Back to GetFilings.com
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 April 2, 2005
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, 11,388,720 shares outstanding as of May 11, 2005.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Page
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets as of April 2, 2005 (Unaudited)
and January 1, 2005 3
Unaudited Consolidated Statements of Income and Comprehensive Income
For the Thirteen Weeks Ended April 2, 2005 and March 27, 2004 5
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the Thirteen Weeks Ended April 2, 2005 7
Unaudited Consolidated Statements of Cash Flows for the Thirteen Weeks Ended
April 2, 2005 and March 27, 2004 8
Notes to Unaudited Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 21
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 32
Item 4 - Controls and Procedures 32
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 33
Item 6 - Exhibits 35
Signatures 36
2
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 2, 2005 and January 1, 2005
ASSETS
April 2, January 1,
2005 2005
--------------- ---------------
(Unaudited)
Current assets
Cash and cash equivalents $1,781,597 $2,401,794
Accounts receivable, net of allowance for doubtful accounts
of $1,853,000 (April 2, 2005) and $1,862,000
(January 1, 2005), respectively 41,774,684 40,535,949
Restricted cash 8,295,625 8,295,625
Prepaid expenses and other current assets 967,377 1,503,477
Deferred tax assets 4,964,007 4,964,007
--------------- ---------------
Total current assets 57,783,290 57,700,852
--------------- ---------------
Property and equipment, at cost
Equipment and leasehold improvements 9,159,824 9,572,546
Less: accumulated depreciation and amortization 4,735,070 5,153,519
--------------- ---------------
4,424,754 4,419,027
--------------- ---------------
Other assets
Deposits 135,098 138,158
Goodwill 35,842,896 35,842,896
--------------- ---------------
35,977,994 35,981,054
--------------- ---------------
Total assets $98,186,038 $98,100,933
=============== ===============
3
The accompanying notes are an integral part of these
financial statements.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
April 2, 2005 and January 1, 2005
LIABILITIES AND SHAREHOLDERS' EQUITY
April 2, January 1,
2005 2005
--------------- ---------------
(Unaudited)
Current liabilities
Line of credit $6,400,000 $4,900,000
Accounts payable and accrued expenses 11,903,705 12,242,977
Accrued compensation 5,361,670 6,766,586
Payroll and withheld taxes 413,155 1,099,856
Income taxes payable 3,314,222 3,146,478
--------------- ---------------
Total current liabilities 27,392,752 28,155,897
--------------- ---------------
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; 11,385,720 and
11,383,470 shares issued and outstanding
at April 2, 2005 and January 1, 2005, respectively 569,286 569,173
Accumulated other comprehensive income 744,831 736,128
Additional paid-in capital 98,297,490 98,290,719
Accumulated deficit (28,818,321) (29,650,984)
--------------- ---------------
70,793,286 69,945,036
--------------- ---------------
Total liabilities and shareholders' equity $98,186,038 $98,100,933
=============== ===============
4
The accompanying notes are an integral part of these
financial statements.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Thirteen Weeks Ended April 2, 2005 and March 27, 2004
(Unaudited)
2005 2004
-------------- -------------
Revenues $44,081,579 $41,272,729
Cost of services 33,973,145 31,245,291
-------------- -------------
Gross profit 10,108,434 10,027,438
-------------- -------------
Operating costs and expenses
Selling, general and administrative 8,405,686 8,436,424
Depreciation 260,107 282,203
Amortization 17,139
-------------- -------------
8,665,793 8,735,766
-------------- -------------
Operating income 1,442,641 1,291,672
-------------- -------------
Other expenses
Interest expense, net of interest income 123,740 114,691
Loss on foreign currency transactions 4,011 728
-------------- -------------
127,751 115,419
-------------- -------------
Income before income taxes 1,314,890 1,176,253
Income taxes 482,227 380,300
-------------- -------------
Net income 832,663 795,953
Other comprehensive income (loss)
Foreign currency translation adjustment 8,703 (110,011)
-------------- -------------
Comprehensive income $841,366 $685,942
============== =============
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)
Thirteen Weeks Ended April 2, 2005 and March 27, 2004
(Unaudited)
2005 2004
--------------- ---------------
Basic earnings per share
Basic earnings per share $.07 $.07
==== ====
Weighted average number of common shares outstanding 11,384,846 11,290,779
========== ==========
Diluted earnings per share
Diluted earnings per share $.07 $.07
==== ====
Weighted average number of common and common equivalent shares outstanding
(includes dilutive securities relating to options
of 198,414 and 570,897 in 2005 and 2004, respectively) 11,583,260 11,861,676
========== ==========
6
The accompanying notes are an integral part of these
financial statements.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Thirteen Weeks Ended April 2, 2005
(Unaudited)
Accumulated
Other Additional
Comprehensive Paid-in Accumulated
Common Stock Income Capital Deficit Total
-------------- -----------
Shares Amount
Balance, January 1, 2005 11,383,470 $569,173 $736,128 $98,290,719 ($29,650,984) $69,945,036
Exercise of stock options 2,250 113 6,771 6,884
Translation adjustment 8,703 8,703
Net income 832,663 832,663
------ --- -------- ---- ------- -------
Balance, April 2, 2005 11,385,720 $569,286 $744,831 $98,297,490 ($28,818,321) $70,793,286
========== ======== ======== =========== ============= ===========
7
The accompanying notes are an integral part of these
financial statements.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirteen Weeks Ended April 2, 2005 and March 27, 2004
(Unaudited)
2005 2004
--------------- --------------
Cash flows from operating activities:
Net income $832,663 $795,953
--------------- --------------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 260,107 299,342
Provision for losses on accounts receivable (9,000) 31,000
Changes in assets and liabilities:
Accounts receivable (1,229,735) (1,034,285)
Prepaid expenses and other current assets 536,100 788,762
Accounts payable and accrued expenses (339,272) (2,174,214)
Accrued payroll (1,404,916) 682,440
Payroll and withheld taxes (686,702) 58,215
Income taxes payable 167,745 (187,644)
--------------- --------------
Total adjustments (2,705,673) (1,536,384)
--------------- --------------
Net cash used in operating activities ($1,873,010) ($740,431)
--------------- --------------
8
