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 1, 2006
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer X
---- ---- -----
Indicate by check mark whether the registrant is a shell company (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, 11,768,244 shares outstanding as of May 3, 2006.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION Page
---------------------------------------------------------------------------------------------------
ITEM 1 - Consolidated Financial Statements
Consolidated Balance Sheets as of April 1, 2006 (Unaudited)
and December 31, 2005 3
Unaudited Consolidated Statements of Income and Comprehensive Income
For the Thirteen Weeks Ended April 1, 2006 and April 2, 2005 5
Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the Thirteen Weeks Ended April 1, 2006 7
Unaudited Consolidated Statements of Cash Flows for the Thirteen Weeks Ended
April 1, 2006 and April 2, 2005 8
Notes to Unaudited Consolidated Financial Statements 10
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 22
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk 33
ITEM 4 - Controls and Procedures 33
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------------------- ----------
ITEM 1 - Legal Proceedings 34
ITEM 6 - Exhibits 35
SIGNATURES 36
2
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 1, 2006 and December 31, 2005
ASSETS
April 1, December 31,
-------------- 2005
2006
----------------------------------------------------------------------------------------------------------------
(Unaudited)
Current assets
Cash and cash equivalents $4,457,114 $3,761,063
Accounts receivable, net of allowance for doubtful accounts
of $1,786,000 (April 1, 2006) and $1,792,000
(December 31, 2005), respectively 49,278,132 44,930,276
Restricted cash 8,658,481 8,572,064
Prepaid expenses and other current assets 2,227,368 2,840,700
Deferred tax assets 4,012,340 4,012,340
----------------------------------------------------------------------------------------------------------------
Total current assets 68,633,435 64,116,443
----------------------------------------------------------------------------------------------------------------
Property and equipment, at cost
Equipment and leasehold improvements 9,582,755 10,038,094
Less: accumulated depreciation and amortization 5,082,505 6,017,593
----------------------------------------------------------------------------------------------------------------
4,500,250 4,020,501
----------------------------------------------------------------------------------------------------------------
Other assets
Deposits 183,807 166,814
Goodwill 37,660,320 37,660,320
Intangible assets, net of accumulated amortization
of $476,908 (April 1, 2006) and $405,376
(December 31, 2005), respectively 737,092 808,624
----------------------------------------------------------------------------------------------------------------
38,581,219 38,635,758
----------------------------------------------------------------------------------------------------------------
Total assets $111,714,904 $106,772,702
================================================================================================================
3
The accompanying notes are an integral part of these
financial statements.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
April 1, 2006 and December 31, 2005
-------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
April 1, December 31,
-------------- 2005
2006
----------------------------------------------------------------------------------------------------------------
(Unaudited)
Current liabilities
Line of credit $7,100,000 $3,900,000
Accounts payable and accrued expenses 17,103,948 14,979,127
Accrued compensation 6,620,922 7,087,897
Payroll and withheld taxes 894,380 867,274
Income taxes payable 3,108,232 4,249,779
----------------------------------------------------------------------------------------------------------------
Total current liabilities 34,827,482 31,084,077
----------------------------------------------------------------------------------------------------------------
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; 11,753,861 and
11,728,261 shares issued and outstanding
at April 1, 2006 and December 31, 2005, respectively 587,693 586,413
Accumulated other comprehensive income 966,825 981,772
Additional paid-in capital 100,636,477 100,235,338
Accumulated deficit (25,303,573) (26,114,898)
----------------------------------------------------------------------------------------------------------------
76,887,422 75,688,625
----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $111,714,904 $106,772,702
================================================================================================================
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 1, 2006 and April 2, 2005
(Unaudited)
-------------------------------------------------------------------------------
2006 2005
------------------------------------------------------------------------ --- -------------- -- --- -------------
Revenues $47,053,786 $44,081,579
Cost of services (1) 35,022,794 33,973,145
------------------------------------------------------------------------ --- -------------- -- --- -------------
Gross profit 12,030,992 10,108,434
------------------------------------------------------------------------ --- -------------- -- --- -------------
Operating costs and expenses
Selling, general and administrative (2) 10,086,022 8,405,686
Depreciation 281,187 260,107
Amortization 71,532
------------------------------------------------------------------------ --- -------------- -- --- -------------
10,438,741 8,665,793
------------------------------------------------------------------------ --- -------------- -- --- -------------
Operating income 1,592,251 1,442,641
------------------------------------------------------------------------ --- -------------- -- --- -------------
Other expenses
Interest expense, net of interest income 65,351 123,740
Loss on foreign currency transactions 13,106 4,011
------------------------------------------------------------------------ --- -------------- -- --- -------------
78,457 127,751
------------------------------------------------------------------------ --- -------------- -- --- -------------
Income before income taxes 1,513,794 1,314,890
Income taxes 702,469 482,227
------------------------------------------------------------------------ --- -------------- -- --- -------------
Net income 811,325 832,663
Other comprehensive (loss) income
Foreign currency translation adjustment (14,947 ) 8,703
------------------------------------------------------------------------ --- -------------- -- --- -------------
Comprehensive income $796,378 $841,366
======================================================================== === ============== == === =============
(1) Includes stock based compensation expense of $12,118 for the thirteen weeks ended April 1, 2006.
