UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from November 1, 1999 to December 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)
(856) 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 10,498,151
Common Stock, $0.05 par value Outstanding as of February 4, 2000
1
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1 - Consolidated Financial Statements
Page
Consolidated Balance Sheets as of December 31, 1999 (Unaudited)
<S> <C> <C> <C>
and October 31, 1999 (Audited) 3
Unaudited Consolidated Statements of Income and Comprehensive Income
for the Two-Month Periods Ended December 31, 1999 and 1998 5
Unaudited Consolidated Statements of Income for the Two-Month
Periods Ended December 31, 1999 and 1998 6
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the Two-Month Period Ended December 31, 1999 7
Unaudited Consolidated Statements of Cash Flows for the Two-
Month Periods Ended December 31, 1999 and 1998 8
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
December 31, 1999 and October 31, 1999
ASSETS
<TABLE>
<CAPTION>
December 31, October 31,
1999 1999
-------------- ---------
(Unaudited) (Audited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 4,025,808 $ 1,540,952
Accounts receivable, net of allowance for doubtful accounts
of $1,014,000 (December 31, 1999) and $1,002,000
(October 31, 1999) 66,654,677 71,391,596
Prepaid expenses and other current assets 3,257,207 3,179,305
--------- ---------
Total current assets 73,937,692 76,111,853
---------- ----------
Property and equipment, at cost
Equipment and leasehold improvements 9,789,996 9,602,593
Less: accumulated depreciation and amortization 3,151,626 3,117,773
--------- ---------
6,638,370 6,484,820
--------- ---------
Other assets
Deposits 205,878 201,485
Intangible assets (net of accumulated amortization
of $4,437,000 (December 31, 1999) and $3,969,000
(October 31, 1999)
Goodwill 103,168,944 101,249,388
----------- --------------
103,374,822 101,450,873
Total assets $ 183,950,884 $ 184,047,546
= =========== = ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
3
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31, 1999 and October 31, 1999
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, October 31,
1999 1999
-------------- ---------
(Unaudited) (Audited)
Current liabilities
<S> <C> <C>
Accounts payable and accrued expenses $ 4,853,763 $ 8,382,893
Accrued payroll 5,640,054 9,543,082
Taxes other than income taxes 1,269,265 1,003,550
Income taxes payable 791,173 2,315,851
------- ---------
Total current liabilities 12,554,255 21,245,376
---------- ----------
Long-term debt 47,300,000 40,800,000
---------- ----------
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;
10,496,225 shares issued and outstanding 524,811 524,811
Accumulated other comprehensive income ( 52,764 ) ( 96,230 )
Additional paid-in capital 93,473,301 93,473,301
Retained earnings 30,151,281 28,100,288
---------- ----------
124,096,629 122,002,170
Total liabilities and shareholders' equity $ 183,950,884 $ 184,047,546
= =========== = ===========
</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>
Two Months Ended December 31,
1999 1998
--------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 51,397,429 $ 44,577,045
Cost of services 38,178,972 34,342,008
---------- ----------
Gross profit 13,218,457 10,235,037
---------- ----------
Operating costs and expenses
Selling, general and administrative 8,703,066 6,730,979
Depreciation and amortization 655,041 370,375
------- -------
9,358,107 7,101,354
--------- ---------
Operating income 3,860,350 3,133,683
--------- ---------
Other expense
Interest (expense), net of interest income ( 550,734) 126,813
Gain on foreign currency translation 2,766
-----
( 547,968) 126,813
------- -------
Income before income taxes 3,312,382 3,260,496
Income taxes 1,261,389 1,394,084
--------- ---------
Net income 2,050,993 1,866,412
Other comprehensive income
Foreign currency translation adjustment 43,466
------
Comprehensive income $ 2,094,459 $ 1,866,412
= ========= = =========
Basic earnings per share $.20 $.18
Weighted average number of common 10,496,225 10,450,026
shares outstanding
Diluted earnings per share $.19 $.17
Weighted average number of common
and common equivalent shares
outstanding 10,951,447 11,028,489
</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
Two Months Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Additional
