-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C4AQnPhvn4uoLtMnzOghvo4E1uv8bFDRy42r5nS5a9HuySJubHMaRXaxWeEUPfXa uUtUcXj3UYOtu3zj1/unlw== 0000700841-98-000008.txt : 19980610 0000700841-98-000008.hdr.sgml : 19980610 ACCESSION NUMBER: 0000700841-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980609 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RCM TECHNOLOGIES INC CENTRAL INDEX KEY: 0000700841 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 951480559 STATE OF INCORPORATION: NV FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10245 FILM NUMBER: 98644350 BUSINESS ADDRESS: STREET 1: 2500 MCCLELLAN AVE STE 350 CITY: PENNSAUKEN STATE: NJ ZIP: 08109 BUSINESS PHONE: 6094861777 MAIL ADDRESS: STREET 1: 2500 MCCLELLAN AVENUE STREET 2: STE 350 CITY: PENNSAUKEN STATE: NJ ZIP: 08109-4613 10-Q 1 SECOND QUARTER 04/30/98 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, 1998 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 the Registrant's class of common stock, as of the latest practicable date. CLASS 10,445,590 Common Stock, $0.05 par value Outstanding as of June 9, 1998 1 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1 - Consolidated Financial Statements
Page Consolidated Balance Sheets as of April 30, 1998 (Unaudited) and October 31, 1997 (Audited) 3 Unaudited Consolidated Statements of Income for the Six Month Periods Ended April 30, 1998 and 1997 5 Unaudited Consolidated Statements of Income for the Three Month Periods Ended April 30, 1998 and 1997 6 Unaudited Consolidated Statement of Changes in Shareholders' Equity for the Six Month Period Ended April 30, 1998 7 Unaudited Consolidated Statements of Cash Flows for the Six Month Periods Ended April 30, 1998 and 1997 8 Notes to Unaudited Consolidated Financial Statements 10 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II - OTHER INFORMATION ITEM 4 - Submission of Matters to a Vote of Security Holders 18 ITEM 6 - Exhibits and Reports on Form 8-K 19 SIGNATURES 20
2 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 30, 1998 and October 31, 1997 ASSETS
1998 1997 ------------- --------- (Unaudited) (Audited) Current assets Cash and cash equivalents $ 424,042 $ 918,028 Accounts receivable, net of allowance for doubtful accounts of $356,000 and $316,000 in 1998 and 1997, respectively 31,177,039 24,850,304 Prepaid expenses and other current assets 1,017,420 673,265 --------- ------- Total current assets 32,618,501 26,441,597 ---------- ---------- Property and equipment, at cost Equipment and leasehold improvements 3,825,413 2,508,680 Less: accumulated depreciation and amortization 2,024,160 1,373,275 --------- --------- 1,801,253 1,135,405 --------- --------- Other assets Deposits 107,650 94,149 Intangible assets (net of accumulated amortization of $1,229,300 and $804,640 in 1998 and 1997, respectively) 37,208,703 26,411,445 ---------- ---------- 37,316,353 26,505,594 Total assets $ 71,736,107 $ 54,082,596 = ========== = ==========
The accompanying notes are an integral part of these financial statements. 3 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED April 30, 1998 and October 31, 1997 LIABILITIES AND SHAREHOLDERS' EQUITY
1998 1997 (Unaudited) (Audited) Current liabilities Note payable - bank $ 10,062,903 $ 2,000,000 Accounts payable and accrued expenses 3,638,488 1,315,937 Accrued payroll 4,351,896 4,501,502 Taxes other than income taxes 2,136,507 665,106 Income taxes payable 567,943 679,937 ------- ------- Total current liabilities 20,757,737 9,162,482 ---------- --------- Income taxes payable 85,305 308,129 ------ ------- Shareholders' equity Preferred stock, $1.00 par value; 5,000,000 shares authorized; no shares issued or outstanding Common stock, $0.05 par value; 40,000,000 shares authorized; 7,741,130 and 7,582,206 shares issued in 1998 and 1997, respectively 387,056 379,110 Additional paid-in capital 43,154,522 40,877,540 Retained earnings 7,351,487 3,355,335 --------- --------- 50,893,065 44,611,985 Total liabilities and shareholders' equity $ 71,736,107 $ 54,082,596 = ========== = ==========
