-----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, Nf8bQSFt9BAi0iXWHJN1N2B6rGQ0EJDR4NNsl6SdEX4XjC1eoEkSXxqZDM1TURCg tWNdxc4ZjQmWKHR00wjg+Q== 0000700841-03-000027.txt : 20030807 0000700841-03-000027.hdr.sgml : 20030807 20030807103503 ACCESSION NUMBER: 0000700841-03-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030807 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10245 FILM NUMBER: 03827904 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 form10-q63003.txt FORM 10-Q QUARTERLY REPORT JUNE 30, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-10245 RCM TECHNOLOGIES, INC. (Exact Name of Registrant as Specified in Its Charter) Nevada 95-1480559 (State of Incorporation) (I.R.S. Employer Identification No.) 2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey 08109-4613 (Address of Principal Executive Offices) (Zip Code) (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 by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) YES NO X -- --- Indicate the number of shares outstanding of the Registrant's class of common stock, as of the latest practicable date. Common Stock, $0.05 par value, 10,647,247 sharesoutstanding as of August 6,2003.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Page Item 1 - Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002 3 Unaudited Consolidated Statements of Income and Comprehensive Income for the Six-Month Periods Ended June 30, 2003 and 2002 5 Unaudited Consolidated Statements of Income and Comprehensive Income for the Three-Month Periods Ended June 30, 2003 and 2002 7 Unaudited Consolidated Statement of Changes in Shareholders' Equity for the Six-Month Period Ended June 30, 2003 9 Unaudited Consolidated Statements of Cash Flows for the Six- Month Periods Ended June 30, 2003 and 2002 10 Notes to Unaudited Consolidated Financial Statements 12 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 24 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 35 Item 4 - Controls and Procedures 35 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 36 Item 6 - Exhibits and Reports on Form 8-K 37 Signatures 38
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2003 and December 31, 2002 ASSETS
June 30, December 31, 2003 2002 --------------- --------------- (Unaudited) Current assets Cash and cash equivalents $ 478,722 $2,845,154 Accounts receivable, net of allowance for doubtful accounts of $1,770,000 (June 30, 2003) and $1,549,000 (December 31, 2002), respectively 42,498,966 31,753,934 Income tax refund receivable 2,791,674 3,766,585 Prepaid expenses and other current assets 1,996,249 2,635,304 Deferred tax assets 2,293,144 6,246,119 --------------- --------------- Total current assets 50,058,755 47,247,096 --------------- --------------- Property and equipment, at cost Equipment and leasehold improvements 9,753,371 9,708,344 Less: accumulated depreciation and amortization 4,277,361 3,818,092 --------------- --------------- 5,476,010 5,890,252 --------------- --------------- Other assets Deposits 83,505 86,590 Goodwill 38,007,233 36,653,595 Intangible assets, net of accumulated amortization of $221,400 (June 30, 2003) and $211,000 (December 31, 2002) respectively 89,287 99,655 Deferred tax assets 1,194,680 --------------- --------------- 39,374,705 36,839,840 --------------- --------------- Total assets $94,909,470 $89,977,188 =============== ===============
3 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED June 30, 2003 and December 31, 2002 LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31, 2003 2002 --------------- --------------- (Unaudited) Current liabilities Note payable $3,300,000 $7,420,000 Accounts payable and accrued expenses 18,249,932 14,728,729 Accrued payroll 5,578,859 4,363,024 Payroll and withheld taxes 499,825 193,850 Income taxes payable 3,736,371 4,025,431 --------------- --------------- Total current liabilities 31,364,987 30,731,034 --------------- --------------- 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; 10,647,247 and 10,626,076 shares issued and outstanding at (June 30, 2003) and (December 31, 2002), respectively 532,362 531,304 Accumulated other comprehensive income (loss) 353,722 ( 584,084) Additional paid-in capital 94,005,997 93,935,938 Accumulated deficit ( 31,347,598) ( 34,637,004) --------------- --------------- 63,544,483 59,246,154 --------------- --------------- Total liabilities and shareholders' equity $94,909,470 $89,977,188 =============== ===============
4 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Six Months Ended June 30, 2003 and 2002 (Unaudited)
2003 2002 -------------- -------------- Revenues $105,869,383 $89,272,100 Cost of services 83,670,507 65,072,170 -------------- -------------- Gross profit 22,198,876 24,199,930 -------------- -------------- Operating costs and expenses Selling, general and administrative 16,474,010 16,767,606 Depreciation 593,648 609,515 Amortization 10,368 10,362 -------------- -------------- 17,078,026 17,387,483 -------------- -------------- Operating income 5,120,850 6,812,447 -------------- -------------- Other (expenses) income Interest expense, net of interest income ( 76,752 ) 31,096 Gain on foreign currency transactions 134,965 5,107 -------------- -------------- 58,213 36,203 -------------- -------------- Income from continuing operations before income taxes 5,179,063 6,848,650 Income taxes 1,889,657 2,574,243 -------------- -------------- Income from continuing operations 3,289,406 4,274,407 Loss from discontinued operations net of tax benefit of $10,888 16,333 -------------- -------------- Net income 3,289,406 4,258,074 Other comprehensive income (loss) Foreign currency translation adjustment 937,806 ( 37,531 ) -------------- -------------- Comprehensive income $ 4,227,212 $4,220,543 ============== ==============
5 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - (CONTINUED) Six Months Ended June 30, 2003 and 2002 (Unaudited)
2003 2002 --------------- -------------- Basic earnings per share Income from continuing operations $.31 $.40 Loss from discontinued operations Basic earnings per share $.31 $.40 ==== ==== Weighted average number of common shares outstanding 10,626,076 10,572,146 ========== ========== Diluted earnings per share Income from continuing operations $.31 $.40 Loss from discontinued operations Diluted earnings per share $.31 $.40 ==== ==== Weighted average number of common and common equivalent shares outstanding (includes dilutive securities relating to options of 20,177 and 202,966 in 2003 and 2002, respectively) 10,646,253 10,775,112 ========== ==========
6 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Three Months Ended June 30, 2003 and 2002 (Unaudited)
2003 2002 -------------- -------------- Revenues $55,218,914 $44,378,181 Cost of services 43,825,098 32,639,272 -------------- -------------- Gross profit 11,393,816 11,738,909 -------------- -------------- Operating costs and expenses Selling, general and administrative 8,274,243 8,335,891 Depreciation 302,620 307,200 Amortization 5,184 5,181 -------------- -------------- 8,582,047 8,648,272 -------------- -------------- Operating income 2,811,769 3,090,637 -------------- -------------- Other (expenses) income Interest expense, net of interest income ( 25,485 ) 299,049 Gain on foreign currency transactions 102,342 2,167 -------------- -------------- 76,857 301,216 -------------- -------------- Income from continuing operations before income taxes 2,888,626 3,391,853 Income taxes 953,168 1,271,553 -------------- -------------- Income from continuing operations 1,935,458 2,120,300 Loss from discontinued operations net of tax benefit of $4,540 6,813 -------------- -------------- Net income 1,935,458 2,113,487 Other comprehensive income (loss) Foreign currency translation adjustment 590,993 ( 1,540 ) -------------- -------------- Comprehensive income $2,526,451 $2,111,947 ============== ==============
7 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - (CONTINUED) Three Months Ended June 30, 2003 and 2002 (Unaudited)
2003 2002 --------------- -------------- Basic earnings per share Income from continuing operations $.18 $.20 Loss from discontinued operations Basic earnings per share $.18 $.20 ==== ==== Weighted average number of common shares outstanding 10,626,076 10,572,527 ========== ========== Diluted earnings per share Income from continuing operations $.18 $.20 Loss from discontinued operations Diluted earnings per share $.18 $.20 ==== ==== Weighted average number of common and common equivalent shares outstanding (includes dilutive securities relating to options of 6,832 and 242,252 in 2003 and 2002, respectively) 10,632,908 10,814,779 ========== ==========
8 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Six Months Ended June 30, 2003 (Unaudited)
