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 January 31, 1997
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 4,815,676
Common Stock, $.05 par value Outstanding as of March 14, 1997
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
ITEM 1 - Consolidated Financial Statements
<S> <C>
Consolidated Balance Sheets as of January 31, 1997 (Unaudited)
and October 31, 1996 (Audited) 3
Unaudited Consolidated Statements of Income for the Three Month
Periods Ended January 31, 1997 and 1996 5
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the Three Month Period Ended January 31, 1997 6
Unaudited Consolidated Statements of Cash Flows for the Three
Month Periods Ended January 31, 1997 and 1996 7
Notes to Unaudited Consolidated Financial Statements 9
ITEM 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 16
ITEM 5 - Other Information 16
ITEM 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, 1997 and October 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ -----------
(Unaudited) (Audited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 124,856 $ 5,989
Accounts receivable, net of allowance for doubtful accounts
of $157,000 and $76,000 in 1997 and 1996, respectively 14,749,871 13,985,445
Prepaid expenses and other current assets 672,064 404,198
------- -------
Total current assets 15,546,791 14,395,632
---------- ----------
Property and equipment, at cost
Equipment and leasehold improvements 1,975,849 1,644,831
Less: accumulated depreciation and amortization 1,199,043 1,142,740
--------- ---------
776,806 502,091
------- -------
Other assets
Deposits 83,706 88,039
Intangible assets, net of accumulated amortization
of $453,444 and $366,337 in 1997 and 1996, respectively 13,783,573 9,420,858
---------- ---------
13,867,279 9,508,897
---------- ---------
Total assets $ 30,190,876 $ 24,406,620
= ========== = ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
3
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
January 31, 1997 and October 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(Unaudited) (Audited)
Current liabilities
<S> <C> <C>
Note payable - bank $ 7,000,000 $ 2,746,636
Accounts payable and accrued expenses 882,157 734,791
Accrued payroll 2,949,932 2,789,725
Taxes other than income taxes 712,023 432,607
Income taxes payable 1,083,355 920,439
--------- -------
Total current liabilities 12,627,467 7,624,198
---------- ---------
Income taxes payable 562,312 562,312
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;
4,878,476 shares issued in 1997 and 1996 243,924 243,924
Additional paid-in capital 17,161,105 17,161,105
Treasury stock, at cost 62,800 shares ( 62,821) ( 62,821 )
Accumulated deficit ( 341,111) ( 1,122,098 )
------- ---------
17,001,097 16,220,110
Total liabilities and shareholders' equity $ 30,190,876 $ 24,406,620
= ========== = ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1997 1996
-----------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 21,150,721 $ 9,776,507
- ---------- - ---------
Operating costs and expenses
Cost of services 16,051,317 7,985,878
Selling, general and administrative 3,625,653 1,144,116
Depreciation and amortization 118,629 54,970
------- ------
19,795,599 9,184,964
---------- ---------
Operating income 1,355,122 591,543
--------- -------
Other income (expense)
Interest expense ( 90,189) ( 24,901 )
Other, net 5,388 ( 6,030 )
----- -----
( 84,801) ( 30,931 )
------ ------
Income before income taxes 1,270,321 560,612
Income taxes 489,334 58,749
------- ------
Net income (Note 3) $ 780,987 $ 501,863
= ======= = =======
Net income per share $.16 $.15
==== ====
Weighted average number of
shares outstanding 4,970,620 3,276,627
========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months Ended January 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1996 4,878,476 $ 243,924 $17,161,105 ($1,122,098) ($ 62,821)
Net Income 780,987
-------
Balance, January 31, 1997 4,878,476 $ 243,924 $17,161,105 ($ 341,111) ($ 62,821)
========= ========= =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
6
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1997 1996
------------- -----------
Cash flows from operating activities: (Unaudited) (Unaudited)
<S> <C> <C>
Net income $ 780,987 $ 501,863
- ------- - -------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 118,629 54,970
Provision for losses on accounts
receivable 81,000
Changes in assets and liabilities:
Accounts receivable 278,442 6,031
Prepaid expenses and other
current assets ( 246,776) ( 81,856 )
Accounts payable and accrued expenses ( 76,269) ( 190,834 )
Accrued payroll ( 215,376) ( 245,606 )
