share capital

    The Company had 6,420,920 common shares outstanding at July 31, 2009. During the quarter, no options were granted and no options were exercised. On July 13, 2009, the Company announced a normal course issuer bid, which expired on July 21, 2009 after being completely filled. In the opinion of the Board of Directors, such purchases may, from time-to-time, constitute a good use of corporate funds.

Share capital transactions during the quarter were as follows:
 
     
  Shares Amount
Balance as at October 31, 2009 6,420,920 $18,772
Shares re-purchased in respect of normal course issuer bid: -- --
 
Balance as at January 31, 2010 6,420,920 $18,772
  1. Stock based compensation

    The Company has established a stock option plan for directors, officers and key employees. The terms of the plan state that the aggregate number of shares, which may be issued and sold, will not exceed 10% of the issued and outstanding common shares of the Company on a non-diluted basis. The issue price of the shares shall be determined at the time of the grant based on the closing market price of the shares on the specified date of issue. Options shall be granted for a period of five years with a vesting progression of 30% in the year of the grant, 30% in the second year and 40% in the third year with the option expiring after five years. Options given to outside directors vest immediately and can be exercised immediately. 

    During the quarter, no options were granted. Stock based compensation for the three months ended January 31, 2010 was $2. 

  2. Financial instruments and risk management

    Categories of financial assets and liabilities

    Under Canadian generally accepted accounting principles, financial instruments are classified into one of the following five categories: held for trading, held to maturity investments, loans and receivables, available-for-sale financial assets and other financial liabilities. The carrying values of the Company's financial instruments are classified into the following categories:

    January 31 ,   July 31 ,
    2010     2009  
    $     $  
Held for trading financial assets            
  Cash and cash equivalents $ --   $ 3,084  
  Non-hedging financial derivatives   870     1,522  
  $ 870   $ 4,810  
Held for trading financial liabilities            
  Bank indebtedness $ 8,227   $ 12,500  
Loans and receivables            
  Accounts receivable $ 9,240   $ 17,959  
Other financial liabilities            
  Accounts payable and accrued liabilities $ 5,350   $ 6,148  
  Current portion of long-term debt   2,700     2,640  
  Long-term debt   13,514     15,181  
  $ 21,564   $ 23,969  

The Company has determined the estimated fair values of its financial instruments based on appropriate valuation methodologies; however, considerable judgment is required to develop these estimates. The fair values of the Company's financial instruments are not materially different from their carrying value, with the exception of the Company's long-term debt of $16,214. Based on current interest rates for debt with similar terms and maturities, the fair value of the long-term debt is estimated to be $16,828.

Impairment losses recognized on trade receivables

During the quarter, the Company recorded the following transactions with respect to its allowance for doubtful accounts:

     
  January 31,2010  
Opening allowance for doubtful accounts $738  
Less: write-off of allowance and receivables (40 )
Plus: bad debt expense 128  
Plus: effect of foreign exchange on U.S. denominated balances (5 )
     
Closing allowance for doubtful accounts $821  

Risks arising from financial instruments and risk management

The Company's activities expose it to a variety of financial risks: market risk (including foreign exchange and interest rate), credit risk and liquidity risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance from quarter to quarter. The Company uses derivative financial instruments to achieve this objective. The Company does not purchase any derivative financial instruments for speculative purposes.

Foreign exchange risk

The Company operates in Canada and its functional and reporting currency is Canadian dollars, however a significant portion of its sales are denominated in U.S. dollars. Foreign exchange risk arises because the amount of the receivable or payable for transactions denominated in a foreign currency may vary due to changes in exchange rates ("transaction exposures") and because certain long-term contractual arrangements denominated in a foreign currency may vary due to changes in exchange rates ("translation exposures").

The Company's balance sheet includes U.S. dollar denominated cash, accounts receivable, work-in-progress, capital assets, future income taxes, bank indebtedness and accounts payable and accrued liabilities. The Company is required to revalue these U.S. dollar denominated items to their current Canadian dollar value at each period end.

The objective of the Company's foreign exchange risk management activities is to minimize translation exposures and the resulting volatility of the Company's earnings. The Company manages this risk by entering into foreign exchange option contracts.

Based on the Company's foreign currency exposures, as at January 31, 2010, a change in the U.S. dollar/Canadian dollar foreign exchange rate to reflect a 100 basis point strengthening of the U.S. dollar for the month of January would, assuming all other variables remain constant, have decreased net income by $18, with an equal but opposite effect for an assumed 100 basis point weakening of the U.S. dollar. We caution that this sensitivity is based on an assumed net U.S. dollar denominated asset or liability balance at a point in time. Our net U.S. dollar denominated asset or liability position changes on a daily basis, sometimes materially.

Foreign exchange contracts

The Company utilizes financial instruments to manage the risk associated with fluctuations in foreign exchange. At January 31, 2010, the Company had entered into foreign exchange contracts to sell an aggregate amount of $25,600 (USD). These contracts hedge our expected exposure to U.S. dollar denominated net assets and mature at the latest on February 14, 2011, at an average exchange rate of $1.1042 Canadian. The mark-to-market value on these financial instruments as at January 31, 2010 was an unrealized gain of $870; the change in this value from October 31, 2009 has been recorded in net loss for the quarter and the change from July 31, 2009 has been recorded in the year-to-date figures.

