-----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, ACaaHRtIjBng4rkujbXSXVhJp3l0Zv6HSbXmAmBggg3cyFubyP8i11HPtyxyT8Sa 5qEuAEvz0mvVUEF6vmLs6w== 0000700841-99-000005.txt : 19990308 0000700841-99-000005.hdr.sgml : 19990308 ACCESSION NUMBER: 0000700841-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RCM TECHNOLOGIES INC CENTRAL INDEX KEY: 0000700841 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 951480559 STATE OF INCORPORATION: NV FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10245 FILM NUMBER: 99558170 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 FIRST QUARTER 01/31/99 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1999 Commission file number: 1-10245 RCM TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) Nevada 95-1480559 (State of Incorporation) (IRS Employer Identification No.) 2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey 08109-4613 (Address of principal executive offices) (609) 486-1777 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of the Registrant's class of common stock, as of the latest practicable date. CLASS Common Stock, $.05 par value 10,478,976 Outstanding as of March 5, 1999 1 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION
ITEM 1 - Consolidated Financial Statements Page Consolidated Balance Sheets as of January 31, 1999 (Unaudited) and October 31, 1998 (Audited) 3 Unaudited Consolidated Statements of Income for the Three Months Ended January 31, 1999 and 1998 5 Unaudited Consolidated Statement of Changes in Stockholders' Equity for the Three Months Ended January 31, 1999 6 Unaudited Consolidated Statements of Cash Flows for the Three Months Ended January 31, 1999 and 1998 7 Notes to Unaudited Consolidated Financial Statements 9 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II - OTHER INFORMATION ITEM 6 - Exhibits and Reports on Form 8-K 16 SIGNATURES 17
2 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 31, 1999 and October 31, 1998 ASSETS
1999 1998 -------------- -------------- (Unaudited) (Audited) Current assets Cash and cash equivalents $ 7,149,441 $ 22,187,536 Accounts receivable, net of allowance for doubtful accounts of $486,000 at each date 49,784,158 40,680,268 Prepaid expenses and other current assets 1,566,398 1,199,809 --------- --------- Total current assets 58,499,997 64,067,613 ---------- ---------- Property and equipment, at cost Equipment and leasehold improvements 4,782,586 5,041,184 Less: accumulated depreciation and amortization 1,638,671 2,437,316 --------- --------- 3,143,915 2,603,868 --------- --------- Other assets Deposits 178,241 145,876 Intangible assets (net of accumulated amortization of $1,400,531 and $989,797 in 1999 and 1998, respectively) 64,818,186 50,249,794 ---------- ---------- 64,996,427 50,395,670 Total assets $ 126,640,339 $ 117,067,151 = =========== = ===========
The accompanying notes are an integral part of these financial statements. 3 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED January 31, 1999 and October 31, 1998 LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998 (Unaudited) (Audited) Current liabilities Accounts payable and accrued expenses $ 3,759,007 $ 3,202,625 Accrued payroll 8,067,721 5,505,465 Taxes other than income taxes 3,433,217 1,629,945 Income taxes payable 1,132,599 56,989 --------- ------ Total current liabilities 16,392,544 10,395,024 ---------- ---------- Stockholders' 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; 10,477,076 and 10,447,525 shares issued and outstanding in 1999 and 1998, respectively 523,854 522,376 Additional paid-in capital 93,292,176 92,997,711 Retained earnings 16,431,765 13,152,040 ---------- ---------- 110,247,795 106,672,127 Total liabilities and stockholders' equity $ 126,640,339 $ 117,067,151 = =========== = ===========
The accompanying notes are an integral part of these financial statements. 4 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended January 31, 1999 1998 (Unaudited) (Unaudited) Revenues $ 67,391,593 $ 37,232,243 Cost of services 51,203,646 28,080,004 ---------- ---------- Gross profit 16,187,947 9,152,239 ---------- --------- Operating costs and expenses Selling, general and administrative 10,284,901 5,813,557 Depreciation and amortization 583,323 251,256 ------- ------- 10,868,224 6,064,813 ---------- --------- Operating income 5,319,723 3,087,426 Interest (expense) income, net 155,807 ( 39,332 ) --------------- ------ Income before income taxes 5,475,530 3,048,094 Income taxes 2,195,805 1,270,693 --------- --------- Net income $ 3,279,725 $ 1,777,401 = ========= = ========= Basic earnings per share $.31 $.23 Weighted average number of common shares outstanding 10,466,882 7,593,447 Diluted earnings per share $.30 $.22 Weighted average number of common and common equivalent shares outstanding 11,021,513 8,177,283
The accompanying notes are an integral part of these financial statements. 5 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Three Months Ended January 31, 1999 (Unaudited)
