SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report August 30, 1995
(Date of earliest event reported)
RCM TECHNOLOGIES, INC.
(exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation)
1-10245 95-1480559
(Commission File Number) (IRS Employer
` Identification Number)
2500 McClellan Avenue, Pennsauken, NJ 08109-4613
(Address of principal executive offices) (Zip Code)
(609) 486 - 1777
Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
---------------------------------------------
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 executive officers of Cataract,
Inc. consist of Leon Kopyt and Stanton Remer.
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.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
------------------------------------------
Cataract, Inc. was incorporated on August 14, 1992 and commenced business
in May 1993 when it acquired substantially all of the operating assets of
Cataract, Inc. a Delaware corporation ("Cataract-Delaware"). The acquisition of
these assets was accomplished through a two-step process pursuant to which
Cataract, Inc. first purchased the interest of a principal lender in certain
debt instruments that had been in default and were secured by substantially all
of the assets of Cataract-Delaware; and thereafter through a consenual transfer
of such assets in lieu of foreclosure.
By virture of certain common ownership and the continuation of its historic
business, Cataract, Inc. may be viewed as the successor to the business of
Cataract-Delaware for financial accounting purposes. According, the financial
statements presented include those periods prior to May 1993 when the business
was operated by Cataract-Delaware.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Audited Balance Sheets, October 2, 1994 and October 1, 1993
Audited Statement of Income,
Years ended October 2,1994, October 1, 1993 and September 25, 1992
Audited Statement of Changes in Stockholders' Equity,
Years ended October 2, 1994, October 1, 1993 and September 25, 1992
Audited Statements of Cash Flows,
Years ended October 2, 1994, October 1, 1993 and September 25, 1992
Unaudited Balance Sheet, April 2, 1995
Unaudited Statements of Income for the Three Month Periods
Ended July 2, 1995 and July, 3, 1995
Unaudited Statements of Income for the Nine Month Periods
Ended July 2, 1995 and July 3, 1994
Unaudited Statement of Changes in Shareholders' Equity for
the Nine Month Period Ended July 2, 1995
Unaudited Statements of Cash Flows for the Nine Month Periods
Ended July 2, 1995 and July 3, 1994
(b) PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Combined Balance Sheets,
October 31, 1994 and July 31, 1995
Unaudited Pro Forma Condensed Combined Statements of Income
for the year ended October 31, 1994 and the nine months
ended July 31, 1995.
(c) EXHIBITS
(1) Merger Agreement, dated July 31, 1995
(2) Registration Rights Agreement, dated August 30, 1995
(3) Voting Trust Agreement, dated August 30, 1995
(4) Investor Representation Certificate,dated August 30, 1995
(5) Stock Pledge Agreement, dated August 30, 1995
ITEM 7. (a) FINANCIAL STATEMNETS OF BUSINESS ACQUIRED
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
Financial Statements for the Fiscal Years (Fifty-Two Weeks) Ended
September 25, 1992, October 1, 1993
and October 2, 1994
and
Independent Accountants' Audit Report
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
Contents
Page
Accountants' report ........................................... 1-2
Financial statements
Balance sheets ........................... ............ 3
Statements of operations .............................. 4
Statements of retained earnings ....................... 5
Statements of cash flows ............................. 6-7
Notes to financial statements ....................... 8-13
Board of Directors and Stockholders
Cataract, Inc.(a Pennsylvania corporation) and
Cataract, Inc. (a Delaware corporation)
Newtown, Pennsylvania
INDEPENDENT ACCOUNTANTS' AUDIT REPORT
We have audited the accompanying balance sheets of Cataract, Inc. (a
Pennsylvania corporation), as of October 1, 1993 and October 2, 1994, and the
related statements of operations, retained earnings, and cash flows for the year
ended October 2, 1994. We have also audited the statement of operations for
Cataract, Inc. (a Delaware corporation) for the year ended September 25, 1992
and the related statements of retained earnings and cash flow. We have also
audited the combined statement of operations for Cataract, Inc. (a Pennsylvania
corporation) and Cataract, Inc. (a Delaware corporation) for the year ended
October 1, 1993 and the related statements of retained earnings and cash flow.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and combined financial statements
referred to above present fairly, in all material respects, the financial
position of Cataract, Inc. (a Pennsylvania corporation) as of October 1, 1993
and October 2, 1994, and the results of Cataract, Inc.'s (a Pennsylvania
corporation) and Cataract, Inc.'s (a Delaware corporation) operations and their
cash flows for the years ended September 25, 1992, and October 1, 1993 and in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Cataract, Inc. (a Delaware corporation) will continue as a going concern. As
described in Note 2 to the financial statements, Cataract, Inc.'s (a Delaware
corporation) recurring losses from operations, negative working capital,
stockholders' deficit and noncompliance with provisions of certain loan
agreements raise substantial doubt about its ability to continue as a going
concern. Management's plan concerning these matters are described in Note 2.
In May of 1993 substantially all of Cataract, Inc.'s ( a Delaware
corporation) assets were disposed of, see note 13. The operations of Cataract,
Inc. ( a Delaware corporation) ceased as of May 31, 1993.