             
As at January 31, 2010 Maturity Notional value Average rate Notional USD equivalent Carrying & fair value asset (liability)  
Sell USD / Buy CAD 0 – 6 months $13,090 1.1336 $12,300 $790  
Sell USD / Buy CAD 7 – 12 months 7,412 1.0855 7,300 112  
Sell USD / Buy CAD 12 – 18 months 5,968 1.0666 6,000 (32 )
             
    $26,470 1.1042 $25,600 $870  
               
As at July 31, 2009 Notional value   Average rate Notional USD   Carrying & fair value asset (liability)  
  Maturity
     equivalent
Sell USD / Buy CAD 0 – 6 months $ 9,465   $1.1921 $ 8,500   $965  
Sell USD / Buy CAD 7 – 12 months 7,955   1.1683 7,300   655  
USD Call / CAD put 0 – 6 months 9,768   1.0775 9,600   168  
CAD Call / USD put 0 – 6 months 9,334   1.0580 9,600   (266 )
Elimination of conjoined put / calls   (9,600 ) 1.0856 (9,600 ) --  
                 
    $26,922   $1.1386 $25,400   $1,522  

Interest rate risk

The Company's interest rate risk primarily arises from its floating rate debt, in particular its bank indebtedness. At January 31, 2010, $8,227 of the Company's total debt portfolio is subject to movements in floating interest rates.

Based on the value of interest-bearing financial instruments, subject to movements in floating interest rates, as at January 31, 2010, an assumed 0.5 percentage point increase in interest rates on the first day of the quarter would, assuming all other variables remain constant, have decreased net income by $10, with an equal but opposite effect for an assumed 0.5 percentage point decrease.

The objective of the Company's interest rate risk management activities is to minimize the volatility of the Company's earnings. Since the Company's exposure to floating interest rates is limited to its bank indebtedness, the Company's ability to effectively manage the volatility of interest rates is limited to locking portions of the Company's bank indebtedness into fixed rates for relatively short periods of time, usually 30 or 90 days.

Credit risk

Credit risk arises from cash and cash equivalents held with banks and financial institutions, derivative financial instruments as well as credit exposure to clients, including outstanding accounts receivable and unbilled contract revenue. The maximum exposure to credit risk is equal to the carrying value of the financial assets.

The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into consideration their financial position, past experience and other factors. Management also monitors the utilization of credit limits regularly. In cases where credit quality of a client does not meet the Company's requirements sales opportunities may be terminated, progress payments may be required or continuing security interests in our products may be required.

In the normal course of business, the Company is exposed to credit risk from its customers, the majority of whom are in the automotive industry. While these accounts receivable are subject to normal industry credit risks, the ultimate source of funds to pay our accounts receivable balances may come from the Detroit 3 original equipment manufacturers, which are currently rated below investment grade by credit rating agencies, two of whom left United States bankruptcy protection in the last year, and in the event that they are unable to satisfy their financial obligations or seek protection from their creditors, the Company may incur additional expenses as a result of such credit exposure. The Company may be able to mitigate a portion of this credit risk through the use of accounts receivable insurance, when and if available to individual customers.

For the three months ended, January 31, 2010, sales to the Company's three largest customers represented 46% of its total sales. These same customers represent approximately 19.3% of its total accounts receivable, as at January 31, 2010.

Liquidity risk

Liquidity risk arises through an excess of financial obligations over available financial assets due at any point in time. The Company's objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time. The Company achieves this by maintaining sufficient cash and cash equivalents and through the availability of funding from credit facilities. As at January 31, 2010, the Company has undrawn lines of credit available to it of approximately $11,773; however, under its current margining provisions with its lender, the maximum it can draw on its available undrawn lines of credit is limited to $7,532.

The Company met its financial covenants at the end of the second quarter of 2010. The Company's current forecasts suggest that it may not meet its recently renegotiated Debt Service Coverage Ratio portion of its financial covenants at the end of each quarter for the next year. The Company is in the process of discussing this covenant issue with its primary lender.

Disclosures related to exposure risks are included in the section "Liquidity and Capital Resources" of Management's Discussion and Analysis for the three months ended January 31, 2010, which is included as part of Reko's Second Quarter 2010 Report to shareholders, along with these interim consolidated financial statements. Accordingly, these disclosures are incorporated into these interim consolidated financial statements by cross-reference.

  1. Management of capital

    The Company's objective in managing capital is to ensure sufficient liquidity to pursue its organic growth strategy, while at the same time taking a conservative approach to financial leverage and management of financial risk. The Company's capital is composed of net debt and shareholders' equity. Net debt consists of interest-bearing debt less cash and cash equivalents. The Company's primary uses of capital are to finance increases in non-cash working capital and capital expenditures for capacity expansion. The Company currently funds these requirements out of its internally generated cash flows and when internally generated cash flow is insufficient, its revolving bank credit facility.

