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 April 30, 1998
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 the Registrant's class of common
stock, as of the latest practicable date.
CLASS 10,445,590
Common Stock, $0.05 par value Outstanding as of June 9, 1998
1
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Page
Consolidated Balance Sheets as of April 30, 1998 (Unaudited)
and October 31, 1997 (Audited) 3
Unaudited Consolidated Statements of Income for the Six Month
Periods Ended April 30, 1998 and 1997 5
Unaudited Consolidated Statements of Income for the Three Month
Periods Ended April 30, 1998 and 1997 6
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the Six Month Period Ended April 30, 1998 7
Unaudited Consolidated Statements of Cash Flows for the Six
Month Periods Ended April 30, 1998 and 1997 8
Notes to Unaudited Consolidated Financial Statements 10
ITEM 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II - OTHER INFORMATION
ITEM 4 - Submission of Matters to a Vote of Security Holders 18
ITEM 6 - Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
2
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 1998 and October 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------- ---------
(Unaudited) (Audited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 424,042 $ 918,028
Accounts receivable, net of allowance for doubtful accounts
of $356,000 and $316,000 in 1998 and 1997, respectively 31,177,039 24,850,304
Prepaid expenses and other current assets 1,017,420 673,265
--------- -------
Total current assets 32,618,501 26,441,597
---------- ----------
Property and equipment, at cost
Equipment and leasehold improvements 3,825,413 2,508,680
Less: accumulated depreciation and amortization 2,024,160 1,373,275
--------- ---------
1,801,253 1,135,405
--------- ---------
Other assets
Deposits 107,650 94,149
Intangible assets (net of accumulated amortization
of $1,229,300 and $804,640 in 1998 and 1997,
respectively) 37,208,703 26,411,445
---------- ----------
37,316,353 26,505,594
Total assets $ 71,736,107 $ 54,082,596
= ========== = ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
3
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
April 30, 1998 and October 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
(Unaudited) (Audited)
Current liabilities
<S> <C> <C>
Note payable - bank $ 10,062,903 $ 2,000,000
Accounts payable and accrued expenses 3,638,488 1,315,937
Accrued payroll 4,351,896 4,501,502
Taxes other than income taxes 2,136,507 665,106
Income taxes payable 567,943 679,937
------- -------
Total current liabilities 20,757,737 9,162,482
---------- ---------
Income taxes payable 85,305 308,129
------ -------
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; 7,741,130 and
7,582,206 shares issued in 1998 and
1997, respectively 387,056 379,110
Additional paid-in capital 43,154,522 40,877,540
Retained earnings 7,351,487 3,355,335
--------- ---------
50,893,065 44,611,985
Total liabilities and shareholders' equity $ 71,736,107 $ 54,082,596
= ========== = ==========
</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>
Six Months Ended April 30,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 86,174,418 $ 48,530,700
Cost of services 65,414,594 37,185,185
---------- ----------
Gross profit 20,759,824 11,345,515
---------- ----------
Operating costs and expenses
Selling, general and administrative 13,140,370 7,943,838
Depreciation and amortization 593,006 238,081
------- -------
13,733,376 8,181,919
---------- ---------
Operating income 7,026,448 3,163,596
Interest expense 190,624 262,667
------- -------
Income before income taxes 6,835,824 2,900,929
Income taxes 2,839,672 1,202,609
--------- ---------
Net income $ 3,996,152 $ 1,698,320
= ========= = =========
Basic earnings per share $.52 $.35
Weighted average number of common
shares outstanding 7,631,729 4,815,947
Diluted earnings per share $.48 $.34
Weighted average number of common
and common equivalent shares
outstanding 8,288,012 4,930,818
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended April 30,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 48,942,175 $ 27,379,979
Cost of services 37,334,590 21,133,868
---------- ----------
Gross profit 11,607,585 6,246,111
---------- ---------
Operating costs and expenses
Selling, general and administrative 7,326,813 4,323,573
Depreciation and amortization 341,750 119,452
------- -------
7,668,563 4,443,025
--------- ---------
Operating income 3,939,022 1,803,086
Interest expense 151,292 172,478
------- -------
Income before income taxes 3,787,730 1,630,608
Income taxes 1,568,979 713,275
--------- -------
Net income $ 2,218,751 $ 917,333
= ========= = =======
Basic earnings per share $.29 $.19
Weighted average number of common
shares outstanding 7,651,347 4,816,176
Diluted earnings per share $.27 $.18
Weighted average number of common
and common equivalent shares
outstanding 8,307,630 4,961,321
</TABLE>
The accompanying notes are an integral part of these
financial statements.