Accumulated Other Additional Common Stock Comprehensive Paid-in Retained ------------ Loss Capital Earnings Total Shares Amount Balance, January 1, 2003 10,626,076 $531,304 ($584,084) $93,935,938 ($34,637,004) $59,246,154 Issuance of stock under stock purchase plan 21,171 1,058 70,059 71,117 Translation adjustment 937,806 937,806 Net income 3,289,406 3,289,406 ---------- -------- ---------- ----------- ------------- ----------- Balance, June 30, 2003 10,647,247 $532,362 $353,722 $94,005,997 ($31,347,598) $63,544,483 ========== ======== ======== =========== ============ ===========
9 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2003 and 2002 (Unaudited)
2003 2002 --------------- -------------- Cash flows from operating activities: Net income $3,289,406 $4,258,074 --------------- -------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 604,017 619,877 Provision for losses on accounts receivable 221,000 ( 327,000) Changes in assets and liabilities: Accounts receivable ( 10,966,033) 5,199,108 Income tax refund receivable 1,273,129 ( 8,031,043) Deferred tax asset 2,460,077 7,687,553 Prepaid expenses and other current assets 639,054 ( 823,401) Accounts payable and accrued expenses 3,521,202 ( 2,241,976) Accrued payroll 1,215,838 ( 165,065) Payroll and withheld taxes 305,978 238,010 Income taxes payable ( 289,062) 3,364,481 --------------- -------------- Total adjustments ( 1,014,800) 5,520,544 --------------- -------------- Net cash provided by operating activities $2,274,606 $9,778,618 --------------- --------------
10 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2003 and 2002 - (Continued) (Unaudited)
2003 2002 --------------- -------------- Cash flows from investing activities: Property and equipment acquired ( $179,408) ( $ 338,346) Decrease in deposits 3,085 39,960 Contingent consideration ( 1,353,638) ( 3,314,791) --------------- -------------- Net cash used in investing activities ( 1,529,961) ( 3,613,177) --------------- -------------- Cash flows from financing activities: Sale of stock for employee stock purchase plan 71,117 99,381 Repayments of note payable ( 4,120,000) ( 6,600,000) Exercise of stock options 765 --------------- -------------- Net cash used in financing activities ( 4,048,883) ( 6,499,854) --------------- -------------- Effect of exchange rate changes on cash and cash equivalents 937,806 ( 37,531) --------------- -------------- Decrease in cash and cash equivalents ( 2,366,432) ( 371,944) Cash and cash equivalents at beginning of period 2,845,154 2,289,743 --------------- -------------- Cash and cash equivalents at end of period $478,722 $1,917,799 =============== ============== Supplemental cash flow information: Cash paid for: Interest expense $92,475 $501,796 Income taxes (refund) ( $1,554,488) $650,269
11 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 Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2002. 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 three and six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the full year. 2. Discontinued Operations In August 2002, the Company sold a reporting unit in the commercial services business segment for $100,000, which resulted in a loss of $1.6 million ($967,000 net of income tax benefit of $644,000) for the year ended December 31, 2002, or $.09 per share, and $27,200 ($16,300 net of income tax benefit of $10,900) for the six months ended June 30, 2002, or $0.0 per share. In accordance with Statement of Financial Accounting Standards (SFAS) 144, the loss is presented as a loss from discontinued operations in the statements of operations for the six months and three months ended June 30, 2002. The Company has not discontinued its commercial services business segment. The financial statements for the comparative periods have been reclassified for comparative purposes. 3. New Accounting Standards In January 2002, the FASB issued FASB Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 clarifies the application of Accounting Research Bulletin 51, Consolidated Financial Statements, for certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling financial interest ("variable interest entities"). Variable interest entities within the scope of FIN 46 will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity's expected losses, receives a majority of its expected returns, or both. FIN 46 applies immediately to variable interest entities created after January 31, 2002, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2002, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2002. The adoption of FIN 46 did not have a material effect on the Company's consolidated financial position, results of operations, or cash flows. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 is effective prospectively for exit and disposal activities initiated after December 31, 2002. As the provisions of SFAS 146 are to be applied prospectively after the adoption date, the Company cannot determine the potential effects that the adoption of SFAS 146 will have on its consolidated financial statements. 12 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 3. New Accounting Standards - (Continued) In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS 148 amends SFAS 123 "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for fiscal years beginning after December 15, 2002. The expanded annual disclosure requirements and the transition provisions are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The adoption of SFAS 148 did not have a material effect on the Company's consolidated financial position, results of operations, or cash flows. On May 15, 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 affects the issuer's accounting for three types of freestanding financial instruments: o mandatorily redeemable shares, which the issuing company is obligated to buy back in exchange for cash or other assets; o instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets, including put options and forward purchase contracts; and o obligations that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuers' shares. SFAS No. 150 does not apply to features embedded in a financial instrument that is not a derivative in its entirety. Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material effect on the Company's consolidated financial position, results of operations, or cash flows. 13 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 4. Note Payable On May 31, 2002, the Company and its subsidiaries entered into an amended and restated loan agreement, which was on May 31, 2002, further amended on February 26, 2003, with Citizens Bank of Pennsylvania, administrative agent for a syndicate of banks, which provides for a $25.0 million Revolving Credit Facility (the "Revolving Credit Facility"). Availability under the Revolving Credit Facility is based on 80% of the aggregate amount of accounts receivable as to which not more than ninety days have elapsed since the date of the original invoice. Borrowings under the Revolving Credit Facility bear interest at one of two alternative rates, as selected by the Company at each incremental borrowing. These alternatives are: (i) LIBOR (London Interbank Offered Rate), plus applicable margin, or (ii) the agent bank's prime rate. All borrowings under the Revolving Credit Facility are collateralized by all of the assets of the Company and its subsidiaries and a pledge 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 in August 2004. The weighted average interest rates under the Revolving Credit Facility for the six months ended June 30, 2003 and 2002 were 3.1% and 3.89%, respectively. The amounts outstanding under the Revolving Credit Facility at June 30, 2003 and December 31, 2002 were $3.3 million and $7.4 million, respectively. At June 30, 2003, the Company had availability (including amounts outstanding) under the Revolving Credit Facility of $21.6 million. The Company anticipates that it will need to borrow approximately $7.6 million under its Revolving Credit Facility in order to post a collateral bond related to the $7.6 million verdict returned in January 2003 (see note 11). 5. Interest (Expense) Income, Net Interest (expense) income, net consisted of the following:
Six Months Ended Three Months Ended June 30, June 30, ------------------------------ ------------------------------ 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Interest expense ($104,851) ($538,082) ($42,785) ($249,738) Interest income 28,099 569,178 17,300 548,787 ------------- ------------- ------------- ------------- ($ 76,752) ($ 31,096) ($25,485) $299,049 ============= ============= ============= =============
