UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
Commission file number: 1-10245
RCM TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 95-1480559
(State of Incorporation) (IRS Employer Identification No.)
2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey 08109-4613
(Address of principal executive offices)
(609) 486-1777
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS 4,873,576
Common Stock, $.05 par value Outstanding as of September 4, 1996
1
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(THIS PAGE INTENTIONALLY LEFT BLANK)
2
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1 - Consolidated Financial Statements
Page
Consolidated Balance Sheets as of July 31, 1996 (Unaudited)
and October 31, 1995 (Audited) 4
Unaudited Consolidated Statements of Income for the Nine Month
Periods Ended July 31, 1996 and 1995 6
Unaudited Consolidated Statements of Income for the Three Month
Periods Ended July 31, 1996 and 1995 7
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the Nine Month Period Ended July 31, 1996 8
Unaudited Consolidated Statements of Cash Flows for the Nine
Month Periods Ended July 31, 1996 and 1995 9
Notes to Unaudited Consolidated Financial Statements 11
ITEM 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 18
ITEM 5 - Other Information 18
ITEM 6 - Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
3
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
(Unaudited) (Audited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 10,687 $ 297,550
Accounts receivable, net of allowance for doubtful accounts
of $45,000 in 1996 and $15,000 in 1995 11,269,000 5,133,662
Prepaid expenses and other current assets 747,165 671,662
------- -------
Total current assets 12,026,862 6,102,874
---------- ---------
Property and equipment, at cost
Equipment and leasehold improvements 1,610,429 1,208,317
Less: accumulated depreciation and amortization 1,121,905 763,966
--------- -------
488,524 444,351
------- -------
Other assets
Deposits 95,390 43,074
Intangible assets (net of accumulated amortization
of $303,464 and $73,492 in 1996 and 1995,
respectively) 9,353,370 3,711,256
--------- ---------
9,448,760 3,754,330
--------- ---------
Total assets $21,964,146 $10,301,555
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
(Unaudited) (Audited)
Current liabilities
<S> <C> <C>
Note payable - bank $1,960,386 $914,435
Current maturities of long-term debt 47,761 111,945
Accounts payable and accrued expenses 385,704 340,072
Accrued payroll 2,169,797 1,182,934
Taxes other than income taxes 461,616 205,494
Income taxes payable 782,548
------- --------
Total current liabilities 5,807,812 2,754,880
--------- ---------
Long term liabilities
Note payable 20,090
Income taxes payable 670,303
-------
670,303 20,090
------- ------
Shareholders' equity
Preferred stock, $1.00 par value; 5,000,000 shares authorized;
no shares issued or outstanding
Common stock, $0.05 par value; 40,000,000 shares authorized; 4,873,576 and
3,255,024 shares issued in 1996 and
1995, respectively 243,679 162,751
Additional paid-in capital 17,221,674 10,916,692
Treasury stock, at cost 62,800 shares ( 62,821) ( 62,821)
Accumulated deficit ( 1,916,501) ( 3,490,037)
----------- ----------
15,486,031 7,526,585
---------- ---------
Total liabilities and shareholders' equity $21,964,146 $10,301,555
========== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended July 31,
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Revenues $40,940,265 $17,988,304
---------- ----------
Operating costs and expenses
Cost of services 32,877,999 14,788,433
Selling, general and administrative 5,908,044 2,542,051
Depreciation and amortization 233,586 97,071
------- ------
39,019,629 17,427,555
Operating income 1,920,636 560,749
--------- -------
Other expense (income)
Interest expense 107,690 18,811
Interest income and other 28,620 ( 109,670)
------ -------
136,310 ( 90,859)
------- ------
Income before income taxes 1,784,326 651,608
Income taxes 210,790 75,153
------- ------
Net income $1,573,536 $576,455
========= =======
Net income per share $.38 $.19
=== ===
Weighted average number of shares outstanding 4,121,307 2,964,473
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
6
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended July 31,
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Revenues $17,378,155 $5,015,376
---------- ---------
Operating costs and expenses
Cost of services 13,579,924 4,121,280
Selling, general and administrative 2,825,344 800,150
Depreciation and amortization 101,116 34,253
------- ------
16,506,384 4,955,683
---------- ---------
Operating income 871,771 59,693
------- ------
Other expense (income)