(2) Includes stock based compensation expense of $292,849 for the thirteen weeks
ended April 1, 2006.
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 1, 2006 and April 2, 2005
(Unaudited)
-------------------------------------------------------------------------------
2006 2005
-----------------------------------------------------------------------------------------------------------------
Basic earnings per share $.07 $.07
=================================================================================================================
Weighted average number of common shares outstanding 11,733,997 11,384,846
=================================================================================================================
Diluted earnings per share $.07 $.07
=================================================================================================================
Weighted average number of common and common equivalent shares outstanding
(includes dilutive securities relating to options
of 273,173 and 198,414 in 2006 and 2005, respectively) 12,007,170 11,583,260
=================================================================================================================
6
The accompanying notes are an integral part of these
financial statements.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Thirteen Weeks Ended April 1, 2006
(Unaudited)
-------------------------------------------------------------------------------
Accumulated
Other Additional
Common Stock Comprehensive Paid-in Accumulated
Income Capital Deficit Total
-------------- -----------
Shares Amount
--------------------------------- -------------- ----------- ----------------- ----------------- ---------------- ----------------
Balance, December 31, 2005 11,728,261 $586,413 $981,772 $100,235,338 ($26,114,898) $75,688,625
Exercise of stock options 25,600 1,280 96,172 97,452
Translation adjustment (14,947) (14,947)
Stock based compensation 304,967 304,967
expense
Net income 811,325 811,325
--------------------------------- -------------- ----------- ----------------- ----------------- ---------------- ----------------
Balance, April 1, 2006 11,753,861 $587,693 $966,825 $100,636,477 ($25,303,573) $76,887,422
================================= ============== =========== ================= ================= ================ ================
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 1, 2006 and April 2, 2005
(Unaudited)
-------------------------------------------------------------------------------
2006 2005
----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $811,325 $832,663
----------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 352,719 260,107
Stock-based compensation expense 304,967
Provision for losses on accounts receivable (6,000) (9,000)
Changes in assets and liabilities:
Accounts receivable (4,341,856) (1,229,735)
Restricted cash (86,417)
Prepaid expenses and other current assets 613,332 536,100
Accounts payable and accrued expenses 2,124,823 (339,272)
Accrued compensation (466,975) (1,404,916)
Payroll and withheld taxes 27,104 (686,702)
Income taxes payable (1,141,547) 167,745
----------------------------------------------------------------------------------------------------------------
Total adjustments (2,619,850) (2,705,673)
----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities ($1,808,525) ($1,873,010)
----------------------------------------------------------------------------------------------------------------
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 1, 2006 and April 2, 2005
(Unaudited)
-------------------------------------------------------------------------------
2006 2005
----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Property and equipment acquired ($760,937) ($265,834)
(Increase) decrease in deposits (16,992) 3,060
----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (777,929) (262,774)
----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Exercise of stock options 97,452 6,884
Net borrowings on line of credit 3,200,000 1,500,000
----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,297,452 1,506,884
----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (14,947) 8,703
----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 696,051 (620,197)
Cash and cash equivalents at beginning of period 3,761,063 2,401,794
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $4,457,114 $1,781,597
================================================================================================================
Supplemental cash flow information:
Cash paid for:
Interest expense $85,723 $77,398
Income taxes $501,636 $448,388
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 December 31, 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 1, 2006 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 December 31, 2005 was a 52-week reporting year. The first
quarter of 2005, the 2005 fiscal year and the first quarter of 2006 ended
on the following dates, respectively:
Period Ending Weeks in Quarter
--------------------------------- ---- -------------------
April 2, 2005 Thirteen
December 31, 2005 Thirteen
April 1, 2006 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.
4. Acquisition
On October 17, 2005, the Company acquired Soltre Technology, Inc.,
("Soltre"), a Delaware Corporation, based in Los Angeles, California.
