UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORTPURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
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
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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, 11,937,022 shares
outstanding as of May 9, 2007.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
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Page
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2007 (Unaudited)
and December 30, 2006 3
Unaudited Consolidated Statements of Income and Comprehensive Income
for the Thirteen Weeks Ended March 31, 2007 and April 1, 2006 5
Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the Thirteen Weeks Ended March 31, 2007 7
Unaudited Consolidated Statements of Cash Flows for the
Thirteen Weeks Ended March 31, 2007 and April 1, 2006 8
Notes to Unaudited Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 20
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 31
Item 4 - Controls and Procedures 31
PART II - OTHER INFORMATION
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Item 1 - Legal Proceedings 32
Item 6 - Exhibits 33
Signatures 34
2
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2007 and December 30, 2006
----------------------------------------------------------------------------
ASSETS
March 31, December 30,
2007 2006
--------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Current assets
Cash and cash equivalents $2,912,781 $2,449,428
Accounts receivable, net of allowance for doubtful accounts
of $1,685,000 (March 31, 2007) and $1,672,000
(December 30, 2006), respectively 49,215,614 48,140,787
Prepaid expenses and other current assets 2,016,579 1,715,858
Deferred tax assets 2,350,392 3,185,050
--------------------------------------------------------------------------------------------------------------------------------
Total current assets 56,495,366 55,491,123
--------------------------------------------------------------------------------------------------------------------------------
Property and equipment, at cost
Equipment and leasehold improvements 8,858,438 10,086,457
Less: accumulated depreciation and amortization 4,530,572 5,694,513
-------------------------------------------------------------------------------------------------------------------------------
4,327,866 4,391,944
-------------------------------------------------------------------------------------------------------------------------------
Other assets
Deposits 176,524 158,722
Goodwill 39,328,997 39,328,997
Intangible assets, net of accumulated amortization
of $486,000 (March 31, 2007) and $406,000
(December 30, 2006), respectively 589,188 669,270
-------------------------------------------------------------------------------------------------------------------------------
40,094,709 40,156,989
-------------------------------------------------------------------------------------------------------------------------------
Total assets $100,917,941 $100,040,056
===============================================================================================================================
3
The accompanying notes are an integral part of these
financial statements.
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
March 31, 2007 and December 30, 2006
------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 30,
2007 2006
--------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Current liabilities
Accounts payable and accrued expenses $7,703,641 $7,317,135
Accrued compensation 6,230,654 8,122,058
Payroll and withheld taxes 1,289,833 1,146,136
Income taxes payable 179,440 61,465
--------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 15,403,568 16,646,794
--------------------------------------------------------------------------------------------------------------------------------
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; 11,928,126 and
11,822,126 shares issued and outstanding
at March 31, 2007 and December 30, 2006, respectively 596,407 591,107
Additional paid-in capital 102,115,959 101,559,302
Accumulated other comprehensive income 989,725 1,001,488
Accumulated deficit (18,187,718) (19,758,635)
--------------------------------------------------------------------------------------------------------------------------------
85,514,373 83,393,262
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $100,917,941 $100,040,056
================================================================================================================================
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 March 31, 2007 and April 1, 2006
(Unaudited)
-----------------------------------------------------------------------------
March 31, April 1,
2007 2006
-------------------------------------------------------------------------------------------------- --- ---- ------------------
Revenues $54,493,148 $47,053,786
Cost of services (1) 42,116,569 35,022,794
-------------------------------------------------------------------------------------------------- --- ---- ------------------
Gross profit 12,376,579 12,030,992
-------------------------------------------------------------------------------------------------- --- ---- ------------------
Operating costs and expenses
Selling, general and administrative (2) 10,094,134 10,086,022
Depreciation 273,704 281,187
Amortization 80,082 71,532
-------------------------------------------------------------------------------------------------- --- ---- ------------------
10,447,920 10,438,741
-------------------------------------------------------------------------------------------------- --- ---- ------------------
Operating income 1,928,659 1,592,251
-------------------------------------------------------------------------------------------------- --- ---- ------------------
Other income (expenses)
Interest expense, net of interest income (7,641) (65,351)
Loss on foreign currency transactions (1,963) (13,106)
Legal settlement 800,000
--------------------------------------------------------------------------------------------------- --- ---- ------------------
790,396 (78,457)
--------------------------------------------------------------------------------------------------- --- ---- ------------------
Income before income taxes 2,719,055 1,513,794
Income tax expense 1,148,137 702,469
--------------------------------------------------------------------------------------------------- --- ---- ------------------
Net income 1,570,917 811,325
Other comprehensive loss
Foreign currency translation adjustment (11,763) (14,947)
---------------------------------------------------------------------------------------------------- --- ---- ------------------
Comprehensive income $1,559,154 $796,378
==================================================================================================== === ==== ==================
(1) Includes stock based compensation expense of $13,339 and $12,118 for the
thirteen weeks ended March 31, 2007 and April 1, 2006, respectively.