The accompanying notes are an integral part of these
financial statements.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
Thirteen Weeks Ended April 2, 2005 and March 27, 2004
(Unaudited)
2005 2004
--------------- --------------
Cash flows from investing activities:
Property and equipment acquired ($265,834) ($98,816)
Decrease in deposits 3,060 668
--------------- --------------
Net cash used in investing activities (262,774) (94,148)
--------------- --------------
Cash flows from financing activities:
Exercise of stock options 6,884 46,663
Net borrowings (repayments) on line of credit 1,500,000 (1,800,000)
--------------- --------------
Net cash provided by (used in) financing activities 1,506,884 (1,753,337)
--------------- --------------
Effect of exchange rate changes on cash and cash equivalents 8,703 (110,013)
--------------- --------------
Decrease in cash and cash equivalents (620,197) (2,697,929)
Cash and cash equivalents at beginning of period 2,401,794 5,152,499
--------------- --------------
Cash and cash equivalents at end of period $1,781,597 $2,454,570
=============== ==============
Supplemental cash flow information:
Cash paid for:
Interest expense $77,398 $50,333
Income taxes $448,388 $600,407
9
The accompanying notes are an integral part of these
financial statements.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). This Quarterly Report on Form 10-Q should be
read in conjunction with the Company's Annual Report on Form 10-K for the
fiscal year ended January 1, 2005. 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, that in the opinion of
management, are necessary for a fair presentation of the consolidated
financial position of the Company and its consolidated results of
operations for the interim periods set forth herein. The results for the
thirteen weeks ended April 2, 2005 are not necessarily indicative of the
results to be expected for the full year.
2. Fiscal Year
The Company follows a 52/53 week fiscal reporting calendar ending on the
Saturday closest to December 31. A 53-week year occurs periodically. The
fiscal year ended January 1, 2005 was a 53-week reporting year. The first
quarter of 2004, the 2004 fiscal year and the first quarter of 2005 ended
on the following dates, respectively:
Period Ending Weeks in Quarter
March 27, 2004 Thirteen
January 1, 2005 Thirteen
April 2, 2005 Thirteen
3. Use of Estimates and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses and disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
The Company has risk participation arrangements with respect to workers
compensation and health care insurance. The amounts included in the
Company's costs related to this risk participation are estimated and can
vary based on changes in assumptions, the Company's claims experience or
the providers included in the associated insurance programs.
The Company can be affected by a variety of factors including uncertainty
relating to the performance of the U.S. economy, competition, demand for
the Company's services, adverse litigation and claims, and the hiring,
training and retention of key employees.
10
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. New Accounting Standards
In December 2004, the Financial Accounting Standards Board issued SFAS No.
123R (revised 2004), Share-Based Payment, which addresses the accounting
for employee stock options. SFAS No. 123R eliminates the ability to account
for shared-based compensation transactions using APB 25 and generally would
require instead that such transactions be accounted for using a fair
value-based method. SFAS No. 123R also requires that tax benefits
associated with these share-based payments be classified as financing
activities in the statement of cash flow rather than operating activities
as currently permitted. SFAS No. 123R becomes effective at the beginning of
the next fiscal year after June 15, 2005. Accordingly, the Company is
required to apply SFAS No. 123R beginning fiscal quarter ending April 1,
2006. SFAS No. 123R offers alternative methods of adopting this final rule.
At the present time, the Company has not yet determined which alternative
method it will use.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB107"),
to provide further guidance regarding the interaction of the provisions of
SFAS 123R and certain SEC rules and regulations.
5. Line of Credit
On May 31, 2002, the Company and its subsidiaries entered into an amended
and restated loan agreement, which was further amended on July 27, 2004,
with Citizens Bank of Pennsylvania, administrative agent for a syndicate of
banks, which provides for a $25 million Revolving Credit Facility (the
"Revolving Credit Facility"). Availability of credit under the Revolving
Credit Facility is based on 80% of the aggregate amount of accounts
receivable for which not more than 90 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 2006. The weighted average
interest rates under the Revolving Credit Facility for the thirteen weeks
ended April 2, 2005 and March 27, 2004 were 5.6% and 2.92%, respectively.
The amounts outstanding under the Revolving Credit Facility at April 2,
2005 and January 1, 2005 were $6.4 million and $4.9 million, respectively.
At April 2, 2005, the Company had availability for additional borrowing
under the Revolving Credit Facility of $18.5 million.
6. Interest (Expense) Income, Net
Interest (expense) income, net consisted of the following:
-----------------------------------
Thirteen Weeks
-----------------------------------
April 2, 2005 March 27, 2004
---------------- ------------------
Interest expense ($128,260) ($137,000)
Interest income 14,520 22,309
---------------- ------------------
($123,740) ($114,691)
================ ==================
11
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. Goodwill
Statement of Financial Accounting Standards ("SFAS") 142 requires the
Company to perform a goodwill impairment test on at least an annual basis.
For purposes of its 2004 annual impairment testing, the Company determined
the fair value of its reporting units using relative market multiples for
comparable businesses, as of November 30, 2004 as well as forecasted
operating income and cash flows of each reporting unit and prospects for
future recovery. The Company compared the fair value of each of its
reporting units to their respective carrying values, including related
goodwill. Future changes in the industry could impact the market multiples
of comparable businesses, and consequently could impact the results of
future annual impairment tests. There have been no events in the thirteen
weeks ended April 2, 2005 that have indicated a need to perform the
impairment test prior to the Company's annual test date.
