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 July 31, 1995 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 16,275,118 Common Stock, $.05 par value Outstanding as of September 8, 1995 1
<TABLE> <CAPTION> RCM TECHNOLOGIES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1 - Consolidated Financial Statements Page <S> <C> Consolidated Balance Sheets as of July 31, 1995 (Unaudited) and October 31, 1994 (Audited) 3-4 Unaudited Consolidated Statements of Income for the Three Month Periods Ended July 31, 1995 and 1994 5 Unaudited Consolidated Statements of Income for the Nine Month Periods Ended July 31, 1995 and 1994 6 Unaudited Consolidated Statement of Changes in Shareholders' Equity for the Nine Month Period Ended July 31, 1995 7 Unaudited Consolidated Statements of Cash Flows for the Nine Month Periods Ended July 31, 1995 and 1994 8-9 Notes to Unaudited Consolidated Financial Statements 10-11 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 12-15 PART II - OTHER INFORMATION ITEM 1 - Legal Proceedings 16 ITEM 5 - Other Information 16 ITEM 6 - Exhibits and Reports on Form 8-K 16 SIGNATURES 17 </TABLE> 2
Part I Item 1 Financial Information RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS July 31, 1995 and October 31, 1994 <TABLE> <CAPTION> ASSETS 1995 1994 (Unaudited) (Audited) <S> <C> <C> Current assets Cash and cash equivalents $3,195,600 $2,534,073 Accounts receivable (net of allowance for doubtful accounts of $30,379 and $15,000 in 1995 and 1994, respectively) 2,689,263 3,500,079 Prepaid expenses and other current assets 579,459 319,793 --------- --------- Total current assets 6,464,322 6,353,945 --------- --------- Property and equipment, at cost Equipment and leasehold improvements 814,893 749,666 Less: accumulated depreciation and amortization 687,611 616,054 --------- -------- 127,282 133,612 --------- -------- Other assets Deposits 34,083 36,431 Deferred charges 276,810 142,324 ------- ------- 310,893 178,755 ------- ------- Total assets $6,902,497 $6,666,312 ========= ========= </TABLE> 3
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED July 31, 1995 and October 31, 1994 <TABLE> <CAPTION> LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994 (Unaudited) (Audited) <S> <C> <C> Current liabilities Current maturities of long-term debt $ 116,856 $ 38,901 Accounts payable and accrued expenses 90,809 73,915 Accrued payroll 395,546 589,218 Billings in excess of costs and estimated earnings 148,229 Taxes other than income taxes 108,804 183,600 Income taxes payable 93,100 119,473 ---------- ---------- Total current liabilities 805,115 1,153,336 ---------- ---------- Long term debt 43,447 35,496 ---------- ---------- Shareholders' equity Common stock, $0.05 par value; 40,000,000 shares authorized; 14,713,565 issued and outstanding 735,678 735,678 Additional paid-in capital 9,143,765 9,143,765 Accumulated deficit (3,762,687) (4,339,142) ----------- ----------- 6,116,756 5,540,301 Less: treasury stock, at cost, 314,000 shares 62,821 62,821 ---------- ---------- 6,053,935 5,477,480 ---------- ---------- Total liabilities and shareholders' equity $6,902,497 $6,666,312 ========= ========= </TABLE> 4
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months Ended July 31, (Unaudited) <TABLE> <CAPTION> 1995 1994 ------ ------ <S> <C> <C> Revenues Sales of services $ 5,015,376 $ 7,527,585 Interest income and other 46,826 14,874 ---------- ---------- Total revenues 5,062,202 7,542,459 ---------- ---------- Cost and expenses Cost of services 4,121,280 6,108,580 Selling, general and administrative 834,403 933,010 Interest and other 15,893 13,344 ---------- --------- Total costs and expenses 4,971,576 7,054,934 ---------- --------- Income before income taxes 90,626 487,525 Income taxes 20,910 55,680 ---------- --------- Net income $ 69,716 $ 431,845 ========== ========== Net income per share: $ .01 $ .03 ========== ========== </TABLE> 5
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Nine Months Ended July 31, (Unaudited) <TABLE> <CAPTION> 1995 1994 ------- ------ <S> <C> <C> Revenues Sales of services $17,988,304 $21,385,472 Interest income and other 127,813 38,482 ---------- ---------- Total revenues 18,116,117 21,423,954 ---------- ---------- Cost and expenses Cost of services 14,788,433 17,594,900 Selling, general and administrative 2,639,122 2,733,564 Interest and other 36,954 36,054 ---------- ---------- Total costs and expenses 17,464,509 20,364,518 ---------- ---------- Income before income taxes 651,608 1,059,436 Income taxes 75,153 125,081 ---------- ---------- Net income $ 576,455 $ 934,355 ========= ========= Net income per share: $ .04 $ .06 ========= ========= </TABLE> 6
RCM TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Nine Months Ended July 31, 1995 (Unaudited) <TABLE> <CAPTION> Additional Common Stock Paid-in Accumulated Treasury Shares Amount Capital Deficit Stock <S> <C> <C> <C> <C> <C> Balance, October 31, 1994 14,713,565 $ 735,678 $ 9,143,765 ($4,339,142) ($ 62,821) Net Income 576,455 --------- Balance, July 31, 1995 14,713,565 $ 735,678 $ 9,143,765 ($3,762,687) ($ 62,821) ========== ======== ========== ========= ========= </TABLE> 7