The accompanying notes are an integral part of these financial statements. 4 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended April 30, 1998 1997 (Unaudited) (Unaudited) Revenues $ 86,174,418 $ 48,530,700 Cost of services 65,414,594 37,185,185 ---------- ---------- Gross profit 20,759,824 11,345,515 ---------- ---------- Operating costs and expenses Selling, general and administrative 13,140,370 7,943,838 Depreciation and amortization 593,006 238,081 ------- ------- 13,733,376 8,181,919 ---------- --------- Operating income 7,026,448 3,163,596 Interest expense 190,624 262,667 ------- ------- Income before income taxes 6,835,824 2,900,929 Income taxes 2,839,672 1,202,609 --------- --------- Net income $ 3,996,152 $ 1,698,320 = ========= = ========= Basic earnings per share $.52 $.35 Weighted average number of common shares outstanding 7,631,729 4,815,947 Diluted earnings per share $.48 $.34 Weighted average number of common and common equivalent shares outstanding 8,288,012 4,930,818
The accompanying notes are an integral part of these financial statements. 5 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended April 30, 1998 1997 (Unaudited) (Unaudited) Revenues $ 48,942,175 $ 27,379,979 Cost of services 37,334,590 21,133,868 ---------- ---------- Gross profit 11,607,585 6,246,111 ---------- --------- Operating costs and expenses Selling, general and administrative 7,326,813 4,323,573 Depreciation and amortization 341,750 119,452 ------- ------- 7,668,563 4,443,025 --------- --------- Operating income 3,939,022 1,803,086 Interest expense 151,292 172,478 ------- ------- Income before income taxes 3,787,730 1,630,608 Income taxes 1,568,979 713,275 --------- ------- Net income $ 2,218,751 $ 917,333 = ========= = ======= Basic earnings per share $.29 $.19 Weighted average number of common shares outstanding 7,651,347 4,816,176 Diluted earnings per share $.27 $.18 Weighted average number of common and common equivalent shares outstanding 8,307,630 4,961,321
The accompanying notes are an integral part of these financial statements. 6 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Six Months Ended April 30, 1998 (Unaudited)
Additional Common Stock Paid-in Retained Shares Amount Capital Earnings Balance, October 31, 1997 7,582,206 $ 379,110 $40,877,540 $3,355,335 Exercise of Stock Options 10,175 509 72,013 Exercise of Warrants 148,749 7,437 2,204,969 Net Income 3,996,152 Balance, April 30, 1998 7,741,130 $ 387,056 $43,154,522 $7,351,487 ========== ========= =========== ==========
The accompanying notes are an integral part of these financial statements. 7 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended April 30, 1998 1997 (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 3,996,152 $ 1,698,320 - --------- - --------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 593,006 238,081 Provision for losses on accounts receivable 40,000 120,000 Changes in assets and liabilities: Accounts receivable ( 6,366,735) ( 3,911,491 ) Prepaid expenses and other current assets ( 344,155) ( 115,569 ) Accounts payable and accrued expenses 2,322,551 ( 303,457 ) Accrued payroll ( 149,606) ( 58,687 ) Taxes other than income taxes 1,471,401 668,701 Income taxes payable ( 334,818) 462,486 ------- ------- Total adjustments ( 2,768,356) ( 2,899,936 ) --------- --------- Net cash provided by (used in) operating activities 1,227,795 ( 1,201,616 ) --------- ---------
The accompanying notes are an integral part of these financial statements. 8 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Six Months Ended April 30, 1998 1997 (Unaudited) (Unaudited) Cash flows from investing activities: Increase in intangible assets ($ 260,515) ($ 198,890 ) Property and equipment acquired ( 386,044) ( 224,279 ) Decrease (Increase) in deposits ( 13,501) 3,132 Cash paid for acquisitions, net of cash acquired ( 11,409,553) ( 5,594,339 ) ---------- --------- Net cash used in investing activities ( 12,069,613) ( 6,014,376 ) ---------- --------- Cash flows from financing activities: Exercise of stock options and warrants 2,284,928 1,094 Net borrowings under short term debt arrangements 8,062,903 7,243,883 --------- --------- Net cash provided by financing activities 10,347,831 7,244,977 ---------- --------- Net increase (decrease) in cash and cash equivalents ( 493,986) 28,985 Cash and cash equivalents at beginning of period 918,028 5,989 ------- ----- Cash and cash equivalents at April 30, $ 424,042 $ 34,974 = ======= = ====== Supplemental cash flow information: Cash paid for: Interest expense $ 190,624 $ 262,667 Income taxes 3,042,491 740,122 Acquisitions Fair value of assets acquired 14,307,108 6,223,325 Liabilities assumed 2,897,555 628,986 --------- ------- Cash paid, net of cash acquired $ 11,409,553 $ 5,594,339 = ========== = =========