Soltre is a specialty provider of consulting and technology services. The
acquisition was effective as of September 1, 2005, and was accomplished
through a stock purchase transaction pursuant to which Soltre, through an
exchange of all of its outstanding shares of stock for cash and shares of
RCM's common stock, became a wholly-owned subsidiary of the Company.
10
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
4. Acquisition (Cont'd)
In connection with the acquisition, the Company is obligated to pay
contingent consideration to the selling shareholders upon the acquired
business achieving certain earnings targets over periods ranging from two
to three years. In general, the contingent consideration amounts fall into
two tiers: (a) Tier 1 ("Deferred Consideration") - amounts are due,
provided that the acquisition achieves 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
approximately as follows:
Year Ending Amount
(In thousands)
-------------------------------------- -- -------------
December 30, 2006 (Nine Months) $700
December 29, 2007 700
December 27, 2008 700
-------------
$2,100
=============
The Deferred Consideration and Earnouts, when paid, will be recorded as
additional purchase consideration and added to goodwill on the consolidated
balance sheet. Earnouts cannot be estimated with any certainty.
The following results of operations have been prepared assuming the
acquisition had occurred as of 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 acquisition been
consummated as of the beginning of the periods presented.
Thirteen Weeks Ended
April 1, April 2,
2006 2005
(Actual) (Proforma)
--------------------------- -- ---------------- -- -----------------
Revenues $47,053,786 $45,274,803
Operating income 1,592,251 1,615,834
Net income $811,325 $918,420
Earnings per share $.07 $.08
11
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
5. New Accounting Standards
Statement of Financial Accounting Standard ("SFAS") No. 123R "Share-Based
Payment", which the Company has adopted effective as of January 1, 2006,
requires all share-based payments to employees, including grants of
employee stock options, to be recognized as an expense in the Consolidated
Statements of Operations based on their fair values as they are earned by
the employees under the vesting terms. Pro forma disclosure of stock-based
compensation expense, as was the Company's practice under SFAS No. 123, is
not permitted after 2005, since SFAS 123R must be adopted no later than the
first interim or annual period beginning after December 15, 2005. The
Company follows the "modified prospective" method of adoption of SFAS 123R
in the first quarter of 2006, whereby earnings for prior periods are not to
be restated as though stock based compensation had been expensed.
In May 2005, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 154 "Accounting Changes and
Error Corrections--A Replacement of APB Opinion No. 20 and FASB Statement
No. 3." SFAS 154 requires retrospective application to prior periods'
financial statements for changes in accounting principle, unless it is
impractical to determine either the period-specific effects or the
cumulative effect of the change. SFAS 154 also requires that retrospective
application of a change in accounting principle be limited to the direct
effects of the change. Indirect effects of a change in accounting
principle, such as a change in non-discretionary profit-sharing payments
resulting from an accounting change, should be recognized in the period of
the accounting change. SFAS 154 also requires that a change in
depreciation, amortization, or depletion method for long-lived,
non-financial assets be accounted for as a change in accounting estimate
affected by a change in accounting principle. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company has adopted the provision of SFAS 154,
as applicable, beginning in fiscal 2006.
6. Line of Credit
The Company and its subsidiaries are party to a loan agreement, 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. Management of the
Company has commenced negotiations for renewal or replacement of the
Revolving Credit Facility. The weighted average interest rates under the
Revolving Credit Facility for the thirteen weeks ended April 1, 2006 and
April 2, 2005 were 7.6% and 2.92%, respectively. The amounts outstanding
under the Revolving Credit Facility at April 1, 2006 and December 31, 2005
were $7.1 million and $3.9 million, respectively. At April 1, 2006, the
Company had availability for additional borrowing under the Revolving
Credit Facility of $17.8 million.
12
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
7. Interest (Expense), Net
Interest (expense), net consisted of the following:
Thirteen Weeks
-------------------------------------------------------------
April 1, April 2,
2006 2005
-------------------------------------------------------------
Interest expense ($168,737) ($128,260)
Interest income 103,386 14,520
-------------------------------------------------------------
($65,351) ($123,740)
=============================================================
8. Goodwill and Intangibles
SFAS 142 requires the Company to perform a goodwill impairment test on at
least an annual basis. Application of the goodwill impairment test requires
significant judgments including estimation of future cash flows, which is
dependent on internal forecasts, estimation of the long-term rate of growth
for the businesses, the useful life over which cash flows will occur, and
determination of our weighted average cost of capital. Changes in these
estimates and assumptions could materially affect the determination of fair
value and/or conclusions on goodwill impairment for each reporting unit.
The Company conducts its annual goodwill impairment test as of November 30.
