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, 1996 Commission file number: 1-10245 RCM TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Nevada 95-1480559 (State of Incorporation) (IRS Employer Identification No.) 2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey 08109-4613 (Address of principal executive offices) (609) 486-1777 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS 17,670,243 Common Stock, $.05 par value Outstanding as of March 4, 1996
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1 - Consolidated Financial Statements <TABLE> <CAPTION> <S> <C> Page Consolidated Balance Sheets as of January 31, 1996 (Unaudited) and October 31, 1995 (Audited) 3 Unaudited Consolidated Statements of Income for the Three Month Periods Ended January 31, 1996 and 1995 5 Unaudited Consolidated Statement of Changes in Shareholders' Equity for the Three Month Period Ended January 31, 1996 6 Unaudited Consolidated Statements of Cash Flows for the Three Month Periods Ended January 31, 1996 and 1995 7 Notes to Unaudited Consolidated Financial Statements 9 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II - OTHER INFORMATION ITEM 1 - Legal Proceedings 12 ITEM 5 - Other Information 12 ITEM 6 - Exhibits and Reports on Form 8-K 12 SIGNATURES 13 </TABLE> 2
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 31, 1996 and October 31, 1995 ASSETS <TABLE> <CAPTION> 1996 1995 (Unaudited) (Audited) <S> <C> <C> Current assets Cash and cash equivalents $ 127,704 $ 297,550 Accounts receivable, net of allowance for doubtful accounts of $15,000 5,127,631 5,133,662 Prepaid expenses and other current assets 753,518 671,662 ------- ------- Total current assets 6,008,853 6,102,874 --------- --------- Property and equipment, at cost Equipment and leasehold improvements 1,237,366 1,208,317 Less: accumulated depreciation and amortization 789,835 763,966 ------- ------- 447,531 444,351 ------- ------- Other assets Deposits 47,496 43,074 Intangible assets (net of accumulated amortization of $94,474 and $73,492 in 1996 and 1995, respectively) 3,687,220 3,711,256 --------- --------- 3,734,716 3,754,330 --------- --------- Total assets $10,191,100 $10,301,555 ========== ========== </TABLE> The accompanying notes are an integral part of these financial statements. 3
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED January 31, 1996 and October 31, 1995 LIABILITIES AND SHAREHOLDERS' EQUITY <TABLE> <CAPTION> 1996 1995 (Unaudited) (Audited) <S> <C> <C> Current liabilities Note payable - bank $424,639 $914,435 Current maturities of long-term debt 103,145 111,945 Accounts payable and accrued expenses 149,238 340,072 Accrued payroll 937,328 1,182,934 Taxes other than income taxes 489,115 205,494 Income taxes payable 58,749 ______ ------ Total current liabilities 2,162,214 2,754,880 --------- --------- Long term debt 20,090 Shareholders' equity Common stock, $0.05 par value; 40,000,000 shares authorized; 16,277,118 and 16,275,118 shares issued in 1996 and 1995, respectively 813,856 813,756 Additional paid-in capital 10,266,025 10,265,687 Accumulated deficit ( 2,988,174) ( 3,490,037) ------------ ---------- 8,091,707 7,589,406 Less: treasury stock, at cost, 314,000 shares 62,821 62,821 ------ ------ 8,028,886 7,526,585 --------- --------- Total liabilities and shareholders' equity $10,191,100 $10,301,555 =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements. 4
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months Ended January 31, <TABLE> <CAPTION> 1996 1995 ---- ---- <S> <C> <C> Revenues $9,776,507 $6,692,756 ---------- ---------- Operating Costs and Expenses Cost of services 7,985,878 5,542,394 Selling, general and administrative 1,144,116 883,955 Depreciation and amortization 54,970 28,565 ------ ------ 9,184,964 6,454,914 --------- --------- Operating Income 591,543 237,842 ------- ------- Other Income (Expense) Interest expense ( 24,901) ( 6,149) Other, net ( 6,030) 24,572 ----- ------ ( 30,931) 18,423 ------ ------ Income Before Income Taxes 560,612 256,265 Income Taxes 58,749 27,250 ------ ------ Net Income $501,863 $229,015 ======== ======== Net Income Per Share $.03 $.02 === === Weighted average number of shares outstanding 16,383,133 14,591,394 ========== ========== </TABLE> The accompanying notes are an integral part of these financial statements. 5