14 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 6. Goodwill and Other Intangibles Effective January 1, 2002, the Company adopted SFAS 142, "Goodwill and Other Intangible Assets." SFAS 142 includes requirements to test goodwill and indefinite lived intangible assets for impairment rather than amortize them; accordingly, the Company no longer amortizes goodwill and indefinite lived intangible assets. SFAS 142 also requires the Company to perform a goodwill impairment test on at least an annual basis. For purposes of its 2002 annual impairment testing, the Company determined the fair value of its reporting units using relative market multiples for comparable businesses, as of November 30, 2002. The Company compared the fair value of each of its reporting units to their respective carrying values, including related goodwill, which resulted in an impairment loss of approximately $30 million as of December 31, 2002. Future changes in the industry could impact the market multiples of comparable businesses, and consequently could impact the results of future annual impairment tests. The changes in the carrying amount of goodwill for the period ended June 30, 2003 are as follows (in thousands):
Information Professional Technology Engineering Total ------------- ------------- --------- Balance as of December 31, 2002 $29,126 $7,528 $36,654 Contingent consideration earnouts 1,353 1,353 ------------- ------------- --------- Balance as of June 30, 2003 $30,479 $7,528 $38,007 ============= ============= =========
7. Accounts Payable Accounts payable and accrued expenses consist of the following at June 30, 2003 and December 31, 2002:
June 30, December 31, 2003 2002 --------------- ---------------- Accounts payable and other accrued expenses $9,446,554 $5,056,539 Due to sellers 1,072,190 Reserve for litigation 8,803,378 8,600,000 --------------- ---------------- Total $18,249,932 $14,728,729 =============== ================
15 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 8. Shareholders' Equity Common Shares Reserved Shares of unissued common stock were reserved for the following purposes: June 30, December 31, ------------- --------------- 2003 2002 ------------- --------------- Exercise of options outstanding 2,367,214 2,474,214 Future grants of options 807,081 713,031 ------------- --------------- Total 3,174,295 3,187,245 ============= =============== 9. Stock Based Compensation The Company accounts for stock options under SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, which contains a fair value-based method for valuing stock-based compensation that measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, SFAS No. 123 permits entities to continue accounting for employee stock options and similar equity instruments under Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees. Entities that continue to account for stock options using APB Opinion 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied. At June 30, 2003, the Company has four stock-based employee compensation plans. The Company accounts for the plans under the recognition and measurement principles of APB No. 25, Accounting for Stock Issued to Employees, and related interpretations. Stock-based employee compensation costs are not reflected in net earnings, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share amounts).
Six Months Three Months Ended June 30, Ended June 30, ---------------------- ---------------------- ---------------------- 2003 2002 2003 2002 ---------- --------- ---------- --------- Net income, as reported $3,289 $4,258 $1,935 $2,113 Less: stock-based compensation costs determined under fair value based method for all awards 622 765 156 382 Net income, pro forma 2,667 3,493 1,779 1,731 Earnings per share of common stock-basic: As reported $.31 $.40 $.18 $.20 Pro forma $.25 $.33 $.17 $.16 Earnings per share of common stock-diluted: As reported $.31 $.40 $.18 $.20 Pro forma $.25 $.32 $.17 $.16
16 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 9. Stock -Based Compensation (Continued) The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in 2003: expected volatility of 45%; risk-free interest rate of 2.11%; and expected lives of 5 years. There were 10,000 stock options granted during the three months ended June 30, 2003. Incentive Stock Option Plans 1992 Incentive Stock Option Plan (the 1992 Plan) The 1992 Plan, approved by the Company's stockholders in April 1992, and amended in April 1998, provides for the issuance of up to 100,000 shares of common stock per individual to officers, directors and key employees of the Company and its subsidiaries, through February 13, 2002, at which time the 1992 Plan expired. The options issued are intended to be incentive stock options pursuant to Section 422A of the Internal Revenue Code. The option terms cannot exceed ten years and the exercise price cannot be less than 100% of the fair market value of the shares at the time of grant. The Compensation Committee of the Board of Directors determines the vesting period at the time of grant for each of these options. As of June 30, 2003, options to purchase 369,970 shares of common stock were outstanding. 1994 Non-employee Directors Stock Option Plan (the 1994 Plan) The 1994 Plan, approved by the Company's stockholders in May 1994 and amended in April 1998, provides for issuance of up to 110,000 shares of common stock to non-employee directors of the Company through February 19, 2004. Options are granted at fair market value at the date of grant, and the exercise of options is contingent upon service as a director for a period of one year. Options granted terminate when an optionee ceases to be a Director of the Company. At June 30, 2003, options to purchase 30,000 shares of common stock are available for future grants, and options to purchase 80,000 shares of common stock were outstanding. 1996 Executive Stock Option Plan (the 1996 Plan) The 1996 Plan, approved by the Company's stockholders in August 1996 and amended in April 1999, provides for issuance of up to 1,250,000 shares of common stock to officers and key employees of the Company and its subsidiaries through January 1, 2006. Options are generally granted at fair market value at the date of grant. The Compensation Committee of the Board of Directors determines the vesting period at the time of grant. At June 30, 2003, options to purchase 56,997 shares of common stock are available for future grants, and options to purchase 1,137,828 shares of common stock were outstanding. 2000 Employee Stock Incentive Plan (the 2000 Plan) The 2000 Plan, approved by the Company's stockholders in April 2001, provides for issuance of up to 1,500,000 shares of the Company's common stock to officers and key employees of the Company and its subsidiaries or to consultants and advisors utilized by the Company. The Compensation Committee of the Board of Directors may award incentive stock options or non-qualified stock options, as well as stock appreciation rights, and determines the vesting period at the time of grant. At June 30, 2003, options to purchase 720,084 shares of common stock are available for future grants, and options to purchase 779,416 shares of common stock were outstanding. 17 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 10. 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):
Six Months Ended Information Professional Commercial June 30, 2003 Technology Engineering Services Corporate Total --------------- ------------ -------------- ------------- ------------- Revenue $52,066 $44,568 $9,235 $105,869 Operating expenses 48,108 43,107 8,929 100,144 --------------- ------------ -------------- ------------- ------------- EBITDA (1) 3,958 1,461 306 5,725 Depreciation 286 278 30 594 Amortization of intangibles 4 5 1 10 --------------- ------------ -------------- ------------- ------------- Operating income 3,668 1,178 275 5,121 Interest (expense), net of interest income 38 32 7 77 (Gain) on foreign currency transactions (2 ) (133 ) (135) Income taxes 1,325 466 99 1,890 --------------- ------------ -------------- ------------- Net income $2,307 $813 $169 $3,289 =============== ============ ============== ============= Total assets $52,339 $25,107 $5,849 $11,614 $94,909 Capital expenditures $179 $179
18 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 10. Segment Information (Continued)
Six Months Ended Information Professional Commercial June 30, 2002 Technology Engineering Services Corporate Total --------------- ------------ -------------- ------------- ------------- Revenue $55,467 $23,497 $10,308 $89,272 Operating expenses 50,357 21,464 10,019 81,840 --------------- ------------ -------------- ------------- ------------- EBITDA (1) 5,110 2,033 289 7,432 Depreciation 385 190 34 609 Amortization of intangibles 10 1 11 --------------- ------------ -------------- ------------- ------------- Operating income 4,715 1,842 255 6,812 Interest (income), net of interest expense (19 ) (8 ) (4 ) (31) (Gain) on foreign currency transactions (5 ) (5) Loss on discontinued operations 16 16 Income taxes 1,779 697 98 2,574 --------------- ------------ -------------- ------------- Net income $2,955 $1,158 $145 $4,258 =============== ============ ============== ============= Total assets $86,420 $13,430 $6,314 $23,152 $129,316 Capital expenditures $338 $338
19 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 10. Segment Information (Continued)