There are no changes in the carrying amount of goodwill for the thirteen
weeks ended April 2, 2005.
8. Accounts Payable
Accounts payable and accrued expenses consisted of the following at April
2, 2005 and January 1, 2005:
April 2, January 1,
2005 2005
--------------- ----------------
(Unaudited)
Accounts payable - trade $3,626,712 $4,024,164
Reserve for litigation 8,276,993 8,218,813
--------------- ----------------
Total $11,903,705 $12,242,977
=============== ================
9. Shareholders' Equity
Common Shares Reserved
Shares of unissued common stock were reserved for the following purposes:
April 2, January 1,
2005 2005
-------------- ----------------
(Unaudited)
Exercise of options outstanding 1,176,333 1,183,583
Future grants of options 999,036 994,236
-------------- ----------------
Total 2,175,369 2,177,819
============== ================
12
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10. 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. SFAS No. 123 permits entities to continue accounting
for employee stock options and similar equity instruments under Accounting
Principles Board Opinion No. 25, (APB) Accounting for Stock Issued to
Employees, and related interpretations. Entities that continue to account
for stock options using APB 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.
As of April 2, 2005, the Company had four stock-based employee compensation
plans. Under 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).
Thirteen Weeks Ended
--------------------------------
April 2, March 27,
2005 2004
--------------- ---------------
Net income, as reported $833 $796
Less: stock-based compensation costs
determined under fair value based
method for all awards 60 145
Net income, pro forma $773 $651
Earnings per share of common stock-basic:
As reported $.07 $.07
Pro forma $.07 $.06
Earnings per share of common stock-diluted:
As reported $.07 $.07
Pro forma $.07 $.06
The pro forma compensation cost using the fair value-based method under
SFAS No. 123 includes valuations related to stock options granted since
January 1, 1995 using the Black-Scholes Option Pricing Model. There were
no options granted during the thirteen weeks ended April 2, 2005.
13
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10. Stock - Based Compensation (Continued)
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, provided for the issuance of up to 500,000 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 were intended to be incentive
stock options pursuant to Section 422A of the Internal Revenue Code. The
option terms were not permitted to exceed ten years and the exercise price
was not permitted to 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 determined the vesting period at the time of grant for each of
these options. As of April 2, 2005, options to purchase 87,855 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, provided for issuance of up to 110,000 shares of
common stock to non-employee directors of the Company through February 19,
2004, at which time the 1994 Plan expired. Options granted under the 1994
Plan were 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 under the 1994 Plan terminate when an optionee
ceases to be a Director of the Company. As of April 2, 2005, options to
purchase 70,000 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. As of
April 2, 2005, options to purchase 927,980 shares of common stock were
available for future grants, and options to purchase 240,645 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. As of April 2, 2005,
options to purchase 71,056 shares of common stock were available for future
grants, and options to purchase 777,833 shares of common stock were
outstanding.
14
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10. Stock - Based Compensation (Continued)
Employee Stock Purchase Plan
The Company implemented an Employee Stock Purchase Plan (the "Purchase
Plan") with shareholder approval, effective January 1, 2002. Under the
Purchase Plan, employees meeting certain specific employment qualifications
are eligible to participate and can purchase shares of Common Stock
semi-annually through payroll deductions at the lower of 85% of the fair
market value of the stock at the commencement or end of the offering
period. The purchase plan permits eligible employees to purchase common
stock through payroll deductions for up to 10% of qualified compensation.
During the thirteen weeks ended April 2, 2005 and March 27, 2004, there
were no shares issued under the Purchase Plan. As of April 2, 2005, there
were 297,899 shares available for issuance under the Purchase Plan.
15
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. Segment Information
The Company 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 accounting policies of each segment are the
same as those described in the summary of significant accounting policies
(see Note 1).
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):
Thirteen Weeks Ended Information
April 2, 2005 Technology Engineering Commercial Corporate Total
--------------- -------------- -------------- ------------- -------------
Revenue $24,652 $11,763 $7,667 $44,082
Operating expenses (1) 23,146 11,839 7,394 42,379
--------------- -------------- -------------- ------------- -------------
EBITDA (2) 1,506 (76 ) 273 1,703
Depreciation 135 91 34 260
--------------- -------------- -------------- ------------- -------------
Operating income (loss) 1,371 (167 ) 239 1,443
Interest expense, net of
interest income 69 33 22 124
Loss on foreign currency
transactions 4 4
Income taxes (benefit) 477 (75 ) 80 482
--------------- -------------- -------------- -------------
Net income (loss) $825 ($129 ) $137 $833
=============== ============== ============== =============
Total assets $48,758 $22,157 $9,102 $18,169 $98,186
Capital expenditures $51 $215 $266
16
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. Segment Information (Continued)
Thirteen Weeks Information
Ended March 27, 2004 Technology Engineering Commercial Corporate Total
--------------- ------------ -------------- ------------- -------------
Revenue $22,584 $13,434 $5,255 $41,273
Operating expenses (1) 21,835 12,416 5,431 39,682
--------------- ------------ -------------- ------------- -------------
EBITDA (2) 749 1,018 (176 ) 1,591
Depreciation 153 105 24 282
Amortization of intangibles 5 11 1 17
--------------- ------------ -------------- ------------- -------------
Operating income (loss) 591 902 (201 ) 1,292
Interest expense, net of
interest income 63 37 15 115
Loss on foreign currency
transactions 1 1
Income taxes (benefit) 170 281 (71 ) 380
--------------- ------------ -------------- -------------
Net income (loss) $358 $583 ($145 ) $796
=============== ============ ============== =============
Total assets $97,697 $49,285 $22,260 $6,387 $97,697
Capital expenditures $10 $85 $95
(1) Operating expenses excludes depreciation and amortization.
