10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2018

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 or other Jurisdiction 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) 356-4500

(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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  YES [X]     NO [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  (See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act).  (Check one):

Large Accelerated Filer [  ] Accelerated Filer [  ] Non-Accelerated Filer [X]   Smaller Reporting Company [X] Emerging Growth Company [  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES [  ]     NO [X]

Indicate the number of shares outstanding of the Registrant's class of common stock, as of the latest practicable date.

Common Stock, $0.05 par value, 12,725,978 shares outstanding as of November 9, 2018.

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION
		Page
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets as of September 29, 2018 (Unaudited) and December 30, 2017	3
	Unaudited Consolidated Statements of Income for the Thirteen and Thirty-Nine Week Periods Ended September 29, 2018 and September 30, 2017	4
	Unaudited Consolidated Statements of Comprehensive Income for the Thirty-Nine Week Periods Ended September 29, 2018 and September 30, 2017	5
	Unaudited Consolidated Statement of Changes in Stockholders' Equity for the Thirty-Nine Week Period Ended September 29, 2018	6
	Unaudited Consolidated Statements of Cash Flows for the Thirty-Nine Week Periods Ended September 29, 2018 and September 30, 2017	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signatures		43

2

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 29, 2018 and December 30, 2017

(In thousands, except share and per share amounts)

			September 29,	December 30,
			2018	2017
			(Unaudited)
Current assets:
	Cash and cash equivalents		$710	$2,851
	Accounts receivable, net		46,663	46,080
	Transit accounts receivable		4,365	3,002
	Prepaid expenses and other current assets		3,947	3,706
		Total current assets	55,685	55,639
Property and equipment, net			3,694	3,446
Other assets:
	Deposits		224	215
	Goodwill		11,685	11,685
	Intangible assets, net		65	105
	Deferred tax assets, net, domestic		2,075	2,189
		Total other assets	14,049	14,194
		Total assets	$73,428	$73,279

Current liabilities:
	Accounts payable and accrued expenses			$8,099		$8,634
	Transit accounts payable			4,461		4,661
	Accrued payroll and related costs			8,658		7,780
	Income taxes payable			916		372
	Liability for contingent consideration from acquisitions			553		741
			Total current liabilities	22,687		22,188
Deferred tax liability, foreign				424		431
Liability for contingent consideration from acquisitions				1,180		1,350
Borrowings under line of credit				24,460		27,279
		Total liabilities		48,751		51,248
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;
			15,108,399 shares issued and 12,285,227 shares outstanding at September 29, 2018 and 15,017,522 shares issued and 12,194,350 shares outstanding at December 30, 2017	755		751
	Additional paid-in capital			105,243		104,540
	Accumulated other comprehensive loss			(2,572	)	(2,395	)
	Accumulated deficit			(63,762	)	(65,878	)
	Treasury stock (2,823,172 shares at September 29, 2018 and
			December 30, 2017) at cost	(14,987	)	(14,987	)
			Stockholders' equity	24,677		22,031
			Total liabilities and stockholders' equity	$73,428		$73,279

3

The accompanying notes are an integral part of these consolidated financial statements.

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Thirteen and Thirty-Nine Week Periods Ended September 29, 2018 and September 30, 2017

(Unaudited)

(In thousands, except per share amounts)

		Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Revenues		$42,559		$43,827		$145,081		$135,680
Cost of services		31,571		32,109		108,803		100,097
Gross profit		10,988		11,718		36,278		35,583
Operating costs and expenses
	Selling, general and administrative	9,412		9,700		29,909		30,092
	Depreciation and amortization	344		422		1,156		1,229
	Severance, professional fees and other charges	-		-		1,371		-
	Change in contingent consideration	-		-		-		781
Operating costs and expenses		9,756		10,122		32,436		32,102
Operating income		1,232		1,596		3,842		3,481
Other (expense) income
	Interest expense and other, net	(305	)	(137	)	(971	)	(409	)
	Gain (loss) on foreign currency transactions	10		(17	)	(19	)	38
Other (expense) income		(295	)	(154	)	(990	)	(371	)
Income before income taxes		937		1,442		2,852		3,110
Income tax expense		253		422		736		1,351
Net income		$684		$1,020		$2,116		$1,759
Basic and diluted net earnings per share		$0.06		$0.08		$0.17		$0.15

4

The accompanying notes are an integral part of these consolidated financial statements.

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Thirty-Nine Week Periods Ended September 29, 2018 and September 30, 2017

(Unaudited)

(In thousands)

	September 29, 2018		September 30, 2017
Net income	$2,116		$1,759
Other comprehensive (loss) gain	(177	)	369
Comprehensive income	$1,939		$2,128

5

The accompanying notes are an integral part of these consolidated financial statements.

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

Thirty-Nine Week Period Ended September 29, 2018

(Unaudited)

(In thousands, except share amounts)

	Common Stock		Additional Paid-in Capital	Accumulated Other Comprehensive Loss		Accumulated Deficit		Treasury Stock			Total
	Issued Shares	Amount						Shares	Amount
Balance, December 30, 2017	15,017,522	$751	$104,540	($2,395	)	($65,878	)	2,823,172	($14,987	)	$22,031
Issuance of stock under    employee stock purchase plan	90,877	4	381	-		-		-	-		385
Translation adjustment	-	-	-	(177	)	-		-	-		(177	)
Share-based compensation expense	-	-	322	-		-		-	-		322
Net income	-	-	-	-		2,116		-	-		2,116
Balance, September 29, 2018	15,108,399	$755	$105,243	($2,572	)	($63,762	)	2,823,172	($14,987	)	$24,677

6

The accompanying notes are an integral part of these consolidated financial statements.

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Thirty-Nine Week Periods Ended September 29, 2018 and September 30, 2017

 (Unaudited)

(In thousands)

				September 29, 2018		September 30, 2017
Cash flows from operating activities:
	Net income			$2,116		$1,759
	Adjustments to reconcile net income to net cash (used in) provided by   operating activities:
		Depreciation and amortization		1,156		1,229
		Change in contingent consideration		-		781
		Share-based compensation expense		322		591
		Provision for losses on accounts receivable		945		131
		Deferred income tax expense		104		294
		Changes in assets and liabilities:
			Accounts receivable	(1,664	)	3,682
			Prepaid expenses and other current assets	(593	)	230
			Net of transit accounts receivable and payable	(1,560	)	(1,189	)
			Accounts payable and accrued expenses	(219	)	(1,313	)
			Accrued payroll and related costs	905		(185	)
			Income taxes payable	552		946
	Total adjustments			(52	)	5,197
	Net cash provided by operating activities			2,064		6,956
Cash flows from investing activities:
	Property and equipment acquired			(1,414	)	(747	)
	Decrease in deposits			(9	)	4
	Net cash used in investing activities			(1,423	)	(743	)
Cash flows from financing activities:
	Borrowings under line of credit			64,987		60,411
	Repayments under line of credit			(67,807	)	(65,271	)
	Issuance of stock for employee stock purchase plan			385		394
	Common stock repurchases			-		(365	)
	Contingent consideration paid			(300)		(790	)
	Net cash used in financing activities			(2,735	)	(5,621	)
Effect of exchange rate changes on cash and cash equivalents				(47	)	(46	)
(Decrease) increase in cash and cash equivalents				(2,141	)	546
Cash and cash equivalents at beginning of period				2,851		279
Cash and cash equivalents at end of period				$710		$825
Supplemental cash flow information:
	Cash paid for:
		Interest		$832		$366
		Income taxes		$338		$340
Non-cash investing activities:
	Non-cash consideration for business acquisition			$   -		$133
Non-cash financing activities:
	Vesting of restricted stock units			$   -		$117

7

The accompanying notes are an integral part of these consolidated financial statements.

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

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 30, 2017 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 and thirty-nine week periods ended September 29, 2018 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 30, 2017 was a 52-week reporting year.  The third fiscal quarters of 2018 and 2017 ended on the following dates, respectively:

Period Ended	Weeks in Quarter	Weeks in Year to Date
September 29, 2018	Thirteen	Thirty-Nine
September 30, 2017	Thirteen	Thirty-Nine

2. Use of Estimates and Uncertainties

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 uses estimates to calculate an allowance for doubtful accounts on its accounts receivables, adequacy of reserves, goodwill impairment, if any, equity compensation, the tax rate applied and the valuation of certain assets and liability accounts.  These estimates can be significant to the operating results and financial position of the Company.

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 general economy, competition, demand for the Company's services, adverse litigation and claims and the hiring, training and retention of key employees.

8

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

2. Use of Estimates and Uncertainties (Continued)

Fair Value of Financial Instruments

The Company's carrying value of financial instruments, consisting primarily of accounts receivable, transit accounts receivable, accounts payable and accrued expenses, and transit accounts payable and borrowings under line of credit approximates fair value due to their liquidity or their short-term nature.  The Company does not have derivative products in place to manage risks related to foreign currency fluctuations for its foreign operations or for interest rate changes.

3. Revenue Recognition

As of December 31, 2017, the Company adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASC 606"), using the modified retrospective approach.  Revenues are recognized when we satisfy a performance obligation by transferring services promised in a contract to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services.  Performance obligations in our contracts represent distinct or separate service streams that we provide to our customers. The adoption of ASC 606 did not result in an adjustment to retained earnings in the Company's consolidated balance sheet as of December 31, 2017.