Interest expense 56,601 5,319
Interest income and other 28,620 ( 36,252)
------ ------
85,221 ( 30,933)
------ ------
Income before income taxes 786,550 90,626
Income taxes 101,613 20,910
------- ------
Net income $684,937 $69,716
======= ======
Net income per share $.14 $.02
=== ===
Weighted average number of shares outstanding 4,873,094 2,964,473
========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
7
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended July 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1995 3,255,024 $ 162,751 $10,916,692 ($3,490,037) ($ 62,821)
Exercise of Stock Options 7,600 380 7,933
Issuance of Common Stock
in connection with acquisitions 1,334,327 66,716 5,310,881
Sale of Common Stock 276,625 13,832 986,168
Net Income 1,573,536
--------- ------- ----------- --------- ------
Balance, July 31, 1996 4,873,576 $ 243,679 $17,221,674 ($1,916,501) ($ 62,821)
=========== =========== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
8
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended July 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,573,536 $ 576,455
--------- -------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 233,586 97,071
Provision for losses on accounts
receivable 30,000 15,379
Changes in assets and liabilities:
Accounts receivable ( 553,542) 795,437
Prepaid expenses and other
current assets 182,222 ( 259,666)
Accounts payable and accrued expenses ( 443,791) 16,894
Accrued payroll 32,383 ( 193,671)
Billings in excess of costs and
estimated earnings ( 148,229)
Taxes other than income taxes 16,807 ( 74,796)
Income taxes payable ( 247,054) ( 26,373)
------- ------
Total adjustments ( 749,389) 222,046
------- -------
Net cash provided by operating activities 824,147 798,501
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements
9
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Nine Months Ended July 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
Cash flows from investing activities:
<S> <C> <C>
Increase in Intangible assets ($ 631,854) ($ 10,000)
Property and equipment acquired ( 79,158) ( 65,227)
Increase in deposits ( 30,671) 2,347
Cash paid for acquisitions,
net of cash acquired ( 621,500)
------- ------
Net cash used in investing activities ( 1,363,183) ( 72,880)
--------- ------
Cash flows from financing activities:
Sale of common stock 1,000,000
Exercise of stock options 8,813
Net repayments under short term debt arrangements ( 671,866)
Repayments of long term debt ( 84,274) ( 64,094)
------- ------------
Net cash provided by (used in) financing activities 252,173 ( 64,094)
------- ------------
Net increase (decrease) in cash and cash equivalents ( 286,863) 661,527
Cash and cash equivalents at beginning of period 297,550 2,534,073
------- ---------
Cash and cash equivalents at July 31, $ 10,687 $ 3,195,600
============= ===========
Supplemental cash flow information:
Cash paid for:
Interest expense $ 107,690 $ 18,811
Income taxes $ 524,917 $ 129,796
</TABLE>
The accompanying notes are an integral part of these
financial statements.
10
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). This Report on Form 10-Q should be read in
conjunction with the Company's annual report on Form 10-K for the year
ended October 31, 1995. Certain information and footnote disclosures which
are normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations. The information reflects all normal
and recurring adjustments which, in the opinion of Management, are
necessary for a fair presentation of the financial position of the Company
and its results of operations for the interim periods set forth herein. The
results for the nine months ended July 31, 1996 are not necessarily
indicative of the results to be expected for the full year.
2. Stock Split
During the second quarter ended April 30, 1996, the Board of Directors,
with stockholder approval, amended the Company's Articles of Incorporation
to effect a one-for-five reverse split of common stock whereby each five
shares of common stock were exchanged for one share of common stock. The
amendment had no effect on the number of authorized shares and the par
value of the common stock. Where fractional shares resulted from the
reverse split, the Company issued such additional fraction of a share as is
necessary to increase the fractional share to a full share.
All references in the financial statements to weighted average number of
shares outstanding, earnings per share amounts and stock option data has
been restated to reflect the reverse split.
3. Income per Share
Income per share is based on the weighted average number of common shares
outstanding during the periods stated.