Additional Common Stock Paid-in Retained Shares Amount Capital Earnings Balance, October 31, 1998 10,447,525 $ 522,376 $92,997,711 $13,152,040 Exercise of Stock Options 29,551 1,478 294,465 Net Income 3,279,725 Balance, January 31, 1999 10,477,076 $ 523,854 $93,292,176 $16,431,765 ========== ========= =========== ===========
The accompanying notes are an integral part of these financial statements. 6 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended January 31, 1999 1998 (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 3,279,725 $ 1,777,401 - --------- - --------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 583,323 251,256 Provision for losses on accounts receivable 15,000 Changes in assets and liabilities: Accounts receivable ( 9,103,890) ( 1,641,131 ) Prepaid expenses and other current assets ( 366,589) 325,786 Accounts payable and accrued expenses 556,382 303,622 Accrued payroll 2,562,256 ( 307,887 ) Taxes other than income taxes 1,803,272 1,445,521 Income taxes payable 1,075,610 606,833 --------- ------- Total adjustments ( 2,889,636) 999,000 --------- ------- Net cash provided by operating activities 390,089 2,776,401 ------- ---------
The accompanying notes are an integral part of these financial statements. 7 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Three Months Ended January 31, 1999 1998 (Unaudited) (Unaudited) Cash flows from investing activities: Increase in intangible assets ($ 141,826 ) Property and equipment acquired ($ 797,161) ( 416,044 ) Increase in deposits ( 32,365) ( 8,698 ) Cash paid for acquisitions, net of cash acquired ( 14,894,601) ( 3,125,000 ) ---------- --------- Net cash used in investing activities ( 15,724,127) ( 3,691,568 ) ---------- --------- Cash flows from financing activities: Exercise of stock options and warrants 295,943 554,228 --------------- --------------- Net cash provided by financing activities 295,943 554,228 ------- ------- Net decrease in cash and cash equivalents ( 15,038,095) ( 360,939 ) Cash and cash equivalents at beginning of period 22,187,536 918,028 ---------- ------- Cash and cash equivalents at January 31, $ 7,149,441 $ 557,089 = ========= = ======= Supplemental cash flow information: Cash paid for: Interest expense $ 19,822 $ 55,1149 Income taxes $ 1,120,195 $ 663,860
The accompanying notes are an integral part of these financial statements. 8 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. General The accompanying consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). This Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended October 31, 1998. 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 months ended January 31, 1999 are not necessarily indicative of the results to be expected for the full year. 2. Acquisitions During the three months ended January 31, 1999, the Company acquired three businesses in the staffing and consulting services industry. These acquisitions, which are summarized below, have been accounted for as purchases and, accordingly, the results of operations of the acquired companies have been included in the consolidated results of operations of the Company from the dates of acquisition. In connection with certain acquisitions, the Company is obligated to pay contingent consideration to the selling shareholders upon the acquired businesses achieving certain earnings targets over periods ranging from 2-3 years. In general, the contingent consideration amounts fall into two tiers: (a) tier 1 ("Deferred Consideration") - amounts are due, provided that these acquisitions achieve a base level of earnings which has been determined at the time of acquisition and (b) tier 2 ("Earnouts") - amounts are not fixed and are based on the growth in excess of the base level earnings. The Deferred Consideration payments are anticipated to be as follows:
Year Ending October 31, Amount ----------------------- -------------- 1999 $ 4,382,000 2000 11,150,000 2001 7,890,000 2002-thereafter 750,000 ------- $ 24,172,000 The Deferred Consideration and Earnouts, when paid, will be recorded as additional purchase consideration and will be amortized over a 40 year period. Earnouts cannot be estimated with any certainty. The Company's acquisition activities during the three months ended January 31, 1999 were as follows: Number of acquisitions 3 Consideration paid: Cash at closing $12,525,000 Deferred Consideration $ 5,300,000
9 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Acquisitions - (Continued) The following unaudited results of operations have been prepared assuming that all acquisitions which have occurred since November 1, 1997 had occurred at the beginning of the periods presented. Those results are not necessarily indicative of results of future operations nor of results that would have occurred had the acquisitions been consummated as of the beginning of the periods presented.