We evaluate our revenue contracts with customers based on the five-step model under ASC 606: (1) Identify the contract with the customer; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to separate performance obligations; and (5) Recognize revenue when (or as) each performance obligation is satisfied.

The Company derives its revenues from several sources.  The Company's Engineering Services and Information Technology Services segments perform consulting and project solution services.  All of the Company's segments perform staff augmentation services and derive revenue from permanent placement fees.  The majority of the Company's revenues are invoiced on a time and materials basis.

The following table presents our revenues disaggregated by revenue source for the thirty-nine weeks periods ended September 29, 2018 and September 30, 2017:

	September 29, 2018	September 30, 2017
Engineering:
Time and Material	$56,639	$52,843
Fixed Fee	5,773	8,674
Total Engineering	$62,412	$61,517
Specialty Health Care:
Time and Material	$59,457	$47,554
Permanent Placement Services	1,142	1,658
Total Specialty Health Care	$60,599	$49,212
Information Technology:
Time and Material	$21,875	$24,671
Permanent Placement Services	195	280
Total Information Technology	$22,070	$24,951
	$145,081	$135,680

9

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

3. Revenue Recognition (Continued)

Time and Material

The Company's IT and Healthcare segments predominantly recognize revenue through time and material work while its Engineering segment recognizes revenue through both time and material and fixed fee work. The Company's time and material contracts are typically based on the number of hours worked at contractually agreed upon rates, therefore revenues associated with these time and materials contracts are recognized based on hours worked at contracted rates. 

Fixed fee

From time to time and predominantly in our Engineering segment, the Company will enter into contracts requiring the completion of specific deliverables.  The Company has master services agreements with many of its customers that broadly define terms and conditions. Actual services performed under fixed fee arrangements are typically delivered under purchase orders that more specifically define terms and conditions related to that fixed fee project. While these master services agreements can often span several years, the Company's fixed fee purchase orders are typically performed over six to nine month periods.  In instances where project services are provided on a fixed-price basis, revenue is recorded in accordance with the terms of each contract.  In certain instances, revenue is invoiced at the time certain milestones are reached, as defined in the contract.  Revenues under these arrangements are recognized as the costs on these contracts are incurred.  On an infrequent basis, amounts paid in excess of revenues earned and recognized are recorded as deferred revenue, included in accounts payable and accrued expenses on the accompanying balance sheets.  In other instances, revenue is billed and recorded based upon contractual rates per hour.  Additionally, some contracts contain "Performance Fees" (bonuses) for completing a contract under budget.  Performance Fees, if any, are recorded when earned.  Some contracts also limit revenues and billings to specified maximum amounts.  Provisions for contract losses, if any, are made in the period such losses are determined.  For contracts where there is a specific deliverable, the work is not complete and the revenue is not recognized, the costs incurred are deferred as a prepaid asset.  The associated costs are expensed when the related revenue is recognized.

Permanent Placement Services

The Company earns permanent placement fees from providing permanent placement services.  These fees are typically based on a percentage of the compensation paid to the person placed with the Company's client.

There was no deferred revenue balance at September 29, 2018.  The deferred revenue balance at December 30, 2017 was $596 and is included in accounts payable and accrued expense in the accompanying consolidated balance sheet at that date.  Revenue is recognized when the service has been performed.  Deferred revenue may be recognized over a period exceeding one year from the time it was recorded on the balance sheet.  For the thirty-nine week period ended September 29, 2018, the Company recognized revenue of $596 that was included in deferred revenue at the beginning of the reporting period.

10

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

4. Accounts Receivable, Transit Accounts Receivable and Transit Accounts Payable

The Company's accounts receivable are comprised as follows:

	September 29, 2018		December 30, 2017
Billed	$30,106		$31,448
Accrued and unbilled	12,131		10,573
Work-in-progress	5,704		5,026
Allowance for sales discounts and doubtful accounts	(1,278	)	(967	)
Accounts receivable, net	$46,663		$46,080

Unbilled receivables primarily represent revenues earned whereby those services are ready to be billed as of the balance sheet ending date.  Work-in-progress primarily represents revenues earned under contracts which the Company contractually invoices at future dates.

From time to time, the Company's Engineering segment enters into agreements to provide, among other things, construction management and engineering services.  Pursuant to these agreements, the Company a) may engage subcontractors to provide construction or other services; b) typically earns a fixed percentage of the total project value; and c) assumes no ownership or risks of inventory.  Under the terms of the agreements, the Company is typically not required to pay the subcontractor until after the corresponding payment from the Company's end-client is received. Upon invoicing the end-client on behalf of the subcontractor or staffing agency the Company records this amount simultaneously as both a "transit account receivable" and "transit account payable" as the amount when paid to the Company is due to and generally paid to the subcontractor within a few days. The Company typically does not pay a given transit account payable until the related transit account receivable is collected. The Company's transit accounts payable generally exceeds the Company's transit accounts receivable but absolute amounts and spreads fluctuate significantly from quarter to quarter in the normal course of business. The transit accounts receivable was $4.4 million and related transit accounts payable was $4.5 million, for a net payable of $0.1 million, as of September 29, 2018.  The transit accounts receivable was $3.0 million and related transit accounts payable was $4.7 million, for a net payable of $1.7 million, as of December 30, 2017.

The Company has a dispute with a customer that is a major utility in the United States. Essentially, the customer has not paid the balance of accounts receivable the Company believes are owed for certain disputed projects. The Company recently started arbitration hearings with this customer.  As of September 29, 2018 the total amount of outstanding receivables from this customer was $6.2 million, subject to potential upward adjustment in damages claimed in the arbitration.  Additionally, as part of the arbitration process, the customer has asserted counter claims. While the total amount of asserted counter claims is unknown as of September 29, 2018, the total amount is anticipated to at least exceed $11.5 million.  The Company believes these counter claims were retaliatory in nature.  Prior to the arbitration, the customer had not asserted any claims.  The Company believes these asserted claims have no merit and were merely asserted as a strategy to reduce the Company's claims in any arbitration award or potential settlement agreement. The Company believes that its accounts receivable balance, subject to reserves, is fully collectible. Furthermore, the Company believes that this arbitration will conclude sometime in the first half of the Company's fiscal 2019.  While the Company believes the customer's counter claims to be frivolous and without merit, it can give no assurances that it will ultimately not have to pay all or a portion of such claims.  The Company is continuing work on one of the engagements that have given rise to this dispute and also on several engagements from the same client that are not currently part of the arbitration.

11

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

5. Property and Equipment

Property and equipment are stated at cost and are depreciated on the straight-line method at rates calculated to provide for retirement of assets at the end of their estimated useful lives.  The annual rates are 20% for computer hardware and software as well as furniture and office equipment.  Leasehold improvements are amortized over the shorter of the estimated life of the asset or the lease term.

Property and equipment are comprised of the following:

	September 29, 2018	December 30, 2017
Computers and systems	$7,133	$6,172
Equipment and furniture	600	938
Leasehold improvements	693	899
	8,426	8,009
Less: accumulated depreciation and amortization	4,732	4,563
Property and equipment, net	$3,694	$3,446

The Company periodically writes off fully depreciated and amortized assets.  The Company wrote off fully depreciated and amortized assets of $994 and $367 during the thirty-nine week periods ended September 29, 2018 and September 30, 2017, respectively.  Depreciation expense for the thirty-nine week periods ended September 29, 2018 and September 30, 2017 was $1,116 and $1,179, respectively.

6. Acquisitions

The Company has acquired numerous companies throughout its history and those acquisitions have generally included significant future contingent consideration.  The Company gives no assurance that it will make acquisitions in the future and if they do make acquisitions gives no assurance that such acquisitions will be successful.

The Company made the following acquisitions during fiscal 2017:

RAF Effective April 16, 2017, the Company acquired the business operations of RAF. RAF has been in business since 1991 as a multi-disciplined engineering and consulting and design company, headquartered on Long Island. The firm has been providing Engineering, Design, Permitting, Inspection and Construction Management services to the utility, industrial, commercial, and property management industries. RAF specializes in turnkey above ground tank inspection, repair and cleaning services, as well as concrete, steel, masonry, and roofing routine maintenance inspection and design. The purchase price for RAF was $133, all of which was allocated to goodwill as follows: 1) assumed liabilities of $123; and 2) contingent consideration of $10 paid in fiscal 2017.

12

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

6. Acquisitions (Continued)

PSR

Effective October 1, 2017 the Company acquired all of the stock of PSR. PSR was established in Serbia in 2006 and specializes in the design and engineering associated with high voltage substations, design engineering for electrical equipment in power plants, 3D modeling, commissioning, site supervision and other engineering services for clients in Europe, North America, South America and the Middle East. At the time of acquisition, PSR had a highly trained staff of approximately 30 engineers. PSR has acted as a subcontractor to the Company for over three years. The total purchase price of $3,248 included cash at closing of $1,000, estimated contingent consideration of $1,763 and $485 due to seller upon realization of net working capital recorded at closing.  As part of the working capital recorded at closing, the Company received cash of $237. The Company allocated $58 to fixed assets and the balance to goodwill.