    The primary measure used by the Company to monitor its financial leverage is its ratio of net debt to shareholders' equity, which it aims to maintain at less than 1.0:1. As at January 31, 2010, the above capital management criteria can be illustrated as follows:
  January 31, July 31,  
  2010 2009  
  $ $  
Net debt      
  Bank indebtedness 8,227 12,500  
  Current portion of long-term debt 2,700 2,640  
  Long-term debt 13,514 15,181  
  Less: cash and cash equivalents -- (3,084 )
Net debt 24,441 27,237  
Shareholders' equity 40,579 43,617  
Ratio 0.60 0.62  

As part of the Company's existing debt agreements, three financial covenants are monitored and communicated, as required by the terms of credit agreements, on a quarterly basis by management to ensure compliance with the agreements. The covenants are: i) debt to equity ratio – calculated as total debt, excluding future income taxes divided by shareholders' equity minus minority interest, if any; ii) debt service coverage ratio – calculated as EBITDA less cash taxes (for previous 52 weeks) divided by interest expense plus repayments of long-term debt (based on upcoming 52 weeks); and (iii) current ratio – calculated as current assets divided by current liabilities.

The Company was in compliance with these covenants at all times during the period.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following is management's discussion and analysis of operations and financial position ("MD&A") and should be read in conjunction with the unaudited interim consolidated financial statements for the six months ended January 31, 2010 and the audited consolidated financial statements and MD&A for the year ended July 31, 2009 included in our 2009 Annual Report to Shareholders. The unaudited interim consolidated financial statements for the six months ended January 31, 2010 have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), and the audited consolidated financial statements for the year ended July 31, 2009 have been prepared in accordance with Canadian GAAP. When we use the terms "we", "us", "our", "Reko", or "Company", we are referring to Reko International Group Inc. and its subsidiaries.

This MD&A has been prepared by reference to the MD&A disclosure requirements established under National Instrument 51-102 "Continuous Disclosure Obligations" ("NI 51-102") of the Canadian Securities Administrators. Additional information regarding Reko, including copies of our continuous disclosure materials such as our annual information form, is available on our website at www.rekointl.com or through the SEDAR website at www.sedar.com.

In this MD&A, reference is made to gross margin, which is not a measure of financial performance under Canadian GAAP. The Company calculates gross margin as sales less cost of sales (including depreciation and amortization). The Company included information concerning this measure because it is used by management as a measure of performance, and management believes it is used by certain investors and analysts as a measure of the Company's financial performance. This measure is not necessarily comparable to similarly titled measures used by other companies.

All amounts in this MD&A are expressed in 000's of Canadian dollars, except per share data and where otherwise indicated.

This MD&A is current to March 3, 2010.

OVERVIEW

Reko designs and manufactures a variety of engineered products and services for original equipment manufacturers ("OEMs") and their Tier 1 suppliers. These products include plastic injection molds, fixtures, gauges, lean cell factory automation, high precision custom machining, and assemblies. Customers are typically OEMs or their Tier 1 suppliers and are predominantly in the automotive market. Divisions of Reko are generally invited to bid upon programmes comprised of a number of custom products used by the customer to produce a complete assembly or product.

For the automotive industry, the Company designs and builds plastic injection molds, hydro-forming dies, two shot molds, and compression molds. Injection molds range in size from less than one cubic foot to approximately four feet wide, ten feet long, and six feet high. They range in weight from approximately 100 pounds to 50 tons. Typically, plastic injection molds are expected to perform up to 1,000,000 production cycles with limited maintenance. Each production cycle lasts between 30 and 120 seconds. Reko has extensive experience and knowledge in mold design and material flow and the impact of pressure on segments of the mold/die. In addition, it designs and builds custom lean factory cell automation for use primarily in the automotive industry and specialty custom machines for other industries. The factory automation systems include asynchronous assembly and test systems, leak and flow test systems, robotic assembly/machines vision work cells and various welding systems. For the transportation and oil and gas industry, the Company machines customer supplied metal castings to customer indicated specifications.

Our design and manufacturing operations are carried on in eight manufacturing plants located at four industrial sites in the suburbs of the City of Windsor in Southwestern Ontario.

INDUSTRY TRENDS AND RISKS

Historically, our success has been primarily dependent upon (i) a favourable U.S. dollar versus the Canadian dollar; (ii) the levels of new model releases of automobiles and light trucks by North American OEMs; and, (iii) our ability to source moulding and automation programmes with them. OEM new model releases can be impacted by many factors, including general economic and political conditions, interest rates, energy and fuel prices, labour relation issues, regulatory requirements, infrastructure, legislative changes, environmental emissions and safety issues.

The economic, industry and risk factors discussed in our Annual Information Form and Annual Report, each in respect of the year ended July 31, 2009, remain substantially unchanged in respect of the six months ended January 31, 2010, however, the most significant of which are repeated below.

The increasing pressure from our customers to launch new awards without adequate design support could materially impact our profitability

As the automotive industry rushes to restructure its operations and deal with the frequent production slow downs that are commonplace today, our OEM and Tier 1 customers have substantially reduced the design support offered to new vehicle launches. Without an adequate level of support, the quality of information provided to the tool builders to begin their work has dropped significantly. In addition, the tool builders' ability to manipulate the poor quality information is limited as the appropriate resources to approve the manipulations are not available from the OEM or Tier 1. This has introduced significant inefficiencies to the process and decreased the ability of the tool builder to manufacture molds on a profitable basis.