(2) EBITDA means earnings before interest income, interest expense, income
taxes, depreciation and amortization. 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 EBITDA
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, nor 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.
17
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. Segment Information (Continued)
The Company is domiciled in the United States and its segments operate in
the United States and Canada. Revenues and fixed assets by geographic area
as of and for the thirteen weeks ended April 2, 2005 and March 27, 2004 are
as follows (in thousands):
April 2, March 27,
2005 2004
----------------- ----------------
Revenues
U. S. $40,229 $35,526
Canada 3,853 5,747
----------------- ----------------
$44,082 $41,273
================= ================
Fixed Assets
U. S. $4,204 $4,636
Canada 221 306
----------------- ----------------
$4,425 $4,942
================= ================
18
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
12. Contingencies
In late 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 2002. 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 limitation by the Company of the number of shares that
the plaintiffs 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 verdict and upheld the 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 post-verdict
pre-judgment interest. Post-judgment interest will continue to accrue on
the damages portion of the judgment at the rate of 3% per annum in 2005.
The Company has appealed to the Appellate Division of the Superior Court of
New Jersey, and obtained a stay pending appeal of, that judgment. In order
to secure the stay, the Company made a cash deposit in lieu of bond of $8.3
million with the Trust Fund of the Superior Court of New Jersey. This
deposit is recorded as restricted cash on the consolidated balance sheet
and earns interest at a rate that approximates the daily federal funds
rate. The plaintiffs have cross-appealed from the Court's denial of
pre-verdict prejudgment interest on the damages portion of the August 4,
2003 judgment and from the Court's refusal to grant judgment as a matter of
law to one of the plaintiffs on his claim for severance pay in the amount
of $240,000 plus interest. The briefing phase of the appeal was concluded
in April 2004 and oral argument was heard on February 15, 2005. The timing
of a ruling on the appeal cannot be predicted at this time but is expected
in the second quarter of 2005. Further appellate proceedings are likely no
matter which side prevails in the Appellate Division.
In connection with this litigation, the Company accrued $9.7 million of
litigation charges at December 31, 2002, which included the jury award of
$7.6 million, professional fees of $1.1 million and an estimate of $1.0
million for attorney fees and pre-judgment interest. As of April 2, 2005,
the accrued litigation reserve was $8.3 million.
19
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
12. Contingencies - (Continued)
In addition, in November 2002 the Company brought suit in the Superior
Court of New Jersey, Law Division, on professional liability claims against
the attorneys and law firms who served as its counsel in the
above-described acquisition transaction and in its subsequent dealings with
the plaintiffs concerning their various relationships with the Company
resulting from that transaction. In its lawsuit against the former counsel,
the Company is seeking complete indemnification (1) of its costs and
counsel fees incurred in defending itself against the claims of the
plaintiffs; (2) any sums for which the Company is ultimately determined to
be liable to the plaintiffs; and (3) its costs and counsel fees incurred in
the prosecution of the legal malpractice action itself. That litigation has
been temporarily stayed in the Law Division until at least May 16, 2005
while the appeal of the underlying action goes forward in the Appellate
Division of the Superior Court.
The Company is also subject to other pending legal proceedings and claims
that arise from time to time in the ordinary course of its business, which
may or may not be covered by insurance.
The litigation and other claims previously noted are subject to inherent
uncertainties and management's view of these matters may change in the
future. Were an unfavorable outcome to occur, there exists the possibility
of a material adverse impact on the Company's consolidated financial
position and the consolidated results of operations for the period in which
the effect becomes reasonably estimable.
13. Subsequent Event
On May 2, 2005, the registrant ("RCM") agreed to the terms of a separation
and release agreement with Brian A. Delle Donne, effective as of March 29, 2005,
in connection with Mr. Delle Donne's departure from RCM as of that date.
Under the terms of the separation and release agreement, Mr. Delle Donne
will receive a lump sum of $175,000. The lump sum will be reduced by an amount
equal to the principal and interest due by Mr. Delle Donne to RCM in connection
with a pre-existing loan by RCM to Mr. Delle Donne. The net amount is payable
within three weeks after execution of the separation and release agreement, as
well as payment for any unused vacation hours accrued as of March 29, 2005,
payable no later than the second RCM payroll following March 29, 2005. RCM will
continue to pay Mr. Delle Donne's monthly health premiums until the earlier of
March 31, 2006, or the date on which Mr. Delle Donne secures full-time
employment as a W-2 employee with an employer offering employee health benefits.
In addition, options held by Mr. Delle Donne to purchase 25,000 shares of RCM's
common stock, par value $0.05, at an exercise price of $3.95, will fully vest as
of March 29, 2005, and will be exercisable though December 31, 2005. The options
would otherwise have vested in February 2006. The termination date of Mr. Delle
Donne's fully vested options to purchase 100,000 shares of RCM's common stock at
an exercise price of $4.75 will be extended through December 31, 2005.
RCM will continue to provide Mr. Delle Donne with an attorney and to
indemnify Mr. Delle Donne as a named defendant against any award of damages in
connection with the RCM's ongoing defense of a lawsuit pending in the Superior
Court of New Jersey, Law Division. As consideration for the above, Mr. Delle
Donne will agree to cooperate with RCM and its counsel in their defense of the
lawsuit.
Mr. Delle Donne will provide RCM and its affiliates a general release from
all claims arising out of, or in connection with, his employment and will agree
not to disclose RCM's proprietary and confidential information and, subject to
certain time limits, not to solicit RCM's current and former employees.
20
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 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; the outcome of litigation (at
both the trial and appellate levels) involving the Company; and the impact on
the Company of its exchange offer relating to its outstanding stock options.