Common Stock Comprehensive Paid-in Retained
-------------------------------
Shares Amount Income Capital Earnings
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1999 10,496,225 $524,811 ($96,230) $93,473,301 $28,100,288
Translation adjustment 43,466
Net income 2,050,993
-------------------------------- --------------- -------------------- -----------
Balance, December 31, 1999 10,496,225 $524,811 ($52,764) $93,473,301 $30,151,281
========== ======== ========= =========== ===========
</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>
Two Months Ended December 31,
1999 1998
---------------- ----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,050,993 $ 1,866,412
------------- --------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 655,041 370,375
Provision for losses on accounts
receivable 12,000 25,000
Changes in assets and liabilities:
Accounts receivable 4,724,919 ( 7,781,018 )
Prepaid expenses and other
current assets ( 77,902) ( 16,753 )
Accounts payable and accrued expenses ( 3,551,439) 2,284,991
Accrued payroll ( 3,903,028) 766,292
Taxes other than income taxes 265,715 645,830
Income taxes payable ( 1,524,677) 2,241,349
--------- ---------
Total adjustments ( 3,399,371) ( 1,430,428 )
--------- ---------
Net cash provided by (used in) operating activities ( 1,348,378) 435,984
--------- -------
</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>
Two Months Ended December 31,
1999 1998
---------------- ----------
(Unaudited) (Unaudited)
Cash flows from investing activities:
<S> <C> <C>
Property and equipment acquired ($ 333,902) ($ 710,376 )
Increase in deposits ( 4,393) ( 28,042 )
Purchase of acquired companies including
contingent consideration, net of cash acquired ( 2,371,937) ( 13,680,360 )
------------ ------------
Net cash used in investing activities ( 2,710,232) ( 14,418,778 )
------------ ------------
Cash flows from financing activities:
Exercise of stock options 218,750
Borrowings of long-term debt 6,500,000
-------------
Net cash provided by financing activities 6,500,000 218,750
------------- -------------
Effect of exchange rate changes on cash and cash equivalents 43,466
-------------
Increase (Decrease) in cash and cash equivalents 2,484,856 ( 13,764,044 )
Cash and cash equivalents at beginning of period 1,540,952 22,187,536
------------- -------------
Cash and cash equivalents at end of period $ 4,025,808 $ 8,423,492
============= =============
Supplemental cash flow information:
Cash paid for:
Interest expense $ 613,492 $ 11,604
Income taxes 3,005,066 152,735
</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, 1999. 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 two months ended December 31, 1999 are not necessarily
indicative of the results to be expected for the full year.
2. Change in Fiscal Year
On January 25, 2000, the Board of Directors of the Company determined to
change the Company's fiscal year end from October 31 to December 31. As a
result of the change, the Company has prepared this Form 10-Q covering the
transition period from November 1, 1999 through and including December 31,
1999.
3. Long-Term Debt
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 (the
"Revolving Credit Facility"). Borrowing 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.
Borrowing under the Revolving Credit Facility is 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 such as restricting the
Company's ability to pay dividends. The Revolving Credit Facility expires
August 2001. The weighted average interest rate at December 31, 1999 was
6.88%. The amounts outstanding under the Revolving Credit Facility at
December 31, 1999 and October 31, 1999 were $47.3 million and $40.8
million, respectively.
3. Interest (Expense) Income, Net
Interest (expense) income, net consisted of the following:
Two Months Ended
December 31,
1999 1998
---------------- ----------
Interest expense ($574,320) ($11,604)
Interest income 23,586 138,417
---------- ----------
($550,734) $ 126,813
========== =========
9
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. SEGMENT INFORMATION
The Company has adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which establishes
standards for companies to report information about operating segments,
geographic areas and major customers. The adoption of SFAS 131 has no
effect on the Company's consolidated financial position, consolidated
results of operations or liquidity.