4. Sale of Common Stock
On February 5, 1996, the Company issued and sold 276,625 shares of common
stock to Limeport Investments, L.L.C. in a Private Placement transaction
for $1,000,000 ($3.615 per share). The purchase price was based on a twenty
percent discount to the twenty day average closing price prior to the
purchase of the shares. The shares are restricted securities, however, the
Company has agreed to register such shares by filing a shelf registration
statement by February 15, 1997. The President of the Company, Leon Kopyt,
has been granted certain voting rights over these shares as long as they
remain owned by Limeport Investments, L.L.C..
11
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. Acquisitions
During the nine months ended July 31, 1996, the Company acquired two
businesses in the staffing services industry. These acquisitions, which are
described below, have been accounted for as purchases and, accordingly, the
results of operations of the acquired companies have been included in the
consolidated results of operations of the Company from the date of
acquisition.
On March 11, 1996, the Company acquired all of the outstanding shares of
The Consortium, a speciality provider of information technology and health
care personnel servicing private sector and government clients in the
greater metropolitan New York region.
The consideration paid to the former shareholders of The Consortium
consisted of 1.3 million restricted shares of its common stock, valued at
$5,000,000, (based upon the average closing price of the Company's common
stock for the 20 trading days immediately preceding the closing date) in
exchange for all of the outstanding capital stock of The Consortium. The
company has agreed to file a shelf registration statement by February 15,
1997, permitting the sale of $600,000 in value of securities during the
period April 1997 through March 1998. Thereafter, the remainder of these
shares are subject to significant restrictions on resale through March 11,
1999. The cost in excess of net assets acquired of $4,851,500 is included
in the Company's Consolidated Balance Sheet as "Intangible Assets" and is
being amortized over a 40 year period.
On May 1, 1996, the Company acquired The Consortium of Maryland, Inc.
("Consort MD"), a specialty provider of information technology personnel
services to major U.S. Corporations in the greater metropolitan Washington,
D.C. region. Consort MD was not related or affiliated with The Consortium.
The acquisition was completed through a merger transaction (the "Merger")
pursuant to which Consort MD was merged with and into a newly-created
subsidiary of the Company, which then concurrently changed its name to "The
Consortium of Maryland, Inc."
The Merger consideration paid to the former shareholder of Consort MD at
the closing consisted of $621,500 cash and 34,327 restricted shares of the
Company's common stock valued at $377,597 (based upon the average closing
bid price of the Company's common stock for the 20 trading days immediately
preceding the closing date). Additional merger consideration will be paid
to the former shareholder of Consort MD consisting of additional shares of
stock and cash having a value equal to the tangible net worth of the
Consort MD as of the Merger date. As of the date of this report, the
tangible net worth has not been determined. It is anticipated that this
amount will be paid by the end of calendar year 1996. The Company has
agreed to file a registration statement by May 1, 1998 permitting the sale
of the restricted shares.
12
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. Acquisitions - Continued
The following unaudited results of operations have been prepared assuming
the acquisitions had occurred as of the beginning of the periods presented.
Those results are not necessarily indicative of results of future
operations nor of results that would have occurred had the 1996
acquisitions been consummated as of the beginning of the periods presented.
<TABLE>
<CAPTION>
Nine Months Ended July 31,
1996 1995
-------------- ---------
<S> <C> <C>
Revenues $ 52,841,000 $ 41,894,000
Net income $ 1,891,400 $ 1,381,000
Income per share $ .39 $ .28
</TABLE>
6. Shareholder Rights Plan
On March 14, 1996, the Board of Directors of the Company declared a
dividend distribution of one Common Share Purchase Right ("Right") for each
outstanding share of common stock of the Company. Each Right entitles
stockholders to buy one share of common stock at an exercise price of
$3.00. The Rights will be exercisable only if a person or group acquires
15% or more of the Company's common stock or announces a tender offer the
consummation of which would result in ownership by a person or group of 15%
or more of the common stock. The Company will be entitled to redeem the
rights at one cent per Right at any time before a 15% or greater position
has been acquired.