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," "believe,"
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 affecting the
provision of information technology and engineering services and solutions and
the 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 that 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)
uncertainties in 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 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 trends or circumstances after
the date they are made or to reflect the occurrence of unanticipated events.
21
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Overview
RCM participates in a sector that is cyclical in nature and extremely
sensitive to economic changes. As a result, the impact of economic changes
on revenues and operations can be volatile.
After a significant growth and expansion period in the late 1990's for the
sector, the U.S. economy experienced a dramatic slowdown, forcing companies
to curtail technology spending, consolidate operations, and reduce their
demand for services and labor. Because of this severe slowdown, which began
in 2000, RCM's revenues were adversely affected prompting management to
reconsider its business strategy. In response to declining revenues, the
company initiated reductions in its staff personnel and consolidated
branches. Since that time, management has continued to monitor its
operating cost structure in order to maintain a cost benefit relationship
with revenues, while focusing on working capital management and cash flows.
These efforts have resulted in an improvement in working capital and
tangible net worth, and a reduction of debt.
Furthermore, the Company has improved discipline in its marketing and sales
strategies by providing a more cohesive and relevant marketing and sales
approach to new and existing customers and now focuses on growth in
targeted vertical markets, on service offerings providing greater revenue
opportunities and on several new business initiatives. With the economy
strengthening over the past two years, the sector is beginning to see
modest growth.
Despite the improved economy, companies have been to slow to adapt many
technological enhancements. The process of designing, developing and
implementing software solutions has become increasingly complex. The
Company believes that many companies today are focused on return on
investment analysis in prioritizing the initiatives they undertake. This
has resulted in delays in the awarding of contracts or totally negating
spending on many emerging new solutions which management had previously
anticipated.
Nonetheless, the Company continues to believe that Information Technology
("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 continually to
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 current clients and prospective future clients are
continuing to evaluate the potential for outsourcing business critical
applications and entire business functions.
The Company provides project management and consulting services, which are
billed based on either an agreed -upon fixed fee or hourly rates, or a
combination of both. The billing rates and profit margins for project
management and solutions services 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 Company also
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 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. Although contracts
normally relate to longer-term and more complex engagements, they 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 and accepted by the customer.
22
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Overview (Continued)
Costs of services consist primarily of salaries and compensation-related
expenses for billable 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.
Critical Accounting Policies
The financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require
management to make subjective decisions, assessments, and estimates about
the effect of matters that are inherently uncertain. As the number of
variables and assumptions affecting the judgments increases, such judgments
become even more subjective. While management believes that its assumptions
are reasonable and appropriate, actual results may differ materially from
estimates. The Company has identified certain critical accounting policies,
described below, that require significant judgment to be exercised by
management.
Revenue Recognition
The Company derives its revenues from several sources. All of the Company's
segments perform staffing services. The Company's Engineering Services and
Information Technology Services segments also perform project services. The
Information Technology Services segment also derives revenue from permanent
placement fees.
Project Services - The Company recognizes revenues in accordance with the
Securities and Exchange Commission, Staff Accounting Bulletin (SAB) Number
104, "Revenue Recognition." SAB 104 clarifies application of U.S. generally
accepted accounting principles to revenue transactions. 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 the performance of such project or
activity. The Company recognizes revenues and associated costs on a gross
basis as services are provided to the customer and costs are incurred using
its employees. The Company, from time to time, enters into contracts
requiring the completion of specific deliverables. The Company recognizes
revenue on these deliverables at the time the client accepts and approves
the deliverables. 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.
Provision for contract losses, if any, is made in the period such losses
are determined. For contracts where there are multiple deliverables and the
work has not been 100% complete on a specific deliverable the costs have
been deferred. The associated costs are expensed when the related revenue
is recognized.
23
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Revenue Recognition (Continued)
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).
Permanent Placement Services - The Company earns permanent placement fees
from providing permanent placement services. Fees for placements are
recognized at the time the candidate commences employment. The Company
guarantees its permanent placements on a prorated basis for 90 days. In the
event a candidate is not retained for the 90-day period, the Company will
provide a suitable replacement candidate. In the event a replacement
candidate cannot be located, the Company will provide a prorated 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.
Accounts Receivable
The Company's accounts receivable are primarily due from trade customers.
Credit is extended based on evaluation of customers' financial condition
and, generally, collateral is not required. Accounts receivable payment
terms vary and are stated in the financial statements at amounts due from
customers net of an allowance for doubtful accounts. Accounts outstanding
longer than the payment terms are considered past due. The Company
determines its allowance by considering a number of factors, including the
length of time trade accounts receivable are past due, the Company's
previous loss history, the customer's current ability to pay its obligation
to the Company, and the condition of the general economy and the industry
as a whole. The Company writes off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.
Goodwill and Intangibles
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets." Accordingly, the Company
evaluates the carrying value and recoverability of its goodwill by
evaluating the fair market value of the reporting units within which
goodwill resides. The process of estimating fair value relies in part on
the use of forecasts to estimate future cash flows expected from a
reporting unit as well as the use of market multiples in determining fair
market value. In order to estimate future cash flows, management must make
subjective judgments based on reasonable and supportable assumptions and
projections. The periods for estimating future cash flows are uncertain,
which increases the risk that actual future results could significantly
deviate from estimates. Changes in future market conditions, the Company's
strategy, or other factors could have an effect upon the future values of
these reporting units, which could result in future impairment charges.
24
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Accounting for Stock Options
The Company has used stock options to attract, retain, and reward employees
for long-term service. Generally accepted accounting principles allow
alternative methods of accounting for these awards. The Company has chosen
to account for its stock plans (including stock option plans) under
Accounting Principle Board ("APB") Opinion 25, "Accounting for Stock Issued
to Employees." Since option exercise prices reflect the market value per
share of the Company's stock upon grant, no compensation expense related to
stock options is reflected in the Company's income statement.