Three Months Ended Information Professional Commercial June 30, 2003 Technology Engineering Services Corporate Total ---------------- --------------- --------------- ------------- --------------- Revenue $25,817 $24,575 $4,827 $55,219 Operating expenses 23,574 23,871 4,654 52,099 ---------------- --------------- --------------- ------------- --------------- EBITDA (1) 2,243 704 173 3,120 Depreciation 139 149 15 303 Amortization of intangibles 2 3 5 ---------------- --------------- --------------- ------------- --------------- Operating income 2,102 552 158 2,812 Interest expense, net of interest (income) 12 12 2 26 (Gain) on foreign currency (102 transactions (102) ) Income taxes 690 212 51 953 ---------------- --------------- --------------- --------------- Net income $1,400 $430 $105 $1,935 ================ =============== =============== =============== Total assets $52,339 $25,107 $5,849 $11,614 $94,909 Capital expenditures $109 $109
20 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 10. Segment Information (Continued)
Three Months Ended Information Professional Commercial June 30, 2002 Technology Engineering Services Corporate Total ---------------- -------------- ---------------- ------------- --------------------- Revenue $26,479 $12,602 $5,297 $44,378 Operating expenses 24,489 11,377 5,109 40,975 ---------------- -------------- ---------------- ------------- --------------------- EBITDA (1) 1990 1,225 188 3,403 Depreciation 191 99 17 307 Amortization of intangibles 5 5 ---------------- -------------- ---------------- ------------- --------------------- Operating income 1,794 1,126 171 3,091 Interest (income), net of interest expense (178) (85) (36) (299) (Gain) on foreign currency transactions (2) (2) Loss on discontinued operations 7 7 Income taxes 739 455 78 1,272 ---------------- -------------- ---------------- --------------------- Net income $1,233 $758 $122 $2,113 ================ ============== ================ ================= Total assets $86,420 $13,430 $6,314 $23,152 $129,316 Capital expenditures $206 $206 (1) As used in this report, EBITDA means earnings before interest, income taxes, depreciation, amortization, extraordinary charges, non-recurring charges and other non-cash items. We believe that EBITDA, as presented, represents a useful measure of assessing the performance of our operating activities, as it reflects our earnings trends without the impact of certain non-cash and unusual charges or income. EBITDA is also used by our creditors in assessing debt covenant compliance. We understand that, although security analysts frequently use EBITDA in the evaluation of companies, it is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. EBITDA is not intended as an alternative to cash flow provided by operating activities as a measure of liquidity, as an alternative to net income as an indicator of our operating performance, nor as an alternative to any other measure of performance in conformity with generally accepted accounting principles.
21 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 11. Contingencies The Company is a party to two lawsuits and one claim from various persons from whom the Company acquired stock or assets in three separate acquisitions that occurred in the years 1998 through 1999. The lawsuits and claim are not related to one another. The lawsuits and claim arise from allegations of wrongful termination and/or failure of the Company to pay deferred consideration under the relevant acquisition agreements. The range of possible loss for the aforementioned lawsuits and claim, when considered collectively, is from $-0- to approximately $5.3 million. In the opinion of management and based upon the advice of counsel, the Company has meritorious defenses to the lawsuits and claim that should serve to defeat or diminish the Company's potential liability. However, if material adverse determinations on either the lawsuits or claim were to be rendered, such determinations will have a material adverse impact on the results of operations in the period of the respective charges as well as a material adverse impact on the financial position and liquidity of the Company. In addition, in 1998, two shareholders, who were formerly officers and directors of the Company, filed suit against the Company alleging wrongful termination of their employment, failure to make required severance payments, wrongful conduct by the Company in connection with the grant of stock options, and wrongful conduct by the Company resulting in the non-vestiture of their option grants. The complaint also alleged that the Company wrongfully limited the number of shares of the Company's common stock that could have been sold by the plaintiffs under a Registration Rights Agreement entered into in connection with the underlying acquisition transaction pursuant to which the plaintiffs became shareholders of the Company. The claim under the Registration Rights Agreement sought the difference between the amount for which plaintiffs could have sold their RCM shares during the 12-month period ended March 11, 1999, but for the alleged wrongful limitation on their sales, and the amount for which the plaintiffs sold their shares during that period and thereafter. The claim relating to the wrongful termination of the employment of one of the plaintiffs and the claims of both plaintiffs concerning the grant of stock options were resolved in binding arbitration in early 2003. A trial on the remaining claims commenced on December 2, 2002 and a verdict was returned on January 24, 2003. On the claims by both plaintiffs, concerning the alleged wrongful limiting of the number of shares that they could sell during the 12-month period ended March 11, 1999, a verdict awarding damages of $7.6 million against the Company was returned. On June 23, 2003, the trial judge denied the Company's post-trial motions that challenged the jury's verdict and the trial judge also upheld the jury's verdict. On August 4, 2003, the trial judge entered a judgment in favor of the plaintiffs for $7.6 million in damages and awarded plaintiffs $172,000 in prejudgment interest (which will continue to accrue on the damages portion of the judgment after August 4, 2003 at the rate of 5% per annum). The Company intends promptly to appeal from, and seek a stay pending appeal of that judgment. As a result of the verdict, the Company accrued a reserve of $8.6 million as of December 31, 2002, which included a $1.0 million estimate for attorneys' fees and interest. 22 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 12. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Such estimates include the Company's litigation accrual and the Company's estimates of reserves such as the allowance for doubtful accounts receivable. 13. Reclassifications Certain reclassifications have been made to the 2002 interim financial statements to conform to the 2003 interim presentation. 23 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2. 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 reports and public filings made by RCM Technologies, Inc. ("RCM" or the "Company") are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding the adoption by businesses of new technology solutions, the use by businesses of outsourced solutions, such as those offered by the Company, in connection with such adoption and the outcome of litigation (at both the trial and appellate levels) involving the Company. Readers are cautioned that such forward-looking statements, as well as others made by the Company, 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 and 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 being 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 allocation of costs and expenses to each of the Company's operating segments; (xvii) the costs of conducting litigation and the outcome of litigation involving the Company, and (xviii) other economic, competitive and governmental factors affecting the Company's operations, markets, 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. 