Burns, Boyle and Company, CPAs PC
August 22, 1995
CATARACT, INC.
(a Pennsylvania corporation)
BALANCE SHEETS
OCTOBER 1, 1993 and OCTOBER 2, 1994
ASSETS 1994 1993
CURRENT ASSETS:
Cash $ 1, 983 $ 135,817
Accounts receivable:
Trade (net of allowance of $10,800 and $10,000) 3,096,587 2,722,308
Other 20,340 10,422
Work in progress 220,563 327,956
Note receivable 2,806 6,058
Prepaid expenses and other current assets 71,505 79,914
------ ------
Total current assets 3,413,784 3,282,475
--------- ---------
FURNITURE AND EQUIPMENT - At cost, less accumulated
depreciation of $34,753 and $7,083 158,625 116,525
------- ------ ------- -------
OTHER ASSETS
Organization cost (net of amortization) 40,660 43,653
Purchased contracts (net of amortization) 149,426 491,707
Goodwill (net of amortization) 25,762 27,659
------ ------
Total other assets 215,848 563,019
------- -------
TOTAL $3,788,257 $3,962,019
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Shareholders loans $ 0 $ 200,000
Line of credit 1,127,170 0
Accounts payable and accrued expenses 613,278 639,899
Accrued payroll, bonuses, and taxes 981,737 1,000,765
Accrued corporation taxes 40,985 4,375
Current maturities of long-term debt 0 597,561
- -------
Total current liabilities 2,763,170 2,442,600
--------- ---------
LONG -TERM DEBT, less current maturities 1,000,000 1,500,000
--------- ---------
STOCKHOLDERS' EQUITY
Common stock 1,000 1,000
Additional paid-in capital 1,000 1,000
Retained earnings (deficit) 23,087 17,419
------ ------
25,087 19,419
------ ------
TOTAL $3,788,257 $3,962,019
========== ==========
See Independent Accountants' Audit Report and Notes to the Financial statements.
-3-
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
STATEMENTS OF OPERATIONS
FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992,
OCTOBER 1, 1993 AND OCTOBER 2, 1994
Cataract, Inc. Cataract Cataract, Inc.
(Pennsylvania) (Combined) (Delaware)
10/2/94 10/1/93 9/25/92
SERVICE REVENUE $20,027,006 $21,097,210 $19,636,632
COST OF SERVICES RENDERED 17,356,535 17,966,214 16,570,183
---------- ---------- ----------
GROSS MARGIN 2,670,471 3,130,996 3,066,449
--------- --------- ---------
GENERAL AND ADMINISTRATIVE EXPENSES 1,567,846 2,383,340 2,608,932
INTEREST EXPENSE 313,098 860,231 1,116,920
DEPRECIATION & AMORTIZATION EXPENSE 374,841 191,526 57,351
OTHER INCOME (62,150) (17,180) (12,430)
------- ------- -------
TOTAL 2,193,635 3,417,917 3,770,773
NET INCOME (LOSS) BEFORE TAXES 476,836 (286,921) (704,324)
------- -------- --------
INCOME TAXES 31,168 4,375 0
------ ----- -
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 445,668 (291,296) (704,324)
EXTRAORDINARY ITEM - termination of business 0 (6,121,815) 0
- ---------- -
NET INCOME (LOSS) $ 445,668 $(6,413,111) $ (704,324)
========== =========== ==========
See Independent Accountants' Audit Report and Notes to the Financial Statements.
-4-
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
STATEMENT OF RETAINED EARNINGS
FISCAL YEARS (FIFTY-TWO WEEKS) ENDED OCTOBER 1, 1993
AND OCTOBER 2, 1994
Cataract Cataract
Pennsylvania Delaware
BALANCE September 30, 1991 ........................ $ 0 $ (6,226,940)
Net Loss ........................................... 0 (704,324)
- --------
BALANCE September 25, 1992 .......................... 0 (6,931,264)
Net Profit(Loss) ................................... 17,419 (6,430,530)
Disposal of Unearned Compensation ................. 0 10,000,000
- ----------
BALANCE October 1, 1993 ........................... 17,419 $ (3,361,794)
== ==== ============
Net Profit ...................................... 445,668
Dividend ........................................ (440,000)
--------
BALANCE October 2, 1994 ......................... $ 23,087
============
See Independent Accountants' Audit Report and Notes to the Financial Statements
-5-
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
STATEMENTS OF CASH FLOWS
FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992
OCTOBER 1, 1993 AND OCTOBER 2, 1994
Cataract, Inc. Cataract Cataract, Inc
Pennsylvania Combined Delaware
10/2/94 10/1/93 9/25/92
OPERATING ACTIVITIES:
Net income $ 445,668 $(291,296) $(704,324)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 374,841 191,526 57,351
Bad debt expense 800 10,000 11,000
Changes in assets and liabilities which provided (used) cash:
Accounts receivable:
Trade (375,079) (2,200,818) (947,162)
Other (9,918) (5,883) 14,648
Work in progress 107,393 (327,956) 0
Note receivable 3,252 (3,967) 2,753
Prepaid expenses and other current assets 8,409 (74,388) (139,633)
Accounts payable and accrued expenses (26,621) 277,146 13,220
Accrued corporation taxes 36,610 4,375 0
Accrued interest 0 437,066 902,320
Accrued payroll, bonuses, and taxes (19,028) 731,221 299,102
------- ------- -------
