-----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, GVIg24uHqMCEsjj250pT479sksr7Qra2v+INWnIMGhnchHGNqXoPD5joFV9TLW52 ODeUHG4dNJZvfqYH0UEgSg== /in/edgar/work/0000700841-00-500006/0000700841-00-500006.txt : 20001108 0000700841-00-500006.hdr.sgml : 20001108 ACCESSION NUMBER: 0000700841-00-500006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RCM TECHNOLOGIES INC CENTRAL INDEX KEY: 0000700841 STANDARD INDUSTRIAL CLASSIFICATION: [7363 ] IRS NUMBER: 951480559 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10245 FILM NUMBER: 754243 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 0001.txt THIRD QUARTER 09/30/00 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 September 30, 2000 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) (856) 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 10,499,651 Common Stock, $0.05 par value Outstanding as of November 7, 2000 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION
Page Item 1 - Consolidated Financial Statements Consolidated Balance Sheets as of September 30, 2000 (Unaudited) and December 31, 1999 (Audited) 3 Unaudited Consolidated Statements of Operations and Comprehensive Income for the Nine-Month Periods Ended September 30, 2000 and 1999 5 Unaudited Consolidated Statements of Operations and Comprehensive Income for the Three-Month Periods Ended September 30, 2000 and 1999 6 Unaudited Consolidated Statement of Changes in Shareholders' Equity for the Nine-Month Period Ended September 30, 2000 7 Unaudited Consolidated Statements of Cash Flows for the Nine- Month Periods Ended September 30, 2000 and 1999 8 Notes to Unaudited Consolidated Financial Statements 10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 14 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 22 Signatures 23
2 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2000 and December 31, 1999 ASSETS
September 30, December 31, 2000 1999 --------------- --------------- --------------- --------------- (Unaudited) (Audited) Current assets Cash and cash equivalents $ 6,648,352 $ 4,025,808 Accounts receivable, net of allowance for doubtful accounts Of $1,766,000 (September 30, 2000) and $1,014,000 (December 31, 1999), respectively 70,222,554 66,654,677 Income tax refund receivable 5,281,241 Prepaid expenses and other current assets 4,260,328 3,257,207 Deferred tax assets 2,169,233 --------------- --------------- Total current assets 88,581,708 73,937,692 --------------- --------------- Property and equipment, at cost Equipment and leasehold improvements 9,978,167 9,789,996 Less: accumulated depreciation and amortization 3,849,278 3,151,626 --------------- --------------- 6,128,889 6,638,370 --------------- --------------- Other assets Deposits 199,158 205,878 Intangible assets, net of accumulated amortization of $6,663,000 (September 30, 2000) and $4,437,000 (December 31, 1999), respectively Goodwill 84,479,366 103,168,944 --------------- --------------- 84,678,524 103,374,822 --------------- --------------- Total assets $179,389,121 $183,950,884 =============== ===============
3 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED September 30, 2000 and December 31, 1999 LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31, 2000 1999 --------------- --------------- --------------- --------------- (Unaudited) (Audited) Current liabilities Accounts payable and accrued expenses $13,109,808 $ 4,853,763 Accrued payroll 10,789,366 5,640,054 Taxes, other than income taxes 1,592,871 1,269,265 Income taxes payable 196,106 791,173 --------------- --------------- Total current liabilities 25,688,151 12,554,255 --------------- --------------- Long-term liabilities Note payable 52,700,000 47,300,000 Deferred income taxes payable 1,091,937 --------------- --------------- 53,791,937 47,300,000 --------------- --------------- 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; 10,499,651 (September 30, 2000) and 10,496,225 (December 31, 1999) issued and outstanding 524,982 524,811 Accumulated other comprehensive loss ( 264,661) ( 52,764) Additional paid-in capital 93,516,080 93,473,301 Retained earnings 6,132,632 30,151,281 --------------- --------------- 99,909,033 124,096,629 --------------- --------------- Total liabilities and shareholders' equity $179,389,121 $183,950,884 =============== ===============
4 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Nine Months Ended September 30, 2000 and 1999 (Unaudited)
2000 1999 ---------------- --------------- Revenues $ 224,591,729 $ 242,133,775 Cost of services 165,725,034 182,634,868 ---------------- --------------- Gross profit 58,866,695 59,498,907 ---------------- --------------- Operating costs and expenses Selling, general and administrative 41,587,387 36,945,663 Depreciation 889,282 646,056 Amortization 4,282,124 1,697,100 Unusual items Restructuring charge 36,706,712 Non recurring 2,100,000 ---------------- --------------- 85,565,505 39,288,819 ---------------- --------------- Operating income (loss) ( 26,698,810) 20,210,088 ---------------- --------------- Other expenses Interest expense, net of interest income ( 2,846,213) ( 781,138) Gain (loss) on foreign currency translation ( 4,087) 12,948 ---------------- --------------- ( 2,850,300) ( 768,190) ---------------- --------------- Income (loss) before income taxes ( 29,549,110) 19,441,898 Income taxes (credit) ( 5,530,461) 7,543,218 ---------------- --------------- Net income (loss) ( 24,018,649) 11,898,680 Other comprehensive income Foreign currency translation adjustment ( 211,897) ( 1,972) ---------------- --------------- Comprehensive income (loss) ( $24,230,546) $ 11,896,708 ================ =============== Basic earnings (loss) per share ($2.29) $1.14 ===== ===== Weighted average number of common shares outstanding 10,499,188 10,474,225 ========== ========== Diluted earnings (loss) per share ($2.29) $1.10 ===== ===== Weighted average number of common And common equivalent shares outstanding 10,499,188 10,791,443 ========== ==========
5 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Three Months Ended September 30, 2000 and 1999 (Unaudited)
2000 1999 --------------- -------------- Revenues $73,656,343 $81,364,630 Cost of services 53,432,537 60,908,458 --------------- -------------- Gross profit 20,223,806 20,456,172 --------------- -------------- Operating costs and expenses Selling, general and administrative 13,622,483 12,791,686 Depreciation 298,030 262,995 Amortization 1,163,357 647,777 Unusual items Restructuring charge 36,706,712 Non recurring 2,100,000 --------------- -------------- 53,890,582 13,702,458 --------------- -------------- Operating income (loss) ( 33,666,776) 6,753,714 --------------- -------------- Other (expenses) income Interest expense, net of interest income ( 1,033,118) ( 517,825) Gain (loss) on foreign currency translation ( 31) 13,815 --------------- -------------- ( 1,033,149) ( 504,010) --------------- -------------- Income (loss) before income taxes ( 34,699,925) 6,249,704 Income taxes (credit) ( 8,282,871) 2,395,976 --------------- -------------- Net income (loss) ( 26,417,054) 3,853,728 Other comprehensive income Foreign currency translation adjustment ( 42,424) 55,188 --------------- -------------- Comprehensive income (loss) ( $ 26,459,478) $3,908,916 =============== ============== Basic earnings (loss) per share ($2.52) $.37 ===== ==== Weighted average number of common shares outstanding 10,499,651 10,496,225 ========== ========== Diluted earnings (loss) per share ($2.52) $.36 ===== ==== Weighted average number of common and common equivalent shares outstanding 10,499,651 10,799,970 ========== ==========