(2) Includes stock based compensation expense of $172,663 and $292,849 for the
thirteen weeks ended March 31, 2007 and April 1, 2006, respectively.
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 March 31, 2007 and April 1, 2006
(Unaudited)
------------------------------------------------------------------------------
March 31, April 1,
2007 2006
---------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share
Basic earnings per share $.13 $.07
=================================================================================================================================
Weighted average number of common shares outstanding 11,881,412 11,733,997
=================================================================================================================================
Diluted earnings per share
Diluted earnings per share $.13 $.07
=================================================================================================================================
Weighted average number of common and common equivalent shares outstanding
(includes dilutive securities relating to options
of 470,452 and 273,173 in the thirteen weeks ended March 31, 2007
and April 1, 2006, respectively) 12,351,864 12,007,170
=================================================================================================================================
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 March 31, 2007
(Unaudited)
------------------------------------------------------------------------------
Accumulated
Additional Other
Common Stock Paid-in Comprehensive Accumulated
Capital Income Deficit Total
----------------
Shares Amount
----------------------------------------------- ------------------ --------------- ------------------------ ----------------------
Balance, December 30, 2006 11,822,126 $591,107 $101,559,302 $1,001,488 ($19,758,635) $83,393,262
Exercise of stock options 106,000 5,300 370,655 375,955
Translation adjustment (11,763) (11,763)
Stock based compensation expense 186,002 186,002
Net income 1,570,917 1,570,917
----------------------------------------------- ------------------ --------------- ------------------------ ----------------------
Balance, March 31, 2007 11,928,126 $596,407 $102,115,959 $989,725 ($18,187,718) $85,514,373
============================================== ========== ======== ============ ======== ============ ===========
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 March 31, 2007 and April 1, 2006
(Unaudited)
-----------------------------------------------------------------------------
March 31, April 1,
2007 2006
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $1,570,917 $811,325
----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 353,786 352,719
Provision for allowance on accounts receivable 13,000 (6,000)
Stock-based compensation expense 186,002 304,967
Deferred tax assets 834,658
Changes in assets and liabilities:
Accounts receivable (1,116,671) (4,341,856)
Restricted cash (86,417)
Prepaid expenses and other current assets (302,628) 613,332
Accounts payable and accrued expenses 331,952 2,124,823
Accrued compensation (1,885,514) (466,975)
Payroll and withheld taxes 146,177 27,104
Income taxes payable 119,640 (1,141,547)
----------------------------------------------------------------------------------------------------------------------------------
Total adjustments (1,319,598) (2,619,850)
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities $251,319 ($1,808,525)
----------------------------------------------------------------------------------------------------------------------------------
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 March 31, 2007 and April 1, 2006
(Unaudited)
------------------------------------------------------------------------------
March 31, April 1,
2007 2006
------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Property and equipment acquired ($209,625) ($760,937)
Increase in deposits (17,802) (16,992)
--------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (227,427) (777,929)
-------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Exercise of stock options 375,955 97,452
Net borrowing on line of credit 3,200,000
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 375,955 3,297,452
-------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 63,506 (14,947)
-------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 463,353 696,051
Cash and cash equivalents at beginning of period 2,449,428 3,761,063
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $2,912,781 $4,457,114
==============================================================================================================================
Supplemental cash flow information:
Cash paid for:
Interest expense $48,107 $85,723
Income taxes $217,380 $501,636
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 30, 2006. 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 March 31, 2007 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 30, 2006 was a 52-week reporting year. The first
quarter of 2006, the 2006 fiscal year and the first quarter of 2007 ended
on the following dates, respectively:
Period Ending Weeks in Quarter Weeks in Year to Date
---------------------------------------------- ----- ---------------------------------------------
April 1, 2006 Thirteen Thirteen
December 30, 2006 Thirteen Fifty-Two
March 31, 2007 Thirteen Thirteen
3. Use of Estimates and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America 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, as well as the
hiring, training and retention of key employees.
