Reko International Group Inc.
TSX : REK

Reko International Group Inc.

December 06, 2007 14:08 ET

Reko Announces First Quarter Results for Fiscal 2008

WINDSOR, ONTARIO--(Marketwire - Dec. 6, 2007) - Reko International Group Inc. (TSX:REK) today announced results for its first quarter ended October 31, 2007.



Financial Highlights (complete statements follow):
-------------------------------------------------------------
Period Ended October 31, Three Months
(in $,000 except per share amounts) Unaudited
2008 2007
-------------------------------------------------------------
Sales $15,484 $13,281
Net Income (Loss) 89 (303)
EPS (basic) 0.01 (0.04)
Working Capital 19,541 22,859
Shareholders' Equity 47,729 50,932
Shareholders' Equity per Share 6.68 6.81
-------------------------------------------------------------


Consolidated sales from operations for the quarter ended October 31, 2007, were $15.5 million, compared to $13.3 million last year, an increase of $2.2 million, or 16.5%. The increase in sales in the quarter was primarily related to a change in estimate related to the percentage of completion method of recognizing revenue. While the Company continues to quote new orders, program releases for moulds continue to experience customer initiated delays.

The gross margin for the three months ended October 31, 2007, was $2.2 million, or 14.2% of sales, compared to $1.8 million, or 13.7% of sales, for the same period last year. The Company has been able to slightly increase the margin over the previous year despite difficult market conditions, which include pressure to maintain low prices and a weakening U.S. dollar.

Selling and administrative expenses for the three months ended October 31, 2007, were $1.6 million, or 10.3% of sales, compared to $1.9 million, or 14.3% of sales, for the same period last year. The Company has been able to achieve and maintain a cost reduction in the first quarter due to restructuring measures taken in the previous year.

Net income for the quarter was $89,000, or $0.01 per share, compared to a net loss of $303,000 from continuing operations in the previous year. An increase in sales, combined with streamlining operating and selling costs, positively impacted net income for the current quarter.

As part of its annual budget process and strategic planning, the Board of Directors reviewed and approved succession planning for our executive management structure. As a result of recent health issues experienced by Steve Reko, the Board decided to implement, on an interim basis, a portion of the succession planning. Effective, December 5, 2007, Diane St. John assumed the role of Chief Executive Officer, in addition to her Secretary-Treasurer responsibilities. In addition, Greg Henwood assumed the role of President, in addition to his Chief Operating Officer responsibilities. In these capacities, Mr. Henwood will report to Mrs. St. John.

"As we begin a new fiscal year, we face ongoing challenges such as very competitive pricing and the weakening U.S. dollar, which have adversely affected our sales," stated Diane St. John, Acting C.E.O. "We believe that as the program delays experienced previously begin to diminish in the second quarter and strong demand continues for automation and large custom machining combined with our restructured cost base, Reko will maintain positive results in the long term."

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 ten 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.



REKO INTERNATIONAL GROUP INC. First Quarter Report

INTERIM CONSOLIDATED BALANCE SHEETS
As at October 31, 2007 with comparative figures for July 31, 2007
(in 000's)

------------------------------------------------------------------
October 31, July 31,
(unaudited) (audited)
2007 2007
------------------------------------------------------------------
ASSETS
Current
Accounts receivable -trade $ 13,615 $ 22,014
Non-hedging financial derivatives 4,794 2,047
Income taxes receivable 180 159
Work-in-progress 14,560 11,166
Prepaid expenses and deposits 698 525
Future income taxes - 231
Discontinued operations (Note 3) - 128
------------ -----------
33,847 36,270
------------ -----------

Capital assets 44,307 41,946
Discontinued operations (Note 3) - 2,466
------------ -----------
44,307 44,412
------------ -----------
Future income taxes 779 859
------------ -----------
78,933 81,541
------------ -----------
------------ -----------

LIABILITIES
Current
Bank indebtedness 6,104 8,678
Accounts payable and accrued liabilities 6,627 6,133
Future income taxes 81 -
Current portion of long-term debt 1,494 1,628
Discontinued operations (Note 3) - 132
------------ -----------
14,306 16,571
------------ -----------

Long-term debt 16,898 17,266
------------ -----------

SHAREHOLDERS' EQUITY
Share capital (Note 4) 20,897 20,905
Contributed surplus (Note 5) 374 366
Retained earnings 26,458 26,369
Cumulative translation adjustment - 64
Accumulated other comprehensive income - -
------------ -----------
47,729 47,704
------------ -----------
$ 78,933 $ 81,541
------------ -----------
------------ -----------

See accompanying notes to the interim consolidated financial statements.