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Three Months Ended January 31, 1996 (Unaudited) <TABLE> <CAPTION> Additional Common Stock Paid-in Accumulated Treasury Shares Amount Capital Deficit Stock ------ ------ ------- ------- ----- <S> <C> <C> <C> <C> <C> Balance, October 31, 1995 16,275,118 $ 813,756 $10,265,687 ($3,490,037) ($ 62,821) Exercise of Stock Options 2,000 100 338 Net Income 501,863 --------- ------- ---------- --------- ------- Balance, January 31, 1996 16,277,118 $ 813,856 $10,266,025 ($2,988,174) ($ 62,821) ============ ========= ========== ========= ========== </TABLE> The accompanying notes are an integral part of these financial statements 6
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended January 31, (Unaudited) <TABLE> <CAPTION> 1996 1995 ---- ---- Cash flows from operating activities: <S> <C> <C> Net income $501,863 $ 229,015 ------- ------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 54,970 28,565 Provision for losses on accounts receivable ( 831) Changes in assets and liabilities: Accounts receivable 6,031 211,324 Prepaid expenses and other current assets ( 81,856) 75,637 Accounts payable and accrued expenses ( 190,834) ( 114,376) Accrued payroll ( 245,606) ( 92,039) Taxes other than income taxes 283,621 37,392 Income taxes payable 58,749 ( 119,473) ------ ------- Total adjustments ( 114,925) 26,199 ------- ------ Net cash provided by operating activities 386,938 255,214 ------- ------- </TABLE> The accompanying notes are an integral part of these financial statements 7
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED Three Months Ended January 31, (Unaudited) <TABLE> <CAPTION> 1996 1995 ---- ---- <S> <C> <C> Cash flows from investing activities: Increase in Intangible assets ( 5,065) ($ 10,000) Property and equipment acquired ( 29,049) ( 47,861) Increase in deposits ( 4,422) ----- ----- Net cash used in investing activities ( 38,536) ( 57,861) ------ ------ Cash flows from financing activities: Exercise of stock options 438 Net repayments under short term debt arrangements ( 489,796) Repayments of long term debt ( 28,890) ( 9,367) ------ ------- Net cash used in financing activities ( 518,248) ( 9,367) ------- ------ Net increase (decrease) in cash and cash equivalents ( 169,846) 187,986 Cash and cash equivalents at beginning of period 297,550 2,534,073 ------- --------- Cash and cash equivalents at January 31, $ 127,704 $ 2,722,059 ======= ========= Supplemental cash flow information: Cash paid for: Interest expense $ 24,901 $ 6,149 Income taxes $ $ 31,958 </TABLE> The accompanying notes are an integral part of these financial statements. 8
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. General The accompanying consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). This Report on Form 10-Q should be read in conjunction with the Company's annual report on Form 10-K for the year ended October 31, 1995. Certain information and footnote disclosures which are normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations. The information reflects all normal and recurring adjustments which, in the opinion of Management, are necessary for a fair presentation of the financial position of the Company and its results of operations for the interim periods set forth herein. The results for the three months ended January 31, 1996 are not necessarily indicative of the results to be expected for the full year. 2. Pending Acquisition On March 1, 1996, the Company entered into a stock purchase agreement ("the Agreement") with The Consortium Inc. ("Consortium"), a privately-held provider of information technology and health care personnel based in Fairfield, NJ. Revenues for the year ended December 31, 1995 of Consortium were over $26 million. The Agreement contemplates the acquisition of all of the outstanding shares of Consortium in exchange for the issuance of 6.5 million shares of the Company's common stock to the former Consortium shareholders. Closing of the transaction, while anticipated for March 11,1996, remains contingent upon, among other things, satisfactory completion of due diligence review and the securing of certain approvals. 