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, 1999
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
Common Stock, $.05 par value 10,478,976
Outstanding as of March 5, 1999
1
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
ITEM 1 - Consolidated Financial Statements
Page
Consolidated Balance Sheets as of January 31, 1999 (Unaudited)
and October 31, 1998 (Audited) 3
Unaudited Consolidated Statements of Income for the Three Months
Ended January 31, 1999 and 1998 5
Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the Three Months Ended January 31, 1999 6
Unaudited Consolidated Statements of Cash Flows for the Three
Months Ended January 31, 1999 and 1998 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 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, 1999 and October 31, 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
(Unaudited) (Audited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 7,149,441 $ 22,187,536
Accounts receivable, net of allowance for doubtful accounts
of $486,000 at each date 49,784,158 40,680,268
Prepaid expenses and other current assets 1,566,398 1,199,809
--------- ---------
Total current assets 58,499,997 64,067,613
---------- ----------
Property and equipment, at cost
Equipment and leasehold improvements 4,782,586 5,041,184
Less: accumulated depreciation and amortization 1,638,671 2,437,316
--------- ---------
3,143,915 2,603,868
--------- ---------
Other assets
Deposits 178,241 145,876
Intangible assets (net of accumulated amortization
of $1,400,531 and $989,797 in 1999 and 1998,
respectively) 64,818,186 50,249,794
---------- ----------
64,996,427 50,395,670
Total assets $ 126,640,339 $ 117,067,151
= =========== = ===========
</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, 1999 and October 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
(Unaudited) (Audited)
Current liabilities
<S> <C> <C>
Accounts payable and accrued expenses $ 3,759,007 $ 3,202,625
Accrued payroll 8,067,721 5,505,465
Taxes other than income taxes 3,433,217 1,629,945
Income taxes payable 1,132,599 56,989
--------- ------
Total current liabilities 16,392,544 10,395,024
---------- ----------
Stockholders' 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; 10,477,076 and
10,447,525 shares issued and outstanding
in 1999 and 1998, respectively 523,854 522,376
Additional paid-in capital 93,292,176 92,997,711
Retained earnings 16,431,765 13,152,040
---------- ----------
110,247,795 106,672,127
Total liabilities and stockholders' equity $ 126,640,339 $ 117,067,151
= =========== = ===========
</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,
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 67,391,593 $ 37,232,243
Cost of services 51,203,646 28,080,004
---------- ----------
Gross profit 16,187,947 9,152,239
---------- ---------
Operating costs and expenses
Selling, general and administrative 10,284,901 5,813,557
Depreciation and amortization 583,323 251,256
------- -------
10,868,224 6,064,813
---------- ---------
Operating income 5,319,723 3,087,426
Interest (expense) income, net 155,807 ( 39,332 )
--------------- ------
Income before income taxes 5,475,530 3,048,094
Income taxes 2,195,805 1,270,693
--------- ---------
Net income $ 3,279,725 $ 1,777,401
= ========= = =========
Basic earnings per share $.31 $.23
Weighted average number of common
shares outstanding 10,466,882 7,593,447
Diluted earnings per share $.30 $.22
Weighted average number of common
and common equivalent shares
outstanding 11,021,513 8,177,283
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended January 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1998 10,447,525 $ 522,376 $92,997,711 $13,152,040
Exercise of Stock Options 29,551 1,478 294,465
Net Income 3,279,725
Balance, January 31, 1999 10,477,076 $ 523,854 $93,292,176 $16,431,765
========== ========= =========== ===========
</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,
1999 1998
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 3,279,725 $ 1,777,401
- --------- - ---------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 583,323 251,256
Provision for losses on accounts
receivable 15,000
Changes in assets and liabilities:
Accounts receivable ( 9,103,890) ( 1,641,131 )
Prepaid expenses and other
current assets ( 366,589) 325,786
Accounts payable and accrued expenses 556,382 303,622
Accrued payroll 2,562,256 ( 307,887 )
Taxes other than income taxes 1,803,272 1,445,521
Income taxes payable 1,075,610 606,833
--------- -------
Total adjustments ( 2,889,636) 999,000
--------- -------
Net cash provided by operating activities 390,089 2,776,401
------- ---------
</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,
1999 1998
(Unaudited) (Unaudited)
Cash flows from investing activities:
<S> <C> <C>
Increase in intangible assets ($ 141,826 )
Property and equipment acquired ($ 797,161) ( 416,044 )
Increase in deposits ( 32,365) ( 8,698 )
Cash paid for acquisitions,
net of cash acquired ( 14,894,601) ( 3,125,000 )
---------- ---------
Net cash used in investing activities ( 15,724,127) ( 3,691,568 )
---------- ---------
Cash flows from financing activities:
Exercise of stock options and warrants 295,943 554,228
--------------- ---------------
Net cash provided by financing activities 295,943 554,228
------- -------
Net decrease in cash and cash equivalents ( 15,038,095) ( 360,939 )
Cash and cash equivalents at beginning of period 22,187,536 918,028
---------- -------
Cash and cash equivalents at January 31, $ 7,149,441 $ 557,089
= ========= = =======
Supplemental cash flow information:
Cash paid for:
Interest expense $ 19,822 $ 55,1149
Income taxes $ 1,120,195 $ 663,860
</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, 1998. 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, 1999 are not necessarily
indicative of the results to be expected for the full year.