Net cash used in operating activities 546,327 (1,104,198) (493,725)
------- ---------- --------
INVESTING ACTIVITIES:
Additions to furniture and equipment (69,770) (123,608) (3,880)
Addition to other assets 0 (730,964) 0
- -------- -
Net cash used in investing activities (69,770) (854,572) (3,880)
------- -------- ------
FINANCING ACTIVITIES:
Dividends paid (440,000) 0 0
Additional paid in capital 0 1,000 0
Proceeds from (repayment of ) shareholder loans (200,000) 200,000 0
Borrowing from (repayment of) line of credit (net) 1,127,170 0 480,000
Borrowing of long term debt 0 2,347,561 0
Repayments of long term debt (1,097,561) (340,680) (26,372)
---------- -------- -------
Net cash provided by financing activities (610,391) 2,307,881 453,628
-------- --------- -------
See Independent Accountants' Audit Report and Notes to the Financial Statements
-6-
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
STATEMENTS OF CASH FLOWS
FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992
OCTOBER 1, 1993 AND OCTOBER 2, 1994
Continued
Pennsylvania Combined Delaware
10/2/94 10/1/93 9/25/92
NET INCREASE (DECREASE) IN CASH DUE TO OPERATIONS (133,834) 349,111 (40,977)
NET DECREASE IN CASH DUE TO EXTRAORDINARY ITEM 0 (222,249) 0
CASH, BEGINNING OF YEAR 135,817 8,955 48,932
------- ----- ------
CASH, END OF YEAR $ 1,983 $ 135,817 $ 7,955
======== ========= ========
See Independent Accountants' Audit Report and Notes to the Financial Statements.
-7-
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992,
OCTOBER 1, 1993 AND OCTOBER 2, 1994
NOTE 1 - BUSINESS
Cataract, Inc., (a Pennsylvania corporation)("Cataract PA") was
incorporated in Pennsylvania on August 14, 1992, under the name ENTE,
Inc. In May of 1993, the Company purchased from Prudential Insurance
Company of America (Prudential) warrants and notes payable to
Prudential by Cataract, Inc. (a Delaware corporation) ("Cataract DE").
At the time of the purchase, the notes were in default. Cataract PA
then entered into a collateral surrender agreement with Cataract DE.
As part of this agreement, Cataract DE transferred title to the
majority of its assets to Cataract PA. Cataract PA agreed to assume
some of Cataract DE's liabilities and made a conditional agreement not
to sue.
Both Cataract PA and Cataract DE furnishes engineering, technical and
administrative support personnel services on a contract basis
primarily to the nuclear power industry, fossil fuel electric
utilities and the process industry.
NOTE 2 - GOING CONCERN CONSIDERATIONS
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. However,
on May 31, 1993, Cataract DE surrendered most of its assets to
Cataract PA to avoid a foreclosure. The gain and losses from this
surrender are included in the extraordinary item.
Cataract DE ceased operations in May of 1993.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Combining - The activity of both Cataract DE and Cataract PA
have been combined by adding together there respective results of
operations, cash flows and changes in retained earnings. No
adjustments were made for the transaction between the companies. The
activity for Cataract DE is for the period September 26, 1992 to May
30, 1993, the activity for Cataract PA is for the period June 1, 1993
to October 1, 1993.
See Independent Accountants' Audit Report
-8-
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992,
OCTOBER 1, 1993 AND OCTOBER 2, 1994
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Method of Accounting - The Companies uses the accrual method of
accounting for financial statement presentations.
Revenue Recognition - Revenues are recognized when earned in
accordance with project agreements.
Work in Progress - Work in progress is the value of work performed as
of the balance sheet date, but not yet billed.
Furniture and Equipment - Furniture and equipment is stated at cost.
Depreciation is calculated using the straight-line method based on the
estimated useful lives of the related assets.
Organization Costs - Organization costs are the costs involved in
forming the Company and the cost to enter into the collateral
surrender agreement with Cataract DE. These costs are being amortized
over 15 years.
Purchased Contracts - Purchased contract is the cost assigned to the
value of contracts entered into by Cataract DE, but to be completed by
the Cataract PA. These costs are being amortized over their estimated
useful life. Estimated useful life was based on the projected revenue
flow of the contracts purchased.
Goodwill - Goodwill is the unallocated cost of the Cataract DE
transaction. The net purchase price of the assets of Cataract DE was
assigned to fixed assets and purchased contracts. The balance is
Goodwill. Goodwill is being amortized over 15 years.