Current outsourcing and in-sourcing trends could materially impact our profitability

As global market conditions remain weak, demand for our customers' products also remains weak. During periods of weakened demand, our customers traditionally revisit outsourcing decisions as a method of maintaining their employment levels. As a result of this and other factors, some of our customers are deciding to perform in-house work that in the recent past would have been performed by Reko. Depending upon the depth and breadth of the current economic downturn, Reko may continue to experience significant reductions in securing out-sourced work from customers.

The consequences of deteriorating financial condition of a large number of our customers and their resultant inability to satisfy their financial obligations could materially impact our profitability and cash flow

The financial condition of our traditional customers has deteriorated in recent years due in part to high labour costs (including health care, pension and other post-employment benefit costs), high raw materials, commodities and energy prices, declining sales and other factors. This deterioration ultimately led to General Motors and Chrysler filing for Chapter 11 bankruptcy protection. Additionally, the volatility of gasoline prices has affected and could further threaten sales of certain of their models, such as full-size sport utility vehicles and light trucks. All of these conditions could further threaten the financial condition of some of our customers, putting additional pressure on us to reduce our prices and exposing us to greater credit risk. In the event that our customers are unable to satisfy their financial obligations or seek protection from their creditors, we may incur additional expenses as a result of our credit exposure.

Continued support of our lenders could have a material impact on our profitability and continued sustainability

The Company is engaged in a capital-intensive business; has significant financing requirements placed on it by its customers; and its financial resources are inferior to the financial resources of our customer base. There can be no assurance that, if, and when the Company seeks additional equity or debt financing, it will be able to obtain the additional financial resources required to successfully compete in its markets on favourable commercial terms or at all. Additional equity financings may result in dilution to existing shareholders.

Significant long-term fluctuations in relative currency values of the Euro, U.S. dollar and Canadian dollar could materially impact our profitability

Although we report our financial results in Canadian dollars, a significant portion of our sales are priced in U.S. dollars. Our profitability is affected by movements of the U.S. dollar against the Canadian dollar. However, as a result of economic hedging programmes employed, foreign currency transactions are not fully impacted by the recent movements in exchange rates. Economic hedging programmes are inherently short-term in nature. Despite these measures, significant long-term shifts in relative currency values could have an adverse effect on our profitability and financial condition and any sustained changes in relative currency values could adversely impact our competitiveness in both the short and long-terms.

CHANGES IN ACCOUNTING POLICY

On August 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") accounting standards Section 3064 "Goodwill and intangible assets". The Company adopted this new recommendation effective August 1, 2009 without restatement of prior periods.

UNUSUAL ITEMS

Settlement of outstanding Plastech receivable balances

Late in the quarter, the Company and Ford Motor Company ("Ford") reached a final settlement on all of the outstanding amounts owed to Reko with respect to tooling and automation sourced for Ford through Plastech Engineering Products Ltd. ("Plastech"). As a result of the settlement, Reko received $500 to settle all remaining balances owed to Reko by Plastech, of which Reko owes $430 to Export Development Canada, its accounts receivable insurer.

Update of amounts owing by Visteon Corporation

During the quarter, as a precautionary measure, the Company wrote off $100 of the amounts receivable from the Bankrupt Estate of Visteon Corporation. Subsequent to the end of the quarter, the Company received $25 from Visteon Corporation. Thereby reducing the Company's remaining exposure to pre-petition claims with the Bankrupt Estate of Visteon Corporation to $Nil.

Renegotiated financial covenants with primary lender

During the previous quarter, the Company requested certain revised financial covenants with its primary lender for Reko's second, third and fourth quarters. The lender agreed to the revised financial covenants and a term sheet between the Company and the lender was signed on January 12, 2010.

AVERAGE FOREIGN EXCHANGE/FINANCIAL AND OTHER INSTRUMENTS

Reko is exposed to the impacts of changes in the foreign exchange rate between Canadian and United States ("U.S.") dollars. More specifically, approximately 90% of the Company's sales and 20% of its costs are incurred in U.S. dollars. In addition, the Company maintains a significant asset on its balance sheet which represents unutilized non-capital losses available to reduce future taxable income in the U.S. and it operates a sales office in the U.S., maintaining working capital and capital assets.

In order to minimize our exposure to the impacts of changes in the foreign exchange rate, the Company maintains a forward foreign exchange hedging programme ("Programme"). Reko's Programme is based on maintaining our net exposure to the U.S. dollar (total U.S. exposure less forward foreign exchange contracts) between positive and negative $2,000,000. This Programme is designed to minimize the Company's exposure to foreign exchange risks over the mid-term. As a consequence of this mid-term exposure protection, the Company is subject to short-term paper gains and losses on its net exposure to the U.S. dollar, most particularly during periods when our net exposure to the U.S. is outside of our target exposure. During periods of rapid fluctuation in the foreign exchange rate between the Canadian dollar and the U.S. dollar, regardless of our net exposure to the U.S. dollar, the Company can generate significant gains or losses, which will materially impact financial results. These significant gains or losses are entirely related to mark-to-market accounting rules and represent the product of our net exposure to the U.S. dollar and the change during any given month of the value of the U.S. dollar in relation to the Canadian dollar.