6 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Nine Months Ended September 30, 2000 (Unaudited)
Accumulated Other Additional Common Stock Comprehensive Paid-in Retained ------------ Shares Amount Income (Loss) Capital Earnings Balance, January 1, 2000 10,496,225 $524,811 ($ 52,764) $93,473,301 $30,151,281 3,426 171 42,779 Exercise of stock options ( 211,897) Translation adjustment Net loss ________ _______ ________ __________ (24,018,649) ----------- - Balance, September 30, 2000 10,499,651 $524,982 ($264,661) $93,516,080 $ 6,132,632 ========== ======== ========= =========== ===========
7 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2000 and 1999 (Unaudited)
2000 1999 --------------- -------------- Cash flows from operating activities: Net income (loss) ( $24,018,649) $11,898,680 --------------- -------------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 5,171,406 2,343,156 Provision for losses on accounts receivable 752,000 476,000 Restructuring and unusual charge 38,806,712 Changes in assets and liabilities: Accounts receivable ( 4,319,877) ( 20,585,831) Income tax refund receivable ( 5,281,241) Deferred tax asset ( 2,169,233) Prepaid expenses and other current assets ( 2,005,121) ( 2,971,017) Accounts payable and accrued expenses 7,695,249 1,193,387 Accrued payroll 4,499,311 2,586,838 Taxes, other than income taxes 323,606 ( 1,134,114) Income taxes payable 496,870 264,861 --------------- -------------- Total adjustments 43,969,682 ( 17,826,720) --------------- -------------- Net cash provided by (used in) operating activities 19,951,033 ( 5,928,040) --------------- --------------
8 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2000 and 1999 - (Continued) (Unaudited)
2000 1999 --------------- -------------- Cash flows from investing activities: Property and equipment acquired ( $ 1,461,122) ( $3,674,323) (Increase) decrease in deposits 6,720 ( 18,916) Purchase of acquired companies including contingent consideration, net of cash acquired ( 21,105,140) ( 35,163,985) --------------- -------------- Net cash used in investing activities ( 22,559,542) ( 38,857,224) --------------- -------------- Cash flows from financing activities: Exercise of stock options 42,950 259,275 Borrowings of long-term debt 5,400,000 37,300,000 --------------- -------------- Net cash provided by financing activities 5,442,950 37,559,275 --------------- -------------- Effect of exchange rate changes on cash and cash equivalents ( 211,897) ( 1,972) --------------- -------------- Increase (decrease) in cash and cash equivalents 2,622,544 ( 7,227,961) Cash and cash equivalents at beginning of period 4,025,808 8,423,492 --------------- -------------- Cash and cash equivalents at end of period $6,648,352 $1,195,531 =============== ============== Supplemental cash flow information: Cash paid for: Interest expense $ 3,079,129 $ 685,986 Income taxes $ 2,958,615 $7,078,357
9 The accompanying notes are an integral part of these financial statements. 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, 1999 and the two month period ended December 31, 1999. 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 September 30, 2000 are not necessarily indicative of the results to be expected for the full year. 2. Unusual Items In the third quarter of 2000, the Company recorded the following unusual items: In Millions Impairment of goodwill $35.3 Restructuring charge 1.4 Other non recurring charges 2.1 ------- $38.8 ===== The income before income taxes, net income and earnings per share on a diluted basis, exclusive of common stock equivalents, for the nine months ended September 30, 2000 without the unusual items and its related tax effect would have been $9.3 million, $4.6 million and $.44 per share, respectively. The income before income taxes, net income and earnings per share on a diluted basis, exclusive of common stock equivalents, for the three months ended September 30, 2000 without the unusual items and their related tax effect would have been $4.1 million, $2.2 million and $.21 per share, respectively. Impairment of Goodwill During the third quarter of 2000, the Company performed an impairment review of goodwill in accordance with the requirements of SFAS No. 121. This review indicated that there was an impairment of value, which resulted in $35.3 million charge to expense in order to properly reflect the appropriate carrying value of goodwill. Restructuring Charge The restructuring charge of $1.4 million consists of expenses associated with the consolidation of certain offices principally lease obligations for vacated offices as well as a write down of leasehold improvements and office equipment to its net realizable value for closed offices. Other non recurring charges The non recurring charge of $2.1 million consists of expenses associated with integration of employee benefit plans and vacation plans which were assumed in connection with the Company's previous completed acquisitions. 10 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 3. Change in Fiscal Year On January 25, 2000, the Board of Directors of the Company determined to change the Company's fiscal year from October 31, to December 31. As a result of this change, the Company has prepared quarterly financial information as of and for the periods ended March 31, June 30, and September 30, 2000. 4. Change in Accounting Estimate Effective January 1, 2000, the Company has changed the amortization period of goodwill associated with acquisitions from 40 years to 20 years. This change had the effect of increasing goodwill amortization and reducing net income by approximately $2,141,000, or $.20 on a diluted earnings per share basis for the nine months ended September 30, 2000 and $582,000 or $.06 on a diluted earnings per share basis for the three months ended September 30, 2000. 5. Computation of Earnings Per Share Basic earnings per share is based on the weighted average number of common shares outstanding for the periods presented. Diluted earnings per share is based on the weighted average number of common shares outstanding and includes the dilutive effect of stock options using the treasury stock method. Dilutive securities have not been included in the weighted average shares used for the calculation of earnings per share in periods of net loss because the effect of such securities would be anti-dilutive. 