In December 2004, the Financial Accounting Standards Board issued SFAS No.
123R (revised 2004), Share-Based Payment, which addresses the accounting
for employee stock options. SFAS No. 123R eliminates the ability to account
for shared-based compensation transactions using APB 25 and generally would
require instead that such transactions be accounted for using a fair
value-based method. SFAS No. 123R also requires that tax benefits
associated with these share-based payments be classified as financing
activities in the statement of cash flow rather than operating activities
as currently permitted. SFAS No. 123R becomes effective for interim or
annual periods beginning after December 15, 2005. Accordingly, the Company
is required to apply SFAS No. 123R beginning fiscal quarter ending April 1,
2006. SFAS No. 123R offers alternative methods of adopting this final rule.
At the present time, the Company has not yet determined which alternative
method it will use.
Had SFAS 123R been adopted, the Company would have recorded additional
pre-tax costs of approximately $60,000 and $145,000 for the thirteen weeks
ended April 2, 2005 and March 27, 2004, respectively. This pro forma
compensation cost was calculated using the Black-Scholes Options Pricing
Model, which includes estimates based on assumptions for the risk-free
interest rate, life of options and stock price volatility and is based upon
freely traded options. Changes in the underlying assumptions could affect
the pro forma compensation cost.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB107"),
to provide further guidance regarding the interaction of the provisions of
SFAS 123R and certain SEC rules and regulations.
Accounting for Income Taxes
In establishing the provision for income taxes and deferred income tax
assets and liabilities, and valuation allowances against deferred tax
assets, the Company makes judgments and interpretations based on enacted
tax laws, published tax guidance, and estimates of future earnings. As of
April 2, 2005, the Company had total net deferred tax assets of $5.0
million. This included $1.0 million relating to federal and state net
operating loss carry forwards and $3.2 million for a reserve for litigation
charges. Realization of deferred tax assets is dependent upon the
likelihood that future taxable income will be sufficient to realize these
benefits over time, and the effectiveness of tax planning strategies in the
relevant tax jurisdictions. In the event that actual results differ from
these estimates and assessments, additional valuation allowances may be
required.
25
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Forward-looking Information
The Company's growth prospects are influenced by broad economic trends. The
pace of customer capital spending programs, new product launches and
similar activities have a direct impact on the need for consulting and
engineering services as well as temporary and permanent employees. Should
the U.S. economy decline, the Company's operating performance could be
adversely impacted. The Company believes that its fiscal discipline,
strategic focus on targeted vertical markets and diversification of service
offerings provides some insulation from adverse trends. However, further
declines in the economy could result in the need for future cost reductions
or changes in strategy.
Additionally, changes in government regulations could result in prohibition
or restriction of certain types of employment services or the imposition of
new or additional employee benefits, licensing or tax requirements with
respect to the provision of employment services that may reduce RCM's
future earnings. There can be no assurance that RCM will be able to
increase the fees charged to its clients in a timely manner and in a
sufficient amount to cover increased costs as a result of any of the
foregoing.
The employment services market is highly competitive with limited barriers
to entry. RCM competes in global, national, regional, and local markets
with numerous consulting, engineering and employment companies. Price
competition in the industries the Company serves is significant, and
pricing pressures from competitors and customers are increasing. RCM
expects that the level of competition will remain high in the future, which
could limit RCM's ability to maintain or increase its market share or
profitability.
26
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Thirteen Weeks Ended April 2, 2005 Compared to Thirteen Weeks Ended March 27, 2004
A summary of operating results for the fiscal periods ended April 2, 2005 and
March 27, 2004 is as follows (in thousands, except for earnings per share data):
April 2, 2005 March 27, 2004
---------------------- ------------------------
% of % of
Amount Revenue Amount Revenue
---------- ---------- ---------- ----------
Revenues $44,082 100.0 $41,273 100.0
Cost of services 33,973 77.1 31,246 75.7
---------- ---------- ---------- ----------
Gross profit 10,109 22.9 10,027 24.3
---------- ---------- ---------- ----------
Selling, general and administrative 8,406 19.0 8,436 20.5
Depreciation and amortization 260 .6 299 .7
---------- ---------- ---------- ----------
8,666 19.6 8,735 21.2
---------- ---------- ---------- ----------
Operating income 1,443 3.3 1,292 3.1
Other expense 128 .3 115 .3
---------- ---------- ---------- ----------
Income before income taxes 1,315 3.0 1,177 2.8
Income taxes 482 1.1 381 .9
---------- ---------- ---------- ----------
Net income $833 1.9 $796 1.9
========== ========== ========== ==========
Earnings per share
Basic: $.07 $.07
========== ==========
Diluted: $.07 $.07
========== ==========
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.
The Company follows a 52/53 week fiscal reporting calendar ending on the
Saturday closest to December 31. A 53-week year occurs periodically. The fiscal
year ended 2004 was a 53-week reporting year. The year to date reporting period
ended April 2, 2005 and March 27, 2004 consisted of thirteen weeks each.
Revenues. Revenues increased 6.8%, or $2.8 million, for the thirteen weeks ended
April 2, 2005 as compared to the same period in the prior year (the "comparable
prior year period"). The revenue increased $2.1 million in the Information
Technology ("IT") segment, decreased $1.7 million in the Engineering ("E")
segment and increased $2.4 million in the Commercial ("C") segment. Management
attributes the overall increase to an improvement of the general economy and
successful marketing and sales efforts. Management reasonably expects revenues
for the remainder of fiscal 2005, to remain consistent on a prorated basis with
the revenues for the thirteen weeks ended April 2, 2005.