The Company uses earnings before interest and taxes (operating income) to
measure segment profit. Segment operating income includes selling, general
and administrative expenses directly attributable to that segment as well
as charges for allocating corporate costs to each of the operating
segments. The following tables reflect the results of the segments
consistent with the Company's management system (in thousands):
<TABLE>
<CAPTION>
Two Months Ended Information Professional Commercial
December 31, 1999 Technology Engineering Services Corporate Total
---------- ----------- -------------- -----------------------
<S> <C> <C> <C> <C> <C>
Revenue $39,231 $8,286 $3,880 $ $51,397
Operating expenses 35,263 7,901 3,718 46,882
------ ----- ----- -------
EBITDA (a) 3,968 385 162 4.515
Depreciation 145 37 5 187
Goodwill amortization 406 59 3 468
--- -- - ---
Operating income $3,417 $289 $154 $ $3,860
====== ==== ==== == ======
Total assets $159,350 $16,423 $4,041 $4,137 $183,951
Capital expenditures $272 $62 $ $ $334
</TABLE>
<TABLE>
<CAPTION>
Two Months Ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Revenue $31,871 $8,128 $4,578 $ $44,577
Operating expenses 29,093 7,609 4,371 41,073
------ ----- ----- ------
EBITDA (a) 2,778 519 207 3,504
Depreciation 68 29 1 98
Goodwill amortization 231 38 4 272
--- -- - ---
Operating income $2,480 $452 $202 $ $3,134
====== ==== ==== == ======
Total assets $94,604 $16,409 $4,047 $10,030 $125,090
Capital expenditures $625 $ $ $85 $710
</TABLE>
[FN]
(a) EBITDA consists of earnings before interest income, interest expense, other
non-operating income and expense, income taxes, depreciation and
amortization. EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered in
isolation or as an alternative to net income as an indicator of a company's
performance or to cash flows from operating activities as a measure of
liquidity.
</FN>
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 provision of
information technology and engineering services and solutions, placement of
temporary staffing personnel; (ii) the Company's ability to continue to attract,
train and retain personnel qualified to meet the 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 pro forma 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 the
markets which it serves; (xi) the Company's ability to maintain its unemployment
insurance premiums and workers compensation premiums; (xii) the risk of claims
made against the Company associated with providing temporary staffing services;
(xiii) the Company's ability to manage significant amounts of information, and
periodically expand and upgrade its information processing capabilities; (xiv)
the Company's ability to remain in compliance with federal and state wage and
hour laws and regulations; (xv) predictions as to the future need for the
Company's services; (xvi) uncertainties relating to the financial information
provided for the period covering November 1, 1998 to December 31, 1998 and from
November 1, 1999 to December 31, 1999; (xvii) uncertainties relating to the
allocation of costs and expenses to each of the Company's operating segments;
and (xviii) 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
This transition report on Form 10-Q is required to be filed as a result of the
Company having changed its fiscal year end from October 31 to December 31. The
financial information in this report covers the periods from November 1, 1998 to
December 31, 1998 and from November 1, 1999 to December 31, 1999. The Company
does not historically report information relating to such periods.
11
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Overview - (Continued)
RCM Technologies, Inc. ("RCM" or the "Company") is a premier national provider
of Business, Technology and resource solutions in information technology ("IT")
and professional engineering to customers in corporate and government sectors.
RCM's offices are located in major geographic regions throughout North America.
The Company has grown its information technology competencies in the areas of
resource augmentation, e-business, Enterprise Resource Planning ("ERP") support,
network and infrastructure support and knowledge management. RCM's engineering
expertise is in the form of technical design, field engineering, field support,
procedures development and project and program management. The Company provides
its services to clients in Banking & finance, healthcare, insurance,
pharmaceutical, telecommunications, utility, technology, manufacturing &
distribution and government sectors. The Company believes the breadth of
services it can provide fosters long-term client relationships, affords cross-
selling opportunities and minimizes the Company's dependence on any single
technology or industry sector.
RCM sells and delivers its services through a network of 77 branch offices
located in selected regions throughout North America. The Company has executed a
geographic expansion and diversification strategy that places it in the major
markets for the services that the Company offers. This strategy has been
accomplished through the combination of a concerted and disciplined acquisition
program, coupled with an organic growth strategy.
Many businesses today are facing intense competition, accelerating technological
change, personnel downsizing and widespread business process re-engineering.
Increasingly, these companies are turning to IT solutions to address these
issues and to compete more effectively. As a result, the ability of an
organization to integrate and deploy new information technologies has become
critical.
Although many companies have recognized the importance of IT systems and
products to compete in today's business climate, the process of designing,
developing and implementing IT solutions has become increasingly complex. Some
companies continue to migrate away from centralized mainframes running
proprietary software toward decentralized, scalable architectures based on
personal computers, client/server architectures, local and wide area networks,
the Internet, shared databases and packaged application software. These advances
have enhanced the ability of companies to benefit from the application of IT
systems and solutions. Consequently, the number of companies desiring to use IT
systems and solutions in new ways and the number of end users within these
organizations are rising rapidly.