3. Sale of Common Stock On February 5, 1996, the Company issued and sold 1,383,125 shares of common stock to Limeport Investments, L.L.C. in a Private Placement transaction for $1,000,000 ($.7230 per share). The purchase price was based on a twenty percent discount to the twenty day average closing price prior to the purchase of the shares. The shares are restricted securities, however, the Company has agreed to register such shares by filing a shelf registration with the Securities and Exchange Commission by February 15, 1997. The principals of Limeport Investments, L.L.C. are Messrs. Peter Kuhlmann and Peter Munk. As disclosed in Schedule 13-D filings, Peter Kuhlmann is a General Partner in Acquest International, L.P., an investment banking firm which primarily advises its clients in merger and acquisition transactions and Peter Munk is the Chief Executive Officer of Barrick Gold Corporation, a corporation whose principal business is gold mining. The President of the Company, Leon Kopyt, has been granted certain voting rights over these shares as long as they remain owned by Limeport Investments, L.L.C.. 9
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources During the three months ended January 31, 1996, working capital increased $498,645. This was due primarily to the increased levels of profitability of the Company. At January 31, 1996, the Company had outstanding borrowings under its credit facility of $424,639 as compared to $914,435 as of October 31, 1995, a decrease of $489,796. The Company, at January 31, 1996 had no long term debt and held $127,704 of cash along with $3,240,246 of loan availability on its $6,000,000 line of credit. On August 31, 1995, the Company's, Intertec Design, Inc. and Cataract, Inc., subsidiaries entered into an agreement with Mellon Bank, N.A. for providing a credit facility in the maximum amount of $6,000,000. The agreement expires on June 30, 1998. The credit facility is collateralized by accounts receivable, contract rights and furniture and fixtures with unlimited guarantees from RCM Technologies, Inc. The loan requires both Intertec Design, Inc., Cataract, Inc., and RCM Technologies, Inc. to meet certain objectives with respect to financial ratios and earnings. Credit facility advances are to be used to meet cash flow requirements for Intertec Design, Inc., and Cataract, Inc. as well as operating expenses for RCM Technologies, Inc. Advances to RCM Technologies, Inc. in excess of its operating expenses must have prior bank approval. The Company believes its present credit facility will sufficiently support the operations of Intertec Design, Inc., Cataract, Inc., and RCM Technologies, Inc. Borrowing under the credit facility is based on 85% of accounts receivable on which not more than ninety days have elapsed since the date of invoicing. The interest rate charged is the prime rate of the Bank (effective rate of 8.50% and 8.75% at January 31, 1996 and October 31, 1995, respectively). The Company's liquidity and capital resources may be effected in the future as the Company continues to grow through an aggressive acquisition strategy. Towards that end, on March 1, 1996, the Company entered into a stock purchase agreement (the "Agreement") with The Consortium, Inc. ("Consortium"), a privately-held provider of information technology and health care personnel based in Fairfield, NJ. Revenues for the year ended December 31, 1995 of Consortium were over $26 million. The Agreement contemplates the acquisition of all of the outstanding shares of Consortium in exchange for the issuance of 6.5 million shares of the Company's common stock to the former Consortium shareholders. As part of the Consortium acquisition, the Company will be required at closing to satisfy Consortium's bank indebtedness of approximately $1,300,000. The Company anticipates the use of its existing line of credit to satisfy this indebtedness. Subject to the discussions noted above, 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 obligations incurred in the normal course of business for at least the next twelve months. 10