2. Acquisitions
During the three months ended January 31, 1999, the Company acquired three
businesses in the staffing and consulting services industry. These
acquisitions, which are summarized 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 dates of acquisition.
In connection with certain acquisitions, the Company is obligated to pay
contingent consideration to the selling shareholders upon the acquired
businesses achieving certain earnings targets over periods ranging from 2-3
years. In general, the contingent consideration amounts fall into two
tiers: (a) tier 1 ("Deferred Consideration") - amounts are due, provided
that these acquisitions achieve a base level of earnings which has been
determined at the time of acquisition and (b) tier 2 ("Earnouts") - amounts
are not fixed and are based on the growth in excess of the base level
earnings. The Deferred Consideration payments are anticipated to be as
follows:
<TABLE>
<CAPTION>
Year Ending October 31, Amount
----------------------- --------------
<S> <C> <C>
1999 $ 4,382,000
2000 11,150,000
2001 7,890,000
2002-thereafter 750,000
-------
$ 24,172,000
The Deferred Consideration and Earnouts, when paid, will be recorded as
additional purchase consideration and will be amortized over a 40 year
period. Earnouts cannot be estimated with any certainty.
The Company's acquisition activities during the three months ended January
31, 1999 were as follows:
Number of acquisitions 3
Consideration paid:
Cash at closing $12,525,000
Deferred Consideration $ 5,300,000
</TABLE>
9
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Acquisitions - (Continued)
The following unaudited results of operations have been prepared assuming
that all acquisitions which have occurred since November 1, 1997 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.
<TABLE>
<CAPTION>
Three Months Ended January 31,
1999 1998
<S> <C> <C>
Revenues $ 67,850,000 $ 56,300,000
Operating income $ 5,365,000 $ 4,800,000
Net income $ 3,301,000 $ 2,248,000
Earnings per common share (Diluted) $.30 $.27
</TABLE>
3. Interest (Expense) Income, Net
<TABLE>
<CAPTION>
Interest (expense) income, net consisted of the following:
Three Months Ended January 31,
1999 1998
<S> <C> <C>
Interest expense ($ 19,822) ($ 55,114)
Interest income 175,629 15,782
------- ------
$ 155,807 ($ 39,332)
== ======= == ======
</TABLE>
4. New Accounting Standard
On November 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
SFAS 128 eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted earnings per share in
conjunction with the disclosure of the methodology used in computing such
earnings per share. Basic earnings per share excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average common shares outstanding during the period. Diluted
earnings per share takes into account the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
and converted into common stock. Prior period earnings per share
calculations have been restated to reflect the adoption of SFAS 128.
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
Certain statements included herein and in other Company reports and public
filings are forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned that such forward-looking
statements, which may be identified by words such as "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are only predictions and are subject to risks and uncertainties that
could cause the Company's actual results and financial position to differ
materially. Such risks and uncertainties include, without limitation: (i)
unemployment and general economic conditions associated with the placement of
temporary staffing personnel; (ii) the Company's ability to continue to attract,
train and retain personnel qualified to meet the staffing requirements of its
clients; (iii) the Company's ability to identify appropriate acquisition
candidates, complete such acquisitions and successfully integrate acquired
businesses; (iv) uncertainties regarding proforma financial information and the
underlying assumptions relating to acquisitions and acquired businesses; (v)
uncertainties regarding amounts of deferred consideration and earnout payments
to become payable to former shareholders of acquired businesses; (vi) possible
adverse effects on the market price of the Company's Common Stock due to the
resale into the market of significant amounts of Common Stock; (vii) the
potential adverse effect a decrease in the trading price of the Company's Common
Stock would have upon the Company's ability to acquire businesses through the
issuance of its securities; (viii) the Company's ability to obtain financing on
satisfactory terms; (ix) the reliance of the Company upon the continued service
of its executive officers; (x) the Company's ability to remain competitive in
national, regional and local markets; (xi) the Company's ability to retain
several of its key clients; (xii) the Company's ability to maintain its
unemployment insurance premiums and workers compensation premiums; (xiii) the
risk of claims made against the Company associated with providing temporary
staffing services; (xiv) the Company's ability to manage significant amounts of
information, and periodically expand and upgrade its information processing
capabilities; (xv) the Company's ability to remain in compliance with federal
and state wage and hour laws and regulations; and (xvi) other economic,
competitive and governmental factors affecting the Company's operations, market,
products and services. 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.