The Company compares 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 were no events during the thirteen weeks ended April 1, 2006
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 1, 2006.
9. Accounts Payable
Accounts payable and accrued expenses consisted of the following at April
1, 2006 and December 31, 2005:
April 1, December 31,
2006 2005
-------------------------------------------------------------------------------------
Accounts payable - trade $8,281,486 $5,649,920
Due to sellers 210,964 794,894
Reserve for litigation 8,611,498 8,534,313
-------------------------------------------------------------------------------------
Total $17,103,948 $14,979,127
=====================================================================================
13
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
10. Stockholders' Equity
Common Stock Reserved
Shares of unissued common stock were reserved for the following purposes:
April 1, December 31,
2006 2005
-------------- ----------------
Exercise of options outstanding 1,902,883 1,935,483
Future grants of options 26,306 36,486
-------------- ----------------
Total 1,929,189 1,971,969
============== ================
11. Stock - Based Compensation
Effective with this fiscal year, the Company follows SFAS 123R,
"Share-Based Payment." SFAS 123R requires that the compensation cost
relating to share-based payment transactions be recognized in financial
statements. That cost is measured based on the fair value of the equity or
liability instruments issued.
SFAS 123R covers a wide range of share-based compensation arrangements
including share options, restricted share plans, performance-based awards,
share appreciation rights, and employee share purchase plans.
In addition to the accounting standard that sets forth the financial
reporting objectives and related accounting principles, SFAS 123R includes
an appendix of implementation guidance that provides expanded guidance on
measuring the fair value of share-based payment awards.
SFAS 123R replaces FAS 123, Accounting for Stock-Based Compensation, and
supersedes Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees. SFAS 123, as originally issued in 1995,
established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that SFAS 123
permitted entities the option of continuing to apply the guidance in
Opinion No. 25, as long as the footnotes to financial statements disclosed
what net income would have been had the preferable fair-value-based method
been used. The impact of SFAS 123R, if it had been in effect, on the net
earnings and related per share amounts of our fiscal years ended in
December 31, 2005, January 1, 2005 and December 27, 2003 were disclosed in
Note 1 Summary of Significant Accounting Policies - Stock-Based
Compensation of our Financial Statements included in our Form 10-K for the
fiscal year ended December 31, 2005.
Since the Company adopted SFAS 123R using the
modified-prospective-transition-method, prior periods have not been
restated. Under this method, we are required to record compensation expense
for all awards granted after the date of adoption and for the unvested
portion of previously granted awards that remain outstanding as of the
beginning of the period of adoption. We measured share-based compensation
cost using the Black-Scholes option pricing model.
14
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
11. Stock - Based Compensation (Continued)
At April 1, 2006, the Company has four share-based employee compensation
plans. Share-based compensation of $305,000, or $.03 per share, was
recognized for the thirteen weeks ended April 1, 2006. The Company
anticipates that share-based compensation will not exceed $966,000 or
approximately $.08 per share for the year ending December 30, 2006.
Reported net income, adjusting for share-based compensation that would have
been recognized for the thirteen weeks ended April 2, 2005 if SFAS 123R had
been followed, is (in thousands, except per share amounts):
Amount
--------------
Net income, as reported $833
Less: stock-based compensation costs
determined under fair value based
method for all awards 60
--------------
Adjusted net income $773
==============
Earnings per share of common stock-basic:
As reported $.07
Share-based compensation costs
Adjusted net income $.07
Earnings per share of common stock-diluted:
As reported $.07
Share-based compensation costs
Adjusted net income $.07
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model. There were no options granted
during the thirteen weeks ended April 1, 2006 and April 2, 2005.
Expected volatility is based on the historical volatility of the price of
our common shares since January 2, 2001. We use historical information to
estimate expected life and forfeitures within the valuation model. The
expected term of awards represents the period of time that options granted
are expected to be outstanding. The risk-free rate for periods within the
expected life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant. Compensation cost is recognized using a
straight-line method over the vesting or service period and is net of
estimated forfeitures.
As of April 1, 2006, we have approximately, $1.8 million of total
unrecognized compensation cost related to non-vested awards granted under
our various share-based plans, which we expect to recognize over a
weighted-average period of 1.9 years. These amounts do not include the cost
of any additional options that may be granted in future periods nor any
changes in the Company's forfeiture rate.
We received cash from options exercised during the first three months of
fiscal years 2006 and 2005 of $97,452 and $6,884, respectively. The impact
of these cash receipts is included in financing activities in the
accompanying consolidated statements of cash flows.