4. Acquisitions
On April 17, 2006, the Company purchased the operating assets of Techpubs,
LLC ("Techpubs"), a Rhode Island limited liability company. Techpubs is a
specialty provider of engineering services. The acquisition has been
accounted for as a purchase transaction in accordance with Statement of
Financial Accounting Standards (SFAS) No. 141 "Business Combinations."
Accordingly, the results of operations of the acquired company have been
included in the consolidated results of operations of the Company from the
date of acquisition and are included in the engineering segment.
10
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
4. Acquisitions (Continued)
The purchase consideration at closing consisted of $600,000 in cash, legal
cost of $22,000 and $300,000 of deferred consideration contingent upon
achieving certain base levels of operating income for each of the three
twelve month periods following the purchase.
The allocation of the purchase price is as follows:
Amount Period of Amortization
(in thousands)
------------------------- --- -----------------------
Non-compete agreements $31 5 years
Customer relationships 140 5 years
Goodwill 451
----------------------------------------------- ------------------------- --- -----------------------
$622
=============================================== ========================= === =======================
In connection with certain acquisitions, 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 following the acquisition. In general, the contingent
consideration amounts fall into two categories: (a) Deferred Consideration
- amounts are due if the acquisition achieves a base level of earnings
which has been determined at the time of acquisition and (b) Earnouts -
amounts payable are not fixed and are based on the growth in excess of the
base level earnings. The Company's outstanding Deferred Consideration
obligations, which relate to various acquisitions, are anticipated to
result in approximately the following payments:
Amount
Year Ending (in thousands)
---------------------------------------------------- --- ----------------
December 29, 2007 $800
December 27, 2008 800
January 2, 2010 100
---------------------------------------------------- --- ----------------
$1,700
==================================================== === ================
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.
These results are not necessarily indicative of results of future
operations nor of results that would have occurred had the acquisitions
been consummated as of the beginning of the periods presented.
Thirteen Weeks Ended
March 31, April 1,
2007 2006
(Proforma)
----------------------------------- --- ------------------ ---------------------- ----
Revenues $54,493,148 $47,353,786
Operating income 1,928,659 1,649,251
Net income $1,570,917 $830,987
Earnings per share $.13 $.07
11
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
5. New Accounting Standards
In February 2007, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 159, "The Fair Value Option for Financial Assets and
Financial Liabilities-Including an amendment of FASB Statement No. 115"
("SFAS 159"). SFAS 159 expands the use of fair value accounting but does
not affect existing standards, which require assets and liabilities to be
carried at fair value. Under SFAS 159, a company may elect to use fair
value to measure accounts and loans receivable, available-for-sale and
held-to-maturity securities, equity method investments, accounts payable,
guarantees, issued debt and other eligible financial instruments. SFAS 159
is effective for fiscal years beginning after November 15, 2007. We are
currently evaluating the impact, if any, that the adoption of SFAS 159 will
have on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 clarifies the principle that fair value should be
based on assumptions market participants would use when pricing an asset or
liability and establishes a fair value hierarchy that prioritizes
information used to develop those assumptions. Under the standard, fair
value measurements would be separately disclosed by level within the fair
value hierarchy. SFAS 157 is effective for the Company's fiscal year
beginning December 30, 2007, with early adoption permitted.
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"). The interpretation clarifies the
accounting for uncertainty in income taxes recognized in a company's
financial statements in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Specifically,
FIN 48 prescribes a recognition threshold and a measurement attribute for
the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. FIN 48 also provides guidance on
the related derecognition, classification, interest and penalties,
accounting for interim periods, disclosure and transition of uncertain tax
positions. The interpretation is effective for fiscal years beginning after
December 15, 2006. We adopted the provisions of FIN 48 on January 1, 2007.
As a result of the implementation of FIN 48, we recognized no material
adjustments in the liability for unrecognized income tax benefits. We
conducted our operations in multiple tax jurisdictions in United States
and Canada. With few exceptions, we are no longer subject to audits by tax
authorities for tax years prior to 2001. At March 31, 2007, we did not
have any unrecognized tax benefits and had approximately $68,000 of
interest or penalties accrued.