Overview
The Company is a national provider professional services and solutions focusing
principally in the areas of Information Technology, Professional Engineering and
Government Services through its 59 branch offices located in 21 states as of
January 31, 1999.
The Company has pursued an aggressive growth strategy designed to transition the
Company's business from general support staffing services to higher growth,
higher margin professional staffing and solution services, particularly
information technology and engineering services. In fiscal 1995, approximately
half of the Company's revenues were derived from general support staffing and
the Company did not offer information technology services. For the three months
ended January 31, 1999, information technology services and engineering services
contributed 71% and 19%, respectively of the Company's revenues. Since the
beginning of fiscal 1996, the Company has acquired 18 information technology or
professional engineering staffing services companies, aggregating $158.1 million
in revenues for their respective latest twelve months prior to acquisition.
Through these acquisitions, the Company has achieved substantial revenue growth,
improved its operating profitability and repositioned itself as a provider of
information technology and other professional staffing and solution services.
11
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Overview - (Continued)
The Company realizes revenues from the placement of contract and temporary
staffing personnel. These services are primarily provided to the customer at
hourly rates that are established for each of the Company's staffing personnel,
based upon their skill level and experience and the type of work performed. The
Company also provides project management and consulting work which are billed
either by agreed upon fee or hourly rates, or a combination of both. The billing
rates and profit margins for project management and consulting work are higher
than those received for professional staffing services. The Company plans to
expand its sales of higher margin consulting and project management services.
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.
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.
12
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
<TABLE>
<CAPTION>
Three Months Ended January 31, 1999 Compared to Three Months Ended January 31, 1998
Three Months Ended January 31,
1999 1998
% of % of
Amount Revenue Amount Revenue
<S> <C> <C> <C> <C>
Revenues $ 67,391,593 100.0% $ 37,232,243 100.0 %
Cost of services 51,203,646 76.0 28,080,004 75.4
---------- ---- ---------- ----
Gross profit 16,187,947 24.0 9,152,239 24.6
Selling, general and administrative 10,284,901 15.3 5,813,557 15.6
Depreciation and amortization 583,323 .9 251,256 .7
Operating income 5,319,723 7.9 3,087,426 8.3
Interest (expense) income, net 155,807 .2 ( 39,332) ( .1 )
------- -- ------ --
Income before income taxes 5,475,530 8.1 3,048,094 8.2
Income taxes 2,195,805 3.3 1,270,693 3.4
--------- --- --------- ---
Net income $ 3,279,725 4.9% $ 1,777,401 4.8 %
========= === ========= ===
Earnings per share (diluted) $.30 $.22
==== ====
</TABLE>
Revenues. Revenues increased 81.0%, or $30.2 million, for the three months ended
January 31, 1999 as compared to the comparable prior year period. The increase
was primarily due to the acquisition of seven companies during fiscal 1998 and
three companies during the three months ended January 31, 1999, along with
internal growth.
Cost of Services. Cost of services increased 82.3%, or $23.1 million, for the
three months ended January 31, 1999 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 increased to 76.0% for the three months
ended January 31, 1999 from 75.4% for the comparable prior year period. This
increase was primarily due to increased vacation and holiday charges compared to
the prior period.
Selling, General and Administrative. Selling, general and administrative
expenses increased 76.9%, or $4.5 million, for the three months ended January
31, 1999 as compared to the comparable prior year period. This increase was
attributable principally to a 81.0% increase in revenues which required
additional administrative, marketing and sales expenses. Selling, general and
administrative expenses as a percentage of revenues decreased to 15.3% for the
comparable three months ended January 31, 1999 as compared to 15.6% for the
prior year period. This decrease in percentage was attributable principally to
operating leverage achieved by the spreading of selling, general and
administrative overhead expenses over a larger revenue base.
Depreciation and Amortization. Depreciation and amortization increased 111.8%,
or $332,000, for the three months ended January 31, 1999 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 1998.