REKO INTERNATIONAL GROUP INC. First Quarter Report

INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE
INCOME (LOSS) AND RETAINED EARNINGS
Three months ended October 31, 2007 with comparative figures for 2006
(in 000's except per share data)
---------------------------------------------------------------------------
For the three months
ended October 31,
(unaudited)
2007 2006
---------------------------------------------------------------------------
Sales (Note 2) $ 15,484 $ 13,281
Costs and expenses
Cost of sales 12,270 10,451
Selling and administrative 1,585 1,919
Depreciation and amortization 1,047 1,015
-------------------------
14,902 13,385
-------------------------
Income (loss) from continuing operations before
the following 582 (104)
-------------------------

Interest
Long-term debt 281 264
Other - net 106 152
-------------------------
387 416
-------------------------
Income (loss) before income taxes 195 (520)
-------------------------
Income taxes
Current 15 15
Future (recovered) 91 (232)
-------------------------
106 (217)
-------------------------
Net income (loss) from continuing operations 89 (303)
Net income from discontinued operations net of tax - 268
-------------------------
Net income (loss) 89 (35)

Other comprehensive income - -
-------------------------
Comprehensive income (loss) 89 (35)
-------------------------
Retained earnings, beginning of period 26,369 29,993
-------------------------
Retained earnings, end of period $ 26,458 $ 29,958
-------------------------
-------------------------
Income (loss) per common share from continuing
operations

Basic $ 0.01 $ (0.04)
-------------------------
-------------------------
Fully diluted $ 0.01 $ (0.04)
-------------------------
-------------------------
Income per common share from discontinued
operations

Basic $ - $ 0.04
-------------------------
-------------------------
Fully diluted $ - $ 0.04
-------------------------
-------------------------

See accompanying notes to the interim consolidated financial statements



REKO INTERNATIONAL GROUP INC. First Quarter Report

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended October 31, 2007 with comparative figures for 2006
(in 000's)
-------------------------------------------------------------------------
For the three
months ended
October 31,
(unaudited)
2007 2006
-------------------------------------------------------------------------
OPERATING ACTIVITIES

Net income (loss) for the period $ 89 $ (303)
Add non-cash items:
Depreciation and amortization 1,047 1,015
Future income taxes 91 (232)
Stock option expense 8 17
--------------------------
1,235 497
Net change in non-cash working capital 2,571 929
--------------------------
Cash provided - from operating activities 3,806 1,426
--------------------------

FINANCING ACTIVITIES

Net payments on bank indebtedness (2,504) (734)
Payments on long-term debt (588) (273)
Cost of repurchase of shares (8) -
--------------------------
Cash used - from financing activities (3,100) (1,007)
--------------------------

INVESTING ACTIVITIES

Investment in capital assets (945) (343)
--------------------------
Cash used - from investing activities (945) (343)
--------------------------
Effect of foreign exchange rate changes on
cash and cash equivalents 239 (76)
--------------------------
Cash and cash equivalents, beginning of period - -
--------------------------
Cash and cash equivalents, end of period $ - $ -
--------------------------
--------------------------

See accompanying notes to the interim consolidated financial statements



REKO INTERNATIONAL GROUP INC. First Quarter Report


Notes to Interim Consolidated Financial Statements for the three-month period ended October 31, 2007 (in 000's, except for share and per share figures) (Unaudited)

1. Significant accounting policies

Management prepared these 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 judgments. These 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 changes in cash flows. These statements should be used in conjunction with the Company's most recent annual consolidated financial statements. The accounting policies and estimates used in preparing these interim consolidated financial statements are consistent with those used in preparing the annual consolidated financial statements, except as noted below and in Note 2.

Foreign currency translation

During the period, management evaluated the classification of the two remaining active U.S. subsidiaries, which were classified as self-sustaining. In considering factors such as the procurement of revenue, how financing was obtained and where binding decision making occurred, management concluded that these previously classified self-sustaining subsidiaries were, in fact, fully integrated. Thus, the temporal method of foreign currency translation should be used with the current rate applied to monetary assets and liabilities, and historical rates applied to non-monetary assets and liabilities. This did not have a significant impact on these consolidated financial statements.