Future Contingent Payments

As of September 29, 2018, the Company had three active acquisition agreements whereby additional contingent consideration may be earned by the former shareholders: 1) effective July 1, 2012 the Company acquired certain assets of BGA, LLC ("BGA"); 2) effective July 5, 2015, the Company acquired certain assets of Substation Design Services, LLC ("SDS"); and 3) effective October 1, 2017, the Company acquired all of the stock of PSR Engineering Solutions d.o.o. Beograd (Voždovac) ("PSR"). The Company estimates future contingent payments at September 29, 2018 as follows:

Fiscal Years Ending	Total
December 29, 2018 (after September 29, 2018)	$553
December 28, 2019	450
January 2, 2021	730
Estimated future contingent consideration payments	$1,733

Estimates of future contingent payments are subject to significant judgment and actual payments may materially differ from estimates.  Potential future contingent payments to be made to all active acquisitions are capped at cumulative maximum of $2.4 million.  The Company estimates future contingent consideration in payments based on forecasted performance and recorded at the net present value of those expected payments as of September 29, 2018.  The measurement is based on significant inputs that are not observable in the market, which "Fair Value Measurements and Disclosures" (ASU Topic 820-10-35) refers to as Level 3 inputs.  There has been no change in the fair value of contingent consideration for the thirty-nine week period ended September 29, 2018.

The Company paid contingent consideration of $0.3 million and $0.8 million during the thirty-nine week periods ended September 29, 2018 and September 30, 2017, respectively.

13

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

7. Goodwill

Goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired in business combinations.  The Company tests goodwill for impairment on an annual basis as of the last day of the Company's fiscal year or more frequently if events occur or circumstances change indicating that the fair value of goodwill may be below the carrying amount.  The Company has determined that no impairment of goodwill existed during the thirty-nine week period ended September 29, 2018.

There were no changes in the carrying amount of goodwill for the thirty-nine week period ended September 29, 2018.

	Engineering	Specialty Health Care	Information Technology	Total
Balance as of September 29, 2018 and    December 30, 2017	$7,249	$2,398	$2,038	$11,685

8. Intangible 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 the Company determines that 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.  The Company's intangible assets consist of customer relationships and non-compete agreements.  During all periods presented, the Company determined that no impairment of intangible assets exists.

Intangible assets are substantially attributable to the Company's Engineering segment and include the following:

	Thirty-Nine Week Periods Ended
	September 29, 2018	December 30, 2017
Customer contracts and relations	$56	$88
Non-compete agreements	9	17
Intangible assets, net	$65	$105

Amortization expense of intangible assets for the thirty-nine week periods ended September 29, 2018 and September 30, 2017 was $40 and $50, respectively.

14

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

9. Line of Credit

The Company and its subsidiaries amended and restated its Revolving Credit Facility with Citizens Bank of Pennsylvania on August 9, 2018.  As amended and restated, the Revolving Credit Facility now provides for a $45.0 million revolving credit facility (increased from $40.0 million), no longer has a sub-limit for letters of credit (from a sub-limit of $5.0 million) and expires on August 8, 2023. The amended and restated Revolving Credit Facility provides the Company with waivers from certain financial covenant calculations of up to $1.4 million in the borrowers' fiscal year ending on December 31, 2018 for certain expenses, including severance accrued for the Company's former chief executive officer and related payroll taxes, continuation of certain benefits and professional fees, charges incurred related to transactional financial advisory fees, legal fees associated with defending an ongoing frivolous lawsuit with a competitor of the Company, and search fees associated with hiring a senior executive.  Except as noted, all material terms remain unchanged.

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, typically borrowed in fixed 30-day increments or (ii) the agent bank's prime rate generally borrowed over shorter durations.  The Company also pays unused line fees based on the amount of the Revolving Credit Facility that is not drawn.  Unused line fees are recorded as interest expense.  The effective weighted average interest rate, including unused line fees, for the thirty-nine week period ended September 29, 2018 was 3.8%.

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 a covenant that restricts on the Company's ability to borrow in order to pay dividends.  As of September 29, 2018, the Company was in compliance with all covenants contained in the Revolving Credit Facility.

Borrowings under the line of credit as of September 29, 2018 and December 30, 2017 were $24.5 million and $27.3 million, respectively.  At September 29, 2018 and December 30, 2017 there were letters of credit outstanding for $0.8 million.  At September 29, 2018, the Company had availability for additional borrowings under the Revolving Credit Facility of $19.7 million.

15

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

10. Per Share Data

The Company uses the treasury stock method to calculate the weighted-average shares used for diluted earnings per share.  The number of common shares used to calculate basic and diluted earnings per share for the thirteen and thirty-nine week periods ended September 29, 2018 and September 30, 2017 was determined as follows:

	Thirteen Week Periods Ended		Thirty-Nine Week Periods Ended
	September 29, 2018	September 30, 2017	September 29, 2018	September 30, 2017
Basic weighted average shares    outstanding	12,284,727	12,009,181	12,254,415	11,972,600
Dilutive effect of outstanding restricted    stock awards	32,723	141,914	24,165	116,610
Weighted average dilutive shares    outstanding	12,317,450	12,151,095	12,278,580	12,089,210

For both the thirteen and thirty-nine week periods ended September 29, 2018, there were no anti-dilutive shares not included in the calculation of common stock equivalents as there were no stock options outstanding.  For both the thirteen and the thirty-nine week periods ended September 30, 2017 there were 15,000 absolute anti-dilutive shares not included in the calculation of common stock equivalents.  These were determined to be anti-dilutive because the exercise prices of the associated stock options for the periods were higher than the average market price of the Company's common stock for the same periods.

Unissued shares of common stock were reserved for the following purposes:

	September 29, 2018	December 30, 2017
Time-based restricted stock units outstanding	96,195	87,034
Performance-based restricted stock units outstanding	240,000	400,000
Future grants of options or shares	483,071	332,232
Shares reserved for employee stock purchase plan	86,403	177,280
Total	905,669	996,546

16

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

11. Share-Based Compensation

At September 29, 2018, the Company had two share-based employee compensation plans.  The Company measures the fair value of share-based awards, if and when granted, based on the Black-Scholes method and using the closing market price of the Company's common stock on the date of grant.  Awards vest over periods ranging from one to three years and expire within 10 years of issuance.  Share-based  compensation expense related to time-based awards is amortized in accordance with applicable vesting periods using the straight-line method.  The Company expenses performance-based awards only when the performance metrics are likely to be achieved and the associated awards are therefore likely to vest.  Performance-based share awards that are likely to vest are also expensed on a straight-line basis over the vesting period but may vest on a retroactive basis or be reversed, depending on when it is determined that they are likely to vest, or in the case of a reversal when they are later determined to be unlikely to vest.

Share-based compensation expense of $322 and $591 was recognized for the thirty-nine week periods ended September 29, 2018 and September 30, 2017, respectively.  Share based compensation for the thirty-nine week period ended September 29, 2018 did not include any expense associated with performance-based restricted stock units since they were, as of September 29, 2018, determined to be unlikely to vest.

As of September 29, 2018, the Company had approximately $253 of total unrecognized compensation cost related to all time-based non-vested share-based awards granted under the Company's various share-based plans, which the Company expects to recognize over approximately a two-year period.  These amounts do not include a) performance-based restricted stock units, b) the cost of any additional share-based awards that may be granted in future periods or c) the impact of any potential changes in the Company's forfeiture rate.

Incentive Share-Based Plans

2014 Omnibus Equity Compensation Plan (the 2014 Plan)

The 2014 Plan, approved by the Company's shareholders in December 2014, provides for the issuance of up to 625,000 shares of the Company's common stock to officers, non-employee directors, employees of the Company and its subsidiaries or consultants and advisors utilized by the Company.  In fiscal 2016, the Company amended and restated the 2014 Plan with shareholder approval to increase the aggregate number of shares of stock reserved for issuance under the Plan by an additional 500,000 shares so that the total number of shares of stock reserved for issuance under the Plan is 1,125,000 shares.  The expiration date of the Plan is December 1, 2026.  The Compensation Committee of the Board of Directors determines the vesting period at the time of grant.

As of September 29, 2018, under the 2014 Plan, 96,195 time-based and 240,000 performance-based restricted share units were outstanding and 483,071 shares were available for awards thereunder.

Employee Stock Purchase Plan

The Company implemented the 2001 Employee Stock Purchase Plan (the "Purchase Plan") with shareholder approval, effective January 1, 2001.  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 shares of common stock through payroll deductions for up to 10% of qualified compensation.

17

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

11. Share-Based Compensation (Continued)

Incentive Share-Based Plans (Continued)

Employee Stock Purchase Plan (Continued)

In fiscal 2015, the Company amended the Purchase Plan with shareholder approval to increase the aggregate number of shares of stock reserved for issuance or transfer under the Plan by an additional 300,000 shares so that the total number of shares of stock reserved for issuance or transfer under the Plan shall be 1,100,000 shares and to extend the expiration date of the Plan to December 31, 2025.

The Company has two offering periods in the Purchase Plan coinciding with the Company's first two fiscal quarters and the last two fiscal quarters.  Actual shares are issued on the first business day of the subsequent offering period for the prior offering period payroll deductions.  The number of shares issued at the beginning of the current period (on July 2, 2018) was 45,469.  As of September 29, 2018, there were 86,403 shares available for issuance under the Purchase Plan.

Time-Based Restricted Stock Units

From time-to-time the Company issues time-based restricted stock units.  These time-based restricted stock units typically include dividend accrual equivalents, which means that any dividends paid by the Company during the vesting period become due and payable after the vesting period assuming the grantee's restricted stock unit fully vests.  Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying consolidated balance sheet.  Dividends for time-based restricted stock units that ultimately do not vest are forfeited.