During the each of the last four quarters, the maximum amount of the Company's month-end exposure to the U.S. dollar has been:

  Total U.S. exposure Forward foreign  
  before hedging exchange contracts Net exposure to
Fiscal Period programme booked the U.S. dollar
Q2 – 2010 $23,798 $25,600 $(1,802)
       
Q1 – 2010 $29,937 $27,300 $2,637
       
Q4 – 2009 $31,201 $24,200 $7,001
       
Q3 - 2009 $30,364 $24,100 $ 6,264

As a result of the Company's purchase of forward foreign exchange contracts ("FFECs"), the Company is subject to changes in foreign exchange rates that may not be consistent with changes in the current quoted foreign exchange rates. More specifically, the Company's foreign exchange risk is split such that its net exposure to the U.S. dollar, as detailed above is subject to the change in market foreign exchange rates on a monthly basis and the remainder of its U.S. dollar exposure is subject to foreign exchange risks based on the specific foreign exchange rates contained in its FFECs. The table below presents a comparison between actual foreign exchange rates and Reko's effective rate on its booked FFECs.

  For the three months ended January 31, For the six months ended January 31,
  2010 2009 2010 2009
  Actual Reko effective rate Actual Reko effective rate Actual Reko effective rate Actual Reko effective rate
U.S. Dollar equals Canadian Dollar 1.0526 1.1203 1.2263 1.0522 1.0638 1.1281 1.1629 1.0350

The Company's FFECs represent agreements with an intermediary to trade a specified amount of U.S. dollars for Canadian dollars at a specific rate on a specific date. Traditionally, the date is one year after the date on which the FFEC is booked. The specific rate entered into is not necessarily indicative of what either the intermediary or Reko believes the foreign exchange rate will be on the date the settlement of the trade occurs, rather it is a rate set by the intermediary which Reko can either accept or reject.

During the second quarter, the Company recorded an unrealized pre-tax gain of approximately $283 related to the fair value of its U.S. dollar exposures, as compared to an unrealized pre-tax loss of $571 in the prior year's second quarter. For the year to date, the Company recorded an unrealized pre-tax gain of $350, as compared to an unrealized pre-tax loss of $513 in the prior year to date. These foreign exchange gains or losses are reported as part of our sales.

At the end of the second quarter of fiscal 2010, we held FFECs of $26,200 compared to $25,900 at the end of the second quarter of fiscal 2009. During fiscal 2010, on average, we have had $26,400 of FFECs outstanding monthly, as compared to $26,000 in fiscal 2009. During the prior year, our ability to enter FFECs was adversely impacted by mandate of our intermediary, due to the losses in our then existing FFECs. The losses in our then existing FFECs were a function of holding FFECs with average values near 1.05 when the actual foreign exchange rate was 1.23.

The following table outlines the level of FFECs presently maintained and the average effective rate of these contracts:

     
Fiscal Period Contract value booked (000's) Effective average rate
Q2 – 2010 $25,600 1.1042
     
Q3 – 2010 19,100 1.0855
     
Q4 – 2010 13,300 1.0770
     
Q1 - 2011 8,900 1.0731

The Company notes that at current levels of FFECs and U.S. dollar denominated assets and liabilities, an increase in the value of the U.S. dollar against the Canadian dollar results in the Company recording losses and an increase in the value of the Canadian dollar against the U.S. dollar results in financial gains for the Company.

Foreign currency transactions are recorded at rates in effect at the time of the transaction. FFECs are recorded at month-end at their fair value, with unrealized holding gains and losses recorded in sales.

RESULTS OF OPERATIONS

Sales

Sales for the three months ended January 31, 2010 decreased $7,686, or 46.6%, to $8,794 compared to $16,480 in fiscal 2009.

The decrease in sales was largely related to:

  • The continued impacts of the global credit crisis and its resultant impacts on capital equipment orders, most particularly impacting our businesses tied to out-sourcing of machining and non-automotive machine building;

  • Lower sales dollars earned by hour of work on our automotive work largely as a result of increased pricing pressures associated with Tier I automotive suppliers searching to replace lost production margins; and

  • Lower sales dollars earned by hour of work on our automotive work largely as a result of the continued pressure to launch new awards from our customers without their adequate design support and approval.

These factors were partially offset by:

  • Increases in the awards we are sourced, which we source in off-shore markets; and,

  • Changes in the fair value of U.S. dollar assets and liabilities, as described above.

While the Company continues to actively quote and receive new orders, certain products continue to experience customer-initiated delays. These delays impact the Company's ability to proactively manage the timing and amount of work completed during each quarter, as well as impact the ability of the Company to absorb fixed overhead costs.

Sales for the six months ended January 31, 2010 decreased $12,311, or 40.5%, to $18,050 compared to $30,361 in the same period last year. The decrease in sales for the six months ended January 31, 2010 was impacted by the same issues as those experienced in the three months ended January 31, 2010.

Gross margin

The gross margin for the three months ended January 31, 2010 decreased $4,514 to $(611) or 7.0% of sales, compared to $3,903, or 23.6% of sales, in the same period in the previous fiscal year.