12
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
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 and
includes a sub-limit of $5.0 million for letters of credit (the "Revolving
Credit Facility"). 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 2011. The weighted average
interest rates, which include unused line fees, under the Revolving Credit
Facility for the thirteen weeks ended March 31, 2007 and April 1, 2006
were 13.3% and 7.6%, respectively. During the thirteen weeks ended
March 31, 2007 and April 1, 2006, the Company's outstanding borrowings
ranged from $-0- to $1.5 million and $200,000 to $1.0 million,
respectively. At March 31, 2007 and December 30, 2006, there were no
outstanding borrowings under this facility. At March 31, 2007, there was a
letter of credit outstanding for $116,000, which is used as collateral for
a lease obligation. At March 31, 2007, the Company had availability for
additional borrowings under the Revolving Credit Facility of $24.9 million.
7. Interest Expense, Net
Interest expense, net consisted of the following:
Thirteen Weeks Ended
March 31, 2007 April 1, 2006
-------------------------------------------------------------------------------
Interest expense ($24,782) ($168,737)
Interest income 17,141 103,386
-------------------------------------------------------------------------------
($7,641) ($65,351)
===============================================================================
8. Goodwill and Intangibles
SFAS No. 142 "Goodwill and Other Intangible Assets" ("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 influence the market multiples of comparable businesses
and consequently could influence the results of future annual impairment
tests. There were no events during the thirteen weeks ended March 31, 2007
that have indicated a need to perform the impairment test prior to the
Company's annual test date.
13
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
8. Goodwill and Intangibles (Continued)
The following table reflects the components of intangible assets, excluding
goodwill (in thousands):
March 31, 2007 December 30, 2006
--------------------------------------- ---------------------------------------- ------------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
--------------------------------------- ------------------ --- ---------------------- --- ------------ --------------------
Definite-lived intangible assets
Non-compete agreements $145 $42 $145 $35
Customer relationships 930 444 930 371
--------------------------------------- ------------------ --- ---------------------- --- ------------ --------------------
Total $1,075 $486 $1,075 $406
=============================================== ================== === ========================== ==== ====================
9. Stockholders' Equity
Common Stock Reserved
Shares of unissued common stock were reserved for the following purposes:
March 31, December 30,
2007 2006
-------------------------------------------------------------------------------------------------------------------
Exercise of options outstanding 1,625,000 1,768,000
Future grants of options 34,194 29,194
-------------------------------------------------------------------------------------------------------------------
Total 1,659,194 1,797,194
===================================================================================================================
10. Stock - Based Compensation
Effective as of January 1, 2006, the Company has adopted SFAS 123R "Share
Based Payment" ("SFAS 123R"). 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. In March 2005, the
SEC issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS
123R. The Company has applied the provisions of SAB 107 in its adoption of
SFAS 123R.
14
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
10. Stock - Based Compensation (Continued)
At March 31, 2007, the Company has four share-based employee compensation
plans. Share-based compensation of $186,002, or $.02 per share, and
share-based compensation expense of $304,967, or $.08 per share, was
recognized for the thirteen weeks ended March 31, 2007 and April 1, 2006,
respectively. The Company anticipates that share-based compensation will
not exceed $750,000, or approximately $0.06 per share, for the year ending
December 29, 2007.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model. There were options to purchase
5,000 shares of common stock granted during the thirteen weeks ended March
31, 2007. The share-based compensation expense attributable to the 5,000
options was $800 for the thirteen weeks ended March 31, 2007.
Expected volatility is based on the historical volatility of the price of
our common stock since March 31, 2002. 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. The stock price volatility, risk free interest rate
and annualized forfeiture rate was 55.46%, 4.54% and 3.80% for the thirteen
weeks ended March 31, 2007, respectively. The stock price volatility, risk
free interest rate and annualized forfeiture rate was 33.96%, 4.82% and
5.88% for the thirteen weeks ended April 1, 2006, respectively.
As of March 31, 2007, we have approximately $891,000 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 1.3 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 thirteen weeks of
fiscal years 2007 and 2006 of $375,955 and $97,452, respectively. The
impact of these cash receipts is included in financing activities in the
accompanying consolidated statements of cash flows.
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 March 31, 2007, options to purchase 73,455 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 March 31, 2007, options to
purchase 70,000 shares of common stock were outstanding.
15
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
10. Stock - Based Compensation (Continued)
Incentive Stock Option Plans (Continued)
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
March 31, 2007, options to purchase 988,545 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 March 31, 2007,
options to purchase 34,194 shares of common stock were available for future
grants, and options to purchase 493,000 shares of common stock were
outstanding.