The accompanying notes are an integral part of these financial statements. 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, 1997. 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, 1998 are not necessarily indicative of the results to be expected for the full year. 2. Sale of Common Stock On June 3, 1998, the Company completed a public offering of 2,700,000 shares of its Common Stock, of which, 2,509,980 shares were sold by the Company and 190,020 shares were sold by certain selling stockholders. The public offering was undertaken pursuant to the terms of a Registration Statement on Form S-3 originally filed with the Securities and Exchange Commission on April 29, 1998 and a final Prospectus dated May 29, 1998. The net proceeds to the Company after estimated offering costs was approximately $50,000,000. The Company did not receive any of the proceeds from the sale of the shares by the selling stockholders. 3. Acquisition On January 4, 1998, the Company purchased all of the outstanding stock of Northern Technical Services, Inc. ("NTS"), a Milwaukee, Wisconsin-based, provider of information technology and professional engineering staffing services, for a purchase price consisting of: (i) $3.1 million in cash; (ii) $1.5 million of contingent consideration, payable over two years upon attaining certain earnings targets; and (iii) additional consideration to the extent that during the two year period, NTS exceeds the earnings targets. Any additional consideration paid will be recorded as additional purchase price. NTS generated revenue of approximately $12.6 million during the fiscal year prior to the date of acquisition. On February 2, 1998, the Company purchased all of the outstanding stock of Staffworks, Inc. ("Staffworks"), a Stanhope, New Jersey-based provider of information technology staffing services, for a purchase price consisting of: (i) $3.0 million in cash; (ii) $2.0 million of contingent consideration, payable over three years upon attaining certain earnings targets; and (iii) additional consideration to the extent that during the three year period, Staffworks exceeds the earnings targets. Any additional consideration paid will be recorded as additional purchase price. Staffworks generated revenue of approximately $12.6 million during the fiscal year prior to the date of acquisition. On February 2, 1998, the Company acquired all of the outstanding stock of Global Technology Solutions ("Global"), a Sacramento, California-based provider of information technology staffing services, for a purchase price consisting of: (i) $3.7 million in cash; (ii) $2.0 million of contingent consideration payable over two years upon attaining certain earnings targets; and (iii) additional consideration to the extent that during the two year period, Global exceeds the earnings targets. Any additional consideration paid will be recorded as additional purchase price. Global generated revenues of approximately $5.5 million during the fiscal year prior to the date of acquisition. The following unaudited results of operations have been prepared assuming that all acquisitions which have occurred since November 1, 1996 had occurred at the beginning of the periods presented. Those results are not necessarily indicative of results of future operations nor of results that would have occurred had the acquisitions been consummated as of the beginning of the periods presented. 10 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 3. Acquisition - (Continued)
Six Months Ended Three Months Ended April 30, April 30, 1998 1997 1998 1997 ---------------- ---------------- ---------------- ---------- Revenues $ 93,533,000 $ 62,543,000 $ 48,972,000 $ 41,702,000 Operating income 7,672,000 4,713,000 3,939,000 3,182,000 Net income 4,265,000 2,271,000 2,219,000 1,435,000 Diluted earnings per share $.51 $.46 $.27 $.29
4. Stock Options On April 23, 1998, the shareholders of the Company approved amendments to the 1992 Incentive Stock Option Plan (the "1992 Option Plan") and the 1994 Non-Employee Director Stock Option Plan (the "Director Option Plan"). The amendments increase the number of shares of the Company's common stock issuable under the 1992 Option Plan by 400,000 shares to 500,000 shares and increase the number of shares issuable under the Director Option Plan by 100,000 shares to 180,000 shares.
