RCM TECHNOLOGIES, INC. — Capital/Financing Update 1997

Jan 21, 1997

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report January 7, 1997 (Date of earliest event reported) RCM TECHNOLOGIES, INC. (exact name of registrant as specified in its charter) NEVADA (State or other jurisdiction of incorporation) 1-10245 95-1480559 (Commission File Number) (IRS Employer ` Identification Number) 2500 McClellan Avenue, Pennsauken, NJ 08109-4613 (Address of principal executive offices) (Zip Code) (609) 486 - 1777 (Registrant's telephone number, including area code) ITEM 2. Acquisition or Disposition of Assets. On January 7, 1997, RCM Technologies, Inc. ("Registrant") acquired Programming Alternatives of Minnesota, Inc. ("PAMI"), a Minneapolis, Minnesota-based specialty provider of information technology personnel, particularly those with high demand client-server skills. The acquisition was completed effective as of November 4, 1996 through a stock purchase transaction (the "Purchase") pursuant to which PAMI became a wholly-owned subsidiary of the Registrant. The Purchase consideration paid to the former shareholders of PAMI consisted of $4,490,000 cash and a $1,625,000 three year prommissory note payable contingent upon PAMI achieving certain base levels of operating income for each twelve month period following the Purchase, for a period of three years. An additional earn-out payment may be made to the former shareholders at the end of the third anniversary of the Purchase to the extent that operating income exceeds these base levels. The acquisition has been accounted for under the purchase method of accounting. The source of cash utilized in the Purchase was from the Registrant's line of credit facility. The cost in excess of net assets acquired will be approximately $4,600,000. It is anticipated the cost in excess of net assets acquired will be amortized over a 40 year period. The Purchase consideration paid by the Registrant was determined by negotiations between and among the representatives of the Registrant and PAMI. Following the Purchase, the directors and executive officers of PAMI consist of Leon Kopyt, Stanton Remer, and Frank J. Lentz (former Chief Executive Officer of PAMI prior to the Purchase). PAMI's assets consist of cash, accounts receivable, contracts and office equipment. These assets are used in providing information technology personnel to businesses and institutions. The Registrant plans for PAMI to continue such course of business under its control. Prior to the Purchase, no material relationship existed between PAMI and the Registrant or any of its affiliates, any director or officer of the Registrant, or any associate of any such director or officer. ITEM 7. Financial Statements and Exhibits. (a) Financial statements of business acquired Audited Balance Sheet, December 31, 1995 Unaudited Balance Sheets, November 3, 1996 and October 31,1995 Audited Statement of Income, Year ended December 31, 1995 Unaudited Statements of Income, Ten Months ended November 3, 1996 and October 31, 1995 Audited Statement of Changes in Stockholders' Equity, Year ended December 31, 1995 Unaudited Statement of Changes in Stockholders' Equity, Ten Months ended November 3, 1996 and October 31, 1995 Audited Statement of Cash Flows, Year ended December 31, 1995 Unaudited Statements of Cash Flows, Ten Months ended November 3, 1996 and October 31, 1995 Financial Statements and Exhibits (Continued) (b) Pro forma financial information Unaudited Pro Forma Condensed Combined Balance Sheets, October 31, 1996 and November 3, 1996 Unaudited Pro Forma Condensed Combined Statements of Income for the year ended October 31, 1996 and the twelve months ended November 3, 1996. ITEM 7. (c) Exhibits (1) Stock Purchase Agreement, dated January 7, 1997 (2) Escrow Agreements, dated January 7, 1997 (3) Employment Agreement, dated January 7, 1997 (4) Promissory Notes, dated January 7, 1997 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. By: /S/ Stanton Remer Stanton Remer Chief Financial Officer, Treasurer and Director Date: January 21, 1997 PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. FINANCIAL STATEMENTS DECEMBER 31, 1995 PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. TABLE OF CONTENTS Page AUDITOR'S REPORT 1 FINANCIAL STATEMENTS Balance Sheet 2 Statement of Retained Earnings 3 Statement of Income 4 Statement of Cash Flows 5 Notes to Financial Statements 6-8 INDEPENDENT AUDITOR'S REPORT Board of Directors Programming Alternatives of Minnesota, Inc. I have audited the accompanying balance sheet of Programming Alternatives of Minnesota, Inc. as of December 31, 1995 and the related statements of income, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on our audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Programming Alternatives of Minnesota, Inc. as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/Frank B. Morris, PA October 15, 1996 Bala Cynwyd, PA PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. BALANCE SHEET DECEMBER 31, 1995

See auditor's report and accompanying notes PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 1995

See auditor's report and accompanying notes PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1995

See auditor's report and accompanying notes PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995