As a result of the variety and complexity of these new technologies, IT managers
must integrate and manage computing environments consisting of multiple
computing platforms, operating systems, databases and networking protocols, and
must implement off-the-shelf software applications to support business
objectives. Companies also need to continually keep pace with new developments,
which often render existing equipment and internal skills obsolete. At the same
time, external economic factors have caused some organizations to focus on core
competencies and trim workforces in the IT management area. Accordingly, these
organizations often lack the quantity, quality and variety of IT skills
necessary to design and develop solutions. IT managers are charged with
developing and supporting increasingly complex systems and applications of
significant strategic value, while working under budgetary, personnel and
expertise constraints within their own organizations.
The Company realizes revenues from client engagements which range from the
placement of contract and temporary technical consultants to project assignments
which are based on defined deliverables. These services are primarily provided
to the customer at hourly rates that are established for each of the Company's
consultants, 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 for professional staffing services. Consequently, the
Company is expanding its sales of higher margin consulting and project
management services.
12
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
<TABLE>
<CAPTION>
Two Months Ended December 31, 1999 Compared to Two Months Ended December 31, 1998
Two Months Ended December 31,
1999 1998
-----------------------------------------------------------
% of % of
Amount Revenue Amount Revenue
<S> <C> <C> <C> <C>
Revenues $ 51,397,429 100.0% $ 44,577,045 100.0 %
Cost of services 38,178,972 74.3 34,342,008 77.1
Gross profit 13,218,457 25.7 10,235,037 22.9
Selling, general and administrative 8,703,066 16.9 6,730,979 15.1
Depreciation and amortization 655,041 1.3 370,375 .7
Operating income 3,860,350 7.5 3,133,683 7.1
Interest (expense) income, net ( 550,734 ) ( 1.1) 126,813 .3
Gain on foreign currency translation 2,766
Income before income taxes 3,312,382 6.4 3,260,496 7.4
Income taxes 1,261,389 2.4 1,394,084 3.1
Net income $ 2,050,993 4.0% $ 1,866,412 4.3 %
Earnings per share (diluted) $.19 $.17
==== ====
</TABLE>
Revenues. Revenues increased 15.3%, or $6.8 million, for the two months ended
December 31, 1999 as compared to the comparable prior year period. Revenue
growth was primarily attributable to acquisitions prior to November 1, 1999 and
internal growth.
Cost of Services. Cost of services increased 11.2%, or $3.8 million, for the two
months ended December 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 the two months ended
December 31, 1999. Cost of services as a percentage of revenues decreased to
74.3% for the two months ended December 31, 1999 from 77.1% for the comparable
prior year period. This decline was attributable to an increasing amount of the
Company's revenues being derived from information technology and other
professional services.
Selling, General and Administrative. Selling, general and administrative
expenses increased 29.3%, or $2.0 million, for the two months ended December 31,
1999 as compared to the comparable prior year period. This increase was
primarily attributable to a 15.3% increase in revenues which required additional
administrative, marketing and sales expenses as well as infrastructure costs to
support anticipated future growth. Selling, general and administrative expenses
as a percentage of revenues increased to 16.9% for the two months ended December
31, 1999 as compared to 15.1% for the comparable prior year period, primarily
due to the increase in infrastructure costs to support anticipated future
revenue growth.
Depreciation and Amortization. Depreciation and amortization increased 76.9%, or
$.3 million, for the two months ended December 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 during the Company's fiscal year ended October 31, 1999.
13
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Two Months Ended December 31, 1999 Compared to Two Months Ended
December 31, 1998 - (Continued)
Interest (Expense) Income, Net. For the two months ended December 31, 1999,
actual interest expense of $574,000 was offset by $23,600 of interest income,
which was earned from the investment in interest bearing deposits. Interest
expense, net increased $563,000 for the two months ended December 31, 1999 as
compared to the comparable prior year period. This increase was primarily due to
the increased borrowing requirements necessary to complete acquisitions
subsequent to December 31, 1998, as well as to fund working capital
requirements.
Income Tax. Income tax expense decreased 9.5%, or $133,000, for the two months
ended December 31, 1999 as compared to the comparable prior year period. This
decrease was primarily due to prior period over accruals.