The dividend distribution was made on April 1, 1996, payable to
shareholders of record at the close of the business on that date. The
Rights expire April 1, 2006.
13
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
During the nine months ended July 31, 1996, working capital increased
$2,871,000. This was due primarily to the increased levels of profitability of
the Company and the private placement of common stock for $1,000,000. At July
31, 1996, the Company had outstanding borrowings under its credit facility of
$1,960,386 as compared to $914,435 as of October 31, 1995, an increase of
$1,045,951. The Company, at July 31, 1996, had $670,303 in long term liabilities
and held $10,687 in cash along with $4,736,000 of loan availability on its
$10,000,000 line of credit.
During the nine months ended July 31, 1996, operating activities provided
$824,147 of cash compared to cash provided by operating activities of $798,501
during the equivalent period in 1995. The increase of $25,646 was primarily
attributable to increased levels of profitability, depreciation and amortization
which were offset by an increase in accounts receivable and a decrease in
accounts payable during that period compared to the nine months ended July 31,
1995.
Cash used for investing activities totaled $1,363,183 for the nine months ended
July 31, 1996 compared to $72,880 during the equivalent period in 1995. The
increase was primarily attributable to cash payments for acquisitions and
related intangible assets.
Cash provided by financing activities was $252,173 for the nine months ended
July 31, 1996 compared to a use of cash of $64,094 during the equivalent period
in 1995. The increase was attributable to the private placement of common stock
for $1,000,000 and the proceeds from short term borrowings.
On May 29, 1996, the Company and its subsidiaries entered into an amended and
restated loan agreement with Mellon Bank, N.A. for providing a credit facility
in the maximum amount of $10,000,000. The agreement expires on June 30, 1998.
The credit facility is collateralized by accounts receivable, contract rights
and furniture and fixtures with unlimited guarantees from the Company. The
credit facility requires the subsidiaries and the Company to meet certain
objectives with respect to financial ratios and earnings. Credit facility
advances are to be used to meet cash flow requirements for the subsidiaries as
well as operating expenses for the Company. The Company believes its present
credit facility will sufficiently support its operations and those of its
subsidiaries.
Borrowing under the credit facility is based on 85% of accounts receivable on
which not more than ninety days have elapsed since the date of invoicing. The
interest rate charged is the prime rate of the bank (effective rate of 8.25% and
8.75% at July 31, 1996 and October 31, 1995, respectively).
The business strategy is to achieve growth both internally through operations
and externally through strategic acquisitions. The Company's liquidity and
capital resources may be affected in the future as the Company continues to grow
through implementation of this strategy which may involve acquisitions
facilitated through the use of cash and or debt and equity securities.
14
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
The Company does not currently have material commitments for capital
expenditures and does not anticipate entering into any such commitments during
the next twelve months. The Company continues to evaluate acquisitions of
various businesses which are complementary to its current operations. The
Company's current commitments consist primarily of lease obligations for office
space. The Company believes that its capital resources are sufficient to meet
its present obligations incurred in the normal course of business for at the
next twelve months.
During the third quarter, the Company received a request for contribution in an
unspecified amount from the purchaser of a property in 1977 on which the Company
had previously conducted the storage and handling of certain aluminum recovery
materials. The purchaser has suggested that based upon an order by the
California Regional Water Quality Control Board, the Company's handling and
storage of certain materials on the site prior to and after the sale may have
contributed to environmental contamination of the ground water on and around the
site. Any such contamination was discovered years after the sale.
Based upon the results of a preliminary examination of the matter, which
includes an environmental survey of the property conducted prior to the time of
the sale, the Company believes that the site in question complied with all
environmental rules and regulations at the time of the sale and that any
contamination was likely caused by the operation of the purchaser thereafter.
The Company continues to examine this matter. Until full evaluation is completed
any possible significance of this matter cannot be determined.
Results of Operations
Nine Months Ended July 31, 1996 Compared to July 31, 1995
Summary. Revenues, gross profit, operating income and net income of the Company
for the 1996 period increased $23 million (128%), $4.9 million (152%), $1.4
million (242.5%), and $1.0 million (173%), respectively, compared with 1995.