See Independent Accountants' Audit Report
-9-
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992,
OCTOBER 1, 1993 AND OCTOBER 2, 1994
NOTE 4 - SHAREHOLDER LOANS
Shareholder loans as of October 1, 1993 and October 2, 1994 consisted
of the following:
1994 1993
15% Demand loan from Mr. & Mrs. Robert
Starer, 45% shareholder ........... $ 0 $ 90,000
15% Demand loan from Mr. & Mrs. James
Affleck, 10% shareholder .......... 0 20,000
15% Demand loan from Mr. & Mrs. Joseph
Marubbio, 45% shareholder ......... 0 90,000
-- - ------
$ 0 $200,000
======== ========
NOTE 5 - LONG TERM DEBT
On May 25, 1993, Cataract PA borrowed $2,250,000 from a group of
lenders composed of Riverside Capital Advisers, Inc., Riverside Income
Fund Trust, Siemens Master Pension Trust the Blackstone Family
Investment Partnership, L.P., and the Hoechst Celanese Corporation
Employee Benefit Master Trust (Riverside). The proceeds from this
loan, plus other funds, were used to purchase a package of securities
and obligations of Cataract DE owned by Prudential.
There are a number of restrictive covenants under Cataract PA's
borrowing arrangements with Riverside, including prohibitions against
payment of some dividends and redemption, purchase or acquisition of
any shares of Cataract PA's stock and repayment of shareholder loans.
The agreement also contains prohibitions against incurring additional
debt and selling significant assets of the Cataract PA.
As of October 2, 1994, Cataract PA was in violation of the prohibition
on payment of dividends in excess of the tax liability of the
shareholders that was attributable to the "S" corporation earning of
the Company.
See Independent Accountants' Audit Report
-10-
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992,
OCTOBER 1, 1993 AND OCTOBER 2, 1994
NOTE 5 - LONG TERM DEBT (continued)
Substantially all assets of Cataract PA are pledged as collateral for
its outstanding borrowings, including the revolving credit facility.
As of October 1, 1993 and October 2, 1994, the long term debt is
made up of the following:
1994 1993
15% Note Payable Riverside due December
5, 1995 $1,000,000 $2,000,000
15% Note Payable St. Peters College
leveraged asset trust - 1989(A) - due
May 5, 1994 0 97,561
- ------
1,000,000 2,097,561
Current portion 0 597,561
- -------
Long term $1,000,000 $1,500,000
========== ==========
Maturities of long term debt are as follows:
Year Ending
1995 0 0
1996 $1,000,000 $1,500,000
NOTE 6 - LINE OF CREDIT
Cataract PA established a $4,000,000 revolving credit facility
with Textron Financial Corporation in March of 1994. Borrowing on
this line of credit is based on a percentage of qualified
outstanding trade accounts receivable. Interest is paid on the
outstanding balance at a rate of 2% over prime. As of October 2,
1994 the balance payable on this line was $1,127,170.
See Independent Accountants' Audit Report
-11-
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992,
OCTOBER 1, 1993 AND OCTOBER 2, 1994
NOTE 7 - STOCK PURCHASE OPTIONS
As part of the transaction when Cataract PA purchased Cataract
DE's notes from Prudential, Cataract PA granted options to
purchase 15% of the Cataract PA's stock to a number of trusts
controlled by Prudential. There are a number of events which can
trigger the right to exercise the options. These events are as
follows:
1. Sale of substantially all of the assets of the Cataract PA.
2. The filing of a public offering for the sale of Cataract PA stock.
3. The merger of the Cataract PA into another entity.
4. The dissolution and liquidation of the Cataract PA.
NOTE 8 - INCOME TAXES
The provisions for income taxes consist of the following components:
1994 1993 1992
---- ---- ----
Federal tax provision $ 0 $3,075 $ 0
State tax provision 25,430 1,300 0
------ ----- -
Total $25,430 $4,375 $ 0
======= ====== =========
As of October 2, 1993, Cataract PA elected to be an "S"
Corporation for the federal government, as a result, the net income,
or loss, will flow through to the individual shareholders individual
federal income tax return. For state tax purposes the company is a "C"
corporation, as a result state corporation net income taxes are due on
Cataract PA profits. Cataract DE had a net operating loss in 1992, as
a result, no income taxes were accrued.
NOTE 9 - SELF-FUNDED GROUP MEDICAL INSURANCE
The Cataract PA provides group medical insurance to its
employees on a self-funded basis up to $45,000 per insured
individual to an annual aggregate limitation of $955,000.
Amounts in excess of these thresholds are covered by
insurance policies. Management believes that adequate
reserves have been recorded to cover claims incurred but not
reported as of October 1, 1993 and October 2, 1994.
See Independent Accountants' Audit Report
-12-
CATARACT, INC.
(a Pennsylvania corporation)
and
CATARACT, INC.
(a Delaware corporation)
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992,
OCTOBER 1, 1993 AND OCTOBER 2, 1994
NOTE 10 - EMPLOYEE BENEFIT PLANS
Cataract PA maintains a number of health and welfare plans and a 401(K) plan.
The health and welfare plans require an employee and employer contribution. The
401(K) plan only requires an employee contribution.
NOTE 11 - LEASING ARRANGEMENTS
The Companies conducts their operations from a number of leased facilities.
All of these leases are on a month by month basis or expire within one year.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Companies lease some of their office facilities from a stockholder and
officer. The lease with the stockholder and officer provides for monthly
rentals, on a month-to-month basis, of $6,104 up to October 1, 1994 and $6,697
there after.