24 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Overview RCM Technologies is a premier provider of business and technology solutions designed to enhance and maximize the performance of its customers through the adaptation and deployment of advanced information technology and engineering services. RCM is an innovative leader in the design, development and delivery of these services to a variety of industries. The Company provides a diversified and extensive range of service offerings and deliverables. Its portfolio of Information Technology services includes e-Business, Enterprise Management, Enterprise Application Integration and Supply Chain. RCM's portfolio of Professional Engineering services focuses on Engineering Design, Technical Support and Project Management and Implementation. The Company's Commercial Services business unit provides Healthcare contract professionals as well as Clerical and Light Industrial temporary personnel. The Company provides its services to clients in the banking and finance, healthcare, insurance, aerospace, pharmaceutical, telecommunications, utility, technology, manufacturing, distribution and government sectors. The Company believes it offers a range of services that 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, including major metropolitan centers. The Company has executed a regional strategy to better leverage its consulting services offering. The Company centrally manages its Solutions practices to maximize the potential for sales and marketing of those services. Many of the Company's clients are facing challenging economic times. This is creating uncertainty in their ability to pursue technology projects which had previously been considered a competitive imperative. Many clients have laid off portions of their own permanent staff and greatly reduced the demand for consulting services in attempts to maintain profitability. The Company's management believes that most companies have recognized the importance of the Internet and information management technologies to compete in today's business climate. However, the uncertain economic environment has curtailed many companies' motivation for rapid adoption of many technological enhancements. The process of designing, developing and implementing software solutions has become increasingly complex. Management believes that many companies today are focused on return on investment analysis in prioritizing the initiatives they undertake. This has had the effect of delaying or totally negating spending on many emerging new solutions, which management formerly anticipated. Nonetheless, 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 existing business objectives. Companies also need to continually keep pace with new developments which often render existing equipment and internal skills obsolete. Consequently, business drivers cause IT managers to support increasingly complex systems and applications of significant strategic value, while working under budgetary, personnel and expertise constraints. This has given rise to a demand for outsourcing. The Company believes that its clients, and future prospective clients, are continuing to evaluate the potential for outsourcing business critical applications and entire business functions. 25 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Overview - (Continued) The Company presently realizes revenues from client engagements that range from the placement of contract and temporary technical consultants to project assignments that entail the delivery of end-to-end solutions. These services are primarily provided to the client at hourly rates that are established for each of the Company's consultants based upon their skill level, experience and the type of work performed. The Company also provides project management and consulting work which are billed either by an agreed upon fixed fee or hourly rates, or a combination of both. The billing rates and profit margins for project management and solutions work are higher than those for professional consulting services. The Company generally endeavors to expand its sales of higher margin solutions and project management services. The majority of the Company's services are provided under purchase orders. Contracts are utilized on more of the 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. Costs of services consist primarily of salaries and compensation-related expenses for billable consultants, including payroll taxes, employee benefits and insurance. Selling, general and administrative expenses consist primarily of salaries and benefits of personnel responsible for business development, recruiting, operating activities and training, and include corporate overhead expenses. Corporate overhead expenses relate to salaries and benefits of personnel responsible for corporate activities, including the Company's corporate marketing, administrative and reporting responsibilities and acquisition program. The Company records these expenses when incurred. Depreciation relates primarily to the fixed assets of the Company. Amortization relates to a covenant not to compete resulting from one of the Company's acquisitions. Acquisitions have been accounted for under the purchase method of accounting for financial reporting purposes and have created goodwill. 26 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the Company's financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. The Company believes that its critical accounting policies include those described below. Revenue Recognition The Company derives its revenues from several sources. All of the Company's segments perform staffing services. The Company's Professional Engineering Services and Information Technology Services segments also perform project services. The Information Technology Services segment also derives revenue from permanent placement fees. Staffing Services - Revenues derived from staffing services are recorded on a gross basis as services are performed and associated costs have been incurred using employees of the Company. In these circumstances, the Company assumes the risk of acceptability of its employees to its customers. In certain cases, the Company may utilize other companies and their employees to fulfill customer requirements. In these cases the Company receives an administrative fee for arranging for, billing for and collecting the billings related to these companies. The customer is typically responsible for assessing the work of these companies who have responsibility for acceptability of their personnel to the customer. Under these circumstances, the Company's reported revenues are net of associated costs (effectively, the administrative fee). Project Services - Project services are generally provided on a cost-plus-fixed-fee or time-and-material basis. Typically, a customer will outsource a discrete project or activity and the Company assumes responsibility for performance of the function or project. The Company recognizes revenues and associated costs on a gross basis as services are performed and costs are incurred using its employees. In instances where project services are provided on a fixed-price basis and the contract will extend beyond a 12-month period, revenue is recorded in accordance with the terms of each contract. In some instances, revenue is billed and recorded at the time certain milestones are reached, as defined in the contract. In other instances, revenue is billed and recorded based upon contractual rates per hour. In addition, some contracts contain "Performance Fees" (bonuses) for completing a contract under budget. Performance fees, if any, are recorded when the contract is completed and the revenue is reasonably certain of collection. Some contracts also limit revenues and billings to maximum amounts. Expenses related to contracts that extend beyond a 12-month period are charged to Cost of Services as incurred. Permanent Placement Fees - The Company earns permanent placement fees. Fees for placements are recognized at the time the candidate commences employment. The Company guarantees its permanent placements for ninety days. In the event a candidate is not retained for the ninety day period, the Company will provide a suitable replacement candidate. In the event a replacement candidate cannot be located, the Company will provide a refund to the client. An allowance for refunds, based upon the Company's historical experience, is recorded in the financial statements. Revenues are recorded on a gross basis as a component of revenue. 27 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Accounts Receivable The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on payment history and the customer's current credit worthiness, as determined by a review of their current credit information. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based on historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within the Company's expectations and the provisions established, the Company cannot guarantee that it will continue to experience the same credit loss rates that it has in the past. Goodwill and Intangibles Pursuant to the adoption of SFAS 142, the Company changed its accounting policy related to goodwill and intangible assets, effective January 1, 2002. Goodwill and indefinite-lived intangible assets are no longer amortized but are subject to periodic impairment assessment. SFAS 142 also requires the Company to perform a goodwill impairment test on at least an annual basis. For purposes of its 2002 annual impairment testing, the Company determined the fair value of its reporting units using relative market multiples for comparable businesses, as of November 30, 2002. The Company compared the fair value of each of its reporting units to their respective carrying values, including related goodwill, which resulted in an impairment loss of approximately $30 million as of December 31, 2002. Future changes in the industry could impact the market multiples of comparable businesses, and consequently could impact the results of future annual impairment tests. In addition, the Company recognizes contingent consideration from past acquisitions, which are based on earn-out agreements, as additional goodwill when earned. Based on the results of future impairment testing, the Company could incur further impairment losses. 28 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002 A summary of operating results for the six months ended June 30, 2003 and 2002 is as follows (in thousands, except for earnings per share data):