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Results of Operations As a result of the acquisition of Cataract, Inc. on August 30, 1995, the Company continues to increase its profitability. This has been achieved by the elimination of duplicate operating costs of the combined companies, the spreading of the Company's fixed expenses over a larger revenue base, as well as management's ability to control expenses during a period of revenue growth. Results of operations reflected a net income of $501,863 ($.03 per share) in 1996 as compared to $229,015 ($.02 per share) in 1995. The improved profitability was a 119.1% improvement over the 1995 results. The Company's net sales increased by $3,088,751 to $9,776,507, or 46.1% for the three months ended January 31, 1996 compared to the three months ended January 31, 1995. This resulted principally from the acquisition of Cataract, Inc. Cost of services increased by $2,443,484 to $7,985507, or 44.1% for the three months ended January 31, 1996 compared to the three months ended January 31, 1995. This resulted from the increased level of sales. Gross profit increased by $640,267 to $1,790,629, or 55.7% for the three months ended January 31, 1996 compared to the three months ended January 31, 1995. Gross profit as a percentage of revenues was 18.32% for 1996 and 17.2% for 1995. The increased gross profit resulted from additional sales as well as improved pricing margins. Selling, general and administrative expenses (SG&A) increased $260,161 to $1,144,116, or 11.7% of revenues for the three months ended January 31, 1996 compared to $883,955 or 13.2% of revenues for the three months ended January 31, 1995. The increased SG&A was principally attributable to the operations of Cataract, Inc. The decline in SG&A as a percentage of revenues was attributable to continuing implementation of Company efforts to increase operational efficiencies and the ability to spread fixed administrative expenses over a larger revenue base. Depreciation and amortization increased by $26,405 to $54,970 for the three months ended January 31, 1996, compared to $28,565 for the three months ended January 31, 1995. This increase was attributable to the amortization of intangible assets incurred with the Cataract, Inc. acquisition. Interest expense increased by $18,752 to $24,901 for the three months ended January 31, 1996, compared to $6,149 for the three months ended January 31, 1995. This increase was attributable to additional borrowings under the Company's line of credit facility. Income tax expense increased by $31,499 to $58,749 for the three months ended January 31, 1996, compared to $27,250 for the three months ended January 31, 1995. This increase was attributable to the higher level of profitability for 1996. Should the acquisition of Consortium occur as contemplated, revenues are likely to reflect significant increases commencing during the second quarter, with greater impact being experienced during the third quarter. While management is optimistic that this transaction is also likely to enhance profitability through anticipated operational efficiencies and the spreading of fixed expenses over a larger revenue base, no assurances to this effect can be provided pending a further analysis of Consortium's independent profitability and opportunities for operational efficiencies and synergies. 11
PART II OTHER INFORMATION Item 1. Legal Proceedings There are no material legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their property is subject. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (10) Subscription Agreement to sell Common Stock of RCM Technologies, Inc. to Peter Kuhlmann, dated January 12, 1996 (Assigned to Limeport Investments, L.L.C. on February 2, 1996 by Peter Kuhlmann). (10.1) Registration Rights Agreement by and among RCM Technologies, Inc. and Limeport Investments, L.L.C., dated February 5, 1996 (11) Computation of earnings per share. (27) Financial Data Schedule. 12
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 4, 1996 By:/s/ Leon Kopyt -------------- Leon Kopyt Chairman, President, Chief Executive Officer and Director Date: March 4, 1996 By:/s/ Stanton Remer ----------------- Stanton Remer Chief Financial Officer, Treasurer and Director 13
EXHIBIT 11 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE Three Months Ended January 31, 1996 and 1995 <TABLE> <CAPTION> 1996 1995 --------- ------- Income <S> <C> <C> Net income applicable to common stock $501,863 $229,015 ======= ======= Shares Weighted average number of shares outstanding 15,963,118 14,399,565 Common stock equivalents 420,015 191,829 ------- ------- Total 16,383,133 14,591,394 ========== ========== Primary earnings per share $ .03 $ .02 ========= ========= Fully diluted earnings per share $ .03 $ .02 ========= ========= </TABLE>