6. Long Term Debt The Company and its subsidiaries entered into an agreement with Mellon Bank N.A., administrative agent for a syndicate of banks, which provides for a $75.0 million Revolving Credit Facility (the "Revolving Credit Facility"). The Revolving Credit Facility was amended on September 18, 2000. Borrowing under the Revolving Credit Facility bear interest at the Company's option, at LIBOR (London Interbank Offered Rate), plus applicable margin, or the agent bank's prime rate. Borrowings under the Revolving Credit Facility are collateralized by all of the assets of the Company and its subsidiaries and a pledge of all of the stock of its subsidiaries. The Revolving Credit Facility also contains various financial and non-financial covenants, such as restrictions on the Company's ability to pay dividends. The Revolving Credit Facility expires August 2002. The weighted average interest rate at September 30, 2000 was 7.65%. The amounts outstanding under the Revolving Credit Facility at September 30, 2000 and December 31, 1999 were $52.7 million and $47.3 million, respectively. 7. Interest (Expense) Income, Net Interest (expense) income, net consisted of the following:
Nine Months Ended September 30, Three Months Ended September 30, --------------------------------------- --------------------------------------- 2000 1999 2000 1999 ---------------- ----------------- ---------------- ---------------- Interest expense ($3,057,579) ($903,569) ($1,129,746) ($545,732) Interest income 211,366 122,431 96,628 27,907 ------------ --------- ---------- ---------- ($2,846,213) ($781,138) ($1,033,118) ($517,825) ========== ======== ========== ========
11 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 8. Segment Information The Company has adopted SFAS 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which establishes standards for companies to report information about operating segments, geographic areas and major customers. The adoption of SFAS 131 has no effect on the Company's consolidated financial position, consolidated results of operations or liquidity. The Company uses earnings before interest and taxes (operating income) to measure segment profit. Segment operating income includes selling, general and administrative expenses directly attributable to that segment as well as charges for allocating corporate costs to each of the operating segments. The following tables reflect the results of the segments consistent with the Company's management system (in thousands):
Nine Months Ended Information Professional Commercial September 30, 2000 Technology Engineering Services Corporate Total --------------- -------------- -------------- ------------- ------------- Revenue $174,380 $29,629 $20,583 $224,592 Operating expenses (1) 159,685 27,933 19,695 207,313 ------- ------ ------ ------- EBITDA (1) (2) 14,695 1,696 888 17,279 Depreciation 653 214 22 889 Goodwill amortization 3,743 504 35 4,282 --- ----- ---- ----- Operating income (1) $ 10,299 $ 978 $ 831 $ 12,108 ======== ===== ===== ======== Total assets $133,329 $17,641 $6,482 $21,937 $179,389 Capital expenditures $793 $165 $45 $458 $1,461
Nine Months Ended September 30, 1999 Revenue $174,575 $46,725 $20,834 $242,134 Operating expenses (1) 156,766 43,088 19,727 219,581 ------- ------ ------ ------- EBITDA (1) (2) 17,809 3,637 1,107 22,553 Depreciation 473 154 6 633 Goodwill amortization 1,405 292 13 1,710 ---- ----- ---- ----- Operating income (1) $ 15,931 $ 3,191 $ 1,088 $ 20,210 ======== ======= ======= ======== Total assets $144,605 $17,388 $6,537 $8,928 $177,458 Capital expenditures $256 $207 $15 $3,196 $3,674
12 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 8. Segment Information - Continued
Three Months Ended Information Professional Commercial September 30, 2000 Technology Engineering Services Corporate Total --------------- -------------- -------------- -------------- ------------ Revenue $56,668 $ 9,769 $ 7,219 $73,656 Operating expenses (1) 50,907 9,321 6,827 67,055 ------ ----- ----- ------ EBITDA (1) (2) 5,761 448 392 6,601 Depreciation 215 81 2 298 Goodwill amortization 1,020 135 8 1,163 ---- ----- --- ------ Operating income (1) $ 4,526 $232 $382 $5,140 ======= ==== ==== ====== Total assets $133,329 $17,641 $6,482 $21,937 $179,389 Capital expenditures $196 $90 $30 $255 $571 Three Months Ended September 30, 1999 Revenue $60,721 $14,195 $6,449 $81,365 Operating expenses (1) 54,409 13,193 6,099 73,701 ------ ------ ----- ------ EBITDA (1) (2) 6,312 1,002 350 7,664 Depreciation 194 54 2 250 Goodwill amortization 546 111 3 660 ---- --- --- --- ------- - ----- --- Operating income (1) $ 5,572 $ 837 $345 $ 6,754 ======= ===== ==== ======= Total assets $144,605 $17,388 $6,537 $8,928 $177,458 Capital expenditures $156 $157 $15 $998 $1,326
[FN] (1) Operating expenses, EBITDA and operating income are exclusive of unusual items in the amount of $38.8 million (see note 2). (1) EBITDA consists of earnings before interest income, interest expense, other non-operating income and expense, income taxes, depreciation and amortization. EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as an alternative to net income as an indicator of a company's performance or to cash flows from operating activities as a measure of liquidity. 13 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 Certain statements included herein and in other Company reports and public filings are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements, which may be identified by words such as "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," and similar expressions are only predictions and are subject to risks and uncertainties that could cause the Company's actual results and financial position to differ materially. Such risks and uncertainties include, without limitation: (i) unemployment and general economic conditions associated with the provision of information technology and engineering services and solutions, placement of temporary staffing personnel; (ii) the Company's ability to continue to attract, train and retain personnel qualified to meet the requirements of its clients; (iii) the Company's ability to identify appropriate acquisition candidates, complete such acquisitions and successfully integrate acquired businesses; (iv) uncertainties regarding pro forma financial information and the underlying assumptions relating to acquisitions and acquired businesses; (v) uncertainties regarding amounts of deferred consideration and earnout payments to become payable to former shareholders of acquired businesses; (vi) possible adverse effects on the market price of the Company's Common Stock due to the resale into the market of significant amounts of Common Stock; (vii) the potential adverse effect a decrease in the trading price of the Company's Common Stock would have upon the Company's ability to acquire businesses