2003 2002 ---------------------- ----------------------- % of % of Amount Revenue Amount Revenue ---------- ---------- --------- ---------- Revenues $105,869 100.0% $89,272 100.0% Cost of services 83,671 79.0 65,072 72.9 ---------- ---------- --------- ---------- Gross profit 22,199 21.0 24,200 27.1 ---------- ---------- --------- ---------- Selling, general and administrative 16,474 15.6 16,768 18.8 Depreciation and amortization 604 .6 620 .7 ---------- ---------- --------- ---------- 17,078 16.2 17,388 19.5 ---------- ---------- --------- ---------- Operating income 5,121 4.8 6,812 7.6 Other (expense) income 58 .1 36 ---------- ---------- --------- ---------- Income from continuing operations before income taxes 5,179 4.9 6,848 7.6 Income taxes 1,890 1.8 2,574 2.9 ---------- ---------- --------- ---------- Income from continuing operations 3,289 3.1 4,274 4.8 Loss from discontinued operations, net of taxes 16 ---------- ---------- --------- ---------- Net income $ 3,289 3.1% $4,258 4.8% ========== ========== ========= ========== Earnings per share Basic and Diluted: Income from continuing operations $.31 $.40 Loss from discontinued operations ---------- --------- Net income $.31 $.40 ========== =========
The above summary is not a presentation of results of operations under generally accepted accounting principles and should not be considered in isolation or as an alternative to results of operations as an indication of the Company's performance. Revenues. Revenues increased 18.6%, or $16.6 million, for the six months ended June 30, 2003 as compared to the same period in the prior year (the "comparable prior year period"). The revenue increase was attributable to increased revenues in the Professional Engineering segment. Management attributes this increase primarily to an increase in subcontracted revenues on a major project with respect to which RCM is the general contractor, which RCM refers to as "subcontracted revenues". Subcontracted revenues recognized by RCM for the six months ended June 30, 2003 were approximately $14.3 million as compared to $1.4 million for the comparable prior year period. RCM, as general contractor on this major project, subcontracts certain tasks outside of RCM's core competencies as agreed upon with RCM's customer. 29 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002 - (Continued) Cost of Services. Cost of services increased 28.6%, or $18.6 million, for the six months ended June 30, 2003 as compared to the comparable prior year period. This increase was primarily due to an increase in subcontractor costs associated with increased subcontracted revenues experienced during the six months ended June 30, 2003. Cost of services as a percentage of revenues increased to 79.0% for the six months ended June 30, 2003 from 72.9% for the comparable prior year period. This increase was primarily attributable to an increase of the Company's revenues being derived from Professional Engineering services, which have historically had lower gross profit margins. Selling, General and Administrative. Selling, general and administrative expenses decreased 1.8%, or $294,000, for the six months ended June 30, 2003 as compared to the comparable prior year period. This decrease was primarily attributable to ongoing cost cutting initiatives. SGA expenses as a percentage of revenues were 15.6% for the six months ended June 30, 2003 as compared to 18.8% for the comparable prior year period. Depreciation and Amortization. Depreciation and amortization decreased 2.6%, or $16,000, for the six months ended June 30, 2003 as compared to the comparable prior year period. This decrease was primarily due to write down of impaired fixed assets in periods since June 30, 2002. Other Expense. Other expense consists of interest expense, net of interest income and gains on foreign currency transactions. For the six months ended June 30, 2003, actual interest expense of $104,900 was offset by $28,100 of interest income, which was principally earned from short-term money market deposits. Interest expense, net, increased $107,800 for the six months ended June 30, 2003 as compared to the comparable prior year period. This increase was primarily due to interest income earned from an income tax refund in the six months ended June 30, 2002. The comparative increase was mitigated by cash derived from operating activities, which was used to reduce interest-bearing debt, as well as a reduction in interest rates on borrowed funds. Gains on foreign currency transactions increased $129,900 as a result of the strengthening of the Canadian Dollar as compared to the U.S. Dollar. Income Tax. Income tax expense decreased 26.6%, or $684,000, for the six months ended June 30, 2003 as compared to the comparable prior year period. This decrease was attributable to a lower level of income before taxes for the six months ended June 30, 2003 as compared to the comparable prior year period. The effective tax rate was 36.5%, for the six months ended June 30, 2003 as compared to 37.6% for the comparable prior year period. The decrease in the effective tax rate was attributable to a higher portion of foreign taxable income, which had a lower effective income tax rate due to a reversal of foreign taxes in the prior year. Loss from Discontinued Operations. In August 2002, the Company sold a reporting unit in the commercial services business segment for $100,000, which resulted in a loss of $1.6 million ($967,000 net of income tax benefit of $644,000) for the year ended December 31, 2002, or $.09 per share and $27,200 ($16,300 net of income tax benefit of $10,900) for the six months ended June 30, 2002, or $0.0 per share. In accordance with Statement of Financial Accounting Standards (SFAS) 144, the loss is presented as a loss from discontinued operations in the statements of operations for the six months and three months ended June 30, 2002. The Company has not discontinued its commercial services business segment. The financial statements for the comparative periods have been reclassified for comparative purposes. 30 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Three Months Ended June 30, 2003 Compared to three months Ended June 30, 2002 A summary of operating results for the three months ended June 30, 2003 and 2002 is as follows (in thousands, except for earnings per share data):
2003 2002 ---------------------- ----------------------- % of % of Amount Revenue Amount Revenue --------- ---------- --------- ---------- Revenues $55,219 100.0% $44,378 100.0% Cost of services 43,825 79.4 32,639 73.6 --------- ---------- --------- ---------- Gross profit 11,394 20.6 11,739 26.4 --------- ---------- --------- ---------- Selling, general and administrative 8,274 15.0 8,336 18.8 Depreciation and amortization 308 .5 312 .7 --------- ---------- --------- ---------- 8,582 15.5 8,648 19.5 --------- ---------- --------- ---------- Operating income 2,812 5.1 3,091 6.9 Other (expense) income 77 .1 301 .7 --------- ---------- --------- ---------- Income from continuing operations before income taxes 2,889 5.2 3,392 7.6 Income taxes 953 1.7 1,272 2.8 --------- ---------- --------- ---------- Income from continuing operations 1,936 3.5 2,120 4.8 Loss from discontinued operations, net of taxes 7 --------- ---------- --------- ---------- Net income $1,936 3.5% $2,113 4.8% ========= ========== ========= ========== Earnings per share Basic and Diluted: Income from continuing operations $.18 $.20 Loss from discontinued operations --------- --------- Net income $.18 $.20 ========= =========