Three Months Ended January 31, 1999 1998 Revenues $ 67,850,000 $ 56,300,000 Operating income $ 5,365,000 $ 4,800,000 Net income $ 3,301,000 $ 2,248,000 Earnings per common share (Diluted) $.30 $.27
3. Interest (Expense) Income, Net
Interest (expense) income, net consisted of the following: Three Months Ended January 31, 1999 1998 Interest expense ($ 19,822) ($ 55,114) Interest income 175,629 15,782 ------- ------ $ 155,807 ($ 39,332) == ======= == ======
4. New Accounting Standard On November 1, 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128 eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Prior period earnings per share calculations have been restated to reflect the adoption of SFAS 128. 10 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Private Securities Litigation Reform Act Safe Harbor Statement Certain statements included herein and in other Company reports and public filings are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements, which may be identified by words such as "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," and similar expressions are only predictions and are subject to risks and uncertainties that could cause the Company's actual results and financial position to differ materially. Such risks and uncertainties include, without limitation: (i) unemployment and general economic conditions associated with the placement of temporary staffing personnel; (ii) the Company's ability to continue to attract, train and retain personnel qualified to meet the staffing 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 proforma 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 national, regional and local markets; (xi) the Company's ability to retain several of its key clients; (xii) the Company's ability to maintain its unemployment insurance premiums and workers compensation premiums; (xiii) the risk of claims made against the Company associated with providing temporary staffing services; (xiv) the Company's ability to manage significant amounts of information, and periodically expand and upgrade its information processing capabilities; (xv) the Company's ability to remain in compliance with federal and state wage and hour laws and regulations; and (xvi) other economic, competitive and governmental factors affecting the Company's operations, market, products and services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly release the results of any revision of these forward-looking statements to reflect these ends or circumstances after the date they are made or to reflect the occurrence of unanticipated events. Overview The Company is a national provider professional services and solutions focusing principally in the areas of Information Technology, Professional Engineering and Government Services through its 59 branch offices located in 21 states as of January 31, 1999. The Company has pursued an aggressive growth strategy designed to transition the Company's business from general support staffing services to higher growth, higher margin professional staffing and solution services, particularly information technology and engineering services. In fiscal 1995, approximately half of the Company's revenues were derived from general support staffing and the Company did not offer information technology services. For the three months ended January 31, 1999, information technology services and engineering services contributed 71% and 19%, respectively of the Company's revenues. Since the beginning of fiscal 1996, the Company has acquired 18 information technology or professional engineering staffing services companies, aggregating $158.1 million in revenues for their respective latest twelve months prior to acquisition. Through these acquisitions, the Company has achieved substantial revenue growth, improved its operating profitability and repositioned itself as a provider of information technology and other professional staffing and solution services. 11 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Overview - (Continued) The Company realizes revenues from the placement of contract and temporary staffing personnel. These services are primarily provided to the customer at hourly rates that are established for each of the Company's staffing personnel, based upon their skill level and experience and the type of work performed. The Company also provides project management and consulting work which are billed either by agreed upon fee or hourly rates, or a combination of both. The billing rates and profit margins for project management and consulting work are higher than those received for professional staffing services. The Company plans to expand its sales of higher margin consulting and project management services. The majority of the Company's services are provided under purchase orders. Contracts are utilized on certain of the more complex assignments where the engagements are for longer terms or where precise documentation on the nature and scope of the assignment is necessary. Contracts, although they normally relate to longer-term and more complex engagements, generally do not obligate the customer to purchase a minimum level of services and are generally terminable by the customer on 60 to 90 days notice. Revenues are recognized when services are