Financial instruments, equity and comprehensive income

In January 2005, the Canadian Institute of Chartered Accountants approved Handbook Sections 1530, "Comprehensive Income"; 3251, "Equity"; 3855, "Financial Instruments - Recognition and Measurement"; and 3861, "Financial Instruments - Disclosure and Presentation". The Company adopted these new recommendations effective August 1, 2007 with no restatement of prior periods.

Financial instruments

Under the new standards, all of the Company's financial assets and financial liabilities are to be classified as held for trading, held to maturity investments, loans and receivables, available-for-sale financial assets, or other financial liabilities. All financial instruments are measured at fair value on initial recognition. Held for trading financial instruments, which include cash and cash equivalents and non-hedging financial derivatives, are measured at fair value and all gains and losses are included in net income in the period in which they arise. Loans and receivables, which include accounts receivable, current portion of long-term debt and long-term-debt, are recorded at amortized cost using the effective interest method. Other financial liabilities, which include accounts payable and accrued liabilities, are recorded at amortized cost using the effective interest method. The Company does not currently have any held to maturity investments or available for sale financial assets. The implementation of the new section had neither a positive nor negative impact on the financial results of the Company.

Equity

Section 3251, "Equity", establishes standards for the presentation of equity and unrealized gains and losses in equity during the reporting period. The main feature of this new standard is the requirement of an enterprise to present separately each of the unrealized gains and losses in equity during the reporting period. The new standard replaces Section 3250, "Surplus", and also incorporates amendments resulting from the issuance of Section 1530.

Comprehensive income

Other comprehensive income includes unrealized gains and losses on translation of a Company's net investment in self-sustaining foreign operations, and to the extent that cash flow hedges are effective, the change in their fair value, net of income taxes. Other comprehensive income is presented below net income on the Consolidated Statements of Income and Comprehensive Income. Comprehensive income is composed of net income and other comprehensive income.

Accumulated other comprehensive income is a separate component of shareholders' equity which includes the accumulated balances of all components of other comprehensive income which are recognized in comprehensive income but excluded from net income.

The Company does not currently maintain any financial instruments that require disclosure within other comprehensive income.

2. Revenue recognition

As detailed in the company's revenue recognition policy, revenue is recognized based on the percentage of completion method, provided the contract has progressed to the point where total costs can be reasonably estimated. Historically, the company considered all jobs, which were at least 50% complete to have progressed to the point where total costs could be reasonably estimated. After a detailed review of estimation abilities, manufacturing abilities and historical results, management determined that a job has progressed to the point where total costs can be reasonably estimated once that job has completed all aspects of engineering and design. Historically, this occurs somewhere between 15% and 25%, depending upon the complexity of the job. This change in management estimate was implemented with an effective date of August 1, 2007. The impact of this change in management estimate is an increase in sales of $1,837 and an increase in gross profit of $54, in the first quarter.

3. Discontinued operations

During the period, the Company re-classified its remaining assets, liabilities, equity, revenues and expenses, which were previously classified as "Discontinued Operations" into continuing operations as the entities are now substantially disposed.

The balance sheet at July 31, 2007, includes the following assets and liabilities related to discontinued activities:



2007
------
Cash $ 71
Accounts Receivable - trade 36
Prepaid expense and deposits 21
------
128
------
Capital assets 2,466
------
Accounts payable and accrued liabilities 45
Current portion of long-term debt 87
------
132
------


The statement of income (loss) for the three months ended October 31, 2006 includes the following related to continued activities:



October 31,
2006
-----------
Sales for the period $14,954
Sales from continuing operations 13,281
Sales from discontinued operations 1,673

Operating expenses related to discontinued operations 1,405

Net income from discontinued operations 268


4. Share capital

In July 2007, the Company announced its intention to make a normal course issuer bid to re-purchase, at market prices, for cancellation up to 357,525 common shares representing approximately 5% of the outstanding common shares as at July 31, 2007. During the period, the Company re-purchased 2,600 shares and no options were exercised.



