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Note 1 - Basis of Presentation | 3 Months Ended
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Mar. 28, 2020
Notes to Financial Statements |
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] |
1. | Basis of Presentation
The accompanying consolidated interim financial statements of RCM Technologies, Inc. and subsidiaries (“RCM” or the “Company”) are unaudited. The year-end consolidated balance sheet was derived from audited statements but does not include all disclosures required by accounting principles generally accepted in the United States. These statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission pertaining to reports on Form 10 -Q and should be read in conjunction with the Company’s consolidated financial statements and the notes thereto for the year ended December 28, 2019 included in the Company’s Annual Report Form 10 -K for such period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The consolidated financial statements for the unaudited interim periods presented include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows for such interim periods. Results for the thirteen week period ended March 28, 2020 are not necessarily indicative of results that may be expected for the full year. Fiscal Year The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31. The fiscal year ended December 28, 2019 ( fiscal 2019 ) was a 52 -week reporting year. The current fiscal year ending January 2, 2021 ( fiscal 2020 ) is a 53 -week reporting year. The fiscal quarters for the current year (fiscal 2020 ) and the prior year (fiscal 2019 ) align as follows:
Fiscal 2020 Quarters | Weeks | Fiscal 2019 Quarters | Weeks
March 28, 2020 | Thirteen | March 30, 2019 | Thirteen
June 27, 2020 | Thirteen | June 29, 2019 | Thirteen
September 26, 2020 | Thirteen | September 28, 2019 | Thirteen
January 2, 2021 | Fourteen | December 28, 2019 | Thirteen
Current Liquidity and Revolving Credit Facility Liquidity is a measure of our ability to meet potential cash requirements, maintain our assets, fund our operations, and meet the other general cash needs of our business. Our liquidity is impacted by general economic, financial, competitive, and other factors beyond our control. Our liquidity requirements consist primarily of funds necessary to pay our expenses, principally labor-costs, and other related expenditures. We generally satisfy our liquidity needs through cash provided by operations and, when necessary, our revolving line of credit from Citizens Bank. The Company expects to have positive cash flow over at least the next two quarters and has a great deal of flexibility to reduce its costs if it becomes necessary. The Company believes that it can satisfy its liquidity needs for at least the next twelve months. The Company’s liquidity and capital resources as of March 28, 2020, included accounts receivable and total current asset balances of $50.8 million and $57.2 million, respectively. Current liabilities, including the revolving line of credit, were $50.6 million as of March 28, 2020, and were exceeded by total current assets by $6.7 million. Cash and accounts receivables, excluding prepaid assets, of $53.3 million also exceeded total current liabilities by $2.7 million. The Company experiences volatility in its daily cash flow and, at times, relies on the revolving line of credit to provide daily liquidity for the Company’s financial operations. As of March 28, 2020, the Company was in compliance with all covenants contained in the Revolving Credit Facility, except its financial covenant for the ratio of debt to EBITDA (earnings before interest, depreciation, and amortization). The Company obtained an express waiver from Citizens Bank as of March 28, 2020. Historically, the Company has experienced numerous quarters whereby it was not in compliance with its debt to EBITDA covenant, and Citizens Bank has provided waivers or other amendments. Beginning with the fiscal quarter ending June 27, 2020, and continuing for the foreseeable future thereafter, the Company believes that it may not be in compliance with its debt to EBITDA covenant. While the Company believes that Citizens Bank will provide future waivers or make changes to its current agreement so that compliance with the current debt to EBDITA covenant is no longer applicable, the Company can give no assurance that this will occur. In the event of future noncompliance with the Company’s revolving line of credit, Citizens Bank could demand different terms or repayment. While the Company believes any adverse decision by Citizens Bank is unlikely, the Company believes that it has several viable refinance options. These options include, but are not limited to, agreeing to different terms with Citizens Bank or another bank, under an unsecured or securitized (“asset-based”) loan. The Company believes that its accounts receivable and total current asset balances of $50.8 million and $57.2 million as of March 28, 2020, respectively, are sufficient to provide the Company many different financing options. The Company believes that banks often focus their credit decisions on the ratio of total current assets to total current liabilities, not including any borrowings. The Company’s total current assets of $57.2 million, including accounts receivable of $50.8 million, exceeds its total current liabilities, not including its revolving line of credit, of $17.8 million by $39.5 million. As a result, the Company believes that it is an attractive candidate for both unsecured or asset-based loans. Numerous frontline banks often approach the Company for different types of financing options.

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