To date, the Company has issued time-based restricted stock units only under its 2007 Omnibus Equity Compensation Plan and the 2014 Plan.  The 2007 Plan has expired and there are no time-based restricted stock units outstanding thereunder.  The following summarizes the activity in the time-based restricted stock units under the 2014 Plan during the thirty-nine week period ended September 29, 2018:

	Number of Time-Based Restricted Stock Units	Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 30, 2017	87,034	$5.88
Granted	15,000	$5.33
Vested	-	-
Forfeited or expired	5,839	$6.85
Outstanding non-vested at September 29, 2018	96,195	$5.74

Based on the closing price of the Company's common stock of $4.27 per share on September 28, 2018 (the last trading day prior to September 29, 2018), the intrinsic value of the time-based non-vested restricted stock units at September 29, 2018 was approximately $411.  As of September 29, 2018, there was approximately $253 of total unrecognized compensation cost related to time-based restricted stock units, which is expected to be recognized over the vesting period of the restricted stock units.

18

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

11. Share-Based Compensation (Continued)

Performance Based Restricted Stock Units

From time-to-time the Company issues performance-based restricted stock units to its executives.  Performance-based restricted stock units are typically vested based on certain multi-year performance metrics as determined by the Board of Directors Compensation Committee. These performance-based restricted stock units typically include dividend accrual equivalents, which means that any dividends paid by the Company during the vesting period become due and payable after the vesting period on any stock units that actually vest, if any.  Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying consolidated balance sheet.  Dividends for performance-based restricted stock units that ultimately do not vest are forfeited.   

To date, the Company has issued performance-based restricted stock units only under the 2014 Plan.  The following summarizes the activity in the performance-based restricted stock units during 2018:

	Number of Performance-Based Restricted Stock Units	Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 30, 2017	400,000	$5.11
Granted	200,000	$5.66
Vested	-	-
Forfeited or expired	360,000	$5.29
Outstanding non-vested at September 29, 2018	240,000	$5.29

As of September 29, 2018, the Company considers the metrics related to 240,000 of the performance-based restricted stock units unlikely to be achieved, thus no performance condition is probable of achievement and no compensation cost has been recognized on the performance-based restricted stock units. The Company will reassess at each reporting date whether achievement of any performance condition is probable and would begin recognizing compensation cost if and when achievement of the performance condition becomes probable.  The Company will then recognize the appropriate expense cumulatively in the year performance becomes probable and recognize the remaining compensation cost over the remaining requisite service period.

12. Treasury Stock Transactions

For the thirty-nine week period ended September 29, 2018, the Company did not have an active stock purchase program and therefore did not purchase any treasury shares.  For the thirty-nine week period ended September 30, 2017, the Company purchased 59,312 shares at an average price of $6.16.

19

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

13.   New Accounting Standards and Updates from the Securities Exchange Commission ("SEC")

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. The Company will adopt ASU 2016-02 in the first quarter of 2019.  A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.  An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application.  If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date.  The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company will adopt the new standard on January 1, 2019 and use the effective date of initial application.  Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.  The new standard provides a number of optional practical expedients in transition. The Company expects to elect the "package of expedients", which permits the Company not to reassess under the new standard the Company's prior conclusions about lease identification and initial direct costs.  Although the Company is in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements, the Company expects the most significant change will be related to the recognition of right-of-use assets and lease liabilities on the Company's balance sheet for real estate operating leases.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company does not expect the adoption of ASU 2016-13 to have a material impact on its financial statements.

In August 2018, the SEC issued the final rule on Disclosures About Changes in Stockholders' Equity For filings on Form 10-Q, which extends to interim periods the annual requirement in SEC Regulation S-X, Rule 3-04,2 to disclose (1) changes in stockholders' equity and (2) the amount of dividends per share for each class of shares (as opposed to common stock only, as previously required). Pursuant to the final rule, registrants must now analyze changes in stockholders' equity, in the form of a reconciliation, for "the current and comparative year-to-date [interim] periods, with subtotals for each interim period," i.e., a reconciliation covering each period for which an income statement is presented. Rule 3-04 permits the disclosure of changes in stockholders' equity (including dividend-per-share amounts) to be made either in a separate financial statement or in the notes to the financial statements. The final rule is effective for all filings made on or after November 5, 2018. The staff of the SEC has indicated it would not object if the filer's first presentation of the changes in shareholders' equity is included in its Form 10-Q for the quarter that begins after the effective date of the amendments. Therefore, the Company expects to conform to this rule in its Form 10-Q for the quarter ending March 31, 2019. The Company believes that the final rule will not have a material effect on its consolidated financial statements and disclosures.

20

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

14. Segment Information

The Company follows "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for companies to report information about operating segments, geographic areas and major customers.  The accounting policies of each reportable segment are the same as those described in the summary of significant accounting policies (see Note 1 to the Company's Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 30, 2017).

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 reportable segments consistent with the Company's management system:

Thirteen Week Period Ended September 29, 2018	Engineering	Specialty Health Care		Information Technology	Corporate	Total
Revenue	$19,424	$15,106		$8,029	$   -	$42,559
Cost of services	14,049	11,665		5,857	-	31,571
Gross profit	5,375	3,441		2,172	-	10,988
Selling, general and administrative	3,780	3,648		1,984	-	9,412
Depreciation and amortization	236	85		23	-	344
Operating income (loss)	$1,359	($292	)	$165	$   -	$1,232
Total assets as of September 29, 2018	$40,643	$18,874		$7,110	$6,801	$73,428
Capital expenditures	$465	$151		$90	$110	$816

Thirteen  Week Period Ended September 30, 2017	Engineering	Specialty Health Care		Information Technology		Corporate	Total
Revenue	$21,708	$14,335		$7,784		$   -	$43,827
Cost of services	15,533	10,805		5,771		-	32,109
Gross profit	6,175	3,530		2,013		-	11,718
Selling, general and administrative	3,968	3,750		1,982		-	9,700
Depreciation and amortization	297	86		39		-	422
Operating income (loss)	$1,910	($306	)	($8	)	$   -	$1,596
Total assets as of September 30, 2017	$33,721	$16,178		$10,212		$3,937	$64,048
Capital expenditures	$138	$44		$   -		$13	$195

21

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

14. Segment Information (Continued)

Thirty-Nine Week Period Ended September 29, 2018	Engineering	Specialty Health Care	Information Technology	Corporate		Total
Revenue	$62,412	$60,599	$22,070	$   -		$145,081
Cost of services	45,706	46,822	16,275	-		108,803
Gross profit	16,706	13,777	5,795	-		36,278
Selling, general and administrative	12,006	12,255	5,648	-		29,909
Depreciation and amortization	785	294	77	-		1,156
Severance, professional fees and    other charges	-	-	-	1,371		1,371
Operating income (loss)	$3,915	$1,228	$70	($1,371	)	$3,842
Total assets as of September 29, 2018	$40,643	$18,874	$7,110	$6,801		$73,428
Capital expenditures	$856	$207	$108	$243		$1,414

Thirty-Nine  Week Period Ended September 30, 2017	Engineering	Specialty Health Care	Information Technology		Corporate		Total
Revenue	$61,517	$49,212	$24,951		$   -		$135,680
Cost of services	44,598	37,069	18,430		-		100,097
Gross profit	16,919	12,143	6,521		-		35,583
Selling, general and administrative	12,184	11,429	6,479		-		30,092
Change in contingent consideration	-	-	-		781		781
Depreciation and amortization	863	246	120		-		1,229
Operating income (loss)	$3,872	$468	($78	)	($781	)	$3,481
Total assets as of September 30, 2017	$33,721	$16,178	$10,212		$3,937		$64,048
Capital expenditures	$247	$459	$   -		$41		$747

22

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

14. Segment Information (Continued)

The Company derives a majority of its revenue from offices in the United States.  Revenues reported for each operating segment are all from external customers.  The Company is domiciled in the United States and its segments operate in the United States, Canada, Puerto Rico and Serbia. Revenues by geographic area for the thirty-nine week periods ended September 29, 2018 and September 30, 2017 are as follows: 

		Thirteen Week Periods Ended		Thirty-Nine Week Periods Ended
		September 29, 2018	September 30, 2017	September 29, 2018	September 30, 2017
Revenues
	U. S.	$34,729	$34,207	$118,364	$110,083
	Canada	6,308	8,703	21,942	22,420
	Puerto Rico	1,113	917	3,142	3,177
	Serbia	409	-	1,633	-
		$42,559	$43,827	$145,081	$135,680

Total assets by geographic area as of the reported periods are as follows:

		September 29, 2018	December 30, 2017
Total assets
	U. S.	$50,309	$52,595
	Canada	17,382	15,419
	Puerto Rico	1,823	1,891
	Serbia	3,914	3,374
		$73,428	$73,279

15. Income Taxes

On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"), directing taxpayers to consider the impact of the Tax Act as "provisional" when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. The changes in the Tax Act are broad and complex. The final impacts of the Tax Act may differ from the Company's estimates due to, among other things, changes in interpretations of the Tax Act, or any updates to estimates the Company has utilized to calculate the impacts of the Tax Act. The SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the related tax impacts. The Company currently anticipates finalizing any resulting adjustments before the end of its fiscal year ending December 29, 2018.  The Company, based on current knowledge, estimated the impact of SAB 118 on its income tax provision for the fifty-two week period ended December 30, 2017.  The total impact was an increase to its fiscal 2017 tax expense of $1.2 million, including $1.0 million for a reduction in deferred tax benefit and $0.2 million related to transition repatriation taxes. Any subsequent changes to the Company's fiscal 2017 tax expense estimates, if any, could materially impact the Company's fiscal 2018 tax provision. As of September 29, 2018, the Company is unaware of any factors or potential revisions that would materially change the Company's estimated fiscal 2017 or fiscal 2018 tax provisions.