Shares Amount
---------- -------
Balance July 31, 2007 7,150,492 $20,905
Re-purchase in respect of
normal course issuer bid:
First Quarter (2,600) (8)
---------- -------
7,147,892 $20,897
---------- -------
---------- -------


The share re-purchases were recorded at stated capital value of $2.92 per share with the difference between the amount recorded and the amount paid charged to contributed surplus.

5. Stock based compensation

The fair value of the stock options granted since August 1, 2002 was determined using the Black-Scholes option-pricing model based on the following underlying assumptions:

- 5 year risk free interest rate of 4.09%;

- Average expected life of 5 years;

- Average expected volatility of 31.81%.

During the period, no options were granted, and for the three months ended October 31, 2007, $8 was recorded as compensation cost for the quarter.


Management's Discussion and Analysis

The following is management's interim 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 three months ended October 31, 2007 and the audited consolidated financial statements and MD&A for the year ended July 31, 2007 included in our 2007 Annual Report to Shareholders. The unaudited interim consolidated financial statements for the three months ended October 31, 2007 have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), and the audited consolidated financial statements for the year ended July 31, 2007 have been prepared in accordance with Canadian GAAP. All amounts in this MD&A are presented in thousands of Canadian dollars, except per share figures, which are in Canadian dollars, unless otherwise noted. 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, 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. 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.

This MD&A is current to November 30, 2007.

Overview

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

Injection moulds are manufactured using milling machines that cut away metal from steel or aluminum blocks. Skilled mould makers assemble and finish surface details. Injection moulds 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 moulds are expected to perform up to 1,000,000 production cycles with limited maintenance. Each production cycle lasts between 30 and 120 seconds.

The factory automation systems include stand alone lean manufacturing cells, asynchronous assembly and test systems, leak and flow test systems, robotic assembly/machines vision work cells and various welding systems. Our strength in engineering, design, and machining proves very effective in achieving additional sales volume. This business has benefited from the cross over selling of the Reko "Tool Box" in that the majority of the current business is from customers that, initially, were Reko's mould customers.

We expanded our products to include hydro forming dies, larger two-shot moulds, low pressure moulds, and foam moulds. The hydro forming process involves the manufacturing of metal parts by application of water pressure on metal in a mould-like die to form the metal part. This allows parts to be manufactured using less material, with additional strength, due to a more uniform thickness of the metal. Reko has extensive experience and knowledge in mould design and material flow and the impact of pressure on segments of the die.

The large custom machining business involves the precision machining of large components. Predominantly non-automotive, it supplies the transportation (rail) and energy (oil and gas) industries.

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

Industry trends and risks

Our success is primarily dependent upon the levels of new model releases of cars and light trucks by North American original equipment manufacturers ("OEM") and our ability to source moulding and automation programs 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, 2007, remain substantially unchanged in respect of the three months ended October 31, 2007, with the exception of the following:

- as a result of the continued strengthening in the value of the Canadian dollar relative to the U.S. dollar, our manufacturing facilities may have greater difficulty competing with facilities located outside Canada.

Comprehensive income and financial instruments

In January 2005, the Canadian Institute of Chartered Accountants approved Handbook Sections 1530 - "Comprehensive Income"; 3251, "Equity"; 3855, "Financial Instruments - Recognition and Measurement"; 3861, "Financial Instruments - Disclosure and Presentation"; and 3865, "Hedges". Reko adopted these new recommendations effective August 1, 2007, without restatement of prior periods.

Financial instruments

Under the new standards, financial assets and financial liabilities are to be classified as held for trading, held to maturity investments, loans and receivables, available for sale financial assets or other financial liabilities. All financial instruments are measured at fair value on initial recognition. Held for trading financial instruments, which include cash and cash equivalents and non-hedging financial derivatives, are measured at fair value and all gains and losses are included in net income in the period in which they arise. Loans and receivables, which include accounts receivable, current portion of long-term debt, and long-term debt, are recorded at amortized cost using the effective interest method. Other financial liabilities, which include accounts payable and accrued liabilities, are recorded at amortized cost using the effective interest method. Reko does not currently have any held to maturity investments or available for sale financial assets. The implementation of the new section had neither a positive nor negative impact on the financial results of the Company.