These improvements were primarily due to revenue growth through acquisitions of
Cataract, Inc. (August 30, 1995) and The Consortium (March 11, 1996) and The
Consortium of Maryland, Inc. (May 1, 1996).
Corporate level expenses (included with selling, general and administrative
expense) relating to salaries and benefits of personnel responsible for
corporate activities, including its acquisition program and certain marketing,
administrative and reporting responsibilities were 2.6% of revenues in 1996 as
compared to 4.7% of revenues in 1995. This was a 44.7% decrease.
Results of operations for the nine months ended July 31, 1996 reflected a net
income of $1,573,536 ($.38 per share) as compared to $576,455 ($.19 per share)
for the nine months ended July 31, 1995. Net income has been calculated after
taking into account the effect of the available net operating loss tax
carryforward (NOL). Without giving effect to the NOL, the Company's earnings per
share, on a fully taxed basis, for the nine months ended July 31, 1996 and 1995
would have been $.24 and $.12, respectively. The Company at July 31, 1996, had
available approximately $1,250,000 of net operating losses to offset future
federal taxable income.
Cost of services increased by $18.1 million to $32.9 million or 122.3% for the
nine months ended July 31, 1996 compared to $14.8 million for the nine months
ended July 31, 1995. This increase resulted from increased sales in 1996.
15
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Results of Operations (Continued)
Nine Months Ended July 31, 1996 Compared to July 31, 1995
Gross profit increased by 4.9 million to 8.1 million, or 152% for the nine
months ended July 31, 1996 compared to the nine months ended July 31, 1995.
Gross profit as a percentage of revenues was 19.7% for 1996 and 17.8% for 1995.
The increased gross profit percentages resulted from the valued - added nature
of the services rendered.
Selling, general and administrative expenses (SG&A) increased 3.4 million to 5.9
million or 14.4% of revenues for the nine months ended July 31, 1996 as compared
to 14.1% of revenues for the nine months ended July 31, 1995. The increased SG&A
was principally attributable to the aforementioned acquisitions. The increase in
SG&A expenses primarily related to the acquisitions and internal growth of the
operating companies post acquisition. The increase in SG&A as percentage of
revenues (.3%) resulted from one time charges incurred in connection with the
reverse stock split and the implementation of a shareholder rights plan.
Depreciation and amortization increased by $136,515 to $233,586 for the nine
months ended July 31, 1996, compared to $97,071 for the nine months ended July
31, 1995. This increase was attributable to the amortization of intangible
assets incurred with acquisitions. Intangible assets consisted primarily of
goodwill and are being amortized over a forty (40) year life.
Income tax expense increased by $135,637 to $210,790 for the nine months ended
July 31, 1996, compared to $75,153 for the nine months ended July 31, 1995. This
increase was attributable to the higher level of profitability for 1996.
Interest expense increased by $88,879 to $107,690 for the nine months ended July
31, 1996, compared to $18,811 for the nine months ended July 31, 1995. This
increase was attributable to funds required for acquisitions as well as the
refinancing of acquired companies working capital debt to more favorable terms
and conditions available under the Company's line of credit facility.
Interest income and other consisted principally of interest income for the nine
months ended July 31, 1995. Interest income declined to $-0- for the nine months
ended July 31, 1996. This decline resulted from the increased working capital
requirements necessary to support $11,269,000 of accounts receivable at July 31,
1996.
Results of Operations
Three Months Ended July 31, 1996 compared to July 31, 1995
Summary. Revenues, gross profit, operating income and net income of the Company
for the 1996 period increased $12.4 million (246.5%), $2.9 million (324.8%), $.8
million (1360.4%), and $.6 million (882.5%), respectively, compared with 1995.
These improvements were primarily due to revenue growth through acquisitions of
Cataract, Inc. (August 30, 1995) and The Consortium (March 11, 1996) and The
Consortium of Maryland, Inc. (May 1, 1996).
Corporate level expenses (included with selling, general and administrative
expense) relating to salaries and benefits of personnel responsible for
corporate activities, including its acquisition program and certain marketing,
administrative and reporting responsibilities were 2.1% of revenues in 1996 as
compared to 4.8% of revenues in 1995. This was a 57.1% decrease.