23

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

15. Income Taxes (Continued)

The projected fiscal 2018 effective income tax rates as of September 29, 2018 for the thirty-nine week period ended September 29, 2018 are approximately 28.1%, 26.5% and 15.2% in the United States, Canada and Serbia, respectively, and yielded a consolidated effective income tax rate of approximately 25.8% for the thirty-nine week period ended September 29, 2018.  The comparable prior year period estimated income tax rates were 42.5% and 26.5% in the United States and Canada, respectively, and yielded a consolidated effective income tax rate of approximately 34.7% for the thirty-nine week period ended September 30, 2017.  The Company did not have Serbian operations for the comparable prior year period. The significant decrease in the tax rate in the United States for the thirty-nine week period ended September 29, 2018 as compared to the comparable prior year period was due to the reduction in the Company's federal income tax rate to 21.0% from 34.0% as provided for in the Tax Cuts and Jobs Act.  The consolidated effective income tax rate for the comparable prior year period is impacted by a discrete permanent difference due to the increase in contingent consideration of $0.8 million. The consolidated effective income tax rate for the comparable prior year period after eliminating this discrete permanent difference was 37.9%.  The relative income or loss generated in each jurisdiction can materially impact the overall effective income tax rate of the Company.

16. Contingencies

From time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business.  As such, the Company is required to assess the likelihood of any adverse outcomes to these matters as well as potential ranges of losses and possible recoveries.  The Company may not be covered by insurance as it pertains to some or all of these matters.  A determination of the amount of the provision required for these commitments and contingencies, if any, which would be charged to earnings, is made after careful analysis of each matter.  Once established, a provision may change in the future due to new developments or changes in circumstances, and could increase or decrease the Company's earnings in the period that the changes are made.  Asserted claims in these matters sought approximately $11.5 million in damages (as further described below) as of September 29, 2018.  As of September 29, 2018, the Company had a negligible accrual for any such liabilities.

The Company has a dispute with a customer that is a major utility in the United States. Essentially, the customer has not paid the balance of accounts receivable the Company believes are owed for certain disputed projects. The Company recently started arbitration hearings with this customer.  As of September 29, 2018 the total amount of outstanding receivables from this customer was $6.2 million, subject to potential upward adjustment in damages claimed in the arbitration.  Additionally, as part of the arbitration process, the customer has asserted counter claims. While the total amount of asserted counter claims is unknown as of September 29, 2018, the total amount is anticipated to at least exceed $11.5 million.  The Company believes these counter claims were retaliatory in nature.  Prior to the arbitration, the customer had not asserted any claims.  The Company believes these asserted claims have no merit and were merely asserted as a strategy to reduce the Company's claims in any arbitration award or potential settlement agreement. The Company believes that its accounts receivable balance, subject to reserves, is fully collectible. Furthermore, the Company believes that this arbitration will conclude sometime in the first half of the Company's fiscal 2019.  While the Company believes the customer's counter claims to be frivolous and without merit, it can give no assurances that it will ultimately not have to pay all or a portion of such claims.  The Company is continuing work on one of the engagements that have given rise to this dispute and also on several engagements from the same client that are not currently part of the arbitration.

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 not be covered by insurance.

24

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts, unless otherwise indicated)

17.  Severance, Professional Fees and Other Charges

The Company recorded $1.4 million in severance, professional fees and other charges for the thirty-nine week period ended September 29, 2018.  These charges include severance accrued for the Company's former chief executive officer and related payroll taxes, continuation of certain benefits and professional fees, totaling approximately $0.9 million.  The additional charges of $0.5 million incurred related to transactional financial advisory fees, legal fees associated with defending an ongoing lawsuit with a competitor of the Company, and search fees associated with hiring a senior executive.  The Company did not incur any such charges in the comparable prior year period.

18.  Subsequent Events

Effective October 1, 2018, the Company acquired substantially all of the assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, "TKE").  TKE provides full service process equipment supply, engineering, development, and design services to the chemical, food processing and industrial manufacturing industries.  The Company paid approximately $3.7 million in upfront consideration, including $1.8 million in cash and 440,751 shares of the Company's common stock, and will pay additional contingent consideration of up to a maximum of $7.6 million over the next three years.

25

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; the Company's strategic and business initiatives and growth strategies; 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) the Company's relationships with and reliance upon significant customers; (v) risks associated with foreign currency fluctuations and changes in exchange rates, particularly with respect to the Canadian dollar; (vi) uncertainties regarding amounts of deferred consideration and earnout payments to become payable to former shareholders of acquired businesses; (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, arbitrations, and other business disputes involving the Company, and the applicability of insurance coverage with respect to any such disputes; (xviii) the results of, and costs relating to, any interactions with shareholders of the Company who may pursue specific initiatives with respect to the Company's governance and strategic direction, including without limitation a contested proxy solicitation initiated by such shareholders, or any similar such interactions; and (ixx) 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.  Except as required by law, 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.

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ITEM 2. 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 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.

The Company believes it 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 had an adverse 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 information technology 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 agreed-upon fixed fees or hourly rates, or a combination of both.  The billing rates and profit margins for project management and solutions services are generally 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.  The Company, from time to time, enters into contracts requiring the completion of specific deliverables.  Typically these contracts are for less than one year.  The Company recognizes revenue on these deliverables at the time the client accepts and approves the deliverables.

Costs of services consist primarily of salaries and compensation-related expenses for billable consultants and employees, 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 financial reporting responsibilities and acquisition program.  The Company records these expenses when incurred.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Critical Accounting Policies and Use of Estimates

This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited interim condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In our unaudited interim condensed consolidated financial statements, estimates are used for, but not limited to, accounts receivable and allowance for doubtful accounts, goodwill, long-lived intangible assets, accounting for stock options and restricted stock units, insurance liabilities, accounting for income taxes and accrued bonuses.

A summary of our significant accounting policies is included in our Consolidated Financial Statements, Note 1, Summary of Significant Accounting Policies, in our Annual Report on Form 10-K for the year ended December 30, 2017. Certain of our accounting policies are considered critical, as these policies require significant, difficult or complex judgments by management, often requiring the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 30, 2017.

Recently Issued Accounting Pronouncements

A discussion of the recently issued accounting pronouncements is set forth in Note 13, New Accounting Standards, in the unaudited interim condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q and is incorporated herein by reference.

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 engineering and information technology services.  When the U.S., Canadian or global economies 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 the Company's future earnings.  There can be no assurance that the Company 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 consulting and employment services market is highly competitive with limited barriers to entry.  The Company competes in global, national, regional and local markets with numerous competitors in all of the Company's service lines.  Price competition in the industries the Company serves is significant, and pricing pressures from competitors and customers are increasing.  The Company expects that the level of competition will remain high in the future, which could limit the Company's ability to maintain or increase its market share or profitability.

28

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Thirteen Week Period Ended September 29, 2018 Compared to Thirteen Week Period Ended September 30, 2017

A summary of operating results for the thirteen week periods ended September 29, 2018 and September 30, 2017 is as follows (in thousands):

	September 29, 2018				September 30, 2017
	Amount		% of Revenue		Amount		% of Revenue
Revenues	$42,559		100.0		$43,827		100.0
Cost of services	31,571		74.2		32,109		73.3
Gross profit	10,988		25.8		11,718		26.7
Selling, general and administrative	9,412		22.1		9,700		22.1
Depreciation and amortization	344		0.8		422		1.0
	9,756		22.9		10,122		23.1
Operating income	1,232		2.9		1,596		3.6
Interest expense, net and foreign currency transactions	(295	)	(0.7	)	(154	)	(0.3	)
Income before income taxes	937		2.2		1,442		3.3
Income tax expense	253		0.6		422		1.0
Net income	$684		1.6		$1,020		2.3

The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31.  The fiscal quarters ended September 29, 2018 and September 30, 2017 consisted of thirteen weeks each.

Revenues.  Revenues decreased 2.9%, or $1.3 million, for the thirteen week period ended September 29, 2018 as compared to the thirteen week period ended September 30, 2017 (the "comparable prior year period").  Revenues decreased $2.3 million in the Engineering segment, increased $0.8 million in the Specialty Health Care segment and increased $0.2 million in the Information Technology segment.  On the last day of fiscal 2017, the Company disposed of its Microsoft Solutions Business Unit ("Microsoft Business"), which generated $0.4 million in revenues for the thirteen week period ended September 30, 2017.  See Segment Discussion for further information on revenue changes.

The Company has material operations in Canada, primarily from the Company's Engineering segment; this business is conducted primarily in Canadian dollars. Since the Company reports its consolidated results in U.S. dollars the consolidated results are subject to potentially material fluctuations as a result of changes in the Canadian dollar to U.S. dollar exchange rate (the "Exchange Rate"). For the thirteen week period ended September 29, 2018, the Company generated total revenues from its Canadian clients of $6.3 million in U.S. dollars at an Exchange Rate of 76.5% as compared to $8.7 million in U.S. dollars at an Exchange Rate of 79.8% for the prior year comparable period.