Equity

Section 3251, "Equity", establishes standards for the presentation of equity and unrealized gains and losses in equity during the reporting period. The main feature of this new standard is the requirement for an enterprise to present separately each of the unrealized gains and losses in equity during the reporting period. The standard replaces Section 3250, "Surplus", and incorporates amendments resulting from the issuance of Section 1530.

Comprehensive income

Other comprehensive income would include the unrealized gains and losses in translation of net investments in self-sustaining operations, and to the extent that cash flow hedges are effective, the change in their fair value, net of income taxes, and unrealized gains and losses on available for sale financial assets. Other comprehensive income is to be presented below net income in the Consolidated Statements of Income and Comprehensive Income. Comprehensive income is comprised of net income and other comprehensive income.

Accumulated other comprehensive income is a separate component of shareholders' equity, which includes the accumulated balances of all components of other comprehensive income which are recognized in comprehensive income, but excluded from net income.

The Company does not currently maintain any financial instruments whose change in fair value would require disclosure within other comprehensive income.

Foreign currency translation

During the period, management evaluated the classification of the two remaining active U.S. subsidiaries, which were classified as self-sustaining. In considering factors such as the procurement of revenue, how financing was obtained and where binding decision making occurred, management concluded that these previously classified self-sustaining subsidiaries were, in fact, integrated. Thus, the temporal method of foreign currency translation should be used with the current rate applied to monetary assets and liabilities, and historical rates applied to non-monetary assets and liabilities. This did not have a significant impact on these consolidated financial statements.



Average foreign exchange

For the three months ended October 31,
------------------------------------------
2007 2006
------------------ -------------------
Reko Reko
Effective Effective
Actual Rate Actual Rate
------------------ -------------------
U.S. Dollar equals
Canadian Dollar 1.0196 1.0956 1.1210 1.1419


For the fiscal year ended July 31,
-----------------------------------------
2007 2006
----------------- -------------------
Reko Reko
Effective Effective
Actual Rate Actual Rate
----------------- -------------------
U.S. Dollar equals
Canadian Dollar 1.1260 1.1277 1.1551 1.2037


The preceding table compares the average foreign currency exchange rates for the disclosed periods and the average effective rates of the forward exchange contracts we booked during that period. This foreign currency exchange impacted our reported sales and income. In the first quarter of 2008, we held forward exchange contracts outstanding monthly of $31,500 compared to $32,200 in the first quarter of 2007. During fiscal 2007, on average, we had $31,300 of forward exchange contracts outstanding monthly, as compared to $31,600 in fiscal 2006.

Reko's forward exchange contract program requires us to maintain sufficient forward exchange contracts at all times that are practically equal to the U.S. dollar value of our accounts receivable, work-in-process and our backlog of booked business that has yet to kick-off.

As a result of the forward exchange contracts program employed by us, foreign currency transactions in the current period were not, and in future periods will not, be fully impacted by movements in exchange rates. The following table outlines the level of forward exchange contracts presently maintained and the average effective rate of these contracts:



Contract value
Fiscal booked Effective
Period (000's) average rate
-------------------------------------------------

Q2 - 2008 $30,100 1.0905

Q3 - 2008 21,600 1.0756

Q4 - 2008 9,700 1.0576

Q1 - 2009 3,300 1.0463


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

Results of operations

The financial results for the first quarter ended October 31, 2007 present all remaining assets, liabilities, equity, revenues and expenses of The Mold Company, Superior Plastics, Inc., Excel Decorating and Finishing, Inc., Novi Laser, Inc. and Proto-Techniques, Inc. as continuing operations. In prior year financial statements, these entities' assets, liabilities, equity, revenue and expenses were reflected as "Discontinued Operations". This change in classification is consistent with the requirements of Canadian GAAP for Discontinued Operations, where not all assets, liabilities, and equity are disposed of within a fixed period of time after they are first presented as discontinued operations. The change in classification did not result in a material change to these consolidated financial statements.

Revenue recognition

As detailed in the company's revenue recognition policy, revenue is recognized based on the percentage of completion method, provided the contract has progressed to the point where total costs can be reasonably estimated. Historically, the company considered all jobs, which were at least 50% complete to have progressed to the point where total costs could be reasonably estimated. After a detailed review of estimation abilities, manufacturing abilities and historical results, management determined that a job has progressed to the point where total costs can be reasonably estimated once that job has completed all aspects of engineering and design. Historically, this occurs somewhere between 15% and 25%, depending upon the complexity of the job. This change in management estimate was implemented with an effective date of August 1, 2007. The impact of this change in management estimate is an increase in sales of $1,837 and an increase in gross profit of $54, in the first quarter.