provided. Costs of services consist primarily of salaries and compensation-related expenses for billable staffing personnel, including payroll taxes, employee benefits, worker's compensation and other insurance. Principally all of the billable personnel are treated by the Company as employees. Selling, general and administrative expenses consist primarily of salaries and benefits of personnel responsible for operating activities and include corporate overhead expenses. Corporate overhead expenses relate to salaries and benefits of personnel responsible for corporate activities, including the Company's acquisition program and corporate marketing, administrative and reporting responsibilities. The Company records these expenses when incurred. Depreciation relates primarily to the fixed assets of the Company. Amortization relates principally to the goodwill resulting from the Company's acquisitions. These acquisitions have been accounted for under the purchase method of accounting for financial reporting purposes and have created goodwill which is being amortized over 40-year periods. 12 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued)
Three Months Ended January 31, 1999 Compared to Three Months Ended January 31, 1998 Three Months Ended January 31, 1999 1998 % of % of Amount Revenue Amount Revenue Revenues $ 67,391,593 100.0% $ 37,232,243 100.0 % Cost of services 51,203,646 76.0 28,080,004 75.4 ---------- ---- ---------- ---- Gross profit 16,187,947 24.0 9,152,239 24.6 Selling, general and administrative 10,284,901 15.3 5,813,557 15.6 Depreciation and amortization 583,323 .9 251,256 .7 Operating income 5,319,723 7.9 3,087,426 8.3 Interest (expense) income, net 155,807 .2 ( 39,332) ( .1 ) ------- -- ------ -- Income before income taxes 5,475,530 8.1 3,048,094 8.2 Income taxes 2,195,805 3.3 1,270,693 3.4 --------- --- --------- --- Net income $ 3,279,725 4.9% $ 1,777,401 4.8 % ========= === ========= === Earnings per share (diluted) $.30 $.22 ==== ====
Revenues. Revenues increased 81.0%, or $30.2 million, for the three months ended January 31, 1999 as compared to the comparable prior year period. The increase was primarily due to the acquisition of seven companies during fiscal 1998 and three companies during the three months ended January 31, 1999, along with internal growth. Cost of Services. Cost of services increased 82.3%, or $23.1 million, for the three months ended January 31, 1999 as compared to the comparable prior year period. This increase was primarily due to increased salaries and compensation associated with the increased revenues experienced during this period. Cost of services as a percentage of revenues increased to 76.0% for the three months ended January 31, 1999 from 75.4% for the comparable prior year period. This increase was primarily due to increased vacation and holiday charges compared to the prior period. Selling, General and Administrative. Selling, general and administrative expenses increased 76.9%, or $4.5 million, for the three months ended January 31, 1999 as compared to the comparable prior year period. This increase was attributable principally to a 81.0% increase in revenues which required additional administrative, marketing and sales expenses. Selling, general and administrative expenses as a percentage of revenues decreased to 15.3% for the comparable three months ended January 31, 1999 as compared to 15.6% for the prior year period. This decrease in percentage was attributable principally to operating leverage achieved by the spreading of selling, general and administrative overhead expenses over a larger revenue base. Depreciation and Amortization. Depreciation and amortization increased 111.8%, or $332,000, for the three months ended January 31, 1999 as compared to the comparable prior year period. This increase was primarily due to the amortization of intangible assets incurred in connection with the acquisitions that occurred after the first quarter of fiscal 1998. 13 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Three Months Ended January 31, 1999 Compared to Three Months Ended January 31, 1998 - (Continued) Interest (Expense) Income, Net. Actual interest expense of $20,000 for three months ended January 31, 1999, was offset by $176,000 of interest income, which was earned from the investment in interest bearing deposits of the net proceeds of the Company's public offering in June 1998, after the retirement of bank debt. Interest (expense) income, net decreased 496%, or $196,000, for three months ended January 31, 1999 as compared to the comparable prior year period. This decrease was due primarily to the decreased borrowing requirements necessary to fund working capital required of acquired companies. Income Tax. Income tax expense increased 72.8%, or $925,000, for the three months ended January 31, 1999 as compared to the comparable prior year period. This increase was primarily due to increased levels of income. 