6
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six Months Ended April 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1997 7,582,206 $ 379,110 $40,877,540 $3,355,335
Exercise of Stock Options 10,175 509 72,013
Exercise of Warrants 148,749 7,437 2,204,969
Net Income 3,996,152
Balance, April 30, 1998 7,741,130 $ 387,056 $43,154,522 $7,351,487
========== ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
7
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended April 30,
1998 1997
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 3,996,152 $ 1,698,320
- --------- - ---------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 593,006 238,081
Provision for losses on accounts
receivable 40,000 120,000
Changes in assets and liabilities:
Accounts receivable ( 6,366,735) ( 3,911,491 )
Prepaid expenses and other
current assets ( 344,155) ( 115,569 )
Accounts payable and accrued expenses 2,322,551 ( 303,457 )
Accrued payroll ( 149,606) ( 58,687 )
Taxes other than income taxes 1,471,401 668,701
Income taxes payable ( 334,818) 462,486
------- -------
Total adjustments ( 2,768,356) ( 2,899,936 )
--------- ---------
Net cash provided by (used in) operating activities 1,227,795 ( 1,201,616 )
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
8
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Six Months Ended April 30,
1998 1997
(Unaudited) (Unaudited)
Cash flows from investing activities:
<S> <C> <C>
Increase in intangible assets ($ 260,515) ($ 198,890 )
Property and equipment acquired ( 386,044) ( 224,279 )
Decrease (Increase) in deposits ( 13,501) 3,132
Cash paid for acquisitions,
net of cash acquired ( 11,409,553) ( 5,594,339 )
---------- ---------
Net cash used in investing activities ( 12,069,613) ( 6,014,376 )
---------- ---------
Cash flows from financing activities:
Exercise of stock options and warrants 2,284,928 1,094
Net borrowings under short term debt arrangements 8,062,903 7,243,883
--------- ---------
Net cash provided by financing activities 10,347,831 7,244,977
---------- ---------
Net increase (decrease) in cash and cash equivalents ( 493,986) 28,985
Cash and cash equivalents at beginning of period 918,028 5,989
------- -----
Cash and cash equivalents at April 30, $ 424,042 $ 34,974
= ======= = ======
Supplemental cash flow information:
Cash paid for:
Interest expense $ 190,624 $ 262,667
Income taxes 3,042,491 740,122
Acquisitions
Fair value of assets acquired 14,307,108 6,223,325
Liabilities assumed 2,897,555 628,986
--------- -------
Cash paid, net of cash acquired $ 11,409,553 $ 5,594,339
= ========== = =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
9
<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, 1997.
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 six months ended April 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
2. Sale of Common Stock
On June 3, 1998, the Company completed a public offering of 2,700,000 shares of
its Common Stock, of which, 2,509,980 shares were sold by the Company and
190,020 shares were sold by certain selling stockholders. The public offering
was undertaken pursuant to the terms of a Registration Statement on Form S-3
originally filed with the Securities and Exchange Commission on April 29, 1998
and a final Prospectus dated May 29, 1998. The net proceeds to the Company after
estimated offering costs was approximately $50,000,000. The Company did not
receive any of the proceeds from the sale of the shares by the selling
stockholders.