The decrease in gross margin was largely related to:

  • Extremely low work volumes that were insufficient to absorb our fixed overhead costs.

    This factor was partially offset by:

  • Productivity and efficiency improvements resulting from last year's restructuring activities;

  • Changes in the fair value of U.S. dollar assets and liabilities, as described above.

The gross margin for the six months ended January 31, 2010 decreased $6,780 to $(468) or 2.6% of sales, compared to $6,312 or 20.8% of sales for the same period in the prior year, primarily for the same reasons identified above supplemented by the gain on the sale of unutilized land and building during the first quarter.

Selling and administration

Selling and administration expenses ("S,G&A") decreased by $809, or 34%, to $1,571, or 17.9% of sales for the three months ended January 31, 2010, compared to $2,380, or 14.4% of sales for the same period in the prior year. During the second quarter, we incurred various restructuring charges of $43 included in S,G&A, compared to $374 in the same period of the prior year.

The decrease in S,G&A was produced by savings achieved as a result of reductions in:

  • The cost of commissioned sales representatives, as a result of decreased sales during the quarter;

  • Professional fees related to savings associated with our change in auditors;

  • Decreases in restructuring costs;

  • Lower levels of travel and promotion consistent with our decreased sales levels during the quarter; and,

  • Minor reductions related to insurance and wages and benefits.

These factors were partially offset by:

  • Increases in bank charges; and,

  • Minor increases in office, telephone costs and miscellaneous.

S,G&A for the six months ended January 31, 2010 decreased by $846, or 15.3%, to $3,034, or 21.8% of sales, compared to $3,880 or 12.8% of sales in the same period last year, primarily for the reasons listed above.

Earnings overview

Net loss for the three months ended January 31, 2010 was $1,867, or $0.29 per share, compared to net income of $875, or $0.12 per share, in the same period of the prior year.

Net loss for the six months ended January 31, 2010 was $3,044 or $0.47 per share, compared to net income of $1,312, or $0.18 per share, in the same period of the prior year.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations decreased $1,408 from $1,826 for the second quarter last year compared to $418 in the current year. The decrease in cash flow from operations is primarily a result of:

  • Decrease in net income offset by non-cash charges, including but not limited to amortization and future income taxes.

    This factor was partially offset by:

  • Increase in the change in non-cash working capital during the three months.

For the six months ended January 31, 2010, cash flow from operations decreased $3,060 to $2,869 compared to $5,929 for the same period last year.

Financial covenants

The Company met its financial covenants at the end of the second quarter of 2010. The Company's current forecasts suggest that it may not meet its recently renegotiated Debt Service Coverage Ratio portion of its financial covenants at the end of each quarter for the next year. The Company is in the process of discussing this covenant issue with its primary lender.

  Payments due by period
    Total Less than 1 year   1 – 3 years   4 – 5 years   After 5 years
Contractual obligations  
Long-term debt $ 14,812 $ 1,701 $ 12,673 $ 438 $ --
Capital lease obligations   1,397   995   402   --   --
Operating leases   5   4   1   --   --
Purchase obligations   --   --   --   --   --
Other long-term obligations   --   --   --   --   --
Total contractual obligations $ 16,214 $ 2,700 $ 13,076 $ 438 $ --

Capital assets and investment spending

For the three months ended January 31, 2010, the Company invested $462 in capital assets. For the six months ended January 31, 2010, the Company invested $573 in capital assets. The entire amount of this spending is considered maintenance capital expenditure intended to refurbish or replace assets consumed in the normal course of business.

Cash resources/working capital requirements

As at January 31, 2010, Reko had borrowed $8,227 on its revolving line of credit, compared to $7,469 at October 31, 2009 and $7,660 at January 31, 2009. The revolver borrowings increased by approximately $758 in the quarter and increased approximately $567 for the year. We expect borrowings to display a mid-term trend of increasing over the next four quarters.

Reko has a $20,000 revolver available to it; however, based on our current lender defined margining capabilities, our borrowings are limited to $15,759 of which approximately $7,532 was unused and available at January 31, 2010. Under the terms of our credit facilities, Reko must achieve certain financial covenants including a maximum Total Debt to Tangible Net Worth, a minimum Current Ratio and a minimum Debt Service Coverage Ratio.

Contractual obligations and off-balance sheet financing

Except as disclosed elsewhere in this MD&A, there have been no material changes with respect to the contractual obligations of the Company during the year.

Reko does not maintain any off balance sheet financing.

Share capital

The Company had 6,420,920 common shares outstanding at January 31, 2010. During the first quarter, Reko did not grant any options and there was no exercising of any existing options. In addition, since the Company's normal course issuer bid expired on July 21, 2009, after being completely filled, the Company did not purchase any shares during the quarter.