Sales

Sales for the three months ended October 31, 2007 increased $2.2 million, or 16.5%, to $15.5 million compared to $13.3 million for the same period last year. While the company continues to actively quote and receive new orders, mould release programs 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.

The increase in sales in the quarter primarily related to the change in interpretation of our revenue recognition policy and increased orders associated with our secondary automation products.

Gross margin

The gross profit for the first quarter increased $686 to $582 or 3.8% of sales, compared to a gross loss of $104 for the same period in the prior year. The increase in gross margin as a percentage of total sales was primarily as a result of:

- incremental volumes resulting in better absorption of fixed overhead costs;

- incremental sales volume in our machining facility resulting from a revised long-term contract; and

- productivity and efficiency improvements resulting from last year's restructuring charges.

These factors were partially offset by:

- lower margins in our automation facility as a result of building a large machine for internal purposes, as internal builds are transferred at cost to affiliates; and

- lower effective foreign exchange rates on U.S. sales.

Selling and administration

Selling and administration expenses ("S,G&A") decreased by $334, or 17.4%, to $1,585 or 10.2% of sales for the three months ended October 31 2007, compared to $1,919 or 14.4% of sales for the same period last year. The decrease in S,G&A is primarily as a result of reductions in employee headcount, for which the Company took restructuring charges in the fourth quarter of fiscal 2007.

Earnings overview

Net income for the quarter was $89 or $0.01 per share, compared to a net loss of $35, or $0.00 per share last year.

Discontinued operations

As previously discussed, the company no longer accounts for the remaining assets and liabilities of its former US operations as discontinued operations. In the prior year, net income from discontinued operations for the first three months of the year was $268 or $0.04 per share.

Liquidity and capital resources

Cash flow from operations increased $2,380 to $3,806 for the quarter compared to $1,426 for the same period last year.

The increase in cash flow from operations is primarily a result of:

- increase in net income;

- increase in non-cash charges related to future income taxes; and

- collections of accounts receivable balances exceeding work-in-process billing during the period, as a result of the slow-down in mould release programs in previous quarters.

These factors were partially offset by:

- increases in work-in-process as the volume of mould release programs increased from historic lows of the prior period; and

- increases in accounts receivable related to increased volumes in our machining facility as a result of a renewed long-term contract with larger volumes.

During the quarter, a capital lease on a machining centre came up for renewal, however, the company decided to finance the remaining balance on the machining centre internally.

The Company is currently in compliance with all of its financial covenants with its lender. The company believes it has sufficient operating room with respect to its financial covenants with its lender for the remainder of this year and does not anticipate being in breach of any of its financial covenants during this period.



---------------------------------------------------------------------------
Payments Due by Period
-----------------------------------------------
Less than 1 - 3 4 - 5 After
Contractual Obligations Total 1 year years years 5 years
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Long-term debt $13,835 $ 851 $13,733 $ 86 $ -
---------------------------------------------------------------------------
Capital lease obligations 4,557 643 2,925 154 -
---------------------------------------------------------------------------
Operating leases - - - - -
---------------------------------------------------------------------------
Purchase obligations - - - - -
---------------------------------------------------------------------------
Other long-term obligations - - - - -
---------------------------------------------------------------------------
Total contractual
obligations $18,392 $1,494 $16,658 $ 240 $ -
---------------------------------------------------------------------------


Capital assets and investment spending

In the first quarter of 2008, we invested $945 in capital assets. While investments were made to refurbish, or replace assets consumed in the normal course of business and productivity improvements, a large portion of the investment is for manufacturing equipment to support new volumes associated with the machining facility's renewed long-term contract.

During the remainder of this year, capital asset investments will largely relate to the expansion program at the machining facility. In the fourth quarter of 2007, we completed the infrastructure portion of the expansion. Beginning in the second quarter of 2008, the first of two additional machines will be available for use, with the remaining machine expected to be available for use in the fourth quarter.