27
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Thirteen Weeks Ended April 2, 2005 Compared to Thirteen Weeks Ended
March 27, 2004 - (Continued)
Cost of Services. Cost of services increased 8.7%, or $2.7 million, for the
thirteen weeks ended April 2, 2005 as compared to the comparable prior year
period. This increase was primarily due to the increase in revenues. Cost of
services as a percentage of revenues increased to 77.1% for the thirteen weeks
ended April 2, 2005 from 75.7% for the comparable prior year period. This
increase was primarily attributable to increased pricing pressures in the IT
segment as well as increased revenues in the C segment, which historically has
had lower gross margins. Management anticipates the ratio of cost of sales to
revenues for the remainder of fiscal 2005 to decrease for the remainder of the
fiscal year, which is consistent with historical performance.
Selling, General and Administrative. Selling, general and administrative ("SGA")
expenses decreased .4%, or $30,000, for the thirteen weeks ended April 2, 2005
as compared to the comparable prior year period. This decrease was primarily
attributable to continued cost containment activities, which were offset by
increased sales costs on higher revenues. SGA expenses as a percentage of
revenues were 19.0% for the thirteen weeks ended April 2, 2005 as compared to
20.5% for the comparable prior year period. Management reasonably expects SGA
for the remainder of fiscal 2005 to remain consistent with the SGA for the
thirteen weeks ended April 2, 2005.
Depreciation and Amortization. Depreciation and amortization ("DA") decreased
13.0%, or $39,000, for the thirteen weeks ended April 2, 2005 as compared to the
comparable prior year period.
Other Expense. Other expense consists of interest expense, net of interest
income and gains and losses on foreign currency transactions. For the thirteen
weeks ended April 2, 2005, actual interest expense of $128,000 was offset by
$14,500 of interest income, which was principally earned from short-term money
market deposits. Interest expense, net, increased $9,000 for the thirteen weeks
ended April 2, 2005 as compared to the comparable prior year period. This
increase was primarily due to increased borrowing requirements as well as an
increase in weighted average interest rates on borrowed funds. Losses on foreign
currency transactions increased $3,300 because of the weakening of the U.S.
Dollar in relation to the Canadian Dollar in the thirteen weeks ended April 2,
2005 as compared to the comparable prior year period.
Income Tax. Income tax expense increased 26.5%, or $101,000, for the thirteen
weeks ended April 2, 2005 as compared to the comparable prior year period. This
increase was attributable to a higher level of income before taxes for the
thirteen weeks ended April 2, 2005 compared to the comparable prior year period.
The effective tax rate was 36.7% for the thirteen weeks ended April 2, 2005 as
compared to 32.4% for the comparable prior year period. The increase in
effective tax rate was attributable to a decreased amount of tax-deductible
amortization in relation to reduced income before income tax purposes.
28
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Thirteen Weeks Ended April 2, 2005 Compared to Thirteen Weeks
Ended March 27, 2004 - (Continued)
Segment Discussion (See Footnote 11)
Information Technology
IT revenues of $24.7 million in 2005 increased $2.1 million, or 9.2%, compared
to 2004. The increase was principally attributable to an increase in demand for
IT services. EBITDA for the IT segment was $1.5 million, or 6.1% of revenues,
for 2005 as compared to $749,000, or 3.3% of revenues, for 2004.
Engineering
E revenues of $11.8 million in 2005 decreased $1.7 million, or 12.4%, compared
to 2004. The decrease in revenue was attributable to the softening of demand for
the Company's engineering services. The E segment EBITDA was a loss of $76,000,
or .65% of revenues for 2005 as compared to income of $1.0 million, or 7.6% of
revenues for 2004.
Commercial
C revenues of $7.7 million in 2005 increased $2.4 million, or 45.9% compared to
2004. The increase in revenues for the C segment was attributable to improvement
in economic activity within this segment. The C segment EBITDA was $273,000, or
3.6% of revenues, as compared to a loss of $176,000 or 3.3% of revenues, for
2004.
29
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Liquidity and Capital Resources
The following table summarizes the major captions from the Company's
Consolidated Statements of Cash Flows:
Thirteen Weeks Ended
-----------------------------------------
April 2, 2005 March 27, 2004
------------------ -------------------
(In Thousands)
------------------ -------------------
Operating Activities ($1,873 ) ($740 )
Investing Activities ($263 ) ($94 )
Financing Activities $1,507 ($1,753 )
Operating Activities
Operating activities used $1.9 million of cash for the thirteen weeks ended
April 2, 2005 as compared to operating activities using $740,000 of cash for the
comparable 2004 period. The increase in cash used in operating activities was
primarily attributable to an increase in accounts receivable, a decrease in
accounts payable and accrued expenses, a decrease in accrued compensation, and a
decrease in payroll and withheld taxes, which was partially offset by a decrease
in prepaid expenses and other current assets and a decrease in income taxes
payable. Based on current operating activities and the drivers of those
activities, management reasonably expects that cash will be provided from
operating activities for the remainder of fiscal 2005. The Company continues to
institute enhanced managerial controls and standardization over its receivables
collection and disbursement processes.
Investing Activities
Investing activities used $263,000 for the thirteen weeks ended April 2, 2005 as
compared to $94,000 for the comparable 2004 period. The increase in the use of
cash for investing activities for 2005 as compared to the comparable 2004 period
was primarily attributable to an increase in expenditures for property and
equipment.
Financing Activities
Financing activities principally consisted of borrowing $1.5 million of debt in
2005 as compared to financing activities using $1.8 million for debt reduction
for the comparable 2004 period.
On May 31, 2002, the Company and its subsidiaries entered into an amended and
restated loan agreement, which was further amended on July 27, 2004, with
Citizens Bank of Pennsylvania, administrative agent for a syndicate of banks,
which provides for a $25 million Revolving Credit Facility (the "Revolving
Credit Facility"). Availability of credit under the Revolving Credit Facility is
based on 80% of the aggregate amount of accounts receivable for which not more
than 90 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.