Outstanding share data

Designation of security Number outstanding Maximum number
issuable if convertible,
exercisable or
exchangeable for
common shares
Common shares 6,420,920  
Stock options issued 121,000  
Stock options exercisable 92,900  
Total (maximum) number of common shares   6,513,820

CRITICAL ACCOUNTING ESTIMATES

The Company's discussion and analysis of its results of operations and financial position is based upon the consolidated financial statements, which have been prepared in accordance with Canadian GAAP. The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. On an ongoing basis, management evaluates these estimates. However, actual results differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies affect the more significant judgements and estimates used in the preparation of the consolidated financial statements of the Company. Management has discussed the development and selection of the following critical accounting policies with the Audit Committee of the Board of Directors and the Audit Committee has reviewed its disclosure relating to critical accounting estimates in this MD&A.

Allowances for doubtful accounts receivable

In order for management to establish appropriate allowances for doubtful accounts receivable, estimates are made with regard to economic conditions, potential recoverability through our accounts receivable insurer, and the probability of default by individual customers. The failure to estimate correctly could result in bad debts being either higher or lower than the determined provision as of the date of the balance sheet.

Revenue recognition and tooling and machinery contracts

Revenue from tooling and machinery contracts is recognized on the percentage of completion basis. The percentage of completion basis recognizes revenue and cost of sales on a progressive basis throughout the completion of the tooling or machinery.

Tooling and machinery contracts are generally fixed; however price changes, change orders and program cancellation may affect the ultimate amount of revenue recorded with respect to a contract. Contract costs are estimated at the time of signing the contract and are reviewed at each reporting date. Adjustments to the original estimates of total contract costs are often required as work progresses under the contract. When the current estimates of total contract revenue and total contract costs indicate a loss, a provision for the entire loss on the contract is made. Factors that are considered in arriving at the forecasted profit or loss on a contract include, amongst other items, cost overruns, non-reimbursable costs, change orders and potential price changes.

Impairment of long-lived assets

Management evaluates capital assets for impairment whenever indicators of impairment exist. Indicators of impairment include prolonged operating losses or a decision to dispose of, or otherwise change the use of, an existing capital asset. If the sum of the future cash flows expected to result from the asset, undiscounted and without interest charges, is less than the reported value of the asset, asset impairment must be recognized in the financial statements. The amount of impairment to be recognized is calculated by subtracting the fair value of the asset from the reported value of the asset.

Management believes that accounting estimates related to capital assets are 'critical accounting estimates' because: (i) they are subject to significant measurement uncertainty and are susceptible to change as management is required to make forward-looking assumptions regarding their impact on current operations; and (ii) any resulting impairment loss could have a material impact on the consolidated net income and on the amount of assets reported on the Company's consolidated balance sheet.

Future income taxes and SR&ED tax credits

Future tax assets, in respect of loss carry forwards and scientific research and experimental design credits related primarily to legal entities in Canada and the United States, are recorded in the Company's books. The Company evaluates the realization of its future tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. The facts used to assess the likelihood of realization are a forecast of future taxable income and available tax planning strategies that could be implemented to realize the future tax assets. The Company has, and continues to use, tax planning strategies to realize future tax assets in order to avoid the potential loss of benefits.

CONTROLS AND PROCEDURES

Management is responsible for implementing, maintaining and testing the operating effectiveness of adequate systems of disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure including the possibility of human error and circumvention or overriding of the controls and procedures. Accordingly, even effective controls and procedures can only provide reasonable assurance of achieving their corporate objectives.

Our management used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework to evaluate the effectiveness of internal controls over financial reporting. We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures during fiscal 2009, and concluded that Reko's controls and procedures are operating effectively to ensure that the information required to be disclosed is accumulated and communicated to management including the Chief Executive Officer and the Chief Financial Officer. A similar evaluation will be performed throughout fiscal 2010.

Based on these evaluations, the Chief Executive Officer and the Chief Financial Officer concluded that Reko's disclosure controls and procedures and internal controls over financial reporting do not include any material weaknesses and that they were effective in recording, processing, summarizing and reporting information required to be disclosed within the time period specified in the Canadian Securities Administrators (CSA) rules.

QUARTERLY RESULTS

The following table sets out certain unaudited financial information for each of the eight fiscal quarters up to and including the second quarter of fiscal 2010, ended January 31, 2010. The information has been derived from the Company's unaudited consolidated financial statements, which in management's opinion, have been prepared on a basis consistent with the audited consolidated financial statements contained elsewhere in this MD&A and include all adjustments necessary for a fair presentation of the information presented. Past performance is not a guarantee of future performance and this information is not necessarily indicative of results for any future period.

  Apr/08   July/08   Oct/08   Jan/09  
Sales $14,388   $14,091   $13,881   $16,480  
Net income (loss) (383 ) (1,055 ) 437   875  
Earnings (loss) per share:                
Basic (0.06 ) (0.14 ) 0.06   0.12  
Diluted (0.06 ) (0.14 ) 0.06   0.12  
                 
  Apr/09   July/09   Oct/09   Jan/10  
Sales $14,791   $10,128   $9,255   $8,794  
Net income (loss) 240   (1,353 ) (1,177 ) (1,867 )
Earnings (loss) per share:                
Basic 0.05   (0.20 ) (0.18 ) (0.29 )
Diluted 0.05   (0.20 ) (0.18 ) (0.29 )

NORMAL COURSE ISSUER BID

The Company's normal course issuer bid expired on July 21, 2009, when it was completely filled.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

For Reko's financial year ended July 31, 2012, Reko will no longer report its financial results using Canadian GAAP, as a result of changes announced by The Canadian Institute of Chartered Accountants in March 2008. This change affects all entities that are considered publicly accountable entities. Reko is considered a publicly accountable entity due to its listing on the Toronto Stock Exchange.