through the issuance of its securities; (viii) the Company's ability to obtain financing on satisfactory terms; (ix) the reliance of the Company upon the continued service of its executive officers; (x) the Company's ability to remain competitive in the markets which it serves; (xi) the Company's ability to maintain its unemployment insurance premiums and workers compensation premiums; (xii) the risk of claims made against the Company associated with providing temporary staffing services; (xiii) the Company's ability to manage significant amounts of information, and periodically expand and upgrade its information processing capabilities; (xiv) the Company's ability to remain in compliance with federal and state wage and hour laws and regulations; (xv) predictions as to the future need for the Company's services; (xvi) uncertainties relating to the financial information provided for the period covering January 1, 1999 to September 30, 1999 and from January 1, 2000 to September 30, 2000; (xvii) uncertainties relating to the allocation of costs and expenses to each of the Company's operating segments; and (xviii) other economic, competitive and governmental factors affecting the Company's operations, market, products and services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly release the results of any revision of these forward-looking statements to reflect these ends or circumstances after the date they are made or to reflect the occurrence of unanticipated events. 14 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Overview RCM Technologies, Inc. ("RCM" or the "Company") is a premier national provider of Business, Technology and resourcing solutions in information technology ("IT") and professional engineering to customers in corporate and government sectors. RCM's offices are located in major geographic regions throughout North America. The Company has grown its information technology competencies in the areas of e-business, Enterprise Application Integration, Enterprise Resource Planning ("ERP") support, network and infrastructure support and knowledge management. RCM's engineering expertise is in the form of technical design, field engineering, field support, procedures development and project and program management. The Company delivers its services through various engagement types ranging from end to end solutions, managed task deliverables and resource augmentation of client projects. The Company provides its services to clients in banking & finance, healthcare, insurance, pharmaceutical, telecommunications, utility, technology, manufacturing & distribution and government sectors. The Company believes the breadth of services it can provide fosters long-term client relationships, affords cross-selling opportunities and minimizes the Company's dependence on any single technology or industry sector. RCM sells and delivers its services through a network of branch offices located in selected regions throughout North America. The Company has executed a geographic expansion and diversification strategy that places it in the major markets for the services that the Company offers. This strategy has been accomplished through the combination of a concerted and disciplined acquisition program, coupled with an organic growth strategy. Many businesses today are facing intense competition, accelerating technological change, and widespread business process re-engineering to take advantage of the Internet's potential to bring them closer to their suppliers and customers. Increasingly, these companies are also suffering from a shortage of qualified expert employees who can build these solutions. As a result, the ability of an organization to effectively compete is critically reliant on its ability to introduce and integrate these emerging technologies in a timely fashion. Although many companies have recognized the importance of the Internet and knowledge management technologies to compete in today's business climate, the process of designing, developing and implementing these solutions has become increasingly complex. Companies continue to migrate away from centralized computing environments toward decentralized, scalable architectures based on local and wide area networks, the Internet, Intranets, shared databases and collaborative application software bringing them closer to their clients and suppliers. These advances have enhanced the ability of companies to benefit from the application of IT systems and solutions. Consequently, the number of companies desiring to deploy these systems and solutions and the number of connected users within these networks are rising rapidly. As a result of the variety and complexity of these new technologies, IT managers must integrate and manage computing environments consisting of multiple computing platforms, operating systems, databases and networking protocols, and must implement packaged software applications to support business objectives. Companies also need to continually keep pace with new developments, which often render existing equipment and internal skills obsolete. At the same time, the rampant pace of these developments have left many companies unable to keep their permanent staffs abreast in the technology evolution. Consequently, business drivers cause IT managers to develop and support increasingly complex systems and applications of significant strategic value, while working under budgetary, personnel and expertise constraints within their own organizations. Many have increasingly turned to consultants to assist them. 15 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Overview - Continued The Company realizes revenues from client engagements, which range from the placement of contract and temporary technical consultants to project assignments, which are based on defined deliverables. These services are primarily provided to the customer at hourly rates that are established for each of the Company's consultants, based upon their skill level and experience and the type of work performed. The Company also provides project management and consulting work which are billed either by agreed upon fee or hourly rates, or a combination of both. The billing rates and profit margins for project management and consulting work are higher than those for professional staffing services. Consequently, the Company is seeking to expand its sales of higher margin consulting and project management services. 16 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999