3. Acquisition
On January 4, 1998, the Company purchased all of the outstanding stock of
Northern Technical Services, Inc. ("NTS"), a Milwaukee, Wisconsin-based,
provider of information technology and professional engineering staffing
services, for a purchase price consisting of: (i) $3.1 million in cash; (ii)
$1.5 million of contingent consideration, payable over two years upon attaining
certain earnings targets; and (iii) additional consideration to the extent that
during the two year period, NTS exceeds the earnings targets. Any additional
consideration paid will be recorded as additional purchase price. NTS generated
revenue of approximately $12.6 million during the fiscal year prior to the date
of acquisition.
On February 2, 1998, the Company purchased all of the outstanding stock of
Staffworks, Inc. ("Staffworks"), a Stanhope, New Jersey-based provider of
information technology staffing services, for a purchase price consisting of:
(i) $3.0 million in cash; (ii) $2.0 million of contingent consideration, payable
over three years upon attaining certain earnings targets; and (iii) additional
consideration to the extent that during the three year period, Staffworks
exceeds the earnings targets. Any additional consideration paid will be recorded
as additional purchase price. Staffworks generated revenue of approximately
$12.6 million during the fiscal year prior to the date of acquisition.
On February 2, 1998, the Company acquired all of the outstanding stock of Global
Technology Solutions ("Global"), a Sacramento, California-based provider of
information technology staffing services, for a purchase price consisting of:
(i) $3.7 million in cash; (ii) $2.0 million of contingent consideration payable
over two years upon attaining certain earnings targets; and (iii) additional
consideration to the extent that during the two year period, Global exceeds the
earnings targets. Any additional consideration paid will be recorded as
additional purchase price. Global generated revenues of approximately $5.5
million during the fiscal year prior to the date of acquisition.
The following unaudited results of operations have been prepared assuming that
all acquisitions which have occurred since November 1, 1996 had occurred at 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
acquisitions been consummated as of the beginning of the periods presented.
10
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisition - (Continued)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
April 30, April 30,
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Revenues $ 93,533,000 $ 62,543,000 $ 48,972,000 $ 41,702,000
Operating income 7,672,000 4,713,000 3,939,000 3,182,000
Net income 4,265,000 2,271,000 2,219,000 1,435,000
Diluted earnings per share $.51 $.46 $.27 $.29
</TABLE>
4. Stock Options
On April 23, 1998, the shareholders of the Company approved amendments to the
1992 Incentive Stock Option Plan (the "1992 Option Plan") and the 1994
Non-Employee Director Stock Option Plan (the "Director Option Plan"). The
amendments increase the number of shares of the Company's common stock issuable
under the 1992 Option Plan by 400,000 shares to 500,000 shares and increase the
number of shares issuable under the Director Option Plan by 100,000 shares to
180,000 shares.
<TABLE>
<CAPTION>
Transactions related to all stock options during the six months ended April
30, 1998 are as follows:
<S> <C>
Outstanding options, beginning of period......................................... 1,087,400
Granted.......................................................................... 130,000
Forfeited........................................................................( 103,350)
Exercised........................................................................( 10,175)
Outstanding options, end of period............................................... 1,103,875
Exercisable options ............................................................. 695,925
==========
Option grant price per share..................................................... $1.25
to $14.50
</TABLE>
5. Earnings Per Share
On November 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Basic earnings per share are computed
based upon the weighted average number of common shares outstanding and diluted
earnings per share are computed based upon the weighted average number of common
shares outstanding and dilutive common share equivalents (consisting of
incentive stock options, non-qualified stock options, and warrants) outstanding
during the periods using the treasury stock method. Following is a
reconciliation of the shares used to compute basic and diluted earnings per
share:
11
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
5. Earnings Per Share - (Continued)
Six Months Ended Three Months Ended
April 30, April 30,
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------
Weighted average number of shares
outstanding used to compute basic
<S> <C> <C> <C> <C>
earnings per share 7,631,729 4,815,947 7,651,347 4,816,176
Dilutive effect of stock options
and warrants 656,283 114,871 656,283 145,145
------- ------- ------- -------
Number of shares used to compute
diluted earnings per share 8,288,012 4,930,818 8,307,630 4,961,321
========= ========= ========= =========
</TABLE>
6. Accounts Payable and accrued expenses
Accounts payable at April 30, 1998 and
October 31, 1997 consists of the following
April 30, October 31,
1998 1997
Accounts payable 1,734,343 1,315,937
Funds due sellers (1) 1,904,145
--------- ---------
3,638,488 1,315,937
(1) Represents funds due to shareholders of acquired companies.