16
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Results of Operations (Continued)
Three Months Ended July 31, 1996 Compared to July 31, 1995
Results of operations for the three months ended July 31, 1996 reflected a net
income of $684,937 ($.14 per share) as compared to $69,716 ($.02 per share) for
the three months ended July 31, 1995. Net income has been calculated after
taking into account the effect of the available net operating loss tax
carryforward (NOL). Without giving effect to the NOL, the Company's earnings per
share, on a fully taxed basis, for the three months ended July 31, 1996 and 1995
would have been $.09 and $.02, respectively.
Cost of services increased by $9.5 million to $13.6 million or 229.5% for the
three months ended July 31, 1996 compared to 4.1 million for the three months
ended July 31, 1995. This increase resulted from increased sales in 1996.
Gross profit increased by $2.9 million to $3.8 million, or 324.8% for the three
months ended July 31, 1996 compared to $.8 million for the three months ended
July 31, 1995. Gross profit as a percentage of revenues was 21.9% for 1996 and
17.8% for 1995. The increased gross profit percentages resulted from the value -
added nature of the services rendered.
Selling, general and administrative expenses (SG&A) increased $2.0 million to
$2.8 million or 16.3% of revenues for the three months ended July 31, 1996. The
increased SG&A was principally attributable to the aforementioned acquisitions.
The increased SG&A as a percentage of revenues (1996-16.3%; 1995-16.0%) resulted
from the higher marketing and recruiting costs associated with the Information
Technology (IT) sector.
Depreciation and amortization increased by $66,863 to $101,116 for the three
months ended July 31, 1996, compared to $34,253 for the three months ended July
31, 1995. This increase was attributable to the amortization of intangible
assets incurred with acquisitions.
Interest expense increased by $51,282 to $56,601 for the three months ended July
31, 1996, compared to $5,319 for the three months ended July 31, 1995. This
increase was attributable to funds required for acquisitions as well as the
refinancing of acquired companies working capital and term debt to more
favorable terms and conditions available under the Company's line of credit
facility.
Interest income and other consisted principally of interest income for the three
months ended July 31, 1995. Interest income declined to $-0- for the three
months ended July 31, 1996. This decline resulted from the increased working
capital requirements necessary to support $11,269,000 of accounts receivable at
July 31, 1996.
Income tax expense increased by $80,703 to $101,613 for the three months ended
July 31, 1996, compared to $20,910 for the three months ended July 31, 1995.
This increase was attributable to the higher level of profitability for 1996.
17
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Other than as reported in Part I, Item 3 - "Legal Proceedings" of the
Company's Annual Report on Form 10-K for the year ended October 31,
1995, there have been no material developments to any of the matters
that require reporting under this Item.
Item 5. Cautionary Statement for Purposes of the "Safe Harbor" of the Private
Securities Litigation Reform Act of 1995
When used in this Quarterly Report on Form 10-Q and in other public
statements by the Company and Company officers, the words "may," "will,"
"expect," "anticipate," "continue," "estimate," "project," "intend," and similar
expressions are intended to identify forward-looking statements regarding events
and financial trends which may affect the Company's future operating results and
financial position. Such statements are subject to risks and uncertainties that
could cause the Company's actual results and financial position to differ
materially. Such factors include, among others: (i) the sensitivity of the
Company's business to unemployment and general economic conditions associated
with the placement of temporary staffing; (ii) the Company's ability to continue
to attract, train and retain personnel who possess skills in the areas necessary
to meet the staffing requirements of its clients; (iii) the Company's ability to
identify appropriate acquisition candidates, complete acquisitions on
satisfactory terms, or successfully integrate acquired businesses, which
acquisitions may involve special risks, including risks associated with
unanticipated problems, liabilities and contingencies, diversion of management
attention and possible adverse effects on earnings resulting from increased
goodwill amortization, increased interests costs and the issuance of additional
securities; (iv) the potential adverse effect a decrease in the trading price of