A summary of operating results for the nine months ended September 30, 2000 and 1999 is as follows (in thousands, except for earnings per share data): 2000 1999 ------------------------- ------------------------ % of % of Amount Revenue Amount Revenue Revenues $ 224,592 100.0% $ 242,134 100.0 % Cost of services 165,725 73.8 182,635 75.4 ---------- ---- ---------- ---- Gross profit 58,867 26.2 59,499 24.6 ---------- ---- ---------- ---- Selling, general and administrative 41,587 18.5 36,946 15.3 Depreciation 889 .4 646 .3 ---------- ------ ---------- ------ 42,476 18.9 37,592 15.6 ---------- ---- ---------- ---- Operating income 16,391 7.3 21,907 9.0 Other (expense) income ( 2,850 ) ( 1.3 ) ( 768) ( .3 ) --------- ---- --------- ----- Income before income taxes and goodwill amortization 13,541 6.0 21,139 8.7 Income taxes 5,583 2.5 8,123 3.3 ---------- ---- ---------- ---- Income before goodwill amortization 7,958 3.5 13,016 5.4 Goodwill amortization, net of income tax benefits ( 3,360 ) ( 1.5) ( 1,117) ( .5 ) Restructuring and unusual charges, net of tax income tax benefits ( 28,617 ) (12.7) --------- ---- ---------- ------- Net income (loss) ($ 24,019 ) (10.7%) $ 11,899 4.9 % ========= ==== ========== ==== 2000 1999 --------- -------- Earnings per share: ----- Basic: Income before goodwill amortization $ .76 $ 1.24 Goodwill amortization ( .32 ) ( .10) Restructuring and unusual charges (2.73 ) ---- ---- Net income (loss) $ (2.29 ) $ 1.14 ==== ==== Diluted: Income before goodwill amortization $ .76 $ 1.21 Goodwill amortization ( .32 ) ( .11) Restructuring and unusual charges (2.73 ) ---- ---- Net income (loss) $ (2.29 ) $ 1.10 ==== ====
Revenues. Revenues decreased 7.3%, or $17.5 million, for the nine months ended September 30, 2000 as compared to the comparable prior year period. Revenue decline was primarily attributable to a loss of certain engineering contracts and softness in the Information Technology ("IT") sector. The revenue decline was mitigated by revenue from acquisitions subsequent to September 30, 1999. 17 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999 - (Continued) Cost of Services. Cost of services decreased 9.3%, or $16.9 million, for the nine months ended September 30, 2000 as compared to the comparable prior year period. This decrease was primarily attributable to a decrease in salaries and compensation associated with decreased revenues, which was partially offset by an increase in gross margin percentage from Information Technology. Cost of services as a percentage of revenues decreased to 73.8% for the nine months ended September 30, 2000 from 75.4% for the comparable prior year period. Selling, General and Administrative. Selling, general and administrative expenses increased 12.6%, or $4.6 million, for the nine months ended September 30, 2000 as compared to the comparable prior year period. This increase was primarily attributable to acquisitions subsequent to September 30, 1999. Depreciation. Depreciation increased 37.6%, or $243,000, for the nine months ended September 30, 2000 as compared to the comparable prior year period. This increase was primarily due to the depreciation of property and equipment associated with infrastructure improvements that occurred during the Company's previous fiscal year ended October 31, 1999. Other (Expense) Income, Net. Other (expense) income consists principally of interest expense, net of interest income. For the nine months ended September 30, 2000, actual interest expense of $3.1 million was offset by $211,000 of interest income, which was earned from the investment in interest bearing deposits. Interest expense, net increased $2.1 million for the nine months ended September 30, 2000 as compared to the comparable prior year period. This increase was primarily due to the increased borrowing requirements necessary to complete acquisitions subsequent to September 30, 1999, as well as to fund working capital requirements. Income Tax. Income tax expense decreased 31.3%, or $2.5 million, for the nine months ended September 30, 2000 as compared to the comparable prior year period. This decline was attributable to a lower level of income before taxes for the nine months ended September 30, 2000 compared to the comparable prior year period. Goodwill Amortization. Goodwill amortization for the nine months ended September 30, 2000 and 1999 was net of income tax benefit of $922,000 and $580,000, respectively. The increase was primarily due to the amortization of intangible assets incurred in connection with the acquisitions that occurred subsequent to September 30, 1999. See footnote 4 appearing elsewhere in this document. Restructuring and Non Recurring Charges. In the third quarter of 2000, the Company recorded an impairment of goodwill in connection with a review of the carrying value of its goodwill, a restructuring charge associated with the consolidation of certain offices and certain non recurring items associated with the integration of employee benefit plans and vacation plans in the amounts of $35.3 million, $1.4 million and $2.1 million, respectively. Restructuring and non recurring charges reduced income before the related tax benefits for the nine months ended September 30, 2000 by $38.8 million and $28.6 million after the related tax benefits. 18 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999
A summary of operating results for the three months ended September 30, 2000 and 1999 is as follows (in thousands, except for earnings per share data): 2000 1999 ------------------------- ------------------------ % of % of Amount Revenue Amount Revenue Revenues $ 73,656 100.0% $ 81,365 100.0% Cost of services 53,433 72.5 60,909 74.9 -------- ---- --------- ---- Gross profit 20,223 27.5 20,456 25.1 -------- ---- --------- ---- Selling, general and administrative 13,622 18.5 12,792 15.7 Depreciation 298 .4 263 .3 -------- ------ --------- ------ 13,920 18.9 13,055 16.0 -------- ---- --------- ---- Operating income 6,303 8.6 7,401 9.1 Other (expense) income ( 1,033 ) 1.4 504 .6 ------- ---- --------- ----- Income before income taxes and goodwill amortization 5,270 7.2 6,897 8.5 Income taxes 2,286 3.1 2,641 3.3 -------- ---- --------- ---- Income before goodwill amortization 2,984 4.1 4,256 52 Goodwill amortization, net of income tax benefits ( 784 ) ( 1.1) ( 402) ( .5 ) ----- Restructuring and unusual charges, net of tax income tax benefits ( 28,617 ) (38.9) ------- ---- --------- ------- Net income (loss) ($26,417 ) (35.9%) $ 3,854 4.7 % ======= ==== ========= ==== 2000 1999 --------- -------- Earnings per share: ----- Basic: Income before goodwill amortization $ .28 $ .41 Goodwill amortization ( .07 ) (.04) Restructuring and unusual charges (2.73 ) ---- --- Net income (loss) $ (2.52 ) $ .37 ==== === Diluted: Income before goodwill amortization $ .28 $ .39 Goodwill amortization ( .07 ) (.03) Restructuring and unusual charges (2.73 ) ---- --- Net income (loss) $ (2.52 ) $ .36 ==== ===