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended July 31, (Unaudited) <TABLE> <CAPTION> 1995 1994 --------- --------- <S> <C> <C> Cash flows from operating activities: Net income $ 576,455 $ 934,355 --------- --------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 97,071 69,485 Provision for losses on accounts receivable 15,379 8,861 Changes in assets and liabilities: Accounts receivable 795,437 ( 333,332) Prepaid expenses and other current assets ( 259,666) ( 211,992) Accounts payable and accrued expenses 16,894 28,339 Accrued payroll ( 193,671) ( 90,122) Billings in excess of costs and estimated earnings ( 148,229) ( 32,669) Taxes other than income taxes ( 74,796) ( 1,999) Income taxes payable ( 26,373) 24,736 --------- --------- Total adjustments 222,046 ( 538,693) --------- --------- Net cash provided by operating activities 798,501 395,662 --------- --------- </TABLE> 8
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED Nine Months Ended July 31, (Unaudited) <TABLE> <CAPTION> 1995 1994 --------- --------- <S> <C> <C> Cash flows from investing activities: Increase in deferred charges ($ 10,000) Property and equipment acquired ( 65,227) ($ 9,447) Increase decrease in deposits 2,347 2,845 --------- --------- Net cash used in investing activities ( 72,880) ( 6,602) --------- --------- Cash flows from financing activities: Net repayments under short term debt arrangements ( 4,703) Repayments of long term debt ( 64,094) ( 26,092) -------- --------- Net cash used in financing activities ( 64,094) ( 30,795) -------- --------- Net increase in cash and cash equivalents 661,527 358,265 Cash and cash equivalents at beginning of period 2,534,073 913,535 --------- --------- Cash and cash equivalents at July 31, $3,195,600 $1,271,800 ======== ========= Supplemental cash flow information: Cash paid for: Interest expense $ 18,811 $ 22,549 Income taxes $ 129,796 $ 102,042 </TABLE> 9
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, 1994. 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 nine months ended July 31, 1995 are not necessarily indicative of the results to be expected for the full year. 2. Income per Share Income per share is based on the weighted average number of common shares outstanding during the periods. For the nine months ended July 31, 1995 and 1994, the weighted average number of shares outstanding was 14,822,366, and 14,508,327, respectively. 3. Acquisitions On December 15, 1994, the Company purchased certain operating assets of Great Lakes Design, Inc. for $200,000 in the form of a $150,000 note payable and $50,000 in cash. In addition, the Company will share with the seller a portion of the operating income for a period of five years. This acquisition has been accounted for using the purchase method of accounting. Costs in excess of assets acquired of approximately $160,000 are being amortized over a period of five years. The operating assets are not significant to the Company's consolidated results of operations. The note payable is uncollateralized, bears interest at 8% per annum and is payable in quarterly installments of $20,490 including interest with a final maturity date of December 1, 1996. On August 30, 1995, RCM Technologies, Inc. ("Registrant") acquired Cataract, Inc., a Newtown, Pennsylvania-based supplier of management, engineering, design and technical services to the nuclear power, fossil fuel, electric utilities and process industries. The acquisition was completed through a merger transaction (the "Merger") pursuant to which Cataract, Inc. was merged with and into a newly-created subsidiary of the Registrant, which then concurrently changed its name to "Cataract, Inc." Following the Merger, the directors and or executive officers of Cataract, Inc. consist of Leon Kopyt, Stanton Remer and Rocco Campanelli. The Merger consideration payable to the former shareholders of Cataract, Inc. consisted of $2,000,000 cash and 1,561,553 restricted shares of the Registrant's common stock (the "Shares") valued at $1,200,000 (based upon the average closing bid price of the Registrant's common stock for the 30 calendar days immediately preceding the closing date). The source of cash utilized in the merger was $1,145,000 from the internal sources and $855,000 from the Registrants' line of credit facility. The Registrant used an additional $1,747,000 of the line of credit facility to satisfy certain loan obligations of Cataract, Inc. at the closing. The acquisition has been accounted for under the purchase method of accounting. The cost in excess of net assets acquired will be approximately $3,000,000. It is anticipated the cost in excess of net assets acquired will be amortized over a 15 to 20 year period. The shares issued to the former Cataract, Inc. shareholders have been pledged to the Company for a period of three years to secure the performance of certain conditions subsequent to the Merger relating to the achievement of certain levels of sales revenues that have been warranted by the former Cataract, Inc. shareholders.