The Companies charge a number of corporations for administrative services
and other costs. Some of these corporations are related to the Company through
common shareholders.
NOTE 13 - EXTRAORDINARY ITEM
On May 31, 1993, Cataract DE surrendered most of its assets to Cataract PA
to avoid a foreclosure. The gain and losses from this surrender are included in
the extraordinary item. This item includes the abandonment of the deferred
compensation and the advanced contributions to the employee stock ownership
trust.
See Independent Accountants' Audit Report
-13-
Cataract, Inc
Financial Statements
July 2, 1995 and July 3, 1994
(Unaudited)
CATARACT, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Balance Sheets as of July 2, 1995 (Unaudited)
and October 2, 1994 (Audited) 2-3
Unaudited Statements of Income for the Three Month
Periods Ended July 2, 1995 and July 3, 1994 4
Unaudited Statements of Income for the Nine Month
Periods Ended July 2, 1995 and July 3, 1994 5
Unaudited Statement of Changes in Shareholders' Equity
for the Nine Month Period Ended July 2, 1995 6
Unaudited Statements of Cash Flows for the Nine Month
Periods Ended July 2, 1995 and July 3, 1994 7-8
Notes to Unaudited Financial Statements 9-10
2
CATARACT, INC.
BALANCE SHEETS
July 2, 1995 and October 2, 1994
ASSETS
1995 1994
(Unaudited) (Audited)
Current assets
Cash $ 1,995 $ 1,983
Accounts receivable, net of allowance for doubtful accounts
of $10,800 at each date 3,251,498 3,340,296
Prepaid expenses and other current assets 149,009 71,505
------- ------
Total current assets 3,402,502 3,413,784
--------- ---------
Property and equipment, at cost
Equipment and leasehold improvements 211,218 193,378
Less: accumulated depreciation and amortization 58,913 34,753
------ ------
152,305 158,625
------- -------
Other assets
Deferred charges 85,429 215,848
------ -------
Total assets $3,640,236 $3,788,257
========== ==========
3
CATARACT, INC.
BALANCE SHEETS - Continued
July 2, 1995 and October 2, 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994
(Unaudited) (Audited)
Current liabilities
Line of Credit $ 1,528,184 $ 1,127,170
Accounts payable and accrued expenses 401,809 613,278
Accrued payroll and payroll taxes payable 695,709 981,737
Income taxes payable 7,022 40,985
----- ------
Total current liabilities 2,632,724 2,763,170
--------- ---------
Long term debt 1,000,000 1,000,000
Shareholders' equity
Common stock, $0.002 stated value; 1,000,000 shares authorized;
500,000 issued and outstanding 1,000 1,000
Additional paid-in capital 1,000 1,000
Retained earnings 5,512 23,087
----- ------
7,512 25,087
----- ------
Total liabilities and shareholders' equity $3,640,236 $3,788,257
========== ==========
4
CATARACT, INC.
STATEMENTS OF INCOME
Three Months Ended July 2, 1995 and July 3, 1994
(Unaudited)
1995 1994
Revenues
Sales of services $ 5,786,997 $ 4,485,506
Other income 8,250 6,400
----- -----
Total revenues 5,795,247 4,491,906
--------- ---------
Cost and expenses
Cost of services 5,179,568 3,876,215
Selling, general and administrative 386,968 373,741
Depreciation and amortization 38,035 63,807
Interest expense 84,835 70,096
------ ------
Total costs and expenses 5,689,406 4,383,859
--------- ---------
Income before income taxes 105,842 108,047
Provision for state income taxes 7,400 7,500
----- -----
Net income $ 98,442 $ 100,547
============ ==========
Net income per share: $ .20 $ .20
============ ==========
Weighted average number of shares outstanding: 500,000 500,000
======= =======
5
CATARACT, INC.
STATEMENTS OF INCOME
Nine Months Ended July 2, 1995 and July 3, 1994
(Unaudited)
1995 1994
Revenues
Sales of services $16,182,238 $15,388,831
Other income 23,857 18,922
------ ------
Total revenues 16,206,095 15,407,753
---------- ----------
Cost and expenses
Cost of services 14,303,190 13,331,817
Selling, general and administrative 1,137,896 1,139,584
Depreciation and amortization 154,578 291,917
Interest expense 230,328 244,480
------- -------
Total costs and expenses 15,825,992 15,007,798
---------- ----------
Income before income taxes 380,103 399,955
Provision for state income taxes 19,516 32,000
------ ------
Net income $ 360,587 $ 367,955
========== ==========
Net income per share: $ .72 $ .74
========== ==========
Weighted average number of shares outstanding: 500,000 500,000
======= =======
6
CATARACT, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended July 2, 1995
(Unaudited)
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
------ ------ ------- --------
Balance, October 2, 1994 500,000 $ 1,000 $ 1,000 $ 23,087
Net income 360,587
Shareholder distributions ( 377,901)
--------
Balance, July 2, 1995 500,000 $ 1,000 $ 1,000 $ 5,512
======= ======== ========== ========
7
CATARACT, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended July 2, 1995 and July 3, 1994
(Unaudited)
1995 1994
---- ----
Cash flows from operating activities:
Net income $ 360,587 $ 367,955
------------ -----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 154,579 291,917
Provision for losses on accounts
receivable 800
Changes in assets and liabilities:
Accounts receivable 88,798 34,847
Prepaid expenses and other
current assets ( 77,504) ( 16,995)
Accounts payable and accrued expenses ( 211,469) ( 211,144)
Accrued payroll and payroll taxes payable ( 286,028) ( 97,926)
Income taxes payable ( 33,963) 28,594
------ ------
Total adjustments ( 365,587) ( 30,093)
------- ------
Net cash provided by (used in) operating activities ( 5,000) 398,048
----- -------
8
CATARACT, INC.