See auditor's report and accompanying notes PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE 1 - Summary Of Significant Accounting Policies Business Activity The Company provides contract employees specializing in the computer and engineering field. Property And Equipment Property and equipment are carried at cost. Depreciation of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the following estimated useful lives: Years Office furniture & equipment 5 For federal income tax purposes, depreciation is computed using the modified accelerated cost recovery system. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Methods Of Tax Reporting For tax reporting, the cash basis method is used whereby only income actually received and expenses actually paid during the period are reported as income and expense. Income Taxes The Company, with the consent of its stockholders, has elected under the Internal Revenue Code to be an S corporation. In lieu of corporation income taxes, the stockholders of an S corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for income taxes has been included in these financial statements. Accounts Receivable Accounts receivable are recorded at the total amount due. Because the Company's experience with bad debts has been minimal, the Company uses the direct write-off method for bad debts. NOTE 2 - Line Of Credit The Company is approved for a line of credit, secured by accounts receivables, up to $150,000 should the checking account become overdrawn. Interest on this line of credit is payable monthly at 1% above prime and it matures in June, 1996. The amount owed on the line of credit as of December 31, 1995 was $40,000. PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE 3 - Long-term Debt Long-term debt as of December 31, 1995 consisted of the following: Note payable with monthly installments of principal and interest at $5,833 with interest at 9%, due on June 30, 1998 Total Long-term Debt $ 126,419 Less: Current Portion 41,187) - ------ $ 85,232 Maturities of long-term debt are as follows: Year Ended December 31 1996 $ 41,187 1997 53,664 1998 31,568 ------ $ 126,419 NOTE 4 - Retirement Plan Beginning in 1994, the Company sponsored a 401(k) retirement plan covering all employees over the age of 21 and who have completed one year of service. The Company will match 10% of the employee's contribution up to 6% of the covered employees' salary. The Company's matching contributions amounted to $5,233 in 1995. NOTE 5 - Supplemental Disclosures Of Cash Flow Information During the year, the Company paid cash for interest and taxes totalling $16,491 and $1,000, respectively. NOTE 6 - Leasing Arrangements The Company conducts its operations from two offices in the same building that are leased under leases expiring in August, 1997. The following is a schedule of future minimum rental payments: Year Ended December 31 Amount ----------- ------- 1996 $ 69,526 1997 46,351 ------ $ 115,877 Rental expense amounted to $51,606 for 1995. PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. FINANCIAL STATEMENTS NOVEMBER 3, 1996 AND OCTOBER 31, 1995 PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. TABLE OF CONTENTS Page FINANCIAL STATEMENTS Balance Sheets 2 Statements of Retained Earnings 3 Statements of Income 4 Statements of Cash Flows 5 Notes to Financial Statements 6-8 PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. BALANCE SHEET NOVEMBER 3, 1996 AND OCTOBER 31, 1995 (Unaudited)

LIABILITIES AND STOCKHOLDER'S EQUITY

PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. STATEMENTS OF INCOME TEN MONTHS ENDED NOVEMBER 3, 1996 AND OCTOBER 31, 1995 (Unaudited)

PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. STATEMENT OF RETAINED EARNINGS TEN MONTHS ENDED NOVEMBER 3, 1996 AND OCTOBER 31, 1995 (Unaudited)

PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. STATEMENT OF CASH FLOWS TEN MONTHS ENDED NOVEMBER 3, 1996 AND OCTOBER 31, 1995 (Unaudited)

PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. 1. General The accompanying financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). These unaudited financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 1996. 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. The information reflects all normal and recurring adjustments which, in the opinion of Management, are necessary for a fair presentation of the financial position of the Company and its results of operations for the interim periods set forth herein. Financial Statements and Exhibits Item 7 (b) Pro Forma financial information UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following unaudited pro forma condensed combined financial statements give effect to the acquisition of Programming Alternatives of Minnesota, Inc. ("PAMI") by RCM Technologies, Inc. ("RCM") pursuant to a purchase transaction that was completed on January 7, 1997, effective November 4, 1996. This pro forma information has been prepared utilizing the historical financial statements of RCM and PAMI. This information should be read in conjunction with the historical financial statements and notes thereto of RCM which are incorporated by reference to RCM's Form 10-K and the historical financial statements of PAMI which is incorporated within this Form 8-K. The pro forma financial data is provided for comparative purposes only and does not purport to be indicative of the results which actually would have been obtained if the acquisition had been effected on the dates indicated or of the results which may be obtained in the future. The pro forma financial information is based on the purchase method of accounting for the acquisition. The pro forma adjustments are described in the accompanying Notes to Unaudited Pro Forma Condensed Combined Balance Sheet and Notes to Unaudited Pro Forma Condensed Combined Statement of Income. The Unaudited Pro Forma condensed combined statements of income for the year ended October 31, 1996 assume that the acquisition of PAMI had occurred on November 1, 1995 (combining the results for the year ended October 31, 1996, for RCM and the twelve months ended November 3, 1996, for PAMI. The unaudited pro forma condensed combined balance sheet at October 31, 1996 assumes that the acquisition of PAMI had occurred on October 31, 1996 (combining the balance sheets for RCM and PAMI as of October 31, 1996, and November 3, 1996, respectively. Acquisition The Purchase consideration payable to the former shareholders of PAMI consisted of $4,490,000 cash and a $1,625,000 note payable contingent upon PAMI obtaining certain base line of operating income. In addition, there is a provision for an earn-out in which a portion of the operating income amounts over the base line is accrued to the former shareholders. Assumptions Purchase Price Allocation Although neither RCM nor PAMI has complete information at this time as to the fair value of PAMI's individual assets and liabilities, an estimate of the eventual allocation of the purchase price was made on the basis of available information. The eventual allocation of the purchase price will be made on the basis of appraisals and valuations which give effect to various factors including the nature and intended future use of assets acquired in determining their value. It is not anticipated that any change in the allocation price will be material from the pro forma adjustments. For purpose of pro forma presentations, the excess purchase price over the net assets acquired is being amortized over an estimated life of forty (40) years. RCM TECHNOLOGIES, INC. AND PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. ("PAMI") UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET October 31, 1996

RCM TECHNOLOGIES, INC. AND PROGRAMMING ALTERNATIVES OF MINNESOTA, INC. ("PAMI") UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME YEAR ENDED OCTOBER 31, 1996