Following the expiration of the pledge period, the Shares are to be placed in a voting trust until the earlier of: (i) the public or private sale of such Shares in open market transactions to unaffiliated third parties; or (ii) the resignation or removal from office of Leon Kopyt, currently Chief Executive Officer and President of the Registrant. Notwithstanding the above, one-third of the Shares shall be released from trust commencing upon the fifth anniversary of the closing, and thereafter, an additional one-third of the Shares shall be released from trust upon each of the sixth and seventh annual anniversaries of the closing date. During the period in which the Shares are subject to pledge and the voting trust, the Shares are to be voted by the Registrant's Board of Directors on behalf of the former shareholders of Cataract, Inc. 10
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) 4. Deferred Charges Deferred charges consist of the following: <TABLE> <CAPTION> July 31, October 31, Amortization 1995 1994 Period (Unaudited) (Audited) <S> <C> <C> <C> Cost in excess of net assets acquired 20 years $ 165,434 $ 165,435 Covenants not to compete 5 years 160,000 --------- --------- 325,434 165,435 48,624 23,111 --------- --------- $ 276,810 $ 142,324 ========= ========= </TABLE> 5. Contingencies 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. 11
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Overview During the last several years, the Company has redirected its resources and streamlined its operations in response to changing economic conditions. The Company has developed an operating model which consists of a strong, balanced approach to management, while maintaining an entrepreneurial spirit. Corporate management focuses on the overall performance of the Company. It establishes and maintains financial controls and provides financial data processing and administrative assistance to all its operating offices. It develops the business strategy, goals, and general operating guidelines for the Company, maintains strong relationships with the Company's principal customers, and oversees local management of operations. The Company believes that its performance-based compensation structure and its management techniques are necessary for providing proper incentives and maintaining overall monitoring and control of operations. The present downsizing of U.S. corporations is a "permanent phenomenon" and management believes is essential in order to achieve productivity improvements, payroll cost reduction and work force flexibility. Liquidity and Capital Resources Key indicators of liquidity, balance sheet strength and capital resources are as shown in the following table: <TABLE> <CAPTION> July 31, October 31, 1995 1994 (Unaudited) (Audited) <S> <C> <C> Current assets $6,464,322 $6,353,945 Current liabilities 805,115 1,153,336 ------------ ---------- Working capital $5,659,207 $5,200,609 ========== ========== Current ratio 8.03 to 1 5.51 to 1 Borrowed capital $ 160,303 $ 74,397 Shareholders' equity $6,053,935 $5,477,480 Borrowed capital/ Shareholders' equity 2.65% 1% Common shares outstanding 14,399,565 14,399,565 (Net of Treasury shares) Book value per common share $.42 $.38 </TABLE> 12
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Liquidity and Capital Resources (continued) During the nine months ended July 31, 1995, working capital increased by $458,598. This was due primarily to the continued profitable operations of the Company. The Company, at July 31 1995 had $43,447 in long-term debt and the Company held $3,195,600 of cash and cash equivalents. Concurrently, with the acquisition of Cataract, Inc., (See Footnote 3) the Company renegotiated its credit facility with Mellon Bank, N.A.. Maximum borrowing permitted under the credit facility is $6,000,000 and the agreement expires June 1998. The credit facility is collateralized by the accounts receivable, contract rights and furniture and fixtures of Intertec Design, Inc. (Intertec) and Cataract, Inc. (Cataract), the operating subsidiaries, with unlimited guarantees from RCM Technologies, Inc. The credit facility is used to supply the subsidiaries with the cash requirements needed to finance payroll relating to the provision of services to clients prior to the time that the subsidiaries are paid by its customers. The loan requires the combined companies and RCM Technologies, Inc., individually to meet certain covenants with respect to financial ratios and earnings. Advances to RCM Technologies, Inc., from the subsidiaries, in excess of its operating expenses must have prior bank approval. The Company believes this will sufficiently support the operations of Intertec, Cataract and RCM Technologies, Inc. Borrowing under the renegotiated 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 8.75% and 9.0% at July 30, 1995 and October 31, 1994, respectively). The bank charges a fee of .25% per annum on the unused portion of the credit facility. At July 31, 1995, there was no outstanding borrowing under the credit facility. The outstanding loan balance at September 8, 1995 was $1,800,906 as a result of the acquisition financing of Cataract, Inc. 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 for acquisition various businesses which offer potential synergy with 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. 13