Liquidity and Capital Resources
Operating activities used $1.3 million of cash for the two months ended December
31, 1999 as compared to operating activities providing $436,000 of cash for the
two months ended December 31, 1998. The increase in the use of cash was
primarily attributable to a decrease in accounts payable, accrued expenses,
accrued payroll and income taxes payable, which was partially offset by a
decrease in accounts receivable and an increase in withheld payroll taxes and
increased levels of profitability, and depreciation and amortization associated
with the acquisitions subsequent to December 31, 1998.
Investing activities utilized $2.7 million and $14.4 million for the two months
ended December 31, 1999 and 1998, respectively. During the two months ended
December 31, 1999, the Company invested $2.4 million in cash for deferred
consideration payments in connection with its acquisitions. During the two
months ended December 31, 1998, the Company invested $10.6 million in cash in
the purchase of one consulting company and $3.1 million of deferred
consideration payments.
Financing activities provided $6.5 million and $219,000 for the two months ended
December 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 a $75.0 million Revolving Credit Facility (the "Revolving Credit
Facility"). Borrowing under the Revolving Credit Facility bears interest at the
Company's option, at LIBOR (London Interbank Offered Rate), plus applicable
margin or the agent bank's prime rate. Borrowing under the Revolving Credit
Facility is 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. The amount outstanding under the
Revolving Credit Facility at December 31, 1999 was $47.3 million.
The Company anticipates that its primary uses of capital in future periods will
be for acquisitions and the funding of increases in accounts receivables.
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 continues
to engage in discussions with potential acquisition candidates. As the size of
the Company and its financial resources increase, however, acquisition
opportunities requiring significant commitments of capital may arise. In order
to pursue such opportunities, the Company may be required to incur debt or issue
potentially dilutive securities in the future. No assurance can be given as to
the Company's future acquisition and expansion opportunities or how such
opportunities will be financed.
14
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Liquidity and Capital Resources - (Continued)
The Company does not currently have material commitments for capital
expenditures and does not anticipate entering into any such commitments during
the next twelve months. The Company'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.
Year 2000 Readiness Disclosure
Since January 1, 2000, the Company has not experienced any problems with its Y2K
readiness. The Company believes it has achieved Y2K readiness by replacing its
computer systems with new, Y2K compliant hardware and software. The new
hardware/software system was put into production on September 1, 1999. The cost
of the new system and to be Y2K complaint was approximately $2,900,000. The
Company depends on its computer system for critical business functions,
including time record keeping, billing, payroll, and accounts payable and
receivable. The loss of these capabilities would have a material adverse impact
on the Company.
The Company believes its new computer system has remedied the millennium date
change; however, in the event that weaknesses (Y2K or otherwise) in the new
system are discovered, the Company will implement the contingency plan it has
developed, which will utilize some of its staff of approximately 2,200
information technology professionals which can assist in achieving Y2K
readiness.
The Company's business does not depend on raw materials, parts or other goods
supplied by third parties and, therefore, the Company believes the inability of
its vendors to achieve Y2K compliance would not have a material adverse impact
on the Company. The Company does use utility services (electricity,
telecommunication, natural gas and the like) for its offices, and interruption
of these services could have a material adverse impact on the Company's
operations. The inability of the Company's clients to achieve Y2K compliance
could have an impact on their ability to pay the Company for the services it
renders to them, with a consequent adverse impact on the Company's cash flow.
The Company's services addressing the Year 2000 problem involve key aspects of
its clients' computer systems. A failure in a client's system could result in a
claim for substantial damages against the Company, regardless of the Company's
responsibility for such failure. Litigation, regardless of its outcome, could
result in substantial cost to the Company. Accordingly, any contract liability
claim or litigation against the Company could have an adverse effect on the
Company's business, operations and financial results.
The Company does not believe any reasonably likely worst-case Y2K scenario would
have a material effect on its results of operations, liquidity or financial
condition.
15
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule. (EDGAR version only)
(b) Reports on Form 8-K
On January 28, 2000, the Company filed a Current Report on Form
8-K reporting that the Company determined to change its fiscal
year end from October 31 to December 31.
16
<PAGE>
RCM TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements 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.
Date: February 4, 2000 By:/s/ Stanton Remer
--- ------- -----
Stanton Remer
Chief Financial Officer,
Treasurer, Secretary and Director
(Principal Financial Officer and
Duly Authorized Officer of the Registrant)
17
<PAGE>
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THIS SCHEDULE SUMMARY FINANCIAL INFORMATION IS EXTRACTED FROM THE FINANCIAL
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ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
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