Taxes other than income taxes 227,921 283,621
Income taxes payable 162,914 58,749
------- ------
Total adjustments 330,485 ( 114,925 )
------- -------
Net cash provided by operating activities 1,111,472 386,938
--------- -------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
7
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1997 1996
--------------- -----------
(Unaudited) (Unaudited)
Cash flows from investing activities:
<S> <C> <C>
Cash paid for acquisitions,
net of cash acquired ($ 5,012,394) $
Increase in intangible assets ( 137,272) ( 5,065 )
Property and equipment acquired ( 80,546) ( 29,049 )
(Increase) decrease in deposits 4,333 ( 4,422 )
----- -----
Net cash used in investing activities ( 5,225,879) ( 38,536 )
--------- ------
Cash flows from financing activities:
Exercise of stock options 438
Net borrowings (repayments) under short term debt arrangements 4,253,364 ( 489,796 )
Repayments of long term debt ( 20,090) ( 28,890 )
------ ------
Net cash provided by (used in) financing activities 4,233,274 ( 518,248 )
--------- -------
Net increase (decrease) in cash and cash equivalents 118,867 ( 169,846 )
Cash and cash equivalents at beginning of period 5,989 297,550
----- -------
Cash and cash equivalents at January 31, $ 124,856 $ 127,704
= ======= = =======
Supplemental cash flow information:
Cash paid for:
Interest expense $ 90,189 $ 24,901
Income taxes $ 197,438 $
</TABLE>
The accompanying notes are an integral part of these
financial statements.
8
<PAGE>
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, 1996. 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 three months ended January 31, 1997 are not necessarily
indicative of the results to be expected for the full year.
2. Acquisition
On January 7, 1997, the Company acquired Programming Alternatives of
Minnesota, Inc. ("PAMI"), a Minneapolis, Minnesota-based specialty provider
of information technology personnel, particularly those with high demand
client-server skills. The acquisition was completed effective as of
November 4, 1996 through a stock purchase transaction (the "Purchase")
pursuant to which PAMI became a wholly-owned subsidiary of the Company.
The Purchase consideration paid to the former shareholders of PAMI
consisted of $4,500,000 cash and a $1,625,000 three year promissory note
payable contingent upon PAMI achieving certain base levels of operating
income for each twelve month period following the Purchase, for a period of
three years. An additional earn-out payment may be made to the former
shareholders at the end of the third anniversary of the Purchase to the
extent that operating income exceeds these base levels. The acquisition has
been accounted for under the purchase method of accounting. The cost in
excess of net assets acquired of $4,483,331 is included in the Company's
Consolidated Balance Sheet as "Intangible Assets" and is being amortized
over a 40 year period.
The following unaudited results of operations have been prepared assuming
the acquisition had occurred at November 1, 1995. Those results are not
necessarily indicative of results of future operations nor of results that
would have occurred had the acquisition been consummated at November 1,
1995.
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1996
----
<S> <C>
Revenues $ 19,072,000
Income before income taxes $ 1,244,000
Net income $ 746,000
Income per common share $.16
</TABLE>
3. Income Taxes
The net income for the three months ended January 31, 1996, has been
calculated after taking into account the effect of the then 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 January 31, 1996 would have been $.10 per share.
9
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Stock Options
On August 15, 1996, the Board of Directors approved the RCM Technologies,
Inc. 1996 Executive Stock Plan ("1996 Plan") which authorizes the issuance
not later than August 15, 2006 of up to 1,250,000 (effective January 15,
1997) shares of Common Stock to officers and key employees of the Company
and its subsidiaries. Effective November 21, 1996, the Chief Executive
Officer, Mr. Kopyt, was granted 500,000 options pursuant to the 1996 Plan,
of which 375,000 options were not exercisable as of January 31, 1997.
<TABLE>
<CAPTION>
Transactions related to all stock options during the three months ended
January 31, 1997 are as follows:
<S> <C>
Outstanding options, beginning of period......................................... 214,400
Granted.......................................................................... 500,000
Forfeited........................................................................