Transactions related to all stock options during the six months ended April 30, 1998 are as follows: Outstanding options, beginning of period......................................... 1,087,400 Granted.......................................................................... 130,000 Forfeited........................................................................( 103,350) Exercised........................................................................( 10,175) Outstanding options, end of period............................................... 1,103,875 Exercisable options ............................................................. 695,925 ========== Option grant price per share..................................................... $1.25 to $14.50
5. Earnings Per Share On November 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic earnings per share are computed based upon the weighted average number of common shares outstanding and diluted earnings per share are computed based upon the weighted average number of common shares outstanding and dilutive common share equivalents (consisting of incentive stock options, non-qualified stock options, and warrants) outstanding during the periods using the treasury stock method. Following is a reconciliation of the shares used to compute basic and diluted earnings per share: 11 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. Earnings Per Share - (Continued) Six Months Ended Three Months Ended April 30, April 30, 1998 1997 1998 1997 ---------------- ---------------- ---------------- ---------- Weighted average number of shares outstanding used to compute basic earnings per share 7,631,729 4,815,947 7,651,347 4,816,176 Dilutive effect of stock options and warrants 656,283 114,871 656,283 145,145 ------- ------- ------- ------- Number of shares used to compute diluted earnings per share 8,288,012 4,930,818 8,307,630 4,961,321 ========= ========= ========= =========
6. Accounts Payable and accrued expenses Accounts payable at April 30, 1998 and October 31, 1997 consists of the following April 30, October 31, 1998 1997 Accounts payable 1,734,343 1,315,937 Funds due sellers (1) 1,904,145 --------- --------- 3,638,488 1,315,937 (1) Represents funds due to shareholders of acquired companies. 12 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Private Securities Litigation Reform Act Safe Harbor Statement When used in or incorporated by reference into this Report, the words "estimate," "project," "intend," "expect" and similar expressions are intended to identify forward-looking statements regarding events and financial trends which may affect the Company's future operating results and financial position. Such statements are subject to risks and uncertainties that could cause the Company's actual results and financial position to differ materially. Certain of these factors have been identified within the Company's various Reports, Registration Statements and other filings previously made with the SEC. Overview The Company is a multi-regional provider of information technology and other professional staffing services though its 41 branch offices located in 17 states. The Company's business and strategy have changed dramatically since its inception in 1971. From 1992 through 1994, current management repositioned its core staffing business to improve profitability and to take advantage of consolidating market dynamics. Significant revenue growth began in Fiscal 1995 as the Company implemented a growth strategy that since then has resulted in the acquisition of thirteen businesses in the staffing industry. These acquisitions shifted the Company's business toward the higher margin information technology and specialty healthcare sectors. During this time, the Company also elected to discontinue providing certain lower margin general support services. General support services, which from Fiscal 1992 to Fiscal 1994 accounted for approximately 51.0% of the Company's revenues, decreased as a percentage of the Company's revenues to 13.1% during the six months ended April 30, 1998. Correspondingly, revenues from the Company's specialty professional services accounted for 86.9% of the Company's revenues during the six months ended April 30, 1998. The Company realizes revenues from the placement of contract and temporary staffing personnel. Principally all of these services are provided to the customer on a time and material basis at hourly rates that are established for each of the Company's staffing personnel, based upon their skill level, experience and type of work performed. In some instances, the Company derives revenues on a fixed fee basis in connection with consulting projects. In view of the diversification of the Company's service offerings, and by drawing upon the skills developed within the Company's engineering and technical group, management intends to develop project management skills within its information technology and other groups and believes that an additional percentage of its business may be derived in the future from larger-scale consulting projects. The majority of the Company's services are provided under purchase orders. Contracts are utilized on certain of the more complex assignments where the engagements are for longer terms or where precise documentation on the nature and scope of the assignment is necessary. Contracts, although they normally relate to longer-term and more complex engagements, generally do not obligate the customer to purchase a minimum level of services and are generally terminable by the customer on 60 to 90 days notice. Revenues are recognized when services are provided. 