STATEMENTS OF CASH FLOWS - Continued
Nine Months Ended July 2, 1995 and July 3, 1994
(Unaudited)
1995 1994
---- ----
Cash flows from investing activities:
Property and equipment acquired ( 17,840) ($ 49,702)
------------------------------- ------- -------
Net cash used in investing activities ( 17,840) ( 49,702)
------ ------
Cash flows from financing activities:
Shareholder distributions ( 377,901) ( 320,001)
Net borrowing (repayments) under
short term debt arrangements 400,753 337,738
Repayments of long term debt ( 500,000)
------- -------
Net cash used in financing activities 22,852 ( 482,263)
------ -------
Net increase (decrease) in cash 12 ( 133,917)
Cash at beginning of period 1,983 135,817
----- -------
Cash at end of period $ 1,995 $ 1,900
=========== ==========
Supplemental cash flow information:
Cash paid for:
Interest expense $ 230,328 $ 244,480
Income taxes $ 53,479 $ 3,406
9
CATARACT, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. General
The accompanying financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). This Report on should be read in conjunction with the
Company's annual audited financial statements for the year ended October 2,
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 2, 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 2, 1995 and
July 3, 1994, the weighted average number of shares outstanding was
500,000.
3. Income Taxes
From inception through August 30, 1995, the Board of Directors, with the
consent of the shareholders elected to be taxed as an S Corporation for
federal income tax purposes. An S election was made in those states which
recognize such status. Accordingly, there are no provisions for federal
income taxes and the state income tax expense is disportionate to income
before taxes. As of August 30, 1995, concurrent with the merger of
Cataract, Inc. into CI Acquisition Corp., the S elections were terminated.
All accumulated earnings of Cataract, Inc. to the effective date of the
merger were distributed to then existing shareholders.
4. 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.
10
ITEM 7 (b) PRO FORMA FINANCIAL INFORMATION
------------------------------------------
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the acquisition of Cataract, Inc. by RCM Technologies, Inc. (RCM)
pursuant to a Merger transaction that was completed on August 30, 1995. This pro
forma information has been prepared utilizing the historical financial
statements of RCM and Cataract. This information should be read in conjunction
with the historical financial statements and notes thereto of RCM which are
incorporated by reference to RCM's Form 10-K and the historical financial
statements of Cataract which is incorporated within this Form 8-K. The pro forma
financial data is provided for comparative purposes only and does not purport to
be indicative of the results which actually would have been obtained if the
Merger had been effected on the dates indicated or of the results which may be
obtained in the future.
The pro forma financial information is based on the purchase method of
accounting for the Merger. The pro forma adjustments are described in the
accompanying Notes to Unaudited Pro Forma Condensed Combined Balance Sheet and
Notes to Unaudited Pro Forma Condensed Combined Statement of Income. The
Unaudited Pro Forma condensed combined statements of income for the year ended
October 31, 1994 and the nine months ended July 31, 1995 assume that the
acquisition of Cataract had occurred on November 1, 1993 (combining the results
for the year ended October 31, 1994, for RCM and the year ended October 2, 1994,
for Cataract and combining the results for the nine months ended July 31, 1995
for RCM and the nine months ended July 2, 1995, for Cataract). The unaudited pro
forma condensed combined balance sheets at October 31, 1994 and July 31, 1995
assumes that the acquisition of Cataract had occurred on October 31, 1994
(combining the balance sheets for RCM and Cataract as of October 31, 1994, and
October 2, 1994, respectively and combining the balance sheets for RCM and
Cataract as of July 31, 1995 and July 2, 1995, respectively).
Acquisition
The total purchase price for the shares acquired by cash and the issuance
of RCM Common Stock was $3,200,000 plus estimated acquisition costs of
approximately $100,000. The pro forma condensed combined financial statements
have been prepared assuming the acquisition is effectuated as follows:
1. Issuance of 1,561,553 shares of RCM Common Stock based on a market price
of RCM Common Stock of $.7685 per share.
2. Payment of cash of $2,000,000 financed by short-term borrowing of
$855,000 and the use of internal funds of $1,145,000.
Assumptions
Purchase Price Allocation
Although neither RCM or Cataract has complete information at this time as
to the fair values of Cataract's individual assets and liabilities, an estimate
of the eventual allocation of the purchase price was made on the basis of
available information. The eventual allocation of the purchase price will be
made on the basis of appraisals and valuations which give effect to various
factors including the nature and intended future use of assets acquired in
determining their value. It is not anticipated that any change in the allocation
price will be material from the pro forma adjustments.