Exercised........................................................................
Outstanding options, end of period............................................... 714,400
=======
Exercisable options ............................................................. 266,300
=======
Option grant price per share..................................................... $1.09
to $8.13
</TABLE>
10
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Private Securities Litigation Reform Act Safe Harbor Statement
When used in or incorporated by reference into this Report, the words
"estimate," "project," "intend," "expect" 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 are set forth in the Company's Annual Report on Form 10-K for the year
ended October 31, 1996, under the heading "Business-Risk Factors."
Overview
The Company provides contract and temporary personnel in the information
technology, professional engineering and technical, specialty healthcare and
general support sectors of the staffing industry to a diversified base of
national, regional and local customers. The Company's business and strategy have
changed dramatically since its inception in 1971. Through 1981, the Company's
business focused on the development of environmental technologies and the
operation of related environmental businesses. In 1981, the Company diversified
its operations through the acquisition of Intertec Design, Inc., a staffing
company that provided technical, clerical and light industrial personnel. Under
current management in 1992, the Company chose to discontinue its environmental
business and from 1992 through 1994 repositioned its core staffing business to
improve profitability and to take advantage of consolidating market dynamics.
Significant revenue growth was experienced beginning in fiscal 1995 as the
Company implemented a growth strategy that resulted in the acquisition of six
businesses in the staffing industry. This resulted in an increase in the
Company's gross margins and net income as the mix of the Company's business
shifted towards the higher margin information technology and specialty
healthcare sectors and as the Company elected to discontinue providing certain
lower margin general support services. General support services, which from
fiscal 1992 to 1994 accounted for approximately 51% of the Company's revenues,
decreased as a percentage of the Company's revenues to 20.5% during the three
months ended January 31, 1997. Corresponding increases were experienced in the
Company's newly acquired information technology and specialty healthcare groups,
accounting for 40.4% and 5.5%, respectively, of the Company's revenues during
the three months ended January 31, 1997.
The Company realizes revenues from the placement of contract and temporary
staffing personnel. These services are normally provided to the customer on a
time and material basis at fixed hourly rates that are established for each of
the Company's staffing personnel, based upon their skill level, experience and
type of work performed. Billable hourly rates range from an average of
approximately $55 - $75 within the information technology group, $30 - $60 in
the professional engineering group, $35 - $65 within the specialty healthcare
group and $8 - $15 in the Company's general support group. Approximately 90% of
the Company's revenues are currently realized on the basis of agreed upon hourly
billing rates. In some instances, billing rates can be adjusted based upon
increases in workmen's compensation, taxes and other agreed upon costs. A small
percentage of the Company's business is presently derived from fixed-bid
projects. In view of the diversification of the Company's service offerings, and
by drawing upon the skills developed within the Company's engineering and
technical group, management intends to develop project management skills within
its information technology and other groups and believes that an additional
percentage of its business may be derived in the future from larger-scale
consulting projects.
11
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Overview - (Continued)
Approximately 40% of the Company's services are provided under contract. The
remainder are provided under purchase orders. Contracts are utilized on certain
of the more complex assignments where the engagements are for longer terms or
where precise documentation of the nature and scope of the assignment is
necessary. Contracts, although they normally relate to longer-term and more
complex engagements, generally do not obligate the customer to purchase a
minimum level of services and are generally terminable by the customer on 60 -
90 days notice. The average length of engagement varies from three months to one
year within the information technology and engineering sectors, three months to
six months within the specialty healthcare sector and one week to three weeks
within the general support sector. Approximately 70% of the Company's services
are billed to customers on a weekly basis. The remainder are billed on a
bi-weekly and monthly basis based upon the type of project and arrangement with
the customer. Revenues are recognized when the services are provided.
Costs of services consist primarily of salaries and compensation related
expenses for billable staffing personnel, including payroll taxes, employee
benefits, worker's compensation and other insurance. Principally all of the
billable personnel are treated by the Company as employees, although 5% of
information technology personnel are treated as independent contractors.