13 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Overview - (Continued) Costs of services consist primarily of salaries and compensation-related expenses for billable staffing personnel, including payroll taxes, employee benefits, worker's compensation and other insurance. Principally all of the billable personnel are treated by the Company as employees. Selling, general and administrative expenses consist primarily of salaries and benefits of personnel responsible for operating activities and include corporate overhead expenses. Corporate overhead expenses relate to salaries and benefits of personnel responsible for corporate activities, including the company's acquisition program and corporate marketing, administrative and reporting responsibilities. The Company records these expenses when incurred. Depreciation relates primarily to the fixed assets of the Company. Amortization relates principally to the goodwill resulting from the Company's acquisitions. These acquisitions have been accounted for under the purchase method of accounting for financial reporting purposes and have created goodwill which is being amortized over 40-year periods. Liquidity and Capital Resources To support its acquisition program and related working capital requirements, the Company has historically used borrowings under its Revolving Credit Facility and proceeds from offerings of Common Stock. On June 13, 1997, the Company completed a public offering which raised $23.3 million in proceeds for the Company. The net offering proceeds through April 30, 1998, have been used to fund acquisitions and retire bank debt. During February 1998, the Company completed the acquisition of two companies which required the use of $6.7 million of loan availability under the Revolving Credit Facility. At April 30, 1998, the Company had approximately $424,000 in cash and approximately $10.0 million in unused loan availability under the Revolving Credit Facility. On June 3,1998, the Company completed a public offering of 2,700,000 shares of Common Stock, of which 2,509,980 shares were sold by the Company and 190,020 were sold by certain selling stockholders. The proceeds to the Company net of estimated offering costs was approximately $50 million. Cash provided by operating activities was $1.2 million for the six months ended April 30, 1998 compared to a use of cash of $1.2 million for the six months ended April 30, 1997. The increase of $2.4 million was the result of the increase of $2.6 million in net income before depreciation and amortization and other non-cash charges and a decrease of $200,000 from changes in working capital, primarily an increase in accounts payable and taxes other than income taxes which was in turn offset by an increase in accounts receivable. Cash used in investing activities for the six months ended April 30, 1998 was $12.1 million compared to $6.0 million for the six months ended April 30, 1997. This increase was principally the result of larger acquisitions completed by the Company during the six months ended April 30, 1998 as compared to those acquisitions completed during the six months ended April 30, 1997. Cash provided by financing activities for the six months ended April 30, 1998 was $10.3 million compared to $7.2 million for the six months ended April 30, 1997. This increase was principally the result of proceeds from the exercise of stock warrants, and borrowings under the Company's Revolving Credit Facility. The increase in cash for the six months ended April 30, 1997 represented a net increase in borrowings under the Company's Revolving Credit Facility. 14 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Liquidity and Capital Resources - (Continued) On December 19, 1996, the Company and its subsidiaries entered into an amended and restated loan agreement with Mellon Bank, N.A. to provide the Revolving Credit Facility. The Revolving Credit Facility is secured by accounts receivable, contract rights and furniture and fixtures together with unlimited guarantees from the Company. The Revolving Credit Facility requires the Company and its subsidiaries to meet certain financial objectives and maintain certain financial covenants with respect to net income, effective net worth, working capital, senior indebtedness to effective net worth ratios, capital expenditures, current assets to current liabilities ratios, consolidated working capital and consolidated tangible net worth. At October 31, 1997 and April 30, 1998, the Company and its subsidiaries were in compliance with all financial covenants contained within the Revolving Credit Facility. Borrowings under the Revolving Credit Facility are to be used to meet cash flow requirements for the Company's subsidiaries as well as operating expenses for the Company. Borrowings under the Revolving Credit Facility bear interest, at the Company's option, at LIBOR (London Interbank Offered Rate) or the bank's prime rate, plus applicable margin. At October 31, 1997 and April 30, 1998 there was approximately $14.0 million and $10.0 million, respectively, of unused loan availability under the Revolving Credit Facility. The Company utilized approximately $8.0 million of the net proceeds from its June 3, 1998 Offering to pay down the Revolving Credit Facility which had a balance of approximately $10.0 million as of June 3, 1998, although the Company does intend to draw on this line as needed in the future. The Company anticipates that its primary uses of capital in future periods will be for acquisitions and the funding