14 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 $390,000 and $2.7 million of cash during the three months ended January 31, 1999 and 1998, respectively. The decrease of $2.4 million was primarily attributable to an increase in accounts receivable which was partially offset by increased levels of profitability, income taxes payable and withheld payroll taxes and depreciation and amortization associated with the acquisitions that were completed during fiscal 1998 and the three months ended January 31, 1999. Investing activities utilized $15.7 million and $3.7 million in the three months ended January 31, 1999 and 1998, respectively. During three months ended January 31, 1999, the Company invested $12.5 million in cash in the purchase of three staffing companies and $2.9 million of deferred consideration payments related to acquisitions prior to October 31, 1998. During the three months ended January 31, 1998, the Company invested $3.1 million in cash in the purchase of one staffing company. Financing activities provided $296,000 and $554,000 for three months ended January 31, 1999 and 1998, respectively. On August 19, 1998, the Company and its subsidiaries entered into an agreement with Mellon Bank N.A., administrative agent for a syndicate of banks, which provides for a $75.0 million Revolving Credit Facility. Borrowings under the Revolving Credit Facility bear interest, at the Company's option, at LIBOR (London Interbank Offered Rate) plus applicable margin or the agent bank's prime rate. Borrowings under the Revolving Credit Facility are collateralized by all of the assets of the Company and its subsidiaries and a pledge of all of the stock of its subsidiaries. The Revolving Credit Facility also contains various financial and non-financial covenants. The Revolving Credit Facility expires August 2001. There were no amounts outstanding under the Revolving Credit Facility at January 31, 1999. The Company anticipates that its primary uses of capital in future periods will be for acquisitions and the funding of increases in accounts receivable. Funding for further acquisitions will be derived from the Revolving Credit Facility, funds generated through operations or future financing transactions. The Company's business strategy is to achieve growth both internally through operations and externally through strategic acquisitions. The Company's liquidity and capital resources may be affected in the future as the Company continues to grow through implementation of this strategy which may involve acquisitions facilitated through the use of cash and/or debt and equity securities. The Company does not, as of the date of this Report, have material commitments for capital expenditures and does not anticipate entering into any such commitments during the next twelve months. The Company continues to evaluate acquisitions of various businesses which are complementary to its current operations. The Company's current commitments consist primarily of lease obligations for office space. The Company believes that its capital resources are sufficient to meet its present obligations and those to be incurred in the normal course of business for the next twelve months. 15 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Year 2000 Readiness Disclosure Many existing computer systems use only two digits to identify a year with the assumption that the first two digits of every year are "19". With the year 2000 approaching, computer systems that are not Year 2000 compliant will read the year 2000 as 1900 and may malfunction. The Company's program to assess the extent of issues related to Year 2000 compliance and to develop and implement solutions for those issues is being directed by senior management with the Company's Chief Technology Officer having primary responsibility for the coordination, remediation, implementation and contingency planning efforts. Designated personnel at the Company's headquarters and at each of the Company's operating locations have been assigned Year 2000 compliance responsibilities. The program is focused on internal information technology systems, computer-aided design systems, non-IT systems (equipment with embedded micro processors), facilities and the status of compliance by larger customers, service providers, suppliers and other key third parties. The program involves the following phases: Assessment, Remediation Planning, Contingency Planning, Remediation/Replacement Implementation and Compliance Testing. The internal IT systems compliance issues are most critical and relate to the Company's financial systems, computer networks and communications systems and personnel recruiting and human resource systems. Corporate level personnel have responsibility to insure that all financial, network and communication systems will be Year 2000 compliant as well as determining the status of compliance by larger customers, suppliers and other key third parties. Personnel recruiting and human resource tracking systems for billable resources are being evaluated and remediated by local branch management under the coordination of the Corporate Chief Technology Officer. Year 2000 compliance related to internal financial systems is being addressed in two ways. The Company has decided to replace its primary financial system with a state-of-the-art integrated enterprise-wide system. This decision was driven by the need for enhanced processing, control and reporting capabilities using current technologies. Based on representations and warranties of the vendor, the Company believes that the new system will be Year 2000 compliant and is expected to be operational