12
<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. Certain of
these factors have been identified within the Company's various Reports,
Registration Statements and other filings previously made with the SEC.
Overview
The Company is a multi-regional provider of information technology and other
professional staffing services though its 41 branch offices located in 17
states.
The Company's business and strategy have changed dramatically since its
inception in 1971. From 1992 through 1994, current management repositioned its
core staffing business to improve profitability and to take advantage of
consolidating market dynamics. Significant revenue growth began in Fiscal 1995
as the Company implemented a growth strategy that since then has resulted in the
acquisition of thirteen businesses in the staffing industry. These acquisitions
shifted the Company's business toward the higher margin information technology
and specialty healthcare sectors. During this time, the Company also elected to
discontinue providing certain lower margin general support services. General
support services, which from Fiscal 1992 to Fiscal 1994 accounted for
approximately 51.0% of the Company's revenues, decreased as a percentage of the
Company's revenues to 13.1% during the six months ended April 30, 1998.
Correspondingly, revenues from the Company's specialty professional services
accounted for 86.9% of the Company's revenues during the six months ended April
30, 1998.
The Company realizes revenues from the placement of contract and temporary
staffing personnel. Principally all of these services are provided to the
customer on a time and material basis at hourly rates that are established for
each of the Company's staffing personnel, based upon their skill level,
experience and type of work performed. In some instances, the Company derives
revenues on a fixed fee basis in connection with consulting 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.
The majority of the Company's services 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 on 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 to 90 days notice. Revenues are recognized when
services are provided.
13
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Overview - (Continued)
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. Selling, general and
administrative expenses consist primarily of salaries and benefits of personnel
responsible for operating activities and include corporate overhead expenses.
Corporate overhead expenses relate to salaries and benefits of personnel
responsible for corporate activities, including the company's acquisition
program and corporate marketing, administrative and reporting responsibilities.
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 which is being amortized over 40-year
periods.
Liquidity and Capital Resources
To support its acquisition program and related working capital requirements, the
Company has historically used borrowings under its Revolving Credit Facility and
proceeds from offerings of Common Stock. On June 13, 1997, the Company completed
a public offering which raised $23.3 million in proceeds for the Company. The
net offering proceeds through April 30, 1998, have been used to fund
acquisitions and retire bank debt. During February 1998, the Company completed
the acquisition of two companies which required the use of $6.7 million of loan
availability under the Revolving Credit Facility. At April 30, 1998, the Company
had approximately $424,000 in cash and approximately $10.0 million in unused
loan availability under the Revolving Credit Facility.
On June 3,1998, the Company completed a public offering of 2,700,000 shares of
Common Stock, of which 2,509,980 shares were sold by the Company and 190,020
were sold by certain selling stockholders. The proceeds to the Company net of
estimated offering costs was approximately $50 million.
Cash provided by operating activities was $1.2 million for the six months ended
April 30, 1998 compared to a use of cash of $1.2 million for the six months
ended April 30, 1997. The increase of $2.4 million was the result of the
increase of $2.6 million in net income before depreciation and amortization and
other non-cash charges and a decrease of $200,000 from changes in working
capital, primarily an increase in accounts payable and taxes other than income
taxes which was in turn offset by an increase in accounts receivable.