Cost of Services and Gross Profit.  Cost of services decreased 1.7%, or $0.5 million, for the thirteen week period ended September 29, 2018 as compared to the comparable prior year period. Cost of services decreased due to the decrease in revenues.  Cost of services as a percentage of revenues for the thirteen week periods ended September 29, 2018 and September 30, 2017 was 74.2% and 73.3%, respectively.  See Segment Discussion for further information regarding changes in cost of services and gross profit.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Thirteen Week Period Ended September 29, 2018 Compared to Thirteen Week Period Ended September 30, 2017 (Continued)

Selling, General and Administrative.  Selling, general and administrative ("SGA") expenses were $9.4 million for the thirteen week period ended September 29, 2018 as compared to $9.7 million for the comparable prior year period.  As a percentage of revenues, SGA expenses were 22.1% for both the thirteen week period ended September 29, 2018 and the comparable prior year period.   See Segment Discussion for further information on SGA expense changes.

Other Expense, Net.  Other expense, net consists of interest expense, unused line fees and amortized loan costs on the Company's line of credit, net of interest income and gains and losses on foreign currency transactions.  Other expense, net increased to $0.3 million as compared to $0.2 million for the comparable prior year period.  The primary component of the increase was interest expense which increased due to increased borrowings under the Company's line of credit.  The primary reason for the increased borrowing was to fund the Company's $12.2 million cash dividend paid in December 2017. 

Income Tax Expense.  The Company recognized $0.3 million of income tax expense for the thirteen week period ended September 29, 2018, as compared to $0.4 million for the comparable prior year period.  The consolidated effective income tax rate for the current period was 27.0% as compared to 29.3% for the comparable prior year period. The projected fiscal 2018 income tax rates as of September 29, 2018 were approximately 28.1%, 26.5% and 15.2% in the United States, Canada and Serbia, respectively. The relative income or loss generated in each jurisdiction can materially impact the overall effective income tax rate of the Company, particularly the ratio of Canadian and Serbian pretax income versus U.S. pretax income.  The Company did not have Serbian operations for the comparable prior year period.  The consolidated effective income tax rate for the thirteen week period ended September 29, 2018 was lower than the comparable prior year period primarily due to the reduction of the Company's United States federal income tax rate to 21.0% from 34.0% as provided for in the Tax Cuts and Jobs Act and the impact of its Serbian operations acquired in October 2017.  The impact from the change in the federal income tax rate in the Unites States in 2018 was offset by a higher ratio of Canadian pretax income in 2017 as compared to 2018.

Segment Discussion

Engineering

Engineering revenues of $19.4 million for the thirteen week period ended September 29, 2018 decreased 10.5%, or $2.3 million, as compared to the comparable prior year period.  The decrease was due to decreases in revenues of $1.5 million from the Company's Canadian Power Systems Engineering Group and $1.1 million from the Company's Aerospace Group, offset by an increase of $0.3 million from the Company's Energy Services Group.  Gross profit decreased 13.0%, or $0.8 million, as compared to the comparable prior year period. Gross margin for the current period was 27.7% as compared to 28.4% for the comparable prior year period. The decrease in gross profit was primarily due to decreases in revenues and the gross margin decrease was primarily due to less favorable utilization of billable consultants on fixed price contracts as the Company naturally experiences variability in utilization. The Engineering segment operating income was $1.4 million for the thirteen week period ended September 29, 2018 as compared to $1.9 million for the comparable prior year period. The decrease in operating income was primarily driven by the decrease in revenues and gross profit, offset by a decrease in SGA expense of $0.2 million. The decrease in SGA expense was primarily due a lower allocation of corporate-generated SGA expense and a Company-wide effort to more efficiently manage its SGA related expenditures.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Thirteen Week Period Ended September 29, 2018 Compared to Thirteen Week Period Ended September 30, 2017 (Continued)

Segment Discussion (Continued)

Specialty Health Care

Specialty Health Care revenues of $15.1 million for the thirteen week period ended September 29, 2018 increased 5.4%, or $0.8 million, as compared to the comparable prior year period.  The primary drivers of the increase in the revenues for the Specialty Health Care segment were increases of $0.7 million from the Honolulu office, $0.6 million from the New York City Office and $0.5 million from the Locum Tenens Group, offset primarily by decreases of $0.7 million from the Travel Nursing Group, $0.1 million from the HIM practice and $0.1 million from the Permanent Placement Group.  The primary reason for revenue increases in Hawaii and New York City were incremental additions of paraprofessionals billed on school contracts. The Specialty Health Care segment's gross profit decreased by 2.5%, or $0.1 million, to $3.4 million for the thirteen week period ended September 29, 2018 as compared to $3.5 million for the prior year period. The decrease in gross profit was driven by a decrease in gross profit margin. The Specialty Health Care segment's gross profit margin for the thirteen week period ended September 29, 2018 decreased to 22.8% as compared to 24.6% for the comparable prior year period. The decrease in gross profit margin was primarily driven by a decrease in high gross profit margin permanent placement revenues, the large increase in lower gross margin paraprofessional revenues in New York City and decreases in gross profit margin from the travel nursing staffing group, generally due to market factors including increased competition and constrained labor.  Specialty Health Care experienced an operating loss of $0.3 million for both the thirteen week period ended September 29, 2018 and comparable prior year period. SGA expense decreased by $0.1 million, to $3.6 million from $3.7 million, primarily due to lower permanent placement commissions and a Company-wide effort to more efficiently manage its SGA related expenditures, offset by a higher allocation of corporate-generated SGA expense.

Information Technology

Information Technology revenues of $8.0 million for the thirteen week period ended September 29, 2018 increased 3.1%, or $0.2 million, as compared to $7.8 million for the comparable prior year period. The increase was primarily due to an increase of $0.2 million from the Puerto Rico office. Effective the last day of fiscal 2017, the Company sold its Microsoft Business which generated $0.4 million in revenues for the thirteen week period ended September 30, 2017.  Gross profit of $2.2 million for the thirteen week period ended September 29, 2018 increased 7.9%, or $0.2 million, as compared to $2.0 million for the comparable prior year period. The increase in gross profit was primarily due to the increase in revenues and improvement to gross profit margin. The Information Technology gross profit margin for the thirteen week period ended September 29, 2018 increased to 27.1% as compared to 25.9% for the comparable prior year period. The primary reason for the increase in gross profit margin was improved utilization on the Information Technology's salaried consultants.  The Microsoft Business contributed $0.1 million in gross profit in the comparable prior year period.  The Information Technology segment experienced operating income of $0.2 million for the thirteen week period ended September 29, 2018 as compared to a slight operating loss for the comparable prior year period.  SGA expense was $2.0 million for both periods presented. The Microsoft Business generated $0.1 million in SGA expense for the comparable prior year period.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Thirty-Nine Week Period Ended September 29, 2018 Compared to Thirty-Nine Week Period Ended September 30, 2017

A summary of operating results for the thirty-nine week periods ended September 29, 2018 and September 30, 2017 is as follows (in thousands):

	September 29, 2018				September 30, 2017
	Amount		% of Revenue		Amount		% of Revenue
Revenues	$145,081		100.0		$135,680		100.0
Cost of services	108,803		75.0		100,097		73.8
Gross profit	36,278		25.0		35,583		26.2
Selling, general and administrative	29,909		20.6		30,092		22.2
Depreciation and amortization	1,156		0.8		1,229		0.9
Severance, professional fees and other charges	1,371		1.0		-		-
Change in contingent consideration	-		-		781		0.5
	32,436		22.4		32,102		23.6
Operating income	3,842		2.6		3,481		2.6
Interest expense, net and foreign currency transactions	(990	)	(0.6	)	(371	)	(0.3	)
Income before income taxes	2,852		2.0		3,110		2.3
Income tax expense	736		0.5		1,351		1.0
Net income	$2,116		1.5		$1,759		1.3

The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31.  The fiscal quarters ended September 29, 2018 and September 30, 2017 consisted of thirty-nine weeks each.

Revenues.  Revenues increased 6.9%, or $9.4 million, for the thirty-nine week period ended September 29, 2018 as compared to the thirty-nine week period ended September 30, 2017 (the "comparable prior year period").  Revenues increased $0.9 million in the Engineering segment, increased $11.4 million in the Specialty Health Care segment and decreased $2.9 million in the Information Technology segment.  On the last day of fiscal 2017, the Company disposed of its Microsoft Solutions Business Unit ("Microsoft Business"), which generated $1.4 million in revenues for the thirty-nine week period ended September 30, 2017.  See Segment Discussion for further information on revenue changes.

The Company has material operations in Canada, primarily from the Company's Engineering segment; this business is conducted primarily in Canadian dollars. Since the Company reports its consolidated results in U.S. dollars the consolidated results are subject to potentially material fluctuations as a result of changes in the Canadian dollar to U.S. dollar exchange rate (the "Exchange Rate"). For the thirty-nine week period ended September 29, 2018, the Company generated total revenues from its Canadian clients of $21.9 million in U.S. dollars at an Exchange Rate of 77.7% as compared to $22.4 million in U.S. dollars at an Exchange Rate of 76.7 % for the prior year comparable period.

Cost of Services and Gross Profit.  Cost of services increased 8.7%, or $8.7 million, for the thirty-nine week period ended September 29, 2018 as compared to the comparable prior year period. Cost of services increased due to the increase in revenues.  Cost of services as a percentage of revenues for the thirty-nine week periods ended September 29, 2018 and September 30, 2017 was 75.0% and 73.8%, respectively.  See Segment Discussion for further information regarding changes in cost of services and gross profit.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Thirty-Nine Week Period Ended September 29, 2018 Compared to Thirty-Nine Week Period Ended September 30, 2017 (Continued)

Selling, General and Administrative.  Selling, general and administrative ("SGA") expenses decreased 0.6%, or $0.2 million, as compared to the comparable prior year period.  As a percentage of revenues, SGA expenses were 20.6% for the thirty-nine week period ended September 29, 2018 and 22.2% for the comparable prior year period.   See Segment Discussion for further information on SGA expense changes.