Revenues. Revenues decreased 9.5%, or $7.7 million, for the three months ended September 30, 2000 as compared to the comparable prior year period. Revenue decline was primarily attributable to a loss of certain engineering contracts and softness in the Information Technology ("IT") sector. The revenue decline was mitigated by revenue from acquisitions subsequent to September 30, 1999. 19 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999 - (Continued) Cost of Services. Cost of services decreased 12.3%, or $7.5million, for the three months ended September 30, 2000 as compared to the comparable prior year period. This decrease was primarily attributable to a decrease in salaries and compensation associated with decreased revenues, which was partially offset by an increase in gross margin percentage from Information Technology. Cost of services as a percentage of revenues decreased to 72.5% for the three months ended September 30, 2000 from 74.9% for the comparable prior year period. Selling, General and Administrative. Selling, general and administrative expenses increased 6.5%, or $830,000, for the three months ended September 30, 2000 as compared to the comparable prior year period. This increase was primarily attributable to acquisitions subsequent to September 30, 1999. Depreciation. Depreciation increased 13.3%, or $35,000, for the three months ended September 30, 2000 as compared to the comparable prior year period. This increase was primarily due to the depreciation of property and equipment associated with infrastructure improvements that occurred during the Company's previous fiscal year ended October 31, 1999. Other (Expense) Income, Net. Other (expense) income consists principally of interest expense, net of interest income. For the three months ended September 30, 2000, actual interest expense of $1.1 million was offset by $96,600 of interest income, which was earned from the investment in interest bearing deposits. Interest expense, net increased $515,000 for the three months ended September 30, 2000 as compared to the comparable prior year period. This increase was primarily due to the increased borrowing requirements necessary to complete acquisitions subsequent to September 30, 1999, as well as to fund working capital requirements. Income Tax. Income tax expense decreased 13.4%, or $355,000, for the three months ended September 30, 2000 as compared to the comparable prior year period. This decline was attributable to a lower level of income before taxes for the three months ended September 30, 2000 compared to the comparable prior year period. Goodwill Amortization. Goodwill amortization for the three months ended September 30, 2000 and 1999 was net of income tax benefit of $379,000 and $246,000, respectively. The increase was primarily due to the amortization of intangible assets incurred in connection with the acquisitions that occurred subsequent to September 30, 1999. See footnote 3 appearing elsewhere in this document. Restructuring and Non Recurring Charges. In the third quarter of 2000, the Company recorded an impairment of goodwill in connection with a review of the carrying value of its goodwill, a restructuring charge associated with the consolidation of certain offices and certain non recurring items associated with the integration of employee benefit plans and vacation plans in the amounts of $35.3 million, $1.4 million and $2.1 million, respectively. Restructuring and non recurring charges reduced income before the related tax benefits for the three months ended September 30, 2000 by $38.8 million and $28.6 million after the related tax benefits. Liquidity and Capital Resources Operating activities provided $19.9 million of cash for the nine months ended September 30, 2000 as compared to operating activities using $5.9 million of cash for the nine months ended September 30, 1999. The increase in cash provided by operating activities was primarily attributable to increased levels of depreciation and amortization associated with the acquisitions subsequent to September 30, 1999, an increase in restructuring charges, accounts payable, accrued expenses and accrued payroll, withheld income taxes and income taxes payable which was partially offset by increases in accounts receivable, income tax receivable, deferred tax asset and in prepaid expenses. 20 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Liquidity and Capital Resources - (Continued) Investing activities used $22.6 million for the nine months ended September 30, 2000 as compared to using $38.9 million for the comparable prior period. The reduction cash used of $16.3 million was primarily attributable to a reduction in acquisition payments and deferred consideration payments. Financing activities provided $5.4 million and $37.6 million for the nine months ended September 30, 2000 and 1999, respectively. The Company and its subsidiaries entered into an agreement with Mellon Bank N.A., administrative agent for a syndicate of banks, which provides a $75.0 million Revolving Credit Facility (the "Revolving Credit Facility. The Revolving Credit Facility was amended on September 18, 2000. Borrowing under the Revolving Credit Facility bears interest at the Company's option, at LIBOR (London Interbank Offered Rate), plus applicable margin or the agent bank's prime rate. Borrowings under the Revolving Credit Facility are collateralized by all of the assets of the Company and its subsidiaries and a pledge of all of the stock of its subsidiaries. The Revolving Credit Facility also contains various financial and non-financial covenants. The Revolving Credit Facility expires August 2002. The amount outstanding under the Revolving Credit Facility at September 30, 2000 was $52.7 million. The Company anticipates that its primary uses of capital in future periods will be for acquisitions and the funding of increases in accounts receivables. Funding for further acquisitions will be derived from the Revolving Credit Facility, funds generated through operations, or future financing transactions. The Company's business strategy is to achieve growth both internally through operations and externally through strategic acquisitions. The Company continues to engage in discussions with potential acquisition candidates. As the size of the Company and its financial resources increase, however, acquisition opportunities requiring significant commitments of capital may arise. In order to pursue such opportunities, the Company may be required to incur debt or issue potentially dilutive securities in the future. No assurance can be given as to the Company's future acquisition and expansion opportunities or how such opportunities will be financed. 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'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. Year 2000 Readiness Disclosure Since January 1, 2000, the Company has not experienced any significant problems with its Y2K readiness. The Company believes it has achieved Y2K readiness by replacing its computer systems with new, Y2K compliant hardware and software. The new hardware/software system was put into production on September 1, 1999. The cost of the new system and to be Y2K compliant was approximately $2,900,000. However, there can be no assurance that there will be no material impact as a result of Y2K issues, particularly considering the dependence and interdependence that exists with third parties. 21 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10 Fifth Amendment and Modification to Loan and Security Agreement dated September 18, 2000 by and between Mellon Bank, N.A., as Agent and RCM Technologies, Inc. And All Of Its Subsidiaries, as Borrower 27 Financial Data Schedule. (EDGAR version only) (b) Reports on Form 8-K On January 28, 2000, the Company filed a Current Report on Form 8-K reporting that the Company determined to change its fiscal year end from October 31 to December 31. RCM TECHNOLOGIES, INC. SIGNATURES 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. RCM Technologies, Inc. Date: November 7, 2000 By:/s/ Stanton Remer --- ------- ----- Stanton Remer Chief Financial Officer, Treasurer, Secretary and Director (Principal Financial Officer and Duly Authorized Officer of the Registrant) 23 EX-27 2 0002.txt FDS --