Cash used in investing activities for the six months ended April 30, 1998 was
$12.1 million compared to $6.0 million for the six months ended April 30, 1997.
This increase was principally the result of larger acquisitions completed by the
Company during the six months ended April 30, 1998 as compared to those
acquisitions completed during the six months ended April 30, 1997.
Cash provided by financing activities for the six months ended April 30, 1998
was $10.3 million compared to $7.2 million for the six months ended April 30,
1997. This increase was principally the result of proceeds from the exercise of
stock warrants, and borrowings under the Company's Revolving Credit Facility.
The increase in cash for the six months ended April 30, 1997 represented a net
increase in borrowings under the Company's Revolving Credit Facility.
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)
On December 19, 1996, the Company and its subsidiaries entered into an amended
and restated loan agreement with Mellon Bank, N.A. to provide the Revolving
Credit Facility. The Revolving Credit Facility is secured 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, 1997 and April 30,
1998, the Company and its subsidiaries were in compliance with all financial
covenants contained within the Revolving Credit Facility.
Borrowings under the Revolving Credit Facility are to be used to meet cash flow
requirements for the Company's subsidiaries as well as operating expenses for
the Company. Borrowings under the Revolving Credit Facility bear interest, at
the Company's option, at LIBOR (London Interbank Offered Rate) or the bank's
prime rate, plus applicable margin. At October 31, 1997 and April 30, 1998 there
was approximately $14.0 million and $10.0 million, respectively, of unused loan
availability under the Revolving Credit Facility. The Company utilized
approximately $8.0 million of the net proceeds from its June 3, 1998 Offering to
pay down the Revolving Credit Facility which had a balance of approximately
$10.0 million as of June 3, 1998, although the Company does intend to draw on
this line as needed in the future.
The Company anticipates that its primary uses of capital in future periods will
be for acquisitions and the funding of increases in working capital. The
Company's 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. Funding for future acquisitions will be obtained from the proceeds
of the June 3, 1998 Offering, the Revolving Credit Facility, funds generated
through operations and future financing transactions.
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 and those to be incurred in the normal course of
business for the next twelve months.
During the six months ended April 30, 1998, the Company derived $2.2 million of
proceeds from the issuance of 148,749 shares of Common Stock upon the exercise
of its Class C Warrants (the "Warrants") at an effective exercise price of
$15.00 per share. The Warrants were issued in a public offering undertaken by
the Company during 1989, and after several extensions, expired on April 30,
1998.
15
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
<TABLE>
<CAPTION>
Results of Operations - Six Months Ended April 30, 1998, Compared to Six Months Ended April 30, 1997
Six Months Ended April 30,
1998 1997
<S> <C> <C>
Revenues $ 86,174,418 $ 48,530,700
Cost of services 65,414,594 37,185,185
Gross profit 20,759,824 11,345,515
Selling, general and administrative 13,140,370 7,943,838
Depreciation and amortization 593,006 238,081
Operating income 7,026,448 3,163,596
Interest expense 190,626 262,667
Income before income taxes 6,835,824 2,900,929
Income taxes 2,839,672 1,202,609
Net income 3,996,152 1,698,320
Diluted earnings per share $.48 $.34
</TABLE>
Revenues. Revenues increased 77.6%, or $37.6 million, for the six months ended
April 30, 1998 as compared to the comparable prior-year period. Of this
increase, approximately $25.0 million was attributable to revenue growth through
acquisitions made during Fiscal 1997 and the six months ended April 30, 1998,
and approximately $12.6 million was attributable to internal growth. For the six
months ended April 30, 1998 internal growth was 38.7% for the Professional
Engineering and Information Technology groups and 26.0% for the Company as a
whole.