13
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Three Months Ended January 31, 1999 Compared to Three Months Ended
January 31, 1998 - (Continued)
Interest (Expense) Income, Net. Actual interest expense of $20,000 for three
months ended January 31, 1999, was offset by $176,000 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 1998, after the retirement of bank
debt. Interest (expense) income, net decreased 496%, or $196,000, for three
months ended January 31, 1999 as compared to the comparable prior year period.
This decrease was due primarily to the decreased borrowing requirements
necessary to fund working capital required of acquired companies.
Income Tax. Income tax expense increased 72.8%, or $925,000, for the three
months ended January 31, 1999 as compared to the comparable prior year period.
This increase was primarily due to increased levels of income.
14
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Liquidity and Capital Resources
Operating activities provided $390,000 and $2.7 million of cash during the three
months ended January 31, 1999 and 1998, respectively. The decrease of $2.4
million was primarily attributable to an increase in accounts receivable which
was partially offset by increased levels of profitability, income taxes payable
and withheld payroll taxes and depreciation and amortization associated with the
acquisitions that were completed during fiscal 1998 and the three months ended
January 31, 1999.
Investing activities utilized $15.7 million and $3.7 million in the three months
ended January 31, 1999 and 1998, respectively. During three months ended January
31, 1999, the Company invested $12.5 million in cash in the purchase of three
staffing companies and $2.9 million of deferred consideration payments related
to acquisitions prior to October 31, 1998. During the three months ended January
31, 1998, the Company invested $3.1 million in cash in the purchase of one
staffing company.
Financing activities provided $296,000 and $554,000 for three months ended
January 31, 1999 and 1998, respectively.
On August 19, 1998, the Company and its subsidiaries entered into an agreement
with Mellon Bank N.A., administrative agent for a syndicate of banks, which
provides for a $75.0 million Revolving Credit Facility. Borrowings under the
Revolving Credit Facility bear interest, at the Company's option, at LIBOR
(London Interbank Offered Rate) plus applicable margin or the agent bank's prime
rate. Borrowings under the Revolving Credit Facility are collateralized by all
of the assets of the Company and its subsidiaries and a pledge of all of the
stock of its subsidiaries. The Revolving Credit Facility also contains various
financial and non-financial covenants. The Revolving Credit Facility expires
August 2001. There were no amounts outstanding under the Revolving Credit
Facility at January 31, 1999.
The Company anticipates that its primary uses of capital in future periods will
be for acquisitions and the funding of increases in accounts receivable. Funding
for further acquisitions will be derived from the Revolving Credit Facility,
funds generated through operations or future financing transactions.
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.
The Company does not, as of the date of this Report, 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.
15
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Year 2000 Readiness Disclosure
Many existing computer systems use only two digits to identify a year with the
assumption that the first two digits of every year are "19". With the year 2000
approaching, computer systems that are not Year 2000 compliant will read the
year 2000 as 1900 and may malfunction. The Company's program to assess the
extent of issues related to Year 2000 compliance and to develop and implement
solutions for those issues is being directed by senior management with the
Company's Chief Technology Officer having primary responsibility for the
coordination, remediation, implementation and contingency planning efforts.
Designated personnel at the Company's headquarters and at each of the Company's
operating locations have been assigned Year 2000 compliance responsibilities.
The program is focused on internal information technology systems,
computer-aided design systems, non-IT systems (equipment with embedded micro
processors), facilities and the status of compliance by larger customers,
service providers, suppliers and other key third parties. The program involves
the following phases:
Assessment, Remediation Planning, Contingency Planning, Remediation/Replacement
Implementation and Compliance Testing.
The internal IT systems compliance issues are most critical and relate to the
Company's financial systems, computer networks and communications systems and
personnel recruiting and human resource systems. Corporate level personnel have
responsibility to insure that all financial, network and communication systems
will be Year 2000 compliant as well as determining the status of compliance by
larger customers, suppliers and other key third parties. Personnel recruiting
and human resource tracking systems for billable resources are being evaluated
and remediated by local branch management under the coordination of the
Corporate Chief Technology Officer.
Year 2000 compliance related to internal financial systems is being addressed in
two ways. The Company has decided to replace its primary financial system with a
state-of-the-art integrated enterprise-wide system. This decision was driven by
the need for enhanced processing, control and reporting capabilities using
current technologies. Based on representations and warranties of the vendor, the
Company believes that the new system will be Year 2000 compliant and is expected
to be operational by the third quarter of 1999. In addition, the existing
primary system and other ancillary systems have been evaluated for Year 2000
compliance and the required remediation and testing are underway. These efforts
are scheduled to be concluded by early 1999.