The above summary is not a presentation of results of operations under generally accepted accounting principles and should not be considered in isolation or as an alternative to results of operations as an indication of the Company's performance. Revenues. Revenues increased 24.4%, or $10.8 million, for the three months ended June 30, 2003 as compared to the same period in the prior year (the "comparable prior year period"). The revenue increase was primarily attributable to increased revenues in the Professional Engineering segment. Management attributes this increase primarily to an increase in subcontracted revenues on a major project with respect to which RCM is the general contractor. Subcontracted revenues recognized by RCM for the three months ended June 30, 2003 were approximately $8.7 million as compared to $1.0 million for the comparable prior year period. RCM, as general contractor on this major project, subcontracts certain tasks outside of RCM's core competencies as agreed upon with RCM's customer. 31 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002 - (Continued) Cost of Services. Cost of services increased 34.3%, or $11.2 million, for the three months ended June 30, 2003 as compared to the comparable prior year period. This increase was primarily due to an increase in subcontractor costs associated with increased subcontracted revenues experienced during the three months ended June 30, 2003. Cost of services as a percentage of revenues increased to 79.4% for the three months ended June 30, 2003 from 73.6% for the comparable prior year period. This increase was primarily attributable to an increase of the Company's revenues being derived from Professional Engineering services, which have historically had lower gross profit margins. Selling, General and Administrative. Selling, general and administrative expenses decreased 0.7%, or $62,000, for the three months ended June 30, 2003 as compared to the comparable prior year period. This decrease was primarily attributable to ongoing cost cutting initiatives. SGA expenses as a percentage of revenues were 15.0% for the three months ended June 30, 2003 as compared to 18.8% for the comparable prior year period. Depreciation and Amortization. Depreciation and amortization decreased 1.3%, or $4,000, for the three months ended June 30, 2003 as compared to the comparable prior year period. This decrease was primarily due to write down of impaired fixed assets in periods since June 30, 2003. Other Expense. Other expense consists of interest expense, net of interest income and gains on foreign currency transactions. For the three months ended June 30, 2003, actual interest expense of $42,800 was offset by $17,100 of interest income, which was principally earned from short-term money market deposits. Interest expense, net, increased $324,500 for the three months ended June 30, 2003 as compared to the comparable prior year period. This increase was primarily due to interest income earned from an income tax refund in the three months ended June 30, 2002. The comparative increase was mitigated by cash derived from operating activities, which was used to reduce interest-bearing debt, as well as a reduction in interest rates on borrowed funds. Gains on foreign currency transactions increased $100,200 as a result of the strengthening of the Canadian Dollar as compared to the U.S. Dollar. Income Tax. Income tax expense decreased 25.1%, or $319,000, for the three months ended June 30, 2003 as compared to the comparable prior year period. This decrease was attributable to a lower level of income before taxes for the three months ended June 30, 2003 as compared to the comparable prior year period. The effective tax rate was 33.0%, for the three months ended June 30, 2003 as compared to 37.5% for the comparable prior year period. The decrease in the effective tax rate was attributable to a higher portion of foreign taxable income, which had a lower effective income tax rate due to a reversal of foreign taxes in the prior year. Loss from Discontinued Operations. In August 2002, the Company sold a reporting unit in the commercial services business segment for $100,000, which resulted in a loss of $1.6 million ($967,000 net of income tax benefit of $644,000) for the year ended December 31, 2002, or $.09 per share and $11,400 ($6,800 net of income tax benefit of $4,500) for the three months ended June 30, 2002, or $0.0 per share. In accordance with Statement of Financial Accounting Standards (SFAS) 144, the loss is presented as a loss from discontinued operations in the statements of operations for the six months and three months ended June 30, 2002. The Company has not discontinued its commercial services business segment. The financial statements for the comparative periods have been reclassified for comparative purposes. 32 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Liquidity and Capital Resources Operating activities provided $2.3 million of cash for the six months ended June 30, 2003 as compared to operating activities providing $9.8 million of cash for the comparable 2002 period. The decrease in cash provided by operating activities was primarily attributable to an increase in accounts receivable which was partially offset by an increase in accounts payable. Accounts receivable increased approximately $11.0 million since December 31, 2002 of which $4.9 million of the increase was from one customer, and from whom approximately $5.5 million was received subsequent to June 30, 2003. Investing activities used $1.5 million for the six months ended June 30, 2003 as compared to $3.6 million for the comparable 2002 period. The decrease in the use of cash for investing activities for fiscal 2003 as compared to the comparable period was primarily attributable to a decrease in deferred consideration payments. Financing activities, which consisted of debt reduction, used $4.0 million in 2003 as compared to financing activities using $6.5 million for the comparable 2002 period. On May 31, 2002, the Company and its subsidiaries entered into an amended and restated loan agreement which was further amended on May 31, 2002, further amended on February 26, 2003, with Citizens Bank of Pennsylvania, administrative agent for a syndicate of banks, which provides for a $25.0 million Revolving Credit Facility (the "Revolving Credit Facility"). Availability under the Revolving Credit Facility is based on 80% of the aggregate amount of accounts receivable as to which not more than ninety days have elapsed since the date of the original invoice. Borrowings under the Revolving Credit Facility bear interest at one of two alternative rates, as selected by the Company at each incremental borrowing. These alternatives are: (i) LIBOR (London Interbank Offered Rate), plus applicable margin, or (ii) the agent bank's prime rate. As cash flow permits and depending on interest rate movements, the Company may, from time to time and subject to a nominal prepayment fee, apply available cash flows to reduce the Revolving Credit Facility. All borrowings under the Revolving Credit Facility are collateralized by all of the assets of the Company and its subsidiaries and a pledge 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 in August 2004. The weighted average interest rates for the six months ended June 30, 2003 and 2002 were 3.1% and 3.89%, respectively. The amounts outstanding under the Revolving Credit Facility at June 30, 2002 and December 31, 2002 were $3.3 million and $7.4 million, respectively. At June 30, 2003, the Company had availability (including amounts outstanding) under the Revolving Credit Facility of $21.6 million. The Company anticipates that its primary use of capital in future periods will be for working capital purposes. Funding for any future acquisitions will be derived from one or more of the Revolving Credit Facility, funds generated through operations, or future financing transactions. The Company is involved in litigation as described in Footnote 11 (Contingencies) to the financial statements. If material adverse determinations on either the lawsuits or claims were to be rendered, such determinations will have a material adverse impact on the results of operations in the period of the respective charges as well as a material adverse impact on the financial position and liquidity of the Company. The Company anticipates that it will need to borrow approximately $7.6 million under its Revolving Credit Facility in order to post a collateral bond related to the $7.6 million verdict returned in January 2003. The Company believes that its borrowing base is currently sufficient to allow this additional borrowing. 33 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Liquidity and Capital Resources (Continued) The Company's business strategy is to achieve growth both internally through operations and externally through strategic acquisitions. The Company from time to time engages 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 currently 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. At June 30, 2003, the Company has a deferred tax asset totaling $3.5 million, primarily representing the tax effect of the net operating loss carry forwards, and the litigation reserve. The Company expects to utilize the current portion of the deferred tax asset during the period ended June 30, 2004. The Company's contractual obligations as of June 30, 2003 are as follows (In Thousands):
Payments Due by Period -------------------------------------------------------- Less Than More Than Total 1 Year 1-3 Years 3-5 Years 5 Years ----------- ------------ ------------ ------------ ------------- Note Payable (1) $3,300 $3,300 Operating Leases 9,763 $1,047 4,052 $2,644 $2,020 ----------- ------------ ------------ ------------ ------------- Total Obligations $13,063 $1,047 $7,352 $2,644 $2,020 =========== ============ ============ ============ ============= (1) The Revolving Credit Facility agreement expires in August 2004.