Cost of Services. Cost of services increased 75.9%, or $28.2 million, for the
six months ended April 30, 1998 as compared to the comparable 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 six months ended
April 30, 1998, from 76.6% for the comparable prior-year period. This
improvement was primarily due 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 65.4%, or $5.2 million, for the six months ended April 30,
1998, as compared to the comparable prior-year period. This increase was
primarily due to selling, general and administrative expenses associated with
increased revenues during the six months ended April 30, 1998, as compared to
the comparable prior-year period. Selling, general and administrative expenses
as a percentage of revenues decreased to 15.2% for the six months ended April
30, 1998, from 16.4% in the comparable prior-year period, primarily attributable
to the sharing of administrative overhead over a larger revenue base.
Depreciation and Amortization. Depreciation and amortization increased 149.1%,
or $355,000, for the six months ended April 30, 1998, as compared to the
comparable prior-year period. This increase was primarily due to the
amortization of intangible assets acquired in connection with the acquisitions
that occurred after April 30, 1997.
Interest Expense. Actual interest expense of $207,000, for the six months ended
April 30, 1998, was partially offset by $16,000 of interest income, which was
earned from the investment in interest-bearing deposits of the net proceeds of
the Company's public offering in June 1997, after the repayment of bank debt.
Interest expense decreased 21.4%, or $56,000, for the six months ended April 30,
1998 as compared to the comparable prior-year period. This decrease was due to
the decreased borrowings necessary to provide the funds for working capital.
Income Tax. Income tax expense increased 136.1%, or $1,637,000, for the six
months ended April 30, 1998, as compared to the comparable prior-year period.
This increase was due to increased levels of income.
16
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
<TABLE>
<CAPTION>
Three Months Ended April 30,
1998 1997
<S> <C> <C>
Revenues $ 48,942,175 $ 27,379,979
Cost of services 37,334,590 21,133,868
Gross profit 11,607,585 6,246,111
Selling, general and administrative 7,326,813 4,323,573
Depreciation and amortization 341,750 119,452
Operating income 3,939,022 1,803,086
Interest expense 151,292 172,478
Income before income taxes 3,787,730 1,630,608
Income taxes 1,568,979 713,275
Net income 2,218,751 917,333
Diluted earnings per share $.27 $.18
</TABLE>
Revenues. Revenues increased 78.8%, or $21.6 million, for the three months ended
April 30, 1998 as compared to the comparable prior-year period. Of this
increase, approximately $16.2 million was attributable to revenue growth through
acquisitions made during Fiscal 1997 and the three months ended April 30, 1998,
and approximately $5.4 million was attributable to internal growth. For the
three months ended April 30, 1998 internal growth was 31.9% for the Professional
Engineering and Information Technology groups and 19.6% for the Company overall.
Cost of Services. Cost of services increased 76.7% , or $16.2 million, for the
three months ended April 30, 1998 as compared to the comparable 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 76.3% for the three months
ended April 30, 1998, from 77.2% for the comparable prior-year period. This
improvement was primarily due 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 69.5%, or $3.3 million, for the three months ended April 30,
1998, as compared to the comparable prior-year period. This increase was
primarily due to selling, general and administrative expenses associated with
increased revenues during the three months ended April 30, 1998, as compared to
the comparable prior-year period. Selling, general and administrative expenses
as a percentage of revenues decreased to 15.6% for the three months ended April
30, 1998, from 15.8% in the comparable prior-year period, primarily attributable
to the sharing of administrative overhead over a larger revenue base.
Depreciation and Amortization. Depreciation and amortization increased 186.1%,
or $222,000, for the three months ended April 30, 1998, as compared to the
comparable prior-year period. This increase was primarily due to the
amortization of intangible assets acquired in connection with the acquisitions
that occurred after April 30, 1997.
Interest Expense. Interest expense decreased 12.3%, or $21,000, for the three
months ended April 30, 1998, as compared to the comparable prior-year period.
This decrease was due to the decreased borrowings necessary to provide the funds
for working capital.
Income Tax. Income tax expense increased 120.0%, or $856,000, for the three
months ended April 30, 1998, as compared to the comparable prior-year period.
This increase was due to increased levels of income.
17
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on April 23, 1998.
