UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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 14,713,565
Common Stock, $.05 par value Outstanding as of May 16, 1995
Page 1 of 23
Exhibit Index on Page 20
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Page
Consolidated Balance Sheets as of April 30, 1995 (Unaudited)
and October 31, 1994 (Audited) 5-6
Unaudited Consolidated Statements of Income for the Three Month
Periods Ended April 30, 1995 and 1994 7
Unaudited Consolidated Statements of Income for the Six Month
Periods Ended April 30, 1995 and 1994 8
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the Six Month Period Ended April 30, 1995 9
Unaudited Consolidated Statements of Cash Flows for the Six
Month Periods Ended April 30, 1995 and 1994 10-11
Notes to Unaudited Consolidated Financial Statements 12-13
ITEM 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14-17
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 18
ITEM 4 - Submission of Matters to a vote of Security-Holders 18
ITEM 5 - Other Information 18
ITEM 6 - Exhibits and Reports on Form 8-K 18
SIGNATURES 19
INDEX TO EXHIBITS 20
Part I Item 1 Financial Information
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 1995 and October 31, 1994
(See notes to financial statements)
ASSETS
1995 1994
(Unaudited) (Audited)
Current assets
Cash and cash equivalents $3,071,413 $2,534,073
Accounts receivable (net of allowance for doubtful accounts
of $8,179 and $15,000 in 1995 and 1994, respectively) 2,945,303 3,500,079
Prepaid expenses and other current assets 593,668 319,793
---------- ---------
Total current assets 6,610,384 6,353,945
---------- ---------
Property and equipment, at cost
Equipment and leasehold improvements 801,003 749,666
Less: accumulated depreciation and amortization 663,426 616,054
-------- --------
137,577 133,612
-------- --------
Other assets
Deposits 33,847 36,431
Deferred charges 286,877 142,324
-------- --------
320,724 178,755
-------- --------
Total assets $7,068,685 $6,666,312
========= =========
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
April 30, 1995 and October 31, 1994
(See notes to financial statements)
LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994
(Unaudited) (Audited)
Current liabilities
Current maturities of long-term debt $ 114,343 $ 38,901
Accounts payable and accrued expenses 225,510 73,915
Accrued payroll 391,135 589,218
Billings in excess of costs and estimated earnings 92,535 148,229
Taxes other than income taxes 135,473 183,600
Income taxes payable 51,850 119,473
---------- ----------
Total current liabilities 1,010,846 1,153,336
---------- ----------
Long term debt 73,621 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 (3,832,403) (4,339,142)
----------- -----------
6,047,040 5,540,301
Less: treasury stock, at cost, 314,000 shares 62,821 62,821
---------- ----------
5,984,219 5,477,480
---------- ----------
Total liabilities and shareholders' equity $7,068,686 $6,666,312
========== ==========
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended April 30,
(Unaudited)
(See notes to financial statements)
1995 1994
------------ ----------
Revenues
Sales of services $ 6,280,172 $ 7,068,220
Interest income and other 50,754 13,195
---------- ---------
Total revenues 6,330,926 7,081,415
---------- ---------
Cost and expenses
Cost of services 5,124,759 5,773,847
Selling, general and administrative 892,199 943,526
Interest and other 9,251 8,341
---------- ---------
Total costs and expenses 6,026,209 6,725,714
---------- ---------
Income before income taxes 304,717 355,701
Income taxes 26,993 54,261
---------- ---------
Net income $ 277,724 $ 301,440
========== =========
Net income per share: $ .01 $ .02
========== =========
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended April 30,
(Unaudited)
(See notes to financial statements)
1995 1994
----------- ----------
Revenues
Sales of services $12,972,928 $13,857,887
Interest income and other 80,987 23,608
----------- -----------
Total revenues 13,053,915 13,881,495
----------- -----------
Cost and expenses
Cost of services 10,667,153 11,486,320
Selling, general and administrative 1,804,719 1,802,973
Interest and other 21,061 20,291
----------- -----------
Total costs and expenses 12,492,933 13,309,584
----------- -----------
Income before income taxes 560,982 571,911
Income taxes 54,243 69,401
----------- -----------
Net income $ 506,739 $ 502,510
=========== ===========
Net income per share: $ .03 $ .03
=========== ==========
RCM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six Months Ended April 30, 1995
(Unaudited)
(See notes to financial statements)
Additional
Common Stock Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock
Balance, October 31, 1994 14,713,565 $ 735,678 $ 9,143,765 ($4,339,142) ($ 62,821)
Net Income 506,739
---------- --------- ----------- --------- ---------
Balance, April 30, 1995 14,713,565 $ 735,678 $ 9,143,765 ($3,832,403) ($ 62,821)
========== ========= ========== ========= =========
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended April 30,