For purpose of pro forma presentations, the excess purchase price over the
net assets acquired is being amortized over an estimated life of twenty (20)
years.
Interest Expense
The pro forma financial information reflects the refinancing of $1,000,000
of long-term debt of Cataract bearing interest at 15% per annum from the
proceeds of borrowing from the line of credit facility from RCM. Interest on
short term borrowing of $855,000 has been reflected at a rate of 8.75% (prime
rate), the current effective incremental borrowing rate for RCM.
RCM TECHNOLOGIES, INC. AND CATARACT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
OCTOBER 31, 1994
Historical Pro Forma
---------- ---------
RCM Technologies, Inc Cataract, Inc.
October 31, 1994 October 2, 1994 Adjustments Combined
---------------- --------------- ----------- --------
Assets:
Cash and cash equivalents .............. $ 2,534,073 $1,983 ($1,145,000)(a) $ 1,391,056
Accounts and notes receivable ........... 3,500,079 3,340,296 6,840,375
Prepaid expenses and other current assets 319,793 71,505 391,298
--------- ---------- ---------- ---------
Total current assets .................... 6,353,945 3,413,784 (1,145,000) 8,622,729
--------- --------- --------- ---------
Property and equipment-net .............. 133,612 158,625 292,237
Unallocated excess of purchase price over
net assets acquired .................. 3,174,913 (d) 3,174,913
Other Assets ............................ 178,755 215,848 394,603
------- ------- -------
Total ................................... $ 6,666,312 $ 3,788,257 $ 2,029,913 $12,484,482
=========== =========== =========== ===========
Liabilities and Shareholders' Equity:
Notes payable ........................... 38,901 1,127,170 855,000 (a) $ 3,021,071
1,000,000 (b)
---------
Other current liabilities ............... 1,114,435 1,636,000 2,750,435
--------- --------- ---------
Total current liabilities ............... 1,153,336 2,763,170 1,855,000 5,771,506
--------- --------- --------- ---------
Long term obligations ... .............. 35,496 1,000,000 (1,000,000)(b) 35,496
Shareholders' equity .................... 5,477,480 25,087 1,174,913 (c) 6,677,480
--------- ------ --------- ---------
Total ................................... $ 6,666,312 $ 3,788,257 $ 2,029,913 $12,484,482
=========== =========== =========== ===========
<FN>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
-------------------------------------------------------------
(a) to record issuance of short-term borrowings and use of internal cash to
finance acquisition
(b) to record repayment of long-term debt
(c) to record issuance of RCM Technologies, Inc. common stock in exchange for
all the shares of Cataract, Inc.
(d) to record RCM Technologies, Inc. acquisition of the Cataract, Inc. stock
and eliminate Cataract, Inc. shareholders' investment as follows:
Purchase price .............................................. $3,200,000
Shareholders' investment, as reported ....................... 25,087
------
Unallocated excess of purchase price over net assets acquired $3,174,913
==========
</FN>
RCM TECHNOLOGIES, INC. AND CATARACT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED OCTOBER 31, 1994
Historical Pro Forma
---------- ---------
RCM Technologies, Inc Cataract, Inc.
October 31, 1994 October 2, 1994 Adjustments Combined
---------------- --------------- ----------- --------
Revenues ................................ $ 29,297,216 $ 20,089,156 ($ 40,075)(d) $ 49,346,297
---------- ------------ ------------ ------------
Cost and expenses
Cost of services ....................... 23,863,889 17,356,535 41,220,424
Selling, general and administrative .... 3,708,298 1,567,846 5,276,144
Interest expense ....................... 18,840 313,098 76,950 (b) 311,126
(97,762)(c)
Depreciation and amortization .......... 93,141 374,841 158,746 (a) 626,728
Total .................................... 27,684,168 19,612,320 137,934 47,434,422
---------- ---------- ------- ----------
Income before income taxes ............ 1,613,048 476,836 (178,009) 1,911,875
Income taxes .......................... 187,043 31,168 (21,361)(e) 196,850
------- ------ -------
(162,124)(f)
162,124 (f)
-------
Net Income ............................. $ 1,426,005 $445,668 ($156,648) $1,715,025
========= ======== ======== =========
Net income per common share . $0.10 $0.89 $0.11
===== ===== =====
Average number of common
shares outstanding .................. 14,651,381 500,000 16,212,934
========== ======= ==========
<FN>
NOTES TO UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF INCOME
------------------------------------------------------------------
(a) to provide for amortization on excess purchase price over net assets
acquired based on an estimated life of 20 years.
(b) to recognize interest expense on debt to be issued in connection with
the acquisition.
(c) to reflect reduction of interest expense due to a refinancing of the
debt of Cataract, Inc. from 15% to 9% per annum.
(d) to reduce interest income on internal funds used for cash consideration.
(e) to record income tax effect of interest expense, interest income and
amortization adjustments at an effective rate of 12% net of utilization of
RCM Technologies, Inc. Federal Net Operating Loss Carryfoward. (N.O.L.)