of increases in working capital. The Company's business strategy is to achieve growth both internally through operations and externally through strategic acquisitions. The Company's liquidity and capital resources may be affected in the future as the Company continues to grow through implementation of this strategy which may involve acquisitions facilitated through the use of cash and/or debt and equity securities. Funding for future acquisitions will be obtained from the proceeds of the June 3, 1998 Offering, the Revolving Credit Facility, funds generated through operations and future financing transactions. The Company does not currently have material commitments for capital expenditures and does not anticipate entering into any such commitments during the next twelve months. The Company continues to evaluate acquisitions of various businesses which are complementary to its current operations. The Company's current commitments consist primarily of lease obligations for office space. The Company believes that its capital resources are sufficient to meet its present obligations and those to be incurred in the normal course of business for the next twelve months. During the six months ended April 30, 1998, the Company derived $2.2 million of proceeds from the issuance of 148,749 shares of Common Stock upon the exercise of its Class C Warrants (the "Warrants") at an effective exercise price of $15.00 per share. The Warrants were issued in a public offering undertaken by the Company during 1989, and after several extensions, expired on April 30, 1998. 15 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued)
Results of Operations - Six Months Ended April 30, 1998, Compared to Six Months Ended April 30, 1997 Six Months Ended April 30, 1998 1997 Revenues $ 86,174,418 $ 48,530,700 Cost of services 65,414,594 37,185,185 Gross profit 20,759,824 11,345,515 Selling, general and administrative 13,140,370 7,943,838 Depreciation and amortization 593,006 238,081 Operating income 7,026,448 3,163,596 Interest expense 190,626 262,667 Income before income taxes 6,835,824 2,900,929 Income taxes 2,839,672 1,202,609 Net income 3,996,152 1,698,320 Diluted earnings per share $.48 $.34
Revenues. Revenues increased 77.6%, or $37.6 million, for the six months ended April 30, 1998 as compared to the comparable prior-year period. Of this increase, approximately $25.0 million was attributable to revenue growth through acquisitions made during Fiscal 1997 and the six months ended April 30, 1998, and approximately $12.6 million was attributable to internal growth. For the six months ended April 30, 1998 internal growth was 38.7% for the Professional Engineering and Information Technology groups and 26.0% for the Company as a whole. Cost of Services. Cost of services increased 75.9%, or $28.2 million, for the six months ended April 30, 1998 as compared to the comparable prior-year period. This increase was primarily due to increased salaries and compensation associated with the increased revenues experienced during this period. Cost of services as a percentage of revenues decreased to 75.9% for the six months ended April 30, 1998, from 76.6% for the comparable prior-year period. This improvement was primarily due to a greater percentage of the Company's revenues being derived from specialty staffing services. Selling, General and Administrative. Selling, general and administrative expenses increased 65.4%, or $5.2 million, for the six months ended April 30, 1998, as compared to the comparable prior-year period. This increase was primarily due to selling, general and administrative expenses associated with increased revenues during the six months ended April 30, 1998, as compared to the comparable prior-year period. Selling, general and administrative expenses as a percentage of revenues decreased to 15.2% for the six months ended April 30, 1998, from 16.4% in the comparable prior-year period, primarily attributable to the sharing of administrative overhead over a larger revenue base. Depreciation and Amortization. Depreciation and amortization increased 149.1%, or $355,000, for the six months ended April 30, 1998, as compared to the comparable prior-year period. This increase was primarily due to the amortization of intangible assets acquired in connection with the acquisitions that occurred after April 30, 1997. Interest Expense. Actual interest expense of $207,000, for the six months ended April 30, 1998, was partially offset by $16,000 of interest income, which was earned from the investment in interest-bearing deposits of the net proceeds of the Company's public offering in June 1997, after the repayment of bank debt. Interest expense decreased 21.4%, or $56,000, for the six months ended April 30, 1998 as compared to the comparable prior-year period. This decrease was due to the decreased borrowings necessary to provide the funds for working capital. Income Tax. Income tax expense increased 136.1%, or $1,637,000, for the six months ended April 30, 1998, as compared to the comparable prior-year period. This increase was due to increased levels of income. 16 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
Three Months Ended April 30, 1998 1997 Revenues $ 48,942,175 $ 27,379,979 Cost of services 37,334,590 21,133,868 Gross profit 11,607,585 6,246,111 Selling, general and administrative 7,326,813 4,323,573 Depreciation and amortization 341,750 119,452 Operating income 3,939,022 1,803,086 Interest expense 151,292 172,478 Income before income taxes 3,787,730 1,630,608 Income taxes 1,568,979 713,275 Net income 2,218,751 917,333 Diluted earnings per share $.27 $.18