34 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio and debt instruments, which primarily consist of its line of credit. The Company does not have any derivative financial instruments in its portfolio. The Company places its investments in instruments that meet high credit quality standards. The Company is adverse to principal loss and ensures the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment risk. As of June 30, 2003, the Company's investments consisted of cash and money market funds. The Company does not use interest rate derivative instruments to manage its exposure to interest rate changes. Presently the impact of a 10% (approximately 40 basis points) increase in interest rates on its variable debt (using average debt balances during the six months ended June 30, 2003 and average interest rates) would have a relatively nominal impact on the Company's results of operations. The Company does not expect any material loss with respect to its investment portfolio. ITEM 4. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on an evaluation conducted within 90 days prior to the filing date of this Quarterly Report on Form 10-Q, that the Company's disclosure controls and procedures have functioned effectively so as to provide those officers the information necessary to evaluate whether: (i) this Quarterly Report on Form 10-Q contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report on Form 10-Q, and (ii)the financial statements, and other financial information included in this Quarterly Report on Form 10-Q, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Quarterly Report on Form 10-Q. There have been no significant changes in the Company's internal controls or in other factors since the date of the Chief Executive Officer's and Chief Financial Officer's evaluation that could significantly affect these internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. (a) Evaluation of Disclosure Controls and Procedures The Company's Chief Executive Officer and Chief Financial Officer have evaluated the Company's disclosure controls and procedures as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective. (b) Changes in Internal Control Over Financial Reporting There have been no significant changes in internal control over financial reporting that occurred during the quarter ended June 30, 2003 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 35 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a party to two lawsuits and one claim from various persons from whom the Company acquired stock or assets in three separate acquisitions that occurred in the years 1998 through 1999. The lawsuits and claim are not related to one another. The lawsuits and claim arise from allegations of wrongful termination and/or failure of the Company to pay deferred consideration under the relevant acquisition agreements. The range of possible loss for the aforementioned lawsuits and claim, when considered collectively, is from $-0- to approximately $5.3 million. In the opinion of management and based upon the advice of counsel, the Company has meritorious defenses to the lawsuits and claim that should serve to defeat or diminish the Company's potential liability. However, if material adverse determinations on either the lawsuits or claim were to be rendered, such determinations will have a material adverse impact on the results of operations in the period of the respective charges as well as a material adverse impact on the financial position and liquidity of the Company. In addition, in 1998, two shareholders, who were formerly officers and directors of the Company, filed suit against the Company alleging wrongful termination of their employment, failure to make required severance payments, wrongful conduct by the Company in connection with the grant of stock options, and wrongful conduct by the Company resulting in the non-vestiture of their option grants. The complaint also alleged that the Company wrongfully limited the number of shares of the Company's common stock that could have been sold by the plaintiffs under a Registration Rights Agreement entered into in connection with the underlying acquisition transaction pursuant to which the plaintiffs became shareholders of the Company. The claim under the Registration Rights Agreement sought the difference between the amount for which plaintiffs could have sold their RCM shares during the 12-month period ended March 11, 1999, but for the alleged wrongful limitation on their sales, and the amount for which the plaintiffs sold their shares during that period and thereafter. The claim relating to the wrongful termination of the employment of one of the plaintiffs and the claims of both plaintiffs concerning the grant of stock options were resolved in binding arbitration in early 2003. A trial on the remaining claims commenced on December 2, 2002 and a verdict was returned on January 24, 2003. On the claims by both plaintiffs, concerning the alleged wrongful limiting of the number of shares that they could sell during the 12-month period ended March 11, 1999, a verdict awarding damages of $7.6 million against the Company was returned. On June 23, 2003, the trial judge denied the Company's post-trial motions that challenged the jury's verdict and the trial judge also upheld the jury's verdict. On August 4, 2003, the trial judge entered a judgment in favor of the plaintiffs for $7.6 million in damages and awarded plaintiffs $172,000 in prejudgment interest (which will continue to accrue on the damages portion of the judgment after August 4, 2003 at the rate of 5% per annum). The Company intends promptly to appeal from, and seek a stay pending appeal of that judgment. As a result of the verdict, the Company accrued a reserve of $8.6 million as of December 31, 2002, which included a $1.0 million estimate for attorneys' fees and interest. 36 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31.1 Certifications of Chief Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certifications of Chief Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 32.1 Certifications of Chief Executive Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) 32.2 Certifications of Chief Financial Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) (b) Reports on Form 8-K Current Report on Form 8-K dated April 30, 2003 reporting items 7 and 9 and containing as an Exhibit the Press Release dated April 30, 2003 issued by the Company. 37 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: August 7, 2003 By:/s/ Stanton Remer --- ------- ----- Stanton Remer Chief Financial Officer, Treasurer, Secretary and Director (Principal Financial Officer and Duly Authorized Officer of the Registrant) 38 EX-99 3 certif311.txt CERTIFICATIONS OF CEO REQUIRED BY RULE 13A-14(A) Exhibit 31.1 RCM TECHNOLOGIES, INC. CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 CERTIFICATIONS I, Leon Kopyt, certify that: 1. I have reviewed this quarterly report on Form 10-Q of RCM Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 7, 2003 /s/ Leon Kopyt Leon Kopyt Chief Executive Officer EX-99 4 certif312.txt CERTIFICATIONS OF CFO REQUIRED BY RULE 13A-14(A) Exhibit 31.2 RCM TECHNOLOGIES, INC. CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 CERTIFICATIONS I, Stanton Remer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of RCM Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 7, 2003 /s/ Stanton Remer Stanton Remer Chief Financial Officer EX-99 5 certif321.txt CERTIFICATIONS OF CEO REQUIRED BY RULE 13A-14(B) Exhibit 32.1 RCM TECHNOLOGIES, INC. CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 I, Leon Kopyt, President and Chief Executive Officer of RCM Technologies, Inc., a Nevada corporation (the "Company"), hereby certify that, to my knowledge: (1) The Company's periodic report on Form 10-Q for the period ended June 30, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. * * * /s/ Leon Kopyt Leon Kopyt Chief Executive Officer Date: August 7, 2003 EX-99 6 certif322.txt CERTIFICATIONS OF CFO REQUIRED BY RULE 13A-14(B) Exhibit 32.2 RCM TECHNOLOGIES, INC. CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 I, Stanton Remer, Chief Financial Officer of RCM Technologies, Inc., a Nevada corporation (the "Company"), hereby certify that, to my knowledge: (1) The Company's periodic report on Form 10-Q for the period ended June 30, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. * * * /s/ Stanton Remer Stanton Remer Chief Financial Officer Date: August 7, 2003 -----END PRIVACY-ENHANCED MESSAGE-----