Selling, general and administrative expenses consist primarily of salaries and
benefits of personnel responsible for operating activities, including certain
administrative, marketing and reporting responsibilities, including legal,
accounting and corporate office overhead. The Company records these expenses
when incurred. Depreciation relates primarily to the fixed assets of the
Company. Amortization relates principally to the goodwill resulting from the
Company's acquisitions. These acquisitions have been accounted for under the
purchase method of accounting for financial reporting purposes and have created
goodwill estimated at $14.0 million which is being amortized over a 40 year
period currently resulting in amortization expense aggregating approximately
$350,000 annually.
The Company's net income for each of the three fiscal years in period ended
October 31, 1996, has been determined after giving effect to the utilization of
a net operating loss carryforward. This effectively reduced to a minimal amount
federal tax accruals during those periods and subjected the Company to composite
tax rates of between 9.9% and 16.1%, principally as a result of state income
taxes. During and through fiscal 1996, the Company had utilized principally all
of its net operating loss carryforward and, accordingly, expects that for the
foreseeable future its net income will be subject to taxation at full federal
and state rates of approximately 40.5%.
Liquidity and Capital Resources
The Company has historically funded its capital requirements with cash generated
from operations and advances under its Revolving Credit Facility. In addition,
during fiscal 1996, the Company secured $1 million through a private placement
of its Common Stock. The Company typically maintains minimal cash balances, and
at January 31, 1997, had approximately $125,000 in cash.
During the three months ended January 31, 1997, operating activities provided
$1.1 million of cash compared to $.4 million during the comparable period in
fiscal 1996. The increase of $.7 million was primarily attributable to increased
levels of profitability along with an increase in depreciation and amortization
during the comparable period in fiscal 1996.
12
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Liquidity and Capital Resources - (Continued)
Cash used in investing activities was $5.2 million for the three months ended
January 31, 1997. In January 1997, the Company purchased PAMI for $4,490,000 in
cash and a three year contingent promissory note. In addition, the acquisition
of PAMI required the use of $660,000 in working capital funds. During fiscal
1996, the Company purchased three staffing companies which required $1.0 million
of cash as part of the purchase price. During fiscal 1995, the Company purchased
two staffing companies which required $2.3 million in cash as part of the
purchase price. The Company financed the cash portion of the acquisitions with
internal funds and bank borrowings. These acquisitions collectively resulted in
goodwill estimated at $14.0 million which is being amortized at approximately
$350,000 per year.
Net cash provided by financing activities was $4.2 million and $2.8 million for
the three months ended January 31, 1997. Cash was primarily provided under the
Company's Revolving Credit Facility.
On December 19, 1996, the Company and its subsidiaries entered into an amended
and restated loan agreement with Mellon Bank, N.A. for providing a credit
facility of up to $20,000,000 (the "Revolving Credit Facility") which expires on
June 30, 1999. The Revolving Credit Facility is collateralized by accounts
receivable, contract rights and furniture and fixtures together with unlimited
guarantees from the Company. The Revolving Credit Facility requires the Company
and its subsidiaries to meet certain financial objectives and maintain certain
financial covenants with respect to net income, effective net worth, working
capital, senior indebtedness to effective net worth ratios, capital
expenditures, current assets to current liabilities ratios, consolidated working
capital and consolidated tangible net worth. At October 31, 1996, and January
31, 1997, the Company and its subsidiaries were in compliance with all financial
covenants contained within the Revolving Credit Facility.
Advances under the Revolving Credit Facility are to be used to meet cash flow
requirements for the subsidiaries as well as operating expenses for the Company.
Borrowing under the Revolving 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 by the bank, under the amended and restated
agreement is based on the London Interbank Offered Rate ("LIBOR") plus 2.25%.
The Company anticipates that its primary uses of capital in future periods will
be for acquisitions and the funding of increases in accounts receivables. The
Company believes that the net proceeds from this Offering and borrowings under
the Revolving Credit Facility and any net cash flow from operations will be
sufficient to meet the Company's capital needs for at least the next twelve
months.