15
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
11. 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 1, 2006, options to purchase 83,455 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 1, 2006, 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 1, 2006, options to purchase 1,131,045 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 1, 2006,
options to purchase 26,306 shares of common stock were available for future
grants, and options to purchase 618,383 shares of common stock were
outstanding.
16
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
11. 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 1, 2006 and April 2, 2005, there were
no shares issued under the Purchase Plan. As of April 1, 2006, there were
258,958 shares available for issuance under the Purchase Plan.
17
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
12. 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 1, 2006 Technology Engineering Commercial Corporate Total
------------------------------ - --------------- - -------------- --- -------------- ------------- - -------------
Revenue $24,703 $11,385 $10,966 $47,054
Operating expenses (1) (2) 23,301 11,406 10,402 45,109
------------------------------ - --------------- - -------------- --- -------------- ------------- - -------------
EBITDA (1) ((3)) 1,402 (21 ) 564 1,945
Depreciation 130 108 43 281
Amortization of intangibles 72 72
------------------------------ - --------------- - -------------- --- -------------- ------------- - -------------
Operating income 1,200 (129 ) 521 1,592
Interest expense, net of
interest income 34 16 15 65
Loss on foreign currency
transactions 13 13
Income taxes (benefit) 541 (73 ) 235 703
------------------------------ - --------------- - -------------- --- -------------- ------------- - -------------
Net income $625 ($85 ) $271 $811
============================== = =============== = ============== === ============== ============= = =============
Total assets $52,963 $26,510 $10,802 $21,440 $111,715
Capital expenditures $95 $510 $156 $761
18
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
12. Segment Information (Continued)
Thirteen Weeks Information
Ended 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 (1) (3) 1,506 (76 ) 273 1,703
Depreciation 135 91 34 260
Amortization of intangibles
------------------------------ - --------------- -- ------------ --- -------------- - ------------- - -------------
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
(1) Operating expenses exclude depreciation and amortization.
(2) Operating expenses include $305,000 of stock based compensation
expense.
(3) EBITDA means earnings before interest, 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.
19
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
12. Segment Information (Continued)
Revenues reported for each operating segment are from external customers.
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 1, 2006 and April 2, 2005 are
as follows (in thousands):
Thirteen Weeks Ended
-----------------------------------------------------------------------------------
April 1, April 2,
2006 2005
-----------------------------------------------------------------------------------
Revenues
U. S. $44,902 $40,229
Canada 2,152 3,853
-----------------------------------------------------------------------------------
$47,054 $44,082
===================================================================================
Fixed Assets
U. S. $4,349 $4,204
Canada 151 221
-----------------------------------------------------------------------------------
$4,500 $4,425
===================================================================================
Revenues reported for each operating segment are from external customers.
13. 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 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 judgment at the rate of 4% per
annum in 2006.
20
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
13. Contingencies (Continued)
The Company appealed the judgment entered in the Law Division 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. On December 2, 2005, the
Appellate Division unanimously affirmed the judgment entered in the Law
Division in all respects. On March 30, 2006, the Supreme Court of New
Jersey denied the Company's petition for certification of the Appellate
Division's judgment for review by the Supreme Court. On April 10, 2006, the
Company filed a motion in the Supreme Court seeking reconsideration of that
denial; that motion is pending and the timeframe within which the Supreme
Court will rule thereon cannot be predicted with any degree of certainty.
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 1, 2006,
the accrued litigation reserve is $8.6 million.
In addition, in November 2002 the Company brought suit in the Superior
Court of New Jersey, Law Division, Bergen County, 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 with respect to (1) 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. On September 14,
2005, as a consequence of certain procedural constraints imposed by the
court, the Company and the various attorney and law firm defendants agreed
to the dismissal of the action in Bergen County and the filing of a new
action against the same defendants in the Superior Court of New Jersey, Law
Division, Morris County. The complaint in the new action, in which the
Company has asserted certain additional claims against the defendants, was
filed on October 24, 2005. Discovery proceedings in the new action are
continuing and a mediation conference is scheduled for May 15, 2006.
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.
21
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-------------------------------------------------------------------------------
Private Securities Litigation Reform Act Safe Harbor Statement
Certain statements included herein and in other reports and public filings made
by RCM Technologies, Inc. ("RCM" or the "Company") are forward-looking within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, without limitation, statements regarding the
adoption by businesses of new technology solutions; the use by businesses of
outsourced solutions, such as those offered by the Company in connection with
such adoption; and the outcome of litigation (at both the trial and appellate
levels) involving the Company. Readers are cautioned that such forward-looking
statements, as well as others made by the Company, which may be identified by
words such as "may," "will," "expect," "anticipate," "continue," "estimate,"
"project," "intend," "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 from such statements. 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) adverse effects on the market
price of the Company's common stock due to the potential resale into the market
of a significant amounts of common stock; (vii) the adverse effect a potential
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.