Employee Stock Purchase Plan
The Company implemented an Employee Stock Purchase Plan (the "Purchase
Plan") with stockholder 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 March 31, 2007 and April 1, 2006 there were
no shares issued under the Purchase Plan. As of March 31, 2007, there were
225,188 shares available for issuance under the Purchase Plan.
16
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
11. Segment Information
The Company follows SFAS No. 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. 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 to the consolidated financial statements).
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
March 31, 2007 Technology Engineering Commercial Corporate Total
----------------------------------------- - --------------------- - ------------------- ---- ------------------- - --------- ---
Revenue $25,057 $18,975 $10,461 $54,493
Operating expenses (1) (2) 23,563 18,305 10,342 52,210
----------------------------------------- - --------------------- - ------------------- ---- ------------------- - --------- ---
EBITDA ((3)) 1,494 670 119 2,283
Depreciation 119 118 37 274
Amortization of intangibles 72 8 80
----------------------------------------- - --------------------- - ------------------- ---- ------------------- - --------- ---
Operating income 1,303 544 82 1,929
Interest expense, net of (interest
income) 4 3 1 8
Loss on foreign currency transactions 2 2
Legal settlement ($800) (800)
Income taxes 548 228 34 338 1,148
----------------------------------------- - --------------------- - ------------------- ---- ------------------- - --------- ---
Net income $751 $311 $47 $462 $1,571
========================================= = ===================== = =================== ==== =================== = ========= ===
Total assets $57,557 $26,134 $11,176 $10,051 $100,918
Capital expenditures $161 $2 $47 $210
17
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
11. Segment Information (Continued)
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
(1) Operating expenses exclude depreciation and amortization.
(2) Operating expenses include $186,002 and $304,967 of stock based
compensation expense for the thirteen weeks ended March 31, 2007 and
April 1, 2006, respectively.
((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.
18
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
11. 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 March 31, 2007 and April 1, 2006 are
as follows (in thousands):
Thirteen Weeks Ended
----------------------------------------------------------------------------------------------------------------
March 31, April 1,
2007 2006
----------------------------------------------------------------------------------------------------------------
Revenues
U. S. $51,252 $44,902
Canada 3,241 2,152
----------------------------------------------------------------------------------------------------------------
$54,493 $47,054
================================================================================================================
Fixed Assets
U. S. $4,296 $4,349
Canada 32 151
----------------------------------------------------------------------------------------------------------------
$4,328 $4,500
================================================================================================================
12. Contingencies
In late 1998, two shareholders who were formerly officers and directors of
the Company filed suit against the Company alleging 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 acquisition transaction
pursuant to which the plaintiffs became shareholders of the Company. The
plaintiffs claimed damages in an amount equal to the difference between the
amounts for which they 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.
A trial resulted in an August 2003 judgment in favor of the plaintiffs for
$7.6 million that the Company unsuccessfully appealed in the New Jersey
appellate courts. In June 2006, $8,622,458 was paid to the plaintiffs to
satisfy and settle the judgment, which was paid from a previously funded
escrow account that was classified as restricted cash. The consolidated
financial statements as of and for the year ended December 28, 2002 were
charged for the expense relating to the settlement.
In November 2002, the Company brought suit 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 its 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) the amount paid to satisfy the judgment; and (3) its
costs and counsel fees incurred in the prosecution of the legal malpractice
action itself. In September 2005, the Company and the various attorney and
law firm defendants agreed to the dismissal of the original suit and the
filing of a new action against the same defendants in another section of
the Superior Court of New Jersey. The complaint in the new action, in which
the Company has asserted certain additional claims against the defendants,
was filed in October 2005. In February 2007, the Company reached a
settlement with one of the law firm defendants resulting in the recovery of
$800,000. Discovery proceedings are continuing with the other defendants
and a trial will likely be scheduled for the latter part of 2007.
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.
19
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 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.
20
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 substantial, resulting in significant
volatility in the Company's financial performance.
RCM's operational performance in 2006 continued to gain momentum with a
moderate increase in revenues and earnings over the comparable period in
2005. This was attributed to an improvement in the general economy, strength
in our sector and increased capital spending by clients in selected markets.
All three major business segments of the Company benefited from stronger
economic conditions. So far, in 2007, RCM's financial performance has shown
further modest improvement as compared to the same period a year ago, due to
the continued strength of the economy and the marketing efforts of the
Company. In addition, RCM's management continues to monitor its operating
cost structure with a strong focus on working capital management and cash
flows.