For several years prior to 1977, the Company operated a facility located in
Fontana, California (the "Facility") at which it processed certain materials to
recover aluminum. The property on which the Facility was located (the
"Property") was owned by Robert Sackett, a principal shareholder and chief
executive officer of the Company at that time. In 1977, the Company sold certain
assets of the Facility to a company (the "Purchaser") that continued the
processing operations until 1982. As part of the 1977 transaction, the Purchaser
granted a license to the Company to store an existing aluminum oxide stockpile
(the "Stockpile") at the Facility, and the Purchaser had the right to purchase
from the Company material from the Stockpile. Mr. Sackett sold the Property to
the Purchaser in 1985. In 1986 and 1994, the California Regional Water Quality
Control Board ("California WQCB") issued Cleanup and Abatement Orders ("Orders")
to the Purchaser, Mr. Sackett and the Company alleging the degradation of, and
requiring its investigation and mitigation of, groundwater quality due to
discharges from materials stored at the Facility, including the Stockpile.
Although the Company did not respond to the Orders, the Purchaser has advised
the Company that, through January 1994, it incurred costs of approximately $5.6
million principally to remove the Stockpile from the Facility and, in addition
to any costs, if any, incurred since January 1994, it may incur additional costs
of approximately $1.0 million to settle all liability in this matter to the
California WQCB.
<PAGE>
The Company has received from the Purchaser a request for contribution in an
unspecified amount to recover a portion of its costs. In this regard, the
Purchaser has threatened the Company with litigation under both the Federal
Superfund law and California law. Based upon the Company's evaluation of this
matter, which included a review of an environmental study performed for the
Company before the 1977 transaction and studies performed for the Purchaser
after the 1977 transaction, the Company believes that, among other things: the
Facility was in material compliance with all applicable environmental laws,
regulations and other requirements prior to and at the time of the 1977
transaction; any violations of applicable environmental laws, regulations or
other requirements at the Facility after the 1977 transaction, including any
relating to the Stockpile, were caused by or the responsibility of the Purchaser
and others; the contaminants alleged to have been released from the Facility and
impacted groundwater likely do not support a Federal Superfund claim; and some
of the actions taken and costs incurred by the Purchaser in response to the
Orders may not have been necessary or required to comply with the Orders. There
can be no assurance that the Company will not incur material expense in
connection with any claims brought by the Purchaser or the California WQCB or
that the Company will not ultimately be found responsible for certain of the
costs incurred by the Purchaser in an amount that may be material to the
Company. Management intends to vigorously defend any such claims.
13
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended January 31, 1997, Compared to Three Months Ended January 31, 1996
Three Months Ended
January 31,
1997 1996
------------- -------------
<S> <C> <C>
Revenues $ 21,150,721 $ 9,776,507
Cost of services $ 16,051,317 $ 7,985,878
Selling, general and administrative $ 3,625,653 $ 1,144,116
Depreciation and amortization $ 118,629 $ 54,970
Operating income $ 1,355,122 $ 591,543
Interest expense $ 90,189 $ 24,901
Income before income taxes $ 1,270,321 $ 560,612
Income taxes $ 489,334 $ 58,749
Net income $ 780,987 $ 501,863
Earnings per share $.16 $.15
</TABLE>
Revenues. Revenues increased 116.0%, or $11.0 million, for the three months
ended January 31, 1997, as compared to the comparable prior year period. Of this
increase, approximately 95.0% was attributable to revenue growth through
acquisitions that occurred after the first quarter of fiscal 1996 and
approximately 11.0% from internal growth. These increases were offset by a 6.0%
discontinuation of business with unacceptable margins and workers' compensation
rates.
Cost of Services. Cost of services increased 101.0% , or $8.1 million, for the
three months ended January 31, 1997 as compared to the equivalent prior year
period. This increase was primarily due to increased salaries and compensation
associated with the increased revenues experienced during this period. Cost of
services as a percentage of revenues decreased to 75.9% for the three months
ended January 31, 1997, from 81.7% for the comparable prior year period. This
decline was primarily attributable to a greater percentage of the Company's
revenues being derived from specialty staffing services.