22
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
-------------------------------------------------------------------------------
Overview
RCM participates in a market 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.
During the latter portion of the 1990s RCM made significant personnel and
infrastructure investments to support a high-growth strategy through
broad-based market penetration and acquisitions. The dramatic slowdown in the
United States economy, which began during 2000, prompted management to
reconsider its strategy. In that regard, the Company initiated reductions in
its staff personnel and office requirements in response to the decrease in
sales volume in the year 2001. Since that time, management has continued to
monitor its operating cost structure in order to maintain a cost benefit
relationship with revenues. In addition, there has been an ongoing focus on
working capital management and cash flows. These efforts have resulted in an
improvement in accounts receivable collections, debt reduction and improved
cash flows. 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 and in service offerings providing greater revenue
opportunities.
The Company believes that most companies have recognized the importance of
the Internet and information management technologies to compete in today's
business climate. However, the uncertain economic environment has curtailed
many companies' motivation for rapid adoption of many technological
enhancements. The process of designing, developing and implementing software
solutions has become increasingly complex. The Company believes that many
companies today are focused on return on investment analysis in prioritizing
the initiatives they undertake. This has had the effect of delaying or
totally negating spending by clients and potential clients on many emerging
new solutions, which management formerly had anticipated.
Nonetheless, the Company continues to believe that IT managers must integrate
and manage computing environments consisting of multiple computing platforms,
operating systems, databases and networking protocols, and must implement
packaged software applications to support existing business objectives.
Companies also need to continually keep pace with new developments, which
often render existing equipment and internal skills obsolete. Consequently,
business drivers cause IT managers to support increasingly complex systems
and applications of significant strategic value, while working under
budgetary, personnel and expertise constraints. This has given rise to a
demand for outsourcing. The Company believes that its 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.
23
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 the allocation of the purchase price of an
acquisition, which has been assigned to covenants not to compete, and
customer lists. Acquisitions have been accounted for under SFAS No. 141
"Business Combinations," 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. All
of the Company's segments derive 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.
24
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
Goodwill represents the excess of the cost of businesses acquired over the
fair market value of identifiable assets. In accordance with SFAS 142,
Goodwill and Other Intangible Assets, the Company performs its annual
goodwill impairment testing, by reportable segment, in the fourth quarter,
or more frequently if events or changes in circumstances indicate that
goodwill may be impaired. Application of the goodwill impairment test
requires significant judgments including estimation of future cash flows,
which is dependent on internal forecasts, estimation of the long-term rate
of growth for the businesses, the useful life over which cash flows will
occur, and determination of our weighted average cost of capital. Changes
in these estimates and assumptions could materially affect the
determination of fair value and/or conclusions on goodwill impairment for
each reporting unit. The Company conducted its annual goodwill impairment
test for 2005 as of November 30, 2005 and identified no impairments.
Goodwill at April 1, 2006 and December 31, 2005 was $37,660,000.
Long-Lived Assets
The Company evaluates long-lived assets and intangible assets with definite
lives for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. When it is
probable that undiscounted future cash flows will not be sufficient to
recover an asset's carrying amount, the asset is written down to its fair
value. Assets to be disposed of by sale, if any, are reported at the lower
of the carrying amount or fair value less cost to sell.
25
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 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 Consolidated Statement of Income.
SFAS 123R replaces SFAS 123, Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS 123, as originally issued in 1995, established as preferable a
fair-value-based method of accounting for share-based payment transactions
with employees. However, that Statement permitted entities the option of
continuing to apply the guidance in Opinion 25, as long as the footnotes to
financial statements disclosed what net income would have been had the
preferable fair-value-based method been used. The impact of SFAS 123R, if
it had been in effect, on the net earnings and related per share amounts of
our fiscal years ended in December 31, 2005, January 1, 2005 and December
27, 2003 were disclosed in Note 1 Summary of Significant Accounting
Policies - Stock-Based Compensation of our Financial Statements included in
our Form 10-K for the fiscal year ended December 31, 2005.
Since the Company adopted SFAS 123R, effective January 1, 2006 using the
modified-prospective-transition-method, prior periods have not been
restated. Under this method, we are required to record compensation expense
for all awards granted after the date of adoption and for the unvested
portion of previously granted awards that remain outstanding as of the
beginning of the period of adoption. We measured share-based compensation
cost using the Black-Scholes option pricing model.