the Company's Common Stock would have upon the Company's ability to continue
acquisitions of businesses through the issuance of its securities and the
dilutive effect of such issuances on the Company, and upon the likelihood of
conversion of outstanding options, warrants and other convertible securities;
(v) the Company's ability to obtain financing on satisfactory terms and the
degree to which the company is leveraged, including the extent to which
currently outstanding options, warrants and other convertible securities are
exercised; (vi) the reliance of the Company upon the continued service of its
executive officers; (vii) the Company's ability to remain competitive in
national, regional and local markets in an industry which is highly competitive
with limited barriers to entry, including remaining competitive in light of
pricing issues which could adversely affect earnings and the operations of the
Company; (viii) the Company's ability to retain several of its key clients which
account for a significant portion of the Company's revenue, which a loss or a
material reduction in the revenue generated from such clients could have a
material adverse effect on the Company's business; (ix) the Company's ability to
maintain at a minimum its unemployment insurance premiums and workers
compensation which it provides for its temporary employees; (x) the risk of
claims associated providing temporary staffing services, including
discrimination and harassment, violation of wage and hourly requirements, misuse
of client proprietary information, misappropriation of funds, other criminal
activity or tort and other similar claims; (xi) the Company's ability to store,
retrieve, process and manage significant amounts of information, and
periodically expand and upgrade its information processing capabilities; (xii)
the Company's ability to remain in compliance with numerous federal and state
wage and hour laws and regulations; and (xiii) other economic, competitive and
governmental factors affecting the Company's operations, market, products and
services.
<PAGE>
Item 5. Cautionary Statement for Purposes of the "Safe Harbor" of the Private
Securities Litigation Reform Act of 1995 (Continued)
Additional factors are described in the Company's other public reports and
registration statements filed with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date made. The Company undertakes no
obligation to publicly release the results of any revision of these
forward-looking statements to reflect these ends or circumstances after the date
they are made or to reflect the occurrence of unanticipated events.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of earnings per share.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None.
18
<PAGE>
RCM TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
RCM Technologies, Inc.
(Registrant)
<S> <C> <C> <C> <C> <C> <C>
Date: September 4, 1996 By:/s/ Leon Kopyt
--------------
Leon Kopyt
Chairman, President, Chief Executive Officer
and Director
Date: September 4, 1996 By:/s/ Stanton Remer
-----------------
Stanton Remer
Chief Financial Officer, Treasurer, Secretary
and Director
</TABLE>
19
EXHIBIT 11
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Nine Months and Three Months Ended July 31, 1996 and 1995
<TABLE>
<CAPTION>
Nine Months Three Months
1996 1995 1996 1995
Income
<S> <C> <C> <C> <C>
Net income applicable to common stock $ 1,573,536 $ 576,455 $ 684,937 $ 69,716
========= ======= ======= ======
Shares
Weighted average number of shares
outstanding 4,058,189 2,879,913 4,810,776 2,879,913
Common stock equivalents 63,118 84,560 62,318 84,560
------ ------ ------ ------
Total 4,121,307 2,964,473 4,873,094 2,964,473
========= ========= ========= =========
Primary earnings per share $ .38 $ .19 $ .14 $ .02
=========== ========== ========= =========
Fully diluted earnings per share $ .38 $ .19 $ .14 $ .02
========== ========== ========= =========
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED JULY 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000700841
<NAME> RCM TECHNOLOGIES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<EXCHANGE-RATE> 1
<CASH> 10,687
<SECURITIES> 0
<RECEIVABLES> 11,314,000
<ALLOWANCES> 45,000
<INVENTORY> 0
<CURRENT-ASSETS> 12,026,862
<PP&E> 1,610,429
<DEPRECIATION> 1,121,905
<TOTAL-ASSETS> 21,964,146
<CURRENT-LIABILITIES> 5,807,812
<BONDS> 0
0
0
<COMMON> 243,639
<OTHER-SE> 15,242,392
<TOTAL-LIABILITY-AND-EQUITY> 21,964,146
<SALES> 40,940,265
<TOTAL-REVENUES> 40,940,265
<CGS> 32,877,999
<TOTAL-COSTS> 39,019,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,690
<INCOME-PRETAX> 1,784,326
<INCOME-TAX> 210,790
<INCOME-CONTINUING> 1,573,536
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,573,536
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