Over the years, RCM has developed and assembled an attractive portfolio of
capabilities, established a proven record of performance and credibility, and
built an efficient pricing structure. The Company is committed to optimizing
its business model as a single-source premier provider of business and
technology solutions with a strong vertical focus offering an integrated
suite of services through a global delivery platform.
The Company believes that most companies recognize the importance of advanced
technologies and business processes to compete in today's business climate.
However, the process of designing, developing and implementing business and
technology solutions is becoming increasingly complex. The Company believes
that many businesses today are focused on return on investment analysis in
prioritizing their initiatives. This has an impact on spending by current and
prospective clients for many emerging new solutions.
Nonetheless, the Company continues to believe that businesses must implement
more advanced IT and engineering solutions to upgrade their systems,
applications and processes so that they can maximize their productivity and
optimize their performance in order to maintain a competitive advantage.
Although working under budgetary, personnel and expertise constraints,
companies are driven to support increasingly complex systems, applications
and processes of significant strategic value. This has given rise to a demand
for outsourcing. The Company believes that its current and prospective
clients are continuing to evaluate the potential for outsourcing business
critical systems, applications and processes.
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.
21
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 consolidated 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 consulting and 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") No.
104, "Revenue Recognition" ("SAB 104") which 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.
22
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
------------------------------------------------------------------------------
Revenue Recognition (Continued)
Consulting and Staffing Services - Revenues derived from consulting and
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 2006 as of November
30, 2006 and identified no impairments. Goodwill at March 31, 2007 and
December 30, 2006 was $39.3 million.
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.
23
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.
Effective as of January 1, 2006, the Company has adopted SFAS 123R. 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. In March 2005, the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 107
("SAB 107") relating to SFAS 123R. The Company has applied the provisions of
SAB 107 in its adoption of SFAS 123R.
Since the Company adopted SFAS 123R, effective January 1, 2006 using the
modified-prospective-transition-method the Company is 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. The Company 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 March 31,
2007, the Company had total net deferred tax assets of $2.4 million,
primarily representing the tax effect of a tax net operating loss
carryfoward. 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.
24
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, 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.
25
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
------------------------------------------------------------------------------
Thirteen Weeks Ended March 31, 2007 Compared to Thirteen Weeks
Ended April 1, 2006
A summary of operating results for the fiscal periods ended March 31, 2007 and
April 1, 2006 is as follows (in thousands, except for earnings per share data):
March 31, 2007 April 1, 2006
----------------------------------------------------------------------------------------------------------------------------------
% of % of
Amount Revenue Amount Revenue
----------------------------------------------------------------------------------------------------------------------------------
Revenues $54,493 100.0 $47,054 100.0
Cost of services 42,116 77.3 35,023 74.4
----------------------------------------------------------------------------------------------------------------------------------
Gross profit 12,377 22.7 12,031 25.6
----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative 10,094 18.6 10,086 21.4
Depreciation and amortization 354 .6 353 .8
----------------------------------------------------------------------------------------------------------------------------------
10,448 19.2 10,439 22.2
----------------------------------------------------------------------------------------------------------------------------------
Operating income 1,929 3.5 1,592 3.4
Other income (expense) 790 1.5 (78) (.2)
----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,719 5.0 1,514 3.2
Income taxes 1,148 2.1 703 1.5
----------------------------------------------------------------------------------------------------------------------------------
Net income $1,571 2.9 $811 1.7
==================================================================================================================================
Earnings per share
Basic: $.13 $.07
Diluted: $.13 $.07
==================================================================================================================================
The above summary is not a presentation of results of operations under generally
accepted accounting principles in the United States of America 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 March 31, 2007 and April 1, 2006 consisted of
thirteen weeks each.
Revenues. Revenues increased 15.8%, or $7.4 million, for the thirteen weeks
ended March 31, 2007 as compared to the same period in the prior year (the
"comparable prior year period"). Revenues increased $354,000 in the Information
Technology ("IT") segment, increased $7.6 million in the Engineering segment,
and decreased $505,000 in the Commercial segment. Management attributes the
overall increase to an improvement of the general economy and successful
marketing and sales efforts. Management expects revenues for the remainder of
fiscal 2007 to remain generally consistent on a prorated basis with the revenues
for the thirteen weeks ended March 31, 2007. Revenues that were attributable to
acquisitions since April 1, 2006, which were not included in the comparable
prior year period, were approximately $300,000.