With respect to larger customers, suppliers and other key third parties,
questionnaire surveys are being distributed for use in assessing their state of
compliance in order to develop contingency plans in case of non-compliance.
Customers and suppliers with whom there is electronic interchange of data are of
primary focus to insure that both the Company and those parties are Year 2000
compliant with respect to such interchanges. The Company does not believe the
consequences of non-compliance of third party suppliers and customers would be
material due to the limited exposure the Company has assessed to these parties.
The responsibility for identifying and assessing compliance issues and then
implementing solutions for computer-aided design systems, non-IT systems,
facilities, and the status of compliance by suppliers and other third parties,
rests primarily with each operating office. Solutions for Year 2000 issues
related to computer-aided design systems, non-IT systems and facilities will, of
necessity, come from vendors and others providing the related services. The
Company, however, plans to identify compliance issues and monitor remediation or
replacement efforts. With respect to local suppliers and third parties, the
Company has also distributed questionnaire surveys in order to assess their
state of compliance in order to develop contingency plans in case of
non-compliance. The identification and assessment process is well underway with
the expectation that solutions will be in place by the second quarter of 1999.
16
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Year 2000 Readiness Disclosure - (Continued)
The cost of the Company's Year 2000 and enterprise wide solution implementation
program is expected to be approximately $1.2 million, approximately $600,000 of
which has been incurred as of the date of the filing of this Report. This amount
includes costs associated with the new financial system and the new personnel
recruiting and human resource systems described above. These systems already
were scheduled for implementation and their implementation was not accelerated
because of Year 2000 issues.
The Company believes that its program to address Year 2000 compliance is on
schedule for completion before the end of 1999. However, there can be no
assurance that there will be no material impact as a result of Year 2000 issues,
particularly considering the dependence and interdependence that exists with
third parties and that resources for remediation and replacement may not be
available in the required time frame. Since the Company has a greater level of
control over implementing solutions to Year 2000 issues relating to its internal
systems, it is more likely that adverse impacts on the Company could originate
with third parties rather than from the Company's inability to have its internal
systems Year 2000 compliant. If issues related to internal systems are not
resolved before the end of 1999, the consequences to the Company could be
material.
The Company is in the process of developing a most reasonably likely worst case
Year 2000 scenario. At the appropriate time, but not later than mid-1999, the
Company will determine the extent to which contingency plans are required.
17
<PAGE>
PART II
OTHER INFORMATION
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
The Company did not file a report of Form 8-K during the period
ended January 31, 1999.
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.
RCM Technologies, Inc.
(Registrant)
Date: March 5, 1999 By:/s/ Stanton Remer
-----------------------------
Stanton Remer
Chief Financial Officer, Treasurer, Secretary
and Director
(Principal Financial Officer of Registrant)
19
<PAGE>
EXHIBIT 11
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
Three Months Ended January 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
Diluted earnings
<S> <C> <C>
Net income applicable to common stock $ 3,279,725 $ 1,777,401
= ========= = =========
Shares
Weighted average number of shares
outstanding 10,466,882 7,593,447
Common stock equivalents 554,631 583,836
------- -------
Total 11,021,513 8,177,283
========== ==============
Diluted earnings per common share $.30 $.22
==== ====
Basic earnings
Net income applicable to common stock $ 3,279,725 $ 1,777,401
= ========= =============
Shares
Weighted average number of shares
outstanding 10,466,882 7,593,447
========== ==============
Basic earnings per common share $.31 $.23
==== ====
20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE SUMMARY FINANCIAL INFORMATION IS EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED JANUARY 31, 1999 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-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<EXCHANGE-RATE> 1
<CASH> 7,149,441
<SECURITIES> 0
<RECEIVABLES> 50,270,158
<ALLOWANCES> 486,000
<INVENTORY> 0
<CURRENT-ASSETS> 58,499,997
<PP&E> 4,782,586
<DEPRECIATION> 1,638,671
<TOTAL-ASSETS> 126,640,339
<CURRENT-LIABILITIES> 16,392,544
<BONDS> 0
0
0
<COMMON> 523,854
<OTHER-SE> 109,723,941
<TOTAL-LIABILITY-AND-EQUITY> 126,640,339
<SALES> 67,391,593
<TOTAL-REVENUES> 67,391,593
<CGS> 51,203,646
<TOTAL-COSTS> 10,868,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,822
<INCOME-PRETAX> 5,475,530
<INCOME-TAX> 2,195,805
<INCOME-CONTINUING> 3,279,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,279,725
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
</TABLE>