(Unaudited)
(See notes to financial statements)
1995 1994
--------- ---------
Cash flows from operating activities:
Net income $ 506,739 $ 502,510
---------- ---------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 62,818 46,247
Provision for losses on accounts
receivable ( 6,821) 96,490
Changes in assets and liabilities:
Accounts receivable 561,597 ( 105,390)
Prepaid expenses and other
current assets ( 273,875) ( 252,281)
Accounts payable and accrued expenses 151,595 54,215
Accrued payroll ( 198,083) ( 66,437)
Billings in excess of costs and
estimated earnings ( 55,694) 18,331
Taxes other than income taxes ( 48,127) 10,129
Income taxes payable ( 67,623) 57,734
---------- ----------
Total adjustments 125,787 ( 140,962)
---------- ----------
Net cash provided by operating activities 632,526 361,548
---------- -----------
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Six Months Ended April 30,
(Unaudited)
(See notes to financial statements)
1995 1994
---------- -----------
Cash flows from investing activities:
Increase in deferred charges ($ 10,000)
Property and equipment acquired ( 51,337) ($ 3,722)
(Increase) decrease in deposits 2,584 ( 1,595)
----------- -----------
Net cash used in investing activities ( 58,753) ( 2,127)
----------- -----------
Cash flows from financing activities:
Net repayments under
short term debt arrangements ( 4,703)
Repayments of long term debt ( 36,433) ( 17,178)
----------- -----------
Net cash used in financing activities ( 36,433) ( 21,881)
----------- -----------
Net increase in cash and cash equivalents 537,340 337,540
Cash and cash equivalents at beginning of period 2,534,073 913,535
----------- ----------
Cash and cash equivalents at April 30, $ 3,071,413 $ 1,251,075
============ ==========
Supplemental cash flow information:
Cash paid for:
Interest expense $ 13,492 $ 15,208
Income taxes $ 137,781 $ 54,690
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 six months ended April 30, 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 six months ended April 30, 1995 and
1994, the weighted average number of shares outstanding was 14,570,360, and
14,521,704, respectively.
3. Acquisition and Notes Payable
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.
The following are maturities of all long-term debt for each twelve month
periods ending April 30:
Amount
------
1996 (current portion) $114,343
1997 73,621
--------
$187,964
========
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
4. Deferred Charges
Deferred charges consist of the following:
April 30, October 31,
Amortization 1995 1994
Period (Unaudited) (Audited)
------------ -------- ---------
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
38,557 23,111
--------- ---------
$ 286,877 $ 142,324
========= =========
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.
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:
April 30, October 31,
1995 1994
(Unaudited) (Audited)
--------- ---------
Current assets $6,610,384 $6,353,945
Current liabilities 1,010,846 1,153,336
---------- ----------
Working capital $5,599,538 $5,200,609
========== ==========
Current ratio 6.54 to 1 5.51 to 1
Borrowed capital $ 187,964 $ 74,397
Shareholders' equity $5,984,219 $5,477,480
Borrowed capital/
Shareholders' equity 3% 1%
Common shares outstanding 14,399,565 14,399,565
(Net of Treasury shares)
Book value per common share $.42 $.38
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 six months ended April 30, 1995, working capital increased by
$398,929. This was due primarily to the continued profitable operations of the
Company. The Company, at April 30, 1995 had $73,621 in long-term debt and the
Company held $3,071,413 of cash and cash equivalents.
The Company maintains a credit facility with Mellon Bank, N.A.. Maximum
borrowing permitted under the credit facility is $2,500,000 and the agreement
expires June 1996. The credit facility is collateralized by the accounts
receivable, contract rights and furniture and fixtures of Intertec Design, Inc.
(Intertec) , the operating subsidiary, with unlimited guarantees from RCM
Technologies, Inc. The credit facility is used to supply Intertec with the cash
requirements needed to finance payroll relating to the provision of services to
clients by Intertec personnel prior to the time that Intertec is paid by its
customers. The loan requires both Intertec and RCM Technologies, Inc. to meet
certain covenants with respect to financial ratios and earnings. Credit facility
advances are to be used to meet cash flow requirements for Intertec 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 this will sufficiently support the operations of both Intertec and RCM
Technologies, Inc.
Borrowing under the credit facility is based on 75% of accounts receivable
on which not more than sixty days have elapsed since the date of invoicing. The
interest rate charged is 1.25% above the prime rate of the Bank (effective rate
of 10.25% and 9.0% at April 30, 1995 and October 31, 1994, respectively). At
April 30, 1995, there was no outstanding borrowing under the credit facility.