Severance, Professional Fees and Other Charges. The Company experienced $1.4 million in severance, professional fees and other charges for the thirty-nine week period ended September 29, 2018.  These charges include severance accrued for the Company's former chief executive officer and related payroll taxes, continuation of certain benefits and professional fees, totaling approximately $0.9 million.  The additional charges of $0.5 million incurred related to transactional financial advisory fees, legal fees associated with defending an ongoing frivolous lawsuit with a competitor of the Company, and search fees associated with hiring a senior executive.  The Company did not incur any such charges in the comparable prior year period.

Change in Contingent Consideration.  There was no change to contingent consideration for the thirty-nine week period ended September 29, 2018.  The Company incurred charges of $0.8 million for increases to contingent consideration for the thirty-nine week period ended September 30, 2017.  The increase can be principally attributed to the PCI acquisition.  Since the PCI acquisition was for stock in Canada the increase in purchase price is not tax deductible and is treated as a permanent difference.

Other Expense, Net.  Other expense, net consists of interest expense, unused line fees and amortized loan costs on the Company's line of credit, net of interest income and gains and losses on foreign currency transactions.  Other expense, net increased to $1.0 million as compared to $0.4 million for the comparable prior year period.  The primary component of the increase was interest expense which increased due to increased borrowings under the Company's line of credit.  The primary reason for the increased borrowing was to fund the Company's $12.2 million cash dividend paid in December 2017. 

Income Tax Expense.  The Company recognized $0.7 million of income tax expense for the thirty-nine week period ended September 29, 2018, as compared to $1.4 million for the comparable prior year period.  The consolidated effective income tax rate for the current period was 25.8% as compared to 43.4% for the comparable prior year period. The projected fiscal 2018 income tax rates as of September 29, 2018 were approximately 28.1%, 26.5% and 15.2% in the United States, Canada and Serbia, respectively. The relative income or loss generated in each jurisdiction can materially impact the overall effective income tax rate of the Company, particularly the ratio of Canadian and Serbian pretax income versus U.S. pretax income.  The Company did not have Serbian operations for the comparable prior year period.  The consolidated effective income tax rate for the thirty-nine week period ended September 29, 2018 was lower than the comparable prior year period primarily due to the reduction of the Company's United States federal income tax rate to 21.0% from 34.0% as provided for in the Tax Cuts and Jobs Act and the impact of its Serbian operations acquired in October 2017.  The consolidated effective income tax rate for the comparable prior year period is impacted by a discrete permanent difference due to the increase in contingent consideration of $0.8 million. The consolidated effective income tax rate for the comparable prior year period after eliminating this discrete permanent difference was 37.9%.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Thirty-Nine Week Period Ended September 29, 2018 Compared to Thirty-Nine Week Period Ended September 30, 2017 (Continued)

Segment Discussion

Engineering

Engineering revenues of $62.4 million for the thirty-nine week period ended September 29, 2018 increased 1.5%, or $0.9 million, as compared to the comparable prior year period.  The increase was due to an increase in revenues of $3.9 million from the Company's Energy Services Group, offset by decreases of $1.2 million from the Company's Canadian Power Systems Engineering Group, and $1.8 million from the Company's Aerospace Group.  Gross profit decreased 1.3%, or $0.2 million, as compared to the comparable prior year period. Gross profit decreased because gross margin of 26.8% for the current period decreased from 27.5% for the comparable prior year period. The gross margin decrease was primarily due to less favorable utilization of billable consultants on fixed price contracts as the Company naturally experiences variability in utilization. The Engineering segment operating income was $3.9 million for both the thirty-nine week period ended September 29, 2018 and for the comparable prior year period. SGA expense of $12.0 million for the current period decreased by $0.2 million primarily due a lower allocation of corporate-generated SGA expense and a Company-wide effort to more efficiently manage its SGA related expenditures.

Specialty Health Care

Specialty Health Care revenues of $60.6 million for the thirty-nine week period ended September 29, 2018 increased 23.1%, or $11.4 million, as compared to the comparable prior year period.  The primary drivers of the increase in the revenues for the Specialty Health Care segment were increases of $9.1 million from the New York City Office, $3.1 million from the Honolulu office and $0.5 million from the HIM practice, offset primarily by decreases in revenue of $1.5 million from travel nursing staffing group and $0.5 million from the Permanent Placement Group.  The primary reason for revenue increases in New York City and Hawaii were incremental additions of paraprofessionals billed on school contracts.  The Company primarily attributes the decline in revenue from its travel nursing staffing group to increased competition from large national competitors. The Specialty Health Care segment's gross profit increased by 13.5%, or $1.6 million, to $13.8 million for the thirty-nine week period ended September 29, 2018 as compared to $12.2 million for the prior year period. The increase in gross profit was primarily driven by the increase in revenues, offset by lower gross profit margin. The Specialty Health Care segment's gross profit margin for the thirty-nine week period ended September 29, 2018 decreased to 22.7% as compared to 24.7% for the comparable prior year period. The decrease in gross profit margin was primarily driven by a decrease in high gross profit margin permanent placement revenues, the large increase in lower gross margin paraprofessional revenues in New York City and decreases in gross profit margin from the travel nursing staffing group, generally due to market factors including increased competition and constrained labor.  Specialty Health Care experienced operating income of $1.2 million for the thirty-nine week period ended September 29, 2018 as compared to $0.5 million for the comparable prior year period. The primary reason for the increase in operating income was the increase to gross profit, offset by an increase of $0.8 million in SGA expense.  SGA expense increased primarily due to the need to increase SGA infrastructure expense in order to support the increased activity levels associated with higher revenues and a higher allocation of corporate-generated SGA expense.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Thirty-Nine Week Period Ended September 29, 2018 Compared to Thirty-Nine Week Period Ended September 30, 2017 (Continued)

Segment Discussion (Continued)

Information Technology

Information Technology revenues of $22.1 million for the thirty-nine week period ended September 29, 2018 decreased 11.5%, or $2.9 million, as compared to $25.0 million for the comparable prior year period.  The decrease was primarily from reductions in project revenues from several large clients that were not replaced.  Effective the last day of fiscal 2017, the Company sold its Microsoft Business which generated $1.4 million in revenues for the thirty-nine week period ended September 30, 2017.  Gross profit of $5.8 million for the thirty-nine week period ended September 29, 2018 decreased 11.1%, or $0.7 million, as compared to $6.5 million for the comparable prior year period. The decrease in gross profit was primarily due to the decrease in revenues, offset by a small increase in gross profit margin.  The Information Technology gross profit margin for the thirty-nine week period ended September 29, 2018 was 26.3% as compared to 26.1% for the comparable prior year period. The Microsoft Business contributed $0.3 million in gross profit for the comparable prior year period.  The Information Technology segment experienced operating income of $0.1 million in the current period as compared to an operating loss of $0.1 million for the comparable prior year period.  The current year reflects a decrease in SGA expense of $0.8 million. The decrease in SGA expense was primarily due to lower selling costs associated with lower revenue and gross profit, a focus on rightsizing SGA expense and also a lower allocation of corporate SGA expense.  The Microsoft Business generated $0.3 million in SGA expense for the comparable prior year period.

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ITEM 2. 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 (in thousands):

		Thirty-Nine Week Periods Ended
		September 29, 2018		September 30, 2017
Cash provided by (used in):
	Operating activities	$2,064		$6,956
	Investing activities	($1,423	)	($743	)
	Financing activities	($2,735	)	($5,621	)

Operating Activities

Operating activities provided $2.1 million of cash for the thirty-nine week period ended September 29, 2018 as compared to providing $7.0 million in the comparable prior year period.  The major components of cash provided by or used in operating activities in the thirty-nine week period ended September 29, 2018 and the comparable prior year period are as follows: net income and changes in accounts receivable, the net of transit accounts payable and transit accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses and accrued payroll and related costs.

Net income for the thirty-nine week period ended September 29, 2018 was $2.1 million as compared to $1.8 million for the comparable prior year period.  An increase in accounts receivables in the thirty-nine week period ended September 29, 2018 used $1.7 million of cash as compared to providing $3.7 million in the comparable prior year period. The Company attributes the increase in accounts receivables for the thirty-nine week period ended September 29, 2018 to several different clients in both its Engineering and Specialty Health Care segments that experienced temporary delays in its approval and payment processes.  The Company anticipates that its accounts receivable balance relative to revenues will improve during the fourth quarter of fiscal 2018 and fiscal 2019.

The Company's transit accounts payable generally exceeds the Company's transit accounts receivable, but absolute amounts and differences fluctuate significantly from quarter to quarter in the normal course of business.  The net of transit accounts payable and transit accounts receivable was a net payable of $0.1 million and $1.7 million as of September 29, 2018 and December 30, 2017, respectively, so the cash impact during the thirty-nine week period ended September 29, 2018 used $1.6 million in cash.  The net of transit accounts payable and transit accounts receivable was a net liability of $1.3 million and $2.5 million as of September 30, 2017 and December 31, 2016, respectively, so the cash impact during the thirty-nine week period ended September 30, 2017 used $1.2 million in cash. 