26
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
------------------------------------------------------------------------------
Thirteen Weeks Ended March 31, 2007 Compared to Thirteen Weeks
Ended April 1, 2006 (Continued)
Cost of Services. Cost of services increased 20.3%, or $7.1 million, for the
thirteen weeks ended March 31, 2007 as compared to the comparable prior year
period. This increase was primarily due to the increase in revenues. Cost of
services as a percentage of revenues increased to 77.3% for the thirteen weeks
ended March 31, 2007 from 74.4% for the comparable prior year period. This
increase was primarily attributable to increased revenues in the Engineering
segment, which had lower gross margins. Management anticipates the ratio of cost
of sales to revenues for the remainder of fiscal 2007 to decrease as certain
reductions are realized in statutory employer payroll taxes.
Selling, General and Administrative. Selling, general and administrative ("SGA")
expenses were essentially unchanged, for the thirteen weeks ended March 31, 2007
as compared to the comparable prior year period. As a percentage of revenues,
SGA expenses were 18.6% for the thirteen weeks ended March 31, 2007 as compared
to 21.4% for the comparable prior year period. This decrease was primarily
attributable to the spreading of certain fixed administrative costs over an
increased revenue base. Management reasonably expects SGA expenses for the
remainder of fiscal 2007 to remain consistent with the SGA expenses for the
thirteen weeks ended March 31, 2007.
Depreciation and Amortization. Depreciation and amortization ("DA") were
essentially unchanged for the thirteen weeks ended March 31, 2007 as compared to
the comparable prior year period.
Other Expense. Other expense consists of interest expense, net of interest
income and gains and losses on foreign currency transactions and in 2007 the
proceeds from a legal settlement. For the thirteen weeks ended March 31, 2007,
actual interest expense of $24,782 was offset by $17,141 of interest income,
which was earned from short-term money market deposits. Interest expense, net
decreased $57,700 for the thirteen weeks ended March 31, 2007 as compared to the
comparable prior year period. This decrease was primarily due to decreased
borrowing requirements, which was offset by an increase in weighted average
interest rates on borrowed funds. Losses on foreign currency transactions
decreased $11,000 in the thirteen weeks ended March 31, 2007 as compared to the
comparable prior year period. This modest decrease was attributable to the
decrease in the number of foreign currency transactions. The proceeds from the
legal settlement in 2007 were realized when the Company reached a settlement
with one of the law firm defendants resulting in the recovery of $800,000. (See
footnote 11 to the consolidated financial statements).
Income Tax. Income tax expense increased 63.4%, or $446,000, for the thirteen
weeks ended March 31, 2007 as compared to the comparable prior year period. This
increase was principally attributable to an increase in income before taxes. The
effective tax rate was 42.2% for the thirteen weeks ended March 31, 2007 as
compared to 46.4% for the comparable prior year period. The decrease in
effective tax rate was attributable to the decreased amount of
non-tax-deductible stock compensation expense in relation to increased income
before income tax purposes.
27
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
------------------------------------------------------------------------------
Thirteen Weeks Ended March 31, 2007 Compared to Thirteen Weeks
Ended April 1, 2006 - (Continued)
Segment Discussion (See Footnote 11)
Information Technology
IT revenues of $25.1 million for the thirteen weeks ended March 31, 2007
increased $354,000, or 1.4%, compared to the comparable prior year period. The
increase in revenue was attributable to the strengthening of demand for the
Company's IT services. The IT segment EBITDA was $1.5 million, or 65.4% of the
overall EBITDA for 2007, as compared to $1.4 million, or 72.1% of the overall
EBITDA, for 2006.
Engineering
Engineering revenues of $19.0 million for the thirteen weeks ended March 31,
2007 increased $7.6 million, or 66.7%, compared to the comparable prior year
period. The increase in revenue was attributable to the strengthening of demand
for the Company's Engineering services. The Engineering segment EBITDA was
$670,000, or 29.3% of the overall EBITDA for the thirteen weeks ended March 31,
2007, as compared to a loss of $21,000, or 8.1% of the overall EBITDA for the
comparable prior year period.