5 THIS SCHEDULE SUMMARY FINANCIAL INFORMATION IS EXTRACTED FROM THE FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED September 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0000700841 RCM TECHNOLOGIES, INC. 1 U.S. DOLLARS 9-MOS DEC-31-2000 JAN-1-2000 SEP-30-2000 1 6,648,352 0 71,988,554 1,766,000 0 88,581,708 9,978,167 3,849,278 179,389,121 25,688,151 0 0 0 524,982 99,384,051 179,389,121 224,591,729 224,591,729 165,725,034 85,565,505 4,087 0 2,846,213 (29,549,110) (5,530,461) (24,018,649) 0 0 0 (24,018,649) (2.29) (2.29)
EX-10 3 0003.txt AMENDED LOAN AGREEMENT FIFTH AMENDMENT AND MODIFICATION TO LOAN AND SECURITY AGREEMENT by and between MELLON BANK, N.A., as Agent AND RCM TECHNOLOGIES, INC. and ALL OF ITS SUBSIDIARIES, as Borrower Dated: As of September _18, 2000 Prepared by: Peter W. Leibundgut, Esquire Blank Rome Comisky & McCauley, LLP a Pennsylvania LLP 210 Lake Drive East, Suite 200 Cherry Hill, New Jersey 08002 1 FIFTH AMENDMENT AND MODIFICATION TO LOAN AND SECURITY AGREEMENT This FIFTH AMENDMENT AND MODIFICATION TO LOAN AND SECURITY AGREEMENT ("Amendment") is dated as of September _18_, 2000, by and between RCM TECHNOLOGIES, INC. ("RCM"), and ALL OF ITS SUBSIDIARIES (collectively referred to as "Borrower") and MELLON BANK, N.A., a national banking association, in its capacity as agent ("Agent") and MELLON BANK, N.A. ("Mellon"), MELLON BANK CANADA, SUNTRUST BANK ATLANTA, FIRST UNION NATIONAL BANK (as successor by assignment from ALLFIRST BANK (f/k/a THE FIRST NATIONAL BANK OF MARYLAND)), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and FLEET NATIONAL BANK, in their capacity as lenders (collectively referred to as "Lender"). BACKGROUND A. Pursuant to the terms of a certain Loan and Security Agreement dated August 19, 1998, between Borrower and Lender as same has been amended ("Loan Agreement"), Lender made available to Borrower a revolving line of credit in the aggregate amount of $75,000,000.00 (the "Revolving Credit"). B. The Revolving Credit is evidenced by certain Revolving Credit Notes dated August 19, 1998, from Borrower to Lender in the aggregate amount of $75,000,000.00 ("Revolving Credit Notes"). C. Borrower has requested that Lender modify certain covenants contained in the Loan Agreement, and Lender has agreed to modify those certain covenants subject to the terms and conditions of this Amendment. All capitalized terms used herein without further definition shall have the respective meaning set forth in the Loan Agreement and all other Loan Documents. NOW, THEREFORE, with the foregoing Background incorporated by reference and intending to be legally bound hereby, the parties agree as follows: 1. Loan Agreement. The following amendments and modifications shall be made to the Loan Agreement and shall be effective upon execution hereof: a. Certain definitions contained in Section 1.1 of the Loan Agreement shall be amended as follows: (1) Applicable LIBOR Rate Margin shall be deleted in its entirety and replaced as follows: Applicable LIBOR Rate Margin - the borrower shall pay interest on the amounts borrowed under the Revolving Credit in accordance with the ratio of Borrowers Total Funded Debt to EBITDA as set forth in the following matrix: Total Funded Debt to EBITDA Revolving Credit LIBOR Rate plus: >=2.5x - 3.25x LIBOR plus 200 bp >=2.0x - 2.50x LIBOR plus 162.5 bp >=1.5x - 2.0x LIBOR plus 150 bp < 1.5x LIBOR plus 125 bp (2) EBITDA - The sum of Net Income before interest, taxes, depreciation, amortization, Net Restructuring Charges (as defined below), and other non-cash charges approved by Majority Lenders which approval will not be unreasonably withheld. (3) Interest Coverage shall be deleted in its entirety and replaced as follows: Interest Coverage - EBITDA divided by interest expense. (4) Minimum Net Worth shall be deleted in its entirety and replaced as follows: Minimum Net Worth - RCM's consolidated Net Worth shall be $118,392,000 as of June 30, 2000 plus seventy-five (75%) percent of Quarterly Net Income thereafter with no credit for losses; provided, however, prior to December 31, 2000, RCM may take a one time restructuring charge of up to $40,000,000.00 and RCM shall be given credit for the net effect of such restructuring charge ("Net Restructuring Charges"). (5) Revolving Credit Maturity Date shall be deleted in its entirety and replaced as follows: Revolving Credit Maturity Date - August 19, 2002 b. Fees. Section 2.5 of the Loan Agreement shall be amended as follows: The Unused Line Fee pricing grid shall be replaced in its entirety as follows: Total Funded Debt to EBITDA Unused Total Line Fee >=2.50x - 3.25x 35.0 bp >=2.00x - 2.50x 30.0 bp >=1.50x - 2.00x 25.0 bp < 1.50x 20.0 bp. c. Section 6.9(b) of the Loan Agreement shall be deleted in its entirety and replaced as follows: b. Total Funded Debt to EBITDA shall not exceed 3.25x beginning the date hereof and until the 12/30/00 quarterly test, beginning with the 03/31/01 quarterly test and for all quarterly tests thereafter Total Funded Debt to EBITDA shall not exceed 3.00x; d. Section 6.9(c) of the Loan Agreement shall be deleted in its entirety and replaced as follows: (c) Interest Coverage shall be maintained at a minimum of 3.75x; e. Section 8.3(c) of the Loan Agreement shall be deleted in its entirety and replaced as follows: (c) Intentionally Deleted; and. f. Schedule A of the Loan Agreement shall be superceded by the Schedule A attached hereto. 3 2. Affirmation of Collateral. Borrower covenants, confirms and agrees that as security for the repayment of the Obligations, Lender has, or is hereby granted and shall therefore have and continue to have, a continuing first priority lien on and security interest in all of the Collateral, all whether now existing or hereafter acquired, created or arising and all proceeds thereof, except to the extent otherwise provided in the Loan Agreement. Borrower acknowledges and agrees that nothing herein contained in any way impairs Lender's existing rights or priority in the Collateral. 