by the third quarter of 1999. In addition, the existing primary system and other ancillary systems have been evaluated for Year 2000 compliance and the required remediation and testing are underway. These efforts are scheduled to be concluded by early 1999. With respect to larger customers, suppliers and other key third parties, questionnaire surveys are being distributed for use in assessing their state of compliance in order to develop contingency plans in case of non-compliance. Customers and suppliers with whom there is electronic interchange of data are of primary focus to insure that both the Company and those parties are Year 2000 compliant with respect to such interchanges. The Company does not believe the consequences of non-compliance of third party suppliers and customers would be material due to the limited exposure the Company has assessed to these parties. The responsibility for identifying and assessing compliance issues and then implementing solutions for computer-aided design systems, non-IT systems, facilities, and the status of compliance by suppliers and other third parties, rests primarily with each operating office. Solutions for Year 2000 issues related to computer-aided design systems, non-IT systems and facilities will, of necessity, come from vendors and others providing the related services. The Company, however, plans to identify compliance issues and monitor remediation or replacement efforts. With respect to local suppliers and third parties, the Company has also distributed questionnaire surveys in order to assess their state of compliance in order to develop contingency plans in case of non-compliance. The identification and assessment process is well underway with the expectation that solutions will be in place by the second quarter of 1999. 16 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Year 2000 Readiness Disclosure - (Continued) The cost of the Company's Year 2000 and enterprise wide solution implementation program is expected to be approximately $1.2 million, approximately $600,000 of which has been incurred as of the date of the filing of this Report. This amount includes costs associated with the new financial system and the new personnel recruiting and human resource systems described above. These systems already were scheduled for implementation and their implementation was not accelerated because of Year 2000 issues. The Company believes that its program to address Year 2000 compliance is on schedule for completion before the end of 1999. However, there can be no assurance that there will be no material impact as a result of Year 2000 issues, particularly considering the dependence and interdependence that exists with third parties and that resources for remediation and replacement may not be available in the required time frame. Since the Company has a greater level of control over implementing solutions to Year 2000 issues relating to its internal systems, it is more likely that adverse impacts on the Company could originate with third parties rather than from the Company's inability to have its internal systems Year 2000 compliant. If issues related to internal systems are not resolved before the end of 1999, the consequences to the Company could be material. The Company is in the process of developing a most reasonably likely worst case Year 2000 scenario. At the appropriate time, but not later than mid-1999, the Company will determine the extent to which contingency plans are required. 17 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11 Computation of earnings per share. 27 Financial Data Schedule. (b) Reports on Form 8-K The Company did not file a report of Form 8-K during the period ended January 31, 1999. 18 RCM TECHNOLOGIES, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RCM Technologies, Inc. (Registrant) Date: March 5, 1999 By:/s/ Stanton Remer ----------------------------- Stanton Remer Chief Financial Officer, Treasurer, Secretary and Director (Principal Financial Officer of Registrant) 19 EXHIBIT 11 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE Three Months Ended January 31, 1999 and 1998
1999 1998 ---------------- ---------------- Diluted earnings Net income applicable to common stock $ 3,279,725 $ 1,777,401 = ========= = ========= Shares Weighted average number of shares outstanding 10,466,882 7,593,447 Common stock equivalents 554,631 583,836 ------- ------- Total 11,021,513 8,177,283 ========== ============== Diluted earnings per common share $.30 $.22 ==== ==== Basic earnings Net income applicable to common stock $ 3,279,725 $ 1,777,401 = ========= ============= Shares Weighted average number of shares outstanding 10,466,882 7,593,447 ========== ============== Basic earnings per common share $.31 $.23 ==== ==== 20
EX-27 2 FDS--
5 THIS SCHEDULE SUMMARY FINANCIAL INFORMATION IS EXTRACTED FROM THE FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0000700841 RCM TECHNOLOGIES, INC. 1 U.S. DOLLARS 3-MOS OCT-31-1999 NOV-01-1998 JAN-31-1999 1 7,149,441 0 50,270,158 486,000 0 58,499,997 4,782,586 1,638,671 126,640,339 16,392,544 0 0 0 523,854 109,723,941 126,640,339 67,391,593 67,391,593 51,203,646 10,868,224 0 0 19,822 5,475,530 2,195,805 3,279,725 0 0 0 3,279,725 .31 .30
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