Commercial
Commercial revenues of $10.5 million for the thirteen weeks ended March 31, 2007
decreased $505,000, or 4.6% compared to the comparable prior year period. The
modest decrease in revenues was attributable to a leveling of economic activity
within this segment. The Commercial segment EBITDA was $119,000, or 5.2% of the
overall EBITDA, for the thirteen weeks ended March 31, 2007 as compared to
$564,000, or 30.0% of the overall EBITDA for the comparable prior year period.
28
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
-------------------------------------------------------
March 31, 2007 April 1, 2006
------------------------- --- -------------------------
(In thousands)
-------------------------------------------------------
Operating Activities $251 ($1,809)
Investing Activities ($227) ($778)
Financing Activities $338 $3,297
Operating Activities
Operating activities provided $251,000 of cash for the thirteen weeks ended
March 31, 2007 as compared to $1.8 million for the comparable 2006 period. The
decrease in cash provided by operating activities was primarily attributable to
increased earnings, an increase in accounts payable and accrued expenses, an
increase in payroll and withheld taxes, an increase in income taxes payable and
a decrease in deferred tax assets. These factors were offset by an increase in
accounts receivable, an increase in prepaid expenses and other current assets
and a decrease in accrued compensation. 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 2007. The
Company continues to institute enhanced controls and standardization over its
receivables collection and disbursement processes.
Investing Activities
Investing activities used $227,000 for the thirteen weeks ended March 31, 2007
as compared to $778,000 for the comparable 2006 period. The decrease in the use
of cash for investing activities for 2007 as compared to the comparable 2006
period was primarily attributable to a decrease in expenditures for property and
equipment.
Financing Activities
Financing activities principally consisted of receipt of proceeds from the
exercise of stock options of $380,000 in 2007 as compared to borrowing of $3.2
million for the comparable 2006 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.
29
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 2011. The weighted average
interest rates, which include unused line fees, under the Revolving Credit
Facility for the thirteen weeks ended March 31, 2007 and April 1, 2006
were 13.3% and 7.6%, respectively. During the thirteen weeks ended
March 31, 2007 and April 1, 2006, the Company's outstanding borrowings
ranged from $-0- to $1.5 million and $200,000 to $1.0 million,
respectively. At March 31, 2007 and December 30, 2006, there were no
outstanding borrowings under this facility. At March 31, 2007, there was a
letter of credit outstanding for $116,000, which is used as collateral for
a lease obligation. At March 31, 2007, the Company had availability for
additional borrowings under the Revolving Credit Facility of $24.9 million.
The Company anticipates that its primary uses of capital in future periods will
be for working capital purposes. Funding for any long-term 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 subject to 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. Were an unfavorable 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'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 March 31, 2007, the Company had a deferred tax asset totaling $2.4 million,
primarily representing the tax effect of a tax net operating loss carryfoward.
The Company expects to utilize the deferred tax asset during the twelve months
ending March 29, 2008 by offsetting the related tax benefits of such assets
against tax liabilities incurred from forecasted taxable income.
Summarized below are the Company's obligations and commitments to make future
payments under lease agreements and debt obligations as of March 31, 2007 (in
thousands):
Payments Due by Period
-------------------------------------------------------------------------------------------------------------------------------
Less Than More Than
Total 1 Year 1-3 Years 3-5 Years 5 Years
--------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt Obligations (1)
Operating Lease Obligations $9,415 $2,048 $3,961 $2,850 $556
--------------------------------------------------------------------------------------------------------------------------------
Total $9,415 $2,048 $3,961 $2,850 $556
================================================================================================================================
(1) The Revolving Credit Facility is for $25.0 million and includes a
sub-limit of $5.0 million for letters of credit. The agreement expires
in August 2011. At March 31, 2007, there was an outstanding letter of
credit for $116,000.
30
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 March 31, 2007, 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 90 basis points) increase in interest rates on its variable debt
(using average debt balances during the thirteen weeks ended March 31, 2007 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.
31
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
-----------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
See discussion of Legal Proceedings in Note 12 to the consolidated financial
statements included in Item 1 of this report, which is incorporated by reference
herein.
32
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.)
33
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 10, 2007 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)
34
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 10, 2007 /s/ Leon Kopyt
Leon Kopyt
Chief Executive Officer
35
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 10, 2007 /s/ Stanton Remer
Stanton Remer
Chief Financial Officer
36
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 quarter ended
March 31, 2007 (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.
* * *
37
/s/ Leon Kopyt
Leon Kopyt
Chief Executive Officer
Date: May 10, 2007
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 quarter ended
March 31, 2007 (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 10, 2007
38