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 1, 2006, the Company had total net deferred tax assets of $4.0
million. This included $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.
26
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.
27
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
-------------------------------------------------------------------------------
Thirteen Weeks Ended April 1, 2006 Compared to Thirteen Weeks
Ended April 2, 2005
A summary of operating results for the fiscal quarters ended April 1, 2006 and
April 2, 2005 is as follows (in thousands, except for earnings per share data):
April 1, 2006 April 2, 2005
---------------------- ------------------------
% of % of
Amount Revenue Amount Revenue
---------------------- ------------------------
Revenues $47,054 100.0 $44,082 100.0
Cost of services 35,023 74.4 33,973 77.1
---------------------- ------------------------
Gross profit 12,031 25.6 10,109 22.9
---------------------- ------------------------
Selling, general and administrative 10,086 21.4 8,406 19.0
Depreciation and amortization 353 .8 260 .6
---------------------- ------------------------
10,439 22.2 8,666 19.6
---------------------- ------------------------
Operating income 1,592 3.4 1,443 3.3
Other expense 78 .2 128 .3
---------------------- ------------------------
Income before income taxes 1,514 3.2 1,315 3.0
Income taxes 703 1.5 482 1.1
---------------------- ------------------------
Net income $811 1.7 $833 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 year to
date reporting periods ended April 1, 2006 and April 2, 2005 consisted of
thirteen weeks each.
Revenues. Revenues increased 6.7%, or $3.0 million, for the thirteen weeks ended
April 1, 2006 as compared to the same period in the prior year (the "comparable
prior year period"). The revenue increased $51,000 in the Information Technology
("IT") segment, decreased $378,000 in the Engineering segment and increased $3.3
million in the Commercial 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 2006
to remain consistent on a prorated basis with the revenues for the thirteen
weeks ended April 1, 2006.
28
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
------------------------------------------------------------------------------
Thirteen Weeks Ended April 1, 2006 Compared to Thirteen Weeks
Ended April 2, 2005 - (Continued)
Cost of Services. Cost of services increased 3.1%, or $1.1 million, for the
thirteen weeks ended April 1, 2006 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 decreased to 74.4% for the thirteen weeks
ended April 1, 2006 from 77.1% for the comparable prior year period. This
decrease was primarily attributable to increased gross margins in the
engineering segment and the commercial segment. Management reasonably expects
the ratio of cost of sales to revenues for the remainder of fiscal 2006 to
remain consistent.
Selling, General and Administrative. Selling, general and administrative ("SGA")
expenses increased 20.0%, or $1.7 million, for the thirteen weeks ended April 1,
2006 as compared to the comparable prior year period. This increase was
primarily attributable to stock based compensation expense of $293,000 for the
thirteen weeks ended April 1, 2006, which resulted from the implementation of
SFAS 123R on January 1, 2006 and increased sales and marketing costs on higher
revenues. SGA expenses as a percentage of revenues were 21.4% for the thirteen
weeks ended April 1, 2006 as compared to 19.0% for the comparable prior year
period. Management reasonably expects SGA expenses for the remainder of fiscal
2006 to remain consistent with the SGA expenses for the thirteen weeks ended
April 1, 2006.
Depreciation and Amortization. Depreciation and amortization ("DA") increased
35.6%, or $93,000, for the thirteen weeks ended April 1, 2006 as compared to the
comparable prior year period. This increase was primarily attributable to
amortization of intangibles of $72,000 in 2006.
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 1, 2006, actual interest expense of $168,000 was offset by
$103,400 of interest income, which was principally earned from short-term money
market deposits. Interest expense, net, decreased $58,000 for the thirteen weeks
ended April 1, 2006 as compared to the comparable prior year period. This
decrease was primarily due to higher interest income earned on money market
deposits and restricted cash deposits which was partially offset by increased
borrowing requirements as well as an increase in weighted average interest rates
on borrowed funds. Losses on foreign currency transactions increased $9,100
because of the weakening of the U.S. Dollar in relation to the Canadian Dollar
in the thirteen weeks ended April 1, 2006 as compared to the comparable prior
year period.
Income Tax. Income tax expense increased 45.7%, or $220,000, for the thirteen
weeks ended April 1, 2006 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 1, 2006 compared to the comparable prior year period.
The effective tax rate was 46.4% for the thirteen weeks ended April 1, 2006 as
compared to 36.7% for the comparable prior year period. The increase in
effective tax rate was attributable to an increased amount of non-deductible
amortization and non-deductible stock compensation expense.