Selling, General and Administrative. Selling, general and administrative
expenses increased 217.0%, or $2.5 million, for the three months ended January
31, 1997, as compared to the comparable prior year period. This increase
resulted from the change in the mix of the business during the three months
ended January 31, 1997, which required higher marketing, sales, recruiting and
administrative expenses than the comparable prior year period. Selling, general
and administrative expenses as a percentage of revenues increased to 17.1% for
the three months ended January 31, 1997, from 11.7% in the comparable prior year
period, primarily attributable to the sharp increase in the percentage of
revenues derived within the information technology sector from the comparable
prior year period. Selling, general and administrative expenses as a percentage
of revenues will not likely continue to increase at the same rate as the
percentage of revenues within the information technology sector and are not
expected to increase at the same rate as in the comparable prior year period.
Corporate overhead expenses as a percentage of revenues decreased from 3.4% for
the three months ended January 31, 1997, to 2.1% for the comparable prior year
period, as these costs were spread over a larger revenue base.
14
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Three Months Ended January 31, 1997, Compared to Three Months Ended January 31,
1996 - (Continued)
Depreciation and Amortization. Depreciation and amortization increased 116.0%,
or $63,700, for the three months ended January 31, 1997, as compared to the
comparable prior year period. This increase was primarily due to the
amortization of intangible assets incurred in connection with the acquisitions
that occurred after the first quarter of fiscal 1996.
Other Income (Expense). Other income (expense) consists primarily of interest
expense which increased 262.0%, or $65,300, for the three months ended January
31, 1997, as compared to the comparable prior year period. This increase was due
to the increased borrowings necessary to provide the funds required for certain
of the Company's acquisitions as well as to refinance the working capital debt
of some of the acquired companies.
Income Tax. Income tax expense increased 733.0%, or $430,000 for the three
months ended January 31, 1997, as compared to the comparable prior year period.
This increase was due to an increase in the effective tax rate from 10.5% to
38.5% and increased levels of net income. The increase in the effective tax rate
was primarily due to the utilization of principally all of the remaining net
operating loss carryforward which offset net income in prior periods.
15
<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,
1996, there have been no material developments to any of the matters
that require reporting under this Item.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
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
1. Rcm Technologies, Inc. current report of Form 8-K and filed
and filed January 21, 1997.
16
<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.
RCM Technologies, Inc.
(Registrant)
Date: March 14, 1997 By:/s/ Leon Kopyt
--------------
Leon Kopyt
Chairman, President, Chief Executive
Officer and Director
Date: March 14, 1997 By:/s/ Stanton Remer
-----------------
Stanton Remer
Chief Financial Officer, Treasurer,
Secretary and Director
17
<PAGE>
EXHIBIT 11
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended January 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
Primary earnings
<S> <C> <C>
Net income applicable to common stock $ 780,987 $ 501,863
= ======= = =======
Shares
Weighted average number of shares
outstanding 4,815,676 3,192,624
Common stock equivalents 146,865 73,000
------- ------
Total 4,962,541 3,265,624
========= =========
Primary earnings per common share $ .16 $ .15
= === = ===
Fully diluted earnings
Net income applicable to common stock $ 780,987 $ 501,863
= ======= = =======
Shares
Weighted average number of shares
outstanding 4,815,676 3,192,624
Common stock equivalents 154,944 84,003
------- ------
Total 4,970,620 3,276,627
========= =========
Fully diluted earnings per common share $ .16 $ .15
= === = ===
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED JANUARY 31, 1997 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> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<EXCHANGE-RATE> 1
<CASH> 124,856
<SECURITIES> 0
<RECEIVABLES> 14,906,871
<ALLOWANCES> 157,000
<INVENTORY> 0
<CURRENT-ASSETS> 15,546,791
<PP&E> 1,975,849
<DEPRECIATION> 1,199,043
<TOTAL-ASSETS> 30,190,876
<CURRENT-LIABILITIES> 12,627,467
<BONDS> 0
0
0
<COMMON> 243,924
<OTHER-SE> 16,757,173
<TOTAL-LIABILITY-AND-EQUITY> 30,190,876
<SALES> 21,150,721
<TOTAL-REVENUES> 21,150,721
<CGS> 16,051,317
<TOTAL-COSTS> 19,795,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,189
<INCOME-PRETAX> 1,270,321
<INCOME-TAX> 489,334
<INCOME-CONTINUING> 780,987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 780,987
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