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 1995 Compared to 1994 Results of Operations For the nine months ended July 31, 1995, the Company experienced declining sales. Revenues decreased $3,307,837 or approximately 15.4% from sales for 1994. Sales by IDI Personnel Services decreased approximately $1,773,000. Sales to Dow Chemical and Dow Corning decreased approximately $742,000. Sales to Sikorsky Aircraft (Sikorsky) decreased approximately $2,806,000. Sikorsky has reduced its direct labor force and virtually eliminated the contract and temporary labor force. Consequently, the Company has experienced a significant reduction in revenues from Sikorsky contracts and does not anticipate significant revenues from Sikorsky in the foreseeable future. The percentage of the Company's revenues received from Dow Chemical, Dow Corning and Sikorsky has declined over the last three years and the Company expects to continue its efforts to reduce its dependence on these customers. The Company is aggressively engaged in pursuing ways to restore the lost revenues through expanding it's sales efforts and accelerating it's search for possible acquisition and merger candidates. On December 15, 1994, the Company completed the acquisition of the business operations of Great Lakes Design, Inc. located in Grand Rapids and Grand Haven, Michigan. This acquisition has established the Company's market presence in Western Michigan and provides for participation in the expanding industrial sectors located in the Central and Western Regions. On August 30, 1995, the Company completed the acquisition of Cataract,Inc. In its last fiscal year, Cataract reported gross revenues of over $20,000,000 and an operating profit of over $1,100,000 before interest, depreciation, amortization and taxes. On May 15, 1995, Dow Corning filed for Chapter 11 bankruptcy protection relating primarily to its on going breast implant litigation. In recent communication received by the Company from the President of Dow Corning, the Company was informed of no anticipated changes to Dow Corning's business conduct during this period. Results of operations for the nine months ended July 31, 1995 reflected a net income of $576,455 ($.04 per share) in 1995 as compared to $934,355 ($.06 per share) for the comparable period in 1994. Cost of sales decreased $2,806,467 or approximately 16.0% from 1994 as a result of the decrease in revenues. Gross profit decreased by $595,701 or approximately 15.7% from 1994. The Company continues to effectively control its payroll and payroll-related costs as well as it's efforts to increase markups with new and existing clients. Operating costs decreased by $95,442 or approximately 3.5% from 1994. The 1995 decrease in operating costs resulted from significant efforts to control costs. Operating costs would have decreased approximately $313,000 without the addition of Great Lakes Design offices in Grand Haven and Grand Rapids, Michigan on December 15, 1994. Income tax expense decreased by $49,928 or approximately 40.0% from 1994. This is the result of a reduction of income before taxes as well as an income tax over accrual of approximately $10,000 from the year ended October 31, 1994. 14
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 1994 Compared to 1993 Results of Operations The Company, with continued implementation of its strategic business plan, continued to show operational improvements. Results of operations reflected a net income of $934,355 vs $554,970 in 1993. The continuing focus on Intertec Design, Inc. has improved profitability by $379,385 or 68.4% over results for 1993. Sales for Intertec Design, Inc., the Company's operating subsidiary, increased by $369,058, or approximately 1.8% from sales for the nine months ended July 31, 1993. In the Los Angeles area, sales by IDI Personnel Services increased by $871,294. Sales to the offices servicing Dow Chemical and Dow Corning decreased by $224,139. Sales to Sikorsky Aircraft decreased by $238,161. Cost of sales decreased by $365,263 or approximately 2.0% from the nine months ended July 31, 1993. Gross profit increased by $734,321 or approximately 24.0% from the nine months ended July 31, 1993. This increase occurred as a result of the Company's continuing efforts to control its workmen's compensation and payroll related costs as well as its efforts to increase mark-up with new and existing clients. Operating costs increased by $318,048 or approximately 13.2% from the nine months ended July 31, 1993. The 1994 increase in operating costs resulted from the addition of two offices in the new England area as well as bad debts of approximately $102, 000. The two additional offices were merged together on April 1, 1994 to achieve efficiency and cost effectiveness. Net other expense decreased by $33,133 or approximately 107.9% from the nine months ended July 31, 1993. The majority of this decrease resulted from the reduction of financing and interest costs associated with the Company's line of credit. Income tax expense increased by 70,021 or approximately 127.2% from the nine months ended July 31, 1994. This is the result of the expiration of the net operating loss carryfowards on the state level in 1994 and the Company's becoming subject to the alternative minimum tax on the federal level. 15
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) Amended and Restated Loan and Security Agreement By and Between Intertec Design, Inc.,CI Acquisition Corp. and Mellon Bank, N.A., dated August 31, 1995 (11) Computation of earnings per share. (27) Financial Data Schedule. 16
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: September 8, 1995 By:/s/ Leon Kopyt -------------- Leon Kopyt Chairman, President, Chief Executive Officer and Director Date: September 8, 1995 By:/s/ Stanton Remer ----------------- Stanton Remer Chief Financial Officer, Treasurer and Director