(f) to provide Federal Income Taxes on Cataract, Inc. (an S-Corp.) and
utilization of RCM's N.O.L.
</FN>
RCM TECHNOLOGIES, INC. AND CATARACT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JULY 31, 1995
Historical Pro Forma
---------- ---------
RCM Technologies, Inc Cataract, Inc.
July 31, 1995 July 2, 1995 Adjustments Combined
------------- ------------ ----------- --------
Assets:
Cash and cash equivalents ................... $ 3,195,600 $ 1,995 ($ 1,145,000)(a) $ 1,963,289
(89,306)(e)
Accounts and notes receivable ............... 2,689,263 3,251,498 5,940,761
Prepaid expenses and other current assets ... 579,459 149,009 728,468
------- ------- -------
Total current assets ........................ 6,464,322 3,402,502 (1,234,306) 8,632,518
--------- --------- ---------- ---------
Property and equipment-net .................. 127,282 152,305 279,587
Unallocated excess of purchase price over net
assets acquired ........................... 3,174,913 (d) 3,095,540
(79,373)(e)
-------
Other Assets ................................ 310,893 85,429 396,322
------- ------ -------
Total ....................................... $ 6,902,497 $ 3,640,236 $ 1,861,234 $ 12,403,967
============ ============ ============ ============
Liabilities and Shareholders' Equity:
Notes payable ............................... 116,856 1,528,184 855,000 (a) $ 3,500,040
1,000,000 (b)
---------
Other current liabilities ................... 688,259 1,104,540 1,792,799
------- --------- ---------
Total current liabilities ................... 805,115 2,632,724 1,855,000 5,292,839
------- --------- --------- ---------
Long term obligations ....................... 43,447 1,000,000 (1,000,000)(b) 43,447
Shareholders' equity ........................ 6,053,935 7,512 1,174,913 (c) 7,067,681
--------- ----- ---------
(168,679)(e)
--------
Total ....................................... $ 6,902,497 $ 3,640,236 $ 1,861,234 $ 12,403,967
============ ============ ============ ============
<FN>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
-------------------------------------------------------------
(a) to record issuance of short-term borrowings and use of internal cash to
finance acquisition as of October 31, 1994
(b) to record repayment of long-term debt
(c) to record issuance of RCM Technologies, Inc. common stock in exchange for
all the shares of Cataract, Inc.
(d) to record RCM Technologies, Inc. acquisition of the Cataract, Inc. stock
and eliminate Cataract, Inc. shareholders' investment as follows:
Purchase price ............................................... $3,200,000
Shareholders' investment, as reported ....................... 25,087
------
Unallocated excess of purchase price over net assets acquired $3,174,913
==========
(e) to record the effect of Pro Forma adjustments resulting from the statement
of operations for the nine months ended July 31, 1995
</FN>
RCM TECHNOLOGIES, INC. AND CATARACT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED JULY 31, 1995
Historical Pro Forma
---------- ---------
RCM Technologies, Inc Cataract, Inc.
July 31, 1995 July 2, 1995 Adjustments Combined
------------- ------------ ----------- --------
Revenues .............................. $ 18,116,117 $ 16,206,095 ($ 30,056)(d) $ 34,292,156
------------ ------------ ------------ ------------
Cost and expenses
Cost of services .................. . 14,788,433 14,303,190 29,091,623
Selling, general and administrative . 2,542,051 1,137,896 3,679,947
Interest expense .................... 36,954 230,328 74,813 (b) 268,773
(73,321)(c)
Depreciation and amortization ....... 97,071 154,578 119,059 (a) 370,708
------ ------- ------- -------
Total ................................. 17,464,509 15,825,992 120,550 33,411,051
---------- ---------- ------- ----------
Income before income taxes ............ 651,608 380,103 (150,607) 881,104
Income taxes ....................... 75,133 19,516 (18,073)(e) 76,576
122,600 (f)
(122,600)(f)
--------
Net Income .............................. $ 576,475 $ 360,587 ($ 168,679) $ 768,383
============ ============ ============ ============
Net income per common share ..... $ 0.04 $ 0.72 $ 0.05
============ ============ ============
Average number of common
shares outstanding .................. 14,822,366 500,000 16,383,919
========== ======= ==========
<FN>
NOTES TO UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF INCOME
(a) to provide for amortization on excess purchase price over net assets
acquired based on an estimated life of 20 years.
(b) to recognize interest expense on debt to be issued in connection with the
acquisition.
(c) to reflect reduction of interest expense due to a refinancing of the debt
of Cataract, Inc. from 15% to 9% per annum.
(d) to reduce interest income on internal funds used for cash consideration.
(e) to record income tax effect of interest expense, interest income and
amortization adjustments at an effective rate of 12% net of utilization of
RCM Technologies, Inc. Federal Net Operating Loss Carryfoward (N.O.L.).
(f) to provide Federal Income taxes on Cataract, Inc. (an S-Corp. for federal
purposes) and utilization of RCM's Federal N.O.L.
</FN>
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.
(Registrant)
RCM Technologies, Inc.
By: /S/ Stanton Remer
---------------------
Stanton Remer
Chief Financial Officer,
Treasurer and Director
Date: September 12, 1995