Cash resources

As at October 31, 2007, Reko borrowed $6,104 on its revolving line of credit, compared to $8,678 at July 31, 2007. While the revolver borrowings decreased in the quarter, we expect borrowings to increase over the short-term as our volumes increase from their historic lows.

Reko has a $30,000 revolver available to it, although at the end of the first quarter, our borrowing base was $20,000, under the facility, of which $13,900 was unused and available. 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. Reko is currently well positioned with respect to its ability to meet these financial covenants over the short-term and as such, we do not anticipate an inability to fund operations for the remainder of the year.

Contractual obligations and off-balance sheet financing

There have been no material changes with respect to the contractual obligations of the Company in the first quarter.

Reko does not maintain any off balance sheet financing.

Quarterly results

The following table sets out certain financial information for each of the eight fiscal quarters up to and including the first quarter of fiscal 2008, ended October 31, 2007.



---------------------------------------------------------------------------
Jan/06 Apr/06 July/06 Oct/06
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Sales $17,079 $22,045 $12,367 $13,281
---------------------------------------------------------------------------
Net income (loss) from continuing
operations 1,075 644 899 (303)
---------------------------------------------------------------------------
Earnings (loss) per share from continuing
operations:
Basic 0.14 0.09 0.12 (0.04)
Diluted 0.14 0.09 0.12 (0.04)
---------------------------------------------------------------------------
Net income (loss) 82 (241) 891 (35)
---------------------------------------------------------------------------
Earnings (loss) per share:
Basic 0.01 (0.03) 0.12 (0.00)
Diluted 0.01 (0.03) 0.12 (0.00)
---------------------------------------------------------------------------


---------------------------------------------------------------------------
Jan/07 Apr/07 July/07 Oct/07
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Sales $10,718 $14,760 $10,618 $15,484
---------------------------------------------------------------------------
Net (loss) income from continuing
operations (302) (491) (456) 89
---------------------------------------------------------------------------
(Loss) earnings per share from
continuing operations:
Basic (0.04) (0.07) (0.07) 0.01
Diluted (0.04) (0.07) (0.07) 0.01
---------------------------------------------------------------------------
(Loss) net income (229) (1,219) (3,032) 89
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(Loss) earnings per share:
Basic (0.03) (0.17) (0.42) 0.01
Diluted (0.03) (0.17) (0.42) 0.01
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Normal course issuer bid

Under the company's current normal course issuer bid 2,600 shares were purchased for cancellation at an average cost of $3.31. The company's directors believe that, from time-to-time, such purchases constitute an appropriate use of corporate funds.

Outlook

In less than a year, the U.S. dollar has lost 20% of its purchasing power in Canada. Combining this weakening of the U.S. dollar with the continuing price pressures from the North American original equipment manufacturers has resulted in lower profitability expectations for Canadian tool and mould manufacturers. Until the U.S. dollar both stabilizes and returns to more long-term historic levels, the sales and profitability of Reko will be adversely affected.

The U.S. dollar pressures, place more pressure on operating efficiencies and cost reductions. As Reko continues to manage our costs through reduced break-even levels, including targeted use of Asian alliances, and we actively protect our exposure to the U.S. dollar, we believe we have positioned ourselves to best respond to reduced revenue expectations.

This news release 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, uncertainties and assumptions include, among other things: industry cyclicality; global economic conditions, causing decreases in automobile production volumes and demand for capital goods; changing demand for specific models or products; price reduction pressures; pressure to absorb certain fixed costs; dependence on major customers and changes in such customers' financial capabilities; technological changes; compliance with various laws; obtaining necessary permits and consents; fluctuations in currency exchange and interest rates; employee work stoppages; dependence on key employees; the competitive nature of the automotive and capital goods industries, including competition with suppliers operating in low cost countries; product supply and demand; the conduct of business in foreign countries; and other risks, uncertainties and assumptions as described in the Company's Management's Discussion and Analysis included in our 2007 Annual Report, in our 2007 Annual Information Form 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.



REKO INTERNATIONAL GROUP INC.
5390 Brendan Lane
Oldcastle, Ontario
N0R 1L0
www.rekointl.com


SUBSIDIARIES:

Canada:
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- Reko Tool & Mould (1987) Inc.
Divisions -
- Reko Automation and Machine Tool
- Concorde Machine Tool

United States:
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- Reko International Sales Inc.
- Reko International Holdings Inc.


Contact Information

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