While not all GAAP and IFRS are different, one of the most significant changes deal with the overriding premise in GAAP that financial reporting is based on historical cost, while IFRS' overriding premise is fair value.

Due to the potential pervasiveness of the changes inherent in moving to IFRS, a significant amount of time is necessary for management to plan its implementation. Possible impacts, besides external financial reporting, include, but are not limited to: banking agreements, business processes, information systems, employee and management incentive programmes, and legal agreements.

During the past two years, management:

  • Engaged internal resources to understand the new rules;

  • Educated its primary accounting staff on the differences between GAAP and IFRS;

  • Concentrated its efforts on those portions of IFRS that are different than GAAP;

  • Identified those business processes that have the potential for amendment to properly transition to IFRS;

  • Finalized its policy selections both on conversion and post conversion; and,

  • Evaluated new financial statement disclosure.

As a result of this analysis, management has determined that the following financial statement line items will be impacted by the conversion to IFRS:

  • Capital assets – on conversion to IFRS, Reko will need to revalue its capital assets. Reko is currently collecting information before deciding whether this revaluation will be based on fair value assessments or reconsideration of prior year amortization. At the present time, insufficient information is available to determine whether or not the revaluation of our capital assets will result in an increase or decrease in their net book value and whether or not the amount will be material;

  • Current portion of deferred income taxes – under IFRS, there is no requirement nor is it allowed, to calculate and present the current portion of deferred income taxes (that portion of deferred income taxes expected to be recognized in the current year) as part of an entity's financial statements. Accordingly, Reko advises that the current portion of its deferred income taxes will be reduced to $Nil on conversion to IFRS. This reduction to $Nil, will impact the amount of the Company's current assets in future periods and any financial ratios or covenants that include the calculation of current assets;

  • Deferred income taxes – on conversion to IFRS, Reko will need to revalue its capital assets. As a result of revaluing its capital assets, Reko will also revalue its deferred income taxes as it relates to its capital assets. At the present time, insufficient information is available to determine whether or not the revaluation of deferred income taxes will be material and whether deferred income taxes will increase or decrease as a result;

  • Contributed surplus – on conversion to IFRS, Reko will need to revalue its contributed surplus as a result of timing differences in the recognition of stock compensation expenses. Until August 1, 2011, Reko is unable to calculate the exact amount of this adjustment. As a result of this adjustment, Reko anticipates its contributed surplus will increase however it does not expect the amount to be material;

  • Retained earnings – as a result of all of the above items, Reko's opening retained earnings on conversion to IFRS will change to reflect the cumulative impact of each of the above items; and,

  • Amortization expense – on conversion to IFRS, Reko will revalue its capital assets. As a result of this revaluation, Reko's expected amortization expense will increase or decrease, in similar proportion and direction with the increase or decrease in the revaluation of its capital assets. As indicated in our discussion on capital assets, insufficient information is available to determine whether amortization expenses in the future will increase or decrease or whether it is by a material amount or not upon conversion to IFRS.

Going forward, management is concentrating on the quantification of the impact of the changes to the financial statements in preparation for our conversion to IFRS on August 1, 2011.

This MD&A contains forward-looking information and forward-looking statements within the meaning of applicable securities laws. We use words such as "anticipate", "plan", "may", "will", "should", expect", "believe", "estimate" and similar expressions to identify forward-looking information and statements. Such forward-looking information and statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe to be relevant and appropriate in the circumstances. Readers are cautioned not to place undue reliance on forward-looking information and statements, as there can be no assurance that the assumptions, plans, intentions or expectations upon which such statements are based will occur. Forward-looking information and statements are subject to known and unknown risks, uncertainties, assumptions and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed, implied or anticipated by such information and statements. These risks are described in the Company's MD&A included in our 2009 Annual Information Form, this MD&A and, from time to time, in other reports and filings made by the Company with securities regulators.

While the Company believes that the expectations expressed by such forward-looking information and statements are reasonable, there can be no assurance that such expectations and assumptions will prove to be correct. In evaluating forward-looking information and statements, readers should carefully consider the various factors, which could cause actual results or events to differ materially from those, indicated in the forward- looking information and statements. Readers are cautioned that the foregoing list of important factors is not exhaustive. Furthermore, the Company disclaims any obligations to update publicly or otherwise revise any such factors of any of the forward-looking information or statements contained herein to reflect subsequent information, events or developments, changes in risk factors or otherwise.

SUBSIDIARIES/DIVISIONS:

Canada:

  • Reko Tool & Mould (1987) Inc.

      Divisions –

    • Reko Automation and Machine Tool

    • Concorde Machine Tool

United States:

  • Reko International Sales Inc.
  • Reko International Holdings Inc.

Contact Information

  • Reko International Group Inc.
    Carl A. Merton
    Chief Financial Officer
    (519) 737-6974
    www.rekointl.com