Revenues. Revenues increased 78.8%, or $21.6 million, for the three months ended April 30, 1998 as compared to the comparable prior-year period. Of this increase, approximately $16.2 million was attributable to revenue growth through acquisitions made during Fiscal 1997 and the three months ended April 30, 1998, and approximately $5.4 million was attributable to internal growth. For the three months ended April 30, 1998 internal growth was 31.9% for the Professional Engineering and Information Technology groups and 19.6% for the Company overall. Cost of Services. Cost of services increased 76.7% , or $16.2 million, for the three months ended April 30, 1998 as compared to the comparable prior year period. This increase was primarily due to increased salaries and compensation associated with the increased revenues experienced during this period. Cost of services as a percentage of revenues decreased to 76.3% for the three months ended April 30, 1998, from 77.2% for the comparable prior-year period. This improvement was primarily due to a greater percentage of the Company's revenues being derived from specialty staffing services. Selling, General and Administrative. Selling, general and administrative expenses increased 69.5%, or $3.3 million, for the three months ended April 30, 1998, as compared to the comparable prior-year period. This increase was primarily due to selling, general and administrative expenses associated with increased revenues during the three months ended April 30, 1998, as compared to the comparable prior-year period. Selling, general and administrative expenses as a percentage of revenues decreased to 15.6% for the three months ended April 30, 1998, from 15.8% in the comparable prior-year period, primarily attributable to the sharing of administrative overhead over a larger revenue base. Depreciation and Amortization. Depreciation and amortization increased 186.1%, or $222,000, for the three months ended April 30, 1998, as compared to the comparable prior-year period. This increase was primarily due to the amortization of intangible assets acquired in connection with the acquisitions that occurred after April 30, 1997. Interest Expense. Interest expense decreased 12.3%, or $21,000, for the three months ended April 30, 1998, as compared to the comparable prior-year period. This decrease was due to the decreased borrowings necessary to provide the funds for working capital. Income Tax. Income tax expense increased 120.0%, or $856,000, for the three months ended April 30, 1998, as compared to the comparable prior-year period. This increase was due to increased levels of income. 17 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Shareholders on April 23, 1998. The following actions were taken:
1.) The following directors were elected to serve on the Board of Directors until the expiration of their respective terms and until their respective successors shall be elected and qualified. Tabulated voting results were as follows: Robert B. Kerr (Class B) (For 5,446,198; Withheld 20,235) Woodrow B. Moats, Jr. (Class B) (For 5,449,078; Withheld 17,355)
Each nominee as a Class B director was elected to serve a term expiring at the Company's Annual Meeting in 2001, or until his successor has been elected and qualified. 2.) Approval of amendment to the 1992 Incentive Stock Option Plan to increase the number of shares the Company is authorized to issue pursuant to the Plan from 100,000 to 500,000. Votes For - 3,098,046; Votes Against - 726,841 3.) Approval of amendment to the 1994 Non-Employee Director Stock Option Plan to increase the number of shares the Company is authorized to issue pursuant to the Plan from 80,000 to 180,000 and to give the Board of Directors discretion to determine the amount and terms of any future awards. Votes For - 3,510,674; Votes Against - 314,028 4.) Approval of Grant Thornton, LLP as the independent auditing firm for the Company for the fiscal year ending October 31, 1998. Votes For - 5,416,028; Votes Against - 39,117 18 PART II OTHER INFORMATION - CONTINUED Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule. 27a Restated Financial Data Schedule April 30, 1998 (b) Reports on Form 8-K The Company filed a report on Form 8-K (under Item 5) on March 17, 1998 reporting the resignation of Barry S. Meyers from the Board of Directors of RCM Technologies, Inc. on March 12, 1998. 19 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: June 9, 1998 By:/s/ Stanton Remer ----------------- Stanton Remer Chief Financial Officer, (Principal Accounting Officer) Treasurer, Secretary and Director
20 EX-27 2 FDS --
5 THIS SCHEDULE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED APRIL 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0000700841 RCM TECHNOLOGIES, INC. 1 U.S. DOLLARS 6-MOS OCT-31-1998 NOV-01-1997 APR-30-1998 1 424,042 0 31,533,039 356,000 0 32,618,501 3,825,413 2,024,160 71,736,107 20,757,737 0 0 0 387,056 50,506,009 71,736,107 86,174,418 86,174,418 65,414,594 79,147,970 0 0 190,624 6,835,824 2,839,672 3,996,152 0 0 0 3,996,152 .52 .48
EX-27 3 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED APRIL 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0000700841 RCM TECHNOLOGIES, INC. 1 U,S. Dollars 6-MOS OCT-31-1997 NOV-01-1996 APR-30-1997 1 34,974 0 19,096,804 196,000 0 19,476,635 2,119,582 1,229,678 34,748,793 16,487,751 0 0 0 240,834 17,678,690 34,748,793 48,530,700 48,530,700 37,185,185 45,367,104 0 0 262,667 2,900,929 1,202,609 1,698,320 0 0 0 1,698,320 .35 .34
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