30
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Liquidity and Capital Resources (Continued)
The Revolving Credit Facility expires in August 2006. The weighted average
interest rates under the Revolving Credit Facility for the thirteen weeks ended
April 2, 2005 and March 27, 2004 were 5.6% and 2.92%, respectively. The amounts
outstanding under the Revolving Credit Facility at April 2, 2005 and January 1,
2005 were $6.4 million and $4.9 million, respectively. At April 2, 2005, the
Company had availability for additional borrowing under the Revolving Credit
Facility of $18.5 million.
The Company anticipates that its primary uses of capital in future periods will
be for working capital purposes. Funding for any long and short-term capital
requirements as well as 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 12 (Contingencies) to the financial statements. The outcome of
litigation is subject to inherent uncertainties and management's view of these
matters may change in the future. Were an unfavorable final outcome to occur,
there exists the possibility of a material adverse impact on our financial
position, liquidity, and the results of operations for the period in which the
effect becomes reasonably estimable.
The Company anticipates that if the plaintiffs in the litigation matter, which
is currently being appealed by the Company, are successful in their appeal of
the damages, it would need to borrow funds under its Revolving Credit Facility
in order to satisfy payment of the additional damages. The Company believes that
its borrowing base is sufficient to allow this additional borrowing.
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 April 2, 2005, the Company had a deferred tax asset totaling $5.0 million,
primarily representing the tax effect of the net operating loss carry forwards,
and the litigation reserve. The Company expects to utilize the deferred tax
asset during the twelve months ending March 31, 2006 by offsetting the related
tax benefits of such assets against tax liabilities incurred from forecasted
taxable income.
31
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
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 April 2, 2005, 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 56 basis points) increase in interest rates on its variable debt
(using average debt balances during the thirteen weeks ended April 2, 2005 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 management, under the supervision and with the participation of
the Company's Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this report. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that those disclosure controls and
procedures were adequate to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company's management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
A controls system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the controls system are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected.
There have been no changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter and that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
32
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In late 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 2002. 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 limitation by the Company of the number of shares that
the plaintiffs 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 verdict and upheld the 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 post-verdict
pre-judgment interest. Post-judgment interest will continue to accrue on
the damages portion of the judgment at the rate of 3% per annum in 2005.
The Company has appealed to the Appellate Division of the Superior Court of
New Jersey and obtained a stay pending appeal of, that judgment. In order
to secure the stay, the Company made a cash deposit in lieu of bond of $8.3
million with the Trust Fund of the Superior Court of New Jersey. This
deposit is recorded as restricted cash on the consolidated balance sheet
and earns interest at a rate that approximates the daily federal funds
rate. The plaintiffs have cross-appealed from the Court's denial of
pre-verdict prejudgment interest on the damages portion of the August 4,
2003 judgment and from the Court's refusal to grant judgment as a matter of
law to one of the plaintiffs on his claim for severance pay in the amount
of $240,000, plus interest. The briefing phase of the appeal was concluded
in April 2004 and oral argument was heard on February 15, 2005. The timing
of a ruling on the appeal cannot be predicted at this time but is expected
in the second quarter of 2005. Further appellate proceedings are likely no
matter which side prevails in the Appellate Division.
In connection with this litigation, the Company accrued $9.7 million of
litigation charges at December 31, 2002, which included the jury award of
$7.6 million, professional fees of $1.1 million and an estimate of $1.0
million for attorney fees and pre-judgment interest. As of April 2, 2005,
the accrued litigation reserve was $8.3 million.
33
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
In addition, in November 2002 the Company brought suit in the Superior
Court of New Jersey, Law Division, on professional liability claims against
the attorneys and law firms who served as its counsel in the
above-described acquisition transaction and in its subsequent dealings with
the plaintiffs concerning their various relationships with the Company
resulting from that transaction. In its lawsuit against the former counsel,
the Company is seeking complete indemnification (1) of its costs and
counsel fees incurred in defending itself against the claims of the
plaintiffs; (2) any sums for which the Company is ultimately determined to
be liable to the plaintiffs; and (3) its costs and counsel fees incurred in
the prosecution of the legal malpractice action itself. That litigation has
been temporarily stayed in the Law Division until at least May 16, 2005
while the appeal of the underlying action goes forward in the Appellate
Division of the Superior Court.
The Company is also subject to other pending legal proceedings and claims
that arise from time to time in the ordinary course of its business, which
may or may not be covered by insurance.
The litigation and other claims previously noted are subject to inherent
uncertainties and management's view of these matters may change in the
future. Were an unfavorable outcome to occur, there exists the possibility
of a material adverse impact on the Company's consolidated financial
position and the consolidated results of operations for the period in which
the effect becomes reasonably estimable.
34
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS
31.1 Certification of Chief Executive Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
31.2 Certification of Chief Financial Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
32.1 Certification 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 Certification 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.)
35
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: May 12, 2005 By: /s/ Stanton Remer
-----------------------------
Stanton Remer
Chief Financial Officer,
Treasurer, Secretary and Director
(Principal Financial Officer and
Duly Authorized Officer of the Registrant)
36
Exhibit 31.1
RCM TECHNOLOGIES, INC.
CERTIFICATIONS REQUIRED BY
RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
CERTIFICATION
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: May 12, 2005 /s/ Leon Kopyt
Leon Kopyt
Chief Executive Officer
37
Exhibit 31.2
RCM TECHNOLOGIES, INC.
CERTIFICATIONS REQUIRED BY
RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
CERTIFICATION
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: May 12, 2005 /s/ Stanton Remer
Stanton Remer
Chief Financial Officer
38
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
April 2, 2005 (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: May 12, 2005
39
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
April 2, 2005 (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: May 12, 2005
39