3. Representations and Warranties. Borrower warrants and represents to Lender that: a. Prior Representations. By execution of this Amendment, Borrower reconfirms that all warranties and representations made to Lender under the Loan Agreement and the other Loan Documents are true and correct in all material respects as of the date hereof, all of which shall be deemed continuing until all of the Obligations to Lender are paid and satisfied in full. b. Authorization. The execution and delivery by Borrower of this Amendment and the performance by Borrower of the transactions herein contemplated (i) are and will be within its powers and (ii) are not and will not be in contravention of any order of court or other agency of government, of law or of any indenture, agreement or undertaking to which Borrower is a party or by which the property of Borrower is bound, or be in conflict with, result in a breach of or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement or undertaking, or result in the imposition of any lien, charge or encumbrance of any nature on any of the properties of Borrower. c. Valid, Binding and Enforceable. This Amendment and any other instrument, document or agreement executed and delivered in connection herewith, will be valid, binding and enforceable in accordance with their respective terms subject to bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and general equitable principles. d. Costs. Upon execution hereof, Borrower shall pay all costs (including attorneys' fees of Lender) attendant to this Amendment. 4. Ratification of Loan Documents. This Amendment is hereby incorporated into and made a part of the Loan Agreement and all other Loan Documents respectively, the terms and provisions of which, except to the extent modified by this Amendment are each ratified and confirmed and continue unchanged in full force and effect. Borrower acknowledges and agrees that it has no defenses, setoffs, counterclaims or deductions of any nature with respect to its obligations to Lender. Any reference to the Loan Agreement and all other Loan Documents respectively in this or any other instrument, document or agreement related thereto or executed in connection therewith shall mean the Loan Agreement and all other Loan Documents respectively as amended by this Amendment. The Loan Agreement and this Amendment shall be construed as integrated and complementary of each other, and augmenting and not restricting Lender's powers, rights, remedies and security. If, after applying the foregoing, an inconsistency still exists, the provisions of this Amendment shall control. 4 5. Effectiveness Conditions. This Amendment shall become effective upon the full execution of this Amendment and the following: a. Payment of the Agent's legal fees attendant to this Amendment; b. Payment to Agent, fees as stipulated in that letter agreement dated August 17, 2000 between Agent and Borrower; c. Any other documents reasonably required by Agent or Lenders. 6. Governing Law. This Amendment and all instruments, documents and agreements and the rights and obligations of the parties hereto and thereto shall be governed by and interpreted in accordance with the substantive laws of the Commonwealth of Pennsylvania. 7. Severability. The invalidity or unenforceability of any provision of this Amendment shall not affect the validity or enforceability of the remaining provisions. 8. Modification. This Amendment may not be modified, amended or terminated except by an agreement in writing executed by the parties hereto. [INTENTIONALLY LEFT PARTIALLY BLANK] 5 IN WITNESS WHEREOF, the undersigned parties have executed this Agreement the day and year first above written. BORROWER: RCM TECHNOLOGIES, INC. By:/S/Stanton Remer________________ Name: _____________________________ Title:______________________________ CATARACT, INC. By:/S/Stanton Remer________________ Name: _____________________________ Title: _____________________________ RCM TECHNOLOGIES (USA), INC. By:By:/S/Stanton Remer_____________ Name: _____________________________ Title: _____________________________ PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. By:/S/Stanton Remer_________________ Name: _____________________________ Title: _____________________________ 6 NORTHERN TECHNICAL SERVICES, INC. By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ GLOBAL TECHNOLOGY SOLUTIONS, INC. By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ SOFTWARE ANALYSIS & MANAGEMENT, INC. By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ PROCON, INC. By:/S/Stanton Remer________________ Name: _____________________________ Title: ____________________________ 7 RCMT DELAWARE, INC. By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ RCMT NOVA SCOTIA COMPANY By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ RCMT CANADA COMPANY By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ MU-SIGMA ENGINEERING CONSULTANTS CO. By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ 8 CONSTELLATION INTEGRATION SERVICES CO. By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ THE FULCRUM GROUP, INC. By:/S/Stanton Remer________________ Name: _____________________________ Title: ____________________________ BUSINESS SUPPORT GROUP OF MICHIGAN, INC. By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ SOLUTIONS THROUGH DATA-PROCESSING, INC. By:/S/Stanton Remer_________________ Name: _____________________________ Title: ___________________________ 9 PINNACLE CONSULTING, INC. By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ APPLICATION SOLUTIONS CORPORATION By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ DISCOVERY CONSULTING SOLUTIONS, INC. By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ MANAGEMENT SYSTEMS INTEGRATORS, INC. By:/S/Stanton Remer_________________ Name: _____________________________ Title: ____________________________ 10 AGENT: MELLON BANK, N.A., as Agent By:________________________________ Name: _____________________________ Title: ____________________________ LENDERS: MELLON BANK, N.A., as Lender By:________________________________ Name: _____________________________ Title: ____________________________ MELLON BANK CANADA, as Lender By:________________________________ Name: _____________________________ Title: ____________________________ SUNTRUST BANK, as Lender By:________________________________ Name: _____________________________ Title: ____________________________ 11 FIRST UNION NATIONAL BANK (as successor by assignment from ALLFIRST BANK (f/k/a The First National Bank of Maryland)), as Lender By:________________________________ Name: _____________________________ Title: ____________________________ BANK OF AMERICA N. A., as Lender By:________________________________ Name: _____________________________ Title: ____________________________ FLEET NATIONAL BANK, as Lender By:________________________________ Name: _____________________________ Title: ____________________________ 12 -----END PRIVACY-ENHANCED MESSAGE-----