29
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
-------------------------------------------------------------------------------
Thirteen Weeks Ended April 1, 2006 Compared to Thirteen Weeks
Ended April 2, 2005 - (Continued)
Segment Discussion (See Footnote 12)
Information Technology
IT revenues of $24.7 million for the thirteen weeks ended April 1, 2006
increased $51,000, or .20%, compared to the thirteen weeks ended April 2, 2005.
The EBITDA for the IT segment was $1.4 million, or 72.1% of the overall EBITDA
for the thirteen weeks ended April 1, 2006 as compared to $1.5 million, or 88.4%
of the overall EBITDA for the thirteen weeks ended April 2, 2005.
Engineering
Engineering revenues of $11.4 million for the thirteen weeks ended April 1, 2006
decreased $378,000, or 3.2%, compared to the thirteen weeks ended April 2, 2005.
The decrease in revenue was attributable to the softening of demand for the
Company's engineering services. The EBITDA for the Engineering segment was a
loss of $21,000, or 1.1% of the overall EBITDA for the thirteen weeks ended
April 1, 2006 as compared to a loss of $76,000, or 4.5% of the overall EBITDA
for thethirteen weeks ended April 2, 2005.
Commercial
Commercial revenues of $11.0 million for the thirteen weeks ended April 1, 2006
increased $3.3 million, or 43.0% compared to the thirteen weeks ended April 2,
2005. The increase in revenues for the Commercial segment was attributable to
improvement in economic activity within this segment. The EBITDA for the
Commercial segment was $564,000, or 30.0% of the overall EBITDA for the thirteen
weeks ended April 1, 2006 as compared to $273,000, or 16.0% of the overall
EBITDA for the thirteen weeks ended April 2, 2005.
30
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 1, 2006 April 2, 2005
------------------ -- -------------------
(In Thousands)
------------------ -- -------------------
Operating Activities ($1,809 ) ($1,873 )
Investing Activities ($778 ) ($263 )
Financing Activities $3,297 $1,507
Operating Activities
Operating activities used $1.8 million of cash for the thirteen weeks ended
April 1, 2006 as compared to using $1.9 million of cash for the comparable 2005
period. The cash used in operating activities was primarily attributable to an
increase in accounts receivable, an increase in restricted cash, a decrease in
accrued compensation, and a decrease in income taxes payable, which was
partially offset by a decrease in prepaid expenses and other current assets, a
increase in accounts payable and accrued expenses and a increase in payroll and
withheld taxes. 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 2006. The Company continues to
institute enhanced managerial controls and standardization over its receivables
collection and disbursement processes.
Investing Activities
Investing activities used $778,000 for the thirteen weeks ended April 1, 2006 as
compared to using $263,000 for the comparable 2005 period. The increase in the
use of cash for investing activities for 2006 as compared to the comparable 2005
period was primarily attributable to an increase in expenditures for property
and equipment.
Financing Activities
Financing activities principally consisted of borrowing $3.2 million of debt in
2006 as compared to borrowing $1.5 million of debt in 2005 period.
The Company and its subsidiaries are party to a loan agreement, 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.
31
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. Management of the Company
has commenced negotiations for renewal or replacement of the Revolving Credit
Facility. Management has renewed this Revolving Credit Facility in the past and
anticipates that it will be able to do so again. The weighted average interest
rates under the Revolving Credit Facility for the thirteen weeks ended April 1,
2006 and April 2, 2005 were 7.6% and 5.6%, respectively. The amounts outstanding
under the Revolving Credit Facility at April 1, 2006 and December 31, 2005 were
$7.1 million and $3.9 million, respectively. At April 1, 2006, the Company had
availability for additional borrowing under the Revolving Credit Facility of
$17.8 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 13 (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 1, 2006, the Company had a deferred tax asset totaling $4.0 million,
primarily representing the tax effect of a litigation reserve. The Company
expects to utilize the deferred tax asset during the twelve months ending March
31, 2007 by offsetting the related tax benefits of such assets against tax
liabilities incurred from forecasted taxable income.
32
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 1, 2006, 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 76 basis points) increase in interest rates on its variable debt
(using average debt balances during the thirteen weeks ended April 1, 2006 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 as of the end of the period covered by this report were functioning
effectively to provide reasonable assurance that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms and 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 most recent fiscal quarter and that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
33
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
-------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
See discussion of Legal Proceedings in Note 13 to the consolidated financial
statements included in item 1 of this report.
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 4, 2006 By: /s/ Stanton Remer
-----------------------------
Stanton Remer
Executive Vice President, 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 4, 2006 /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 4, 2006 /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 1, 2006 (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 4, 2006
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 1, 2006 (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 4, 2006
40