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 are analogous 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.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
1995 Compared to 1994
For the six months ended April 30, 1995, the Company experienced declining
sales. Despite declining sales, the Company has maintained comparable profit
levels with previous fiscal quarters. Revenues decreased $884,959 or
approximately 6.4% from sales for 1994. Sales by IDI Personnel Services
decreased approximately $750,000. Sales to Dow Chemical and Dow Corning
decreased approximately $800,000. Sales to Sikorsky Aircraft (Sikorsky)
decreased approximately $810,000. 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 will establish the Company's market presence in
Western Michigan and provide for participation in the expanding industrial
sectors located in the Central and Western Regions.
On May 15, 1995, the Company has learned that Dow Corning has 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 six months ended April 30, 1995 reflected a net
income of $506,739 ($.03 per share) in 1995 as compared to $502,510 ($.03 per
share) for the comparable period in 1994.
Cost of sales decreased $819,167 or approximately 7.1% from 1994 as a result of
the decrease in revenues.
Gross profit decreased by $65,792 or approximately 2.8% 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 increased by $2,516 or approximately .1% from 1994. The 1995
increase in operating costs resulted from the addition of Great Lakes Design
offices in Grand Haven and Grand Rapids, Michigan.
Income tax expense decreased by $15,158 or approximately 21.8% from 1994. This
is the result of a reduction of income before taxes as well as an income tax
overaccrual of approximately $10,000 from the year ended October 31, 1994.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
1994 Compared to 1993
With the further implementation of the Company's strategic business plan, the
Company continues to show operational improvements. Results of operations
reflected a net income of $502,510 in 1994 versus $300,187 in 1993. The
continuing focus on Intertec Design, Inc. has improved profitability by $202,323
or 67.4% over results for 1993.
Sales for Intertec Design, Inc., the Company's operating subsidiary, increased
by $27,525, or approximately .2% from sales for the six months ended April 30,
1993. In the Los Angeles area, sales by IDI Services increased by $570,894.
Sales to the offices servicing Dow Chemical and Dow Corning decreased by
$166,697. Sales to Sikorsky Aircraft decreased by $278,418 while sales to
various smaller clients decreased by $98,254.
Cost of sales decreased by $360,198 or approximately 3.0% from the six months
ended April 30, 1993.
Gross profit increased by $387,723 or approximately 19.5% from the six months
ended April 30, 1993. This increase occurred as a direct result of the Company's
efforts to control its workmen's compensation costs as well as its efforts to
increase mark-ups with new and existing clients.
In 1994, operating costs increased by $172,206 or approximately 10.6% from the
six months ended April 30, 1993. The 1994 increase in operating costs came about
through the addition of two additional offices in the New England area which
cost approximately $57,617 as well as recording approximately $114,600 in
reserves for various items. The two additional offices were merged together on
April 1, 1994 to achieve efficiency and cost effectiveness.
Interest and other decreased by $22,310 or approximately 104.2% from the six
months ended April 30, 1993. The majority of this decrease came from decreased
financing costs associated with the Company's line of credit.
Income tax expense increased by $35,504 or approximately 104.7% from the six
months ended April 30, 1993. This is the result of the expiration of net
operating loss carryforwards on the state level in 1995 and the Company's
becoming subject to the alternative minimum tax on the federal level.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The information required by this item is included in Part I Financial
Statements of the Form 10-Q as of April 30, 1995 and is incorporated by
reference.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of earnings per share.
(27) Financial Data Schedule.
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: May 16, 1995 By:/s/ Leon Kopyt
--------------
Leon Kopyt
Chairman, President,
Chief Executive Officer
and Director
Date: May 16, 1995 By:/s/ Stanton Remer
-----------------
Stanton Remer
Chief Financial Officer,
Treasurer and Director
INDEX TO EXHIBITS
Exhibit Sequentially
Number Description Numbered
- ---------------------------------------------------------------------------
11 Computation of Earnings
Per Share 19
27 Financial Data Schedule 20
EXHIBIT 11
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Six Months Ended April 30, 1995 and 1994
1995 1994
---------- ---------
Income
Net income applicable to common stock $ 506,739 $ 502,510
========= ==========
Shares
Weighted average number of shares
outstanding 14,399,565 14,374,565
Common stock equivalents 170,795 147,139
---------- ----------
Total 14,570,360 14,521,704
========== ==========
Primary earnings per share $ .03 $ .03
========= ==========
Fully diluted earnings per share $ .03 $ .03
========= ==========