The following actions were taken:
<TABLE>
<CAPTION>
1.) The following directors were elected to serve on the Board of
Directors until the expiration of their respective terms and
until their respective successors shall be elected and
qualified. Tabulated voting results were as follows:
<S> <C> <C>
Robert B. Kerr (Class B) (For 5,446,198; Withheld 20,235)
Woodrow B. Moats, Jr. (Class B) (For 5,449,078; Withheld 17,355)
</TABLE>
Each nominee as a Class B director was elected to serve a term
expiring at the Company's Annual Meeting in 2001, or until his
successor has been elected and qualified.
2.) Approval of amendment to the 1992 Incentive Stock Option Plan
to increase the number of shares the Company is authorized to
issue pursuant to the Plan from 100,000 to 500,000.
Votes For - 3,098,046; Votes Against - 726,841
3.) Approval of amendment to the 1994 Non-Employee Director Stock
Option Plan to increase the number of shares the Company is
authorized to issue pursuant to the Plan from 80,000 to
180,000 and to give the Board of Directors discretion to
determine the amount and terms of any future awards.
Votes For - 3,510,674; Votes Against - 314,028
4.) Approval of Grant Thornton, LLP as the independent auditing
firm for the Company for the fiscal year ending October 31,
1998.
Votes For - 5,416,028; Votes Against - 39,117
18
<PAGE>
PART II
OTHER INFORMATION - CONTINUED
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule.
27a Restated Financial Data Schedule April 30, 1998
(b) Reports on Form 8-K
The Company filed a report on Form 8-K (under Item 5) on March 17, 1998
reporting the resignation of Barry S. Meyers from the Board of Directors of RCM
Technologies, Inc. on March 12, 1998.
19
<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>
Date: June 9, 1998 By:/s/ Stanton Remer
-----------------
Stanton Remer
Chief Financial Officer,
(Principal Accounting Officer)
Treasurer, Secretary and Director
</TABLE>
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED APRIL 30, 1998 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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 1
<CASH> 424,042
<SECURITIES> 0
<RECEIVABLES> 31,533,039
<ALLOWANCES> 356,000
<INVENTORY> 0
<CURRENT-ASSETS> 32,618,501
<PP&E> 3,825,413
<DEPRECIATION> 2,024,160
<TOTAL-ASSETS> 71,736,107
<CURRENT-LIABILITIES> 20,757,737
<BONDS> 0
0
0
<COMMON> 387,056
<OTHER-SE> 50,506,009
<TOTAL-LIABILITY-AND-EQUITY> 71,736,107
<SALES> 86,174,418
<TOTAL-REVENUES> 86,174,418
<CGS> 65,414,594
<TOTAL-COSTS> 79,147,970
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 190,624
<INCOME-PRETAX> 6,835,824
<INCOME-TAX> 2,839,672
<INCOME-CONTINUING> 3,996,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,996,152
<EPS-PRIMARY> .52
<EPS-DILUTED> .48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED APRIL 30, 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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 1
<CASH> 34,974
<SECURITIES> 0
<RECEIVABLES> 19,096,804
<ALLOWANCES> 196,000
<INVENTORY> 0
<CURRENT-ASSETS> 19,476,635
<PP&E> 2,119,582
<DEPRECIATION> 1,229,678
<TOTAL-ASSETS> 34,748,793
<CURRENT-LIABILITIES> 16,487,751
<BONDS> 0
0
0
<COMMON> 240,834
<OTHER-SE> 17,678,690
<TOTAL-LIABILITY-AND-EQUITY> 34,748,793
<SALES> 48,530,700
<TOTAL-REVENUES> 48,530,700
<CGS> 37,185,185
<TOTAL-COSTS> 45,367,104
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262,667
<INCOME-PRETAX> 2,900,929
<INCOME-TAX> 1,202,609
<INCOME-CONTINUING> 1,698,320
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,698,320
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
</TABLE>