Prepaid expenses and other current assets used $0.6 million of cash for the thirty-nine week period ended September 29, 2018 and provided $0.2 million for the comparable prior year period.  The Company attributes changes to prepaid expenses and other current assets, if any, to general timing of payments in the normal course of business.

A decrease in accounts payable and accrued expenses used $0.2 million for the thirty-nine week period ended September 29, 2018 as compared to $1.3 million of cash for the comparable prior year period.  The Company attributes these changes to general timing of payments to vendors in the normal course of business.

36

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Capital Resources (Continued)

Operating Activities (Continued)

Changes in accrued payroll and related costs for the thirty-nine week periods ended September 29, 2018 and September 30, 2017 provided $0.9 million and used $0.2 million in cash, respectively.  A large portion of current period cash provided from changes in accrued payroll and related costs consists of $0.9 million in severance and related costs accrued for payment to the Company's former chief executive officer.  There are three primary factors that impact accrued payroll and related costs: 1) there is a general correlation to operating expenses as payroll and related costs is the Company's largest expense group, so as operating costs increase or decrease, absent all other factors, so will the accrued payroll and related costs; 2) the Company pays the majority of its payroll every two weeks and normally has thirteen weeks in a fiscal quarter, which means that the Company normally has a major payroll on the last business day of every other quarter; and 3) most of the Company's senior management participate in annual incentive plans and while progress advances are sometimes made during the fiscal year these accrued bonus balances to the extent they are projected to be achieved generally accumulate throughout the year.  The Company's last major payroll for the thirty-nine week period ended September 29, 2018 was paid on September 28, 2018.

Investing Activities

Investing activities used cash of $1.4 million and $0.7 million for the thirty-nine week periods ended September 29, 2018 and September 30, 2017, respectively.  Investing activities for both periods presented were primarily related to expenditures for property and equipment.

Financing Activities

Financing activities used $2.7 million of cash for the thirty-nine week period ended September 29, 2018 as compared to using $5.6 million in the comparable prior year period.  The Company made net repayments under its line of credit of $2.8 million during the thirty-nine week period ended September 29, 2018 as compared to net repayments of $4.9 million in the comparable prior year period.  The Company generated cash of $0.4 million from sales of shares from its equity plans for both periods presented.

The Company and its subsidiaries amended and restated its Revolving Credit Facility with Citizens Bank of Pennsylvania on August 9, 2018.  As amended and restated, the Revolving Credit Facility now provides for a $45.0 million revolving credit facility (increased from $40.0 million), no longer has a sub-limit for letters of credit (from a sub-limit of $5.0 million) and expires on August 8, 2023. The amended and restated Revolving Credit Facility provides the Company with waivers from certain financial covenant calculations of up to $1.4 million in the borrowers' fiscal year ending on December 31, 2018 for certain expenses, including severance accrued for the Company's former chief executive officer and related payroll taxes, continuation of certain benefits and professional fees, charges incurred related to transactional financial advisory fees, legal fees associated with defending an ongoing frivolous lawsuit with a competitor of the Company, and search fees associated with hiring a senior executive.  Except as noted, all material terms remain unchanged.

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, typically borrowed in fixed 30-day increments or (ii) the agent bank's prime rate generally borrowed over shorter durations.  The Company also pays unused line fees based on the amount of the Revolving Credit Facility that is not drawn.  Unused line fees are recorded as interest expense.  The effective weighted average interest rate, including unused line fees, for the thirty-nine week period ended September 29, 2018 was 3.8%.

37

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Capital Resources (Continued)

Financing Activities (Continued)

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 a covenant that restricts on the Company's ability to borrow in order to pay dividends.  As of September 29, 2018, the Company was in compliance with all covenants contained in the Revolving Credit Facility.

Borrowings under the line of credit as of September 29, 2018 and December 30, 2017 were $24.5 million and $27.3 million, respectively.  At September 29, 2018 and December 30, 2017 there were letters of credit outstanding for $0.8 million.  At September 29, 2018, the Company had availability for additional borrowings under the Revolving Credit Facility of $19.7 million.

Commitments and Contingencies

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 (or a replacement thereof), 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 final outcome to occur, there exists the possibility of a material adverse impact on our financial position, liquidity, and the results of operations.

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. The Company has acquired numerous companies throughout its history and those acquisitions have generally included significant future contingent consideration.  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 has a dispute with a customer that is a major utility in the United States. Essentially, the customer has not paid the balance of accounts receivable the Company believes are owed for certain disputed projects. The Company recently started arbitration hearings with this customer.  As of September 29, 2018 the total amount of outstanding receivables from this customer was $6.2 million, subject to potential upward adjustment in damages claimed in the arbitration.  Additionally, as part of the arbitration process, the customer has asserted counter claims. While the total amount of asserted counter claims is unknown as of September 29, 2018, the total amount is anticipated to at least exceed $11.5 million.  The Company believes these counter claims were retaliatory in nature.  Prior to the arbitration, the customer had not asserted any claims.  The Company believes these asserted claims have no merit and were merely asserted as a strategy to reduce the Company's claims in any arbitration award or potential settlement agreement. The Company believes that its accounts receivable balance, subject to reserves, is fully collectible. Furthermore, the Company believes that this arbitration will conclude sometime in the first half of the Company's fiscal 2019.  While the Company believes the customer's counter claims to be frivolous and without merit, it can give no assurances that it will ultimately not have to pay all or a portion of such claims.  The Company is continuing work on one of the engagements that have given rise to this dispute and also on several engagements from the same client that are not currently part of the arbitration.

38

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Capital Resources (Continued)

The Company utilizes SAP software for its financial reporting and accounting system which was implemented in 1999 and has not undergone significant upgrades since its initial implementation.  The Company believes that it will become necessary to upgrade or replace its SAP financial reporting and accounting system.  The Company has not determined when this contemplated replacement may be necessary, but may undertake a comprehensive review of the system during fiscal 2019.  The Company estimates this upgrade or replacement of their financial reporting and accounting system will cost between $1.0 million and $2.0 million.  These estimates are subject to material change.

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 at least the next 12 months.

The Company leases office facilities and various equipment under non-cancelable leases expiring at various dates through November 2022.  Certain leases are subject to escalation clauses based upon changes in various factors.  The minimum future annual operating lease commitments for leases with non-cancelable terms, exclusive of unknown operating escalation charges, are as follows (in thousands):

Fiscal Years Ending	Amount
2018 (after September 29, 2018)	$903
2019	1,813
2020	1,149
2021	618
2022	339
Total	$4,822

Future Contingent Payments

As of September 29, 2018, the Company had three active acquisition agreements whereby additional contingent consideration may be earned by the former shareholders: 1) effective July 1, 2012 the Company acquired certain assets of BGA, LLC ("BGA"); 2) effective July 5, 2015, the Company acquired certain assets of Substation Design Services, LLC ("SDS"); and 3) effective October 1, 2017, the Company acquired all of the stock of PSR Engineering Solutions d.o.o. Beograd (Voždovac) ("PSR"). The Company estimates future contingent payments at September 29, 2018 as follows:

Fiscal Years Ending	Total
December 29, 2018 (after September 29, 2018)	$553
December 28, 2019	450
January 2, 2021	730
Estimated future contingent consideration payments	$1,733

Estimates of future contingent payments are subject to significant judgment and actual payments may materially differ from estimates.  Potential future contingent payments to be made to all active acquisitions are capped at cumulative maximum of $2.4 million.  The Company estimates future contingent consideration in payments based on forecasted performance and recorded at the net present value of those expected payments as of September 29, 2018.  The measurement is based on significant inputs that are not observable in the market, which "Fair Value Measurements and Disclosures" (ASU Topic 820-10-35) refers to as Level 3 inputs.  There was no change in the fair value of contingent consideration for the thirty-nine week period ended September 29, 2018.

Effective October 1, 2018, the Company acquired substantially all of the assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, "TKE").  TKE provides full service process equipment supply, engineering, development, and design services to the chemical, food processing and industrial manufacturing industries.  The Company paid approximately $3.7 million in upfront consideration, including $1.8 million in cash and 440,751 shares of the Company's common stock, and will pay additional contingent consideration of up to a maximum of $7.6 million over the next three years.

39

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 the Revolving Credit Facility. 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 September 29, 2018, 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.  Based on the Company's variable-rate line of credit balances during the thirty-nine week period ended September 29, 2018, if the interest rate on the Company's variable-rate line of credit (using an incremental borrowing rate) during the period had been 1.0% higher, the Company's interest expense on an annualized basis would have increased by $0.3 million.  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 effective 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 were no changes in the Company's internal control over financial reporting  during the quarter ended September 29, 2018, that materially affected or are reasonably likely to materially affect the Company's  internal control over financial reporting.

40

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See discussion of Contingencies in Note 16 to the Consolidated Financial Statements included in Item 1 of this report.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in the "Risk Factors" sections (Item 1A) of the Company's Annual Report on Form 10-K for the year ended December 30, 2017 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

41

ITEM 6. EXHIBITS

10(a)*	Third Amended & Restated Loan and Security Agreement, dated as of August 9, 2018, by and among the Company and all of its subsidiaries, Citizens Bank of Pennsylvania, a Pennsylvania state chartered bank, in its capacity as administrative agent and arranger, and Citizens Bank of Pennsylvania, as lender; incorporated by reference to Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2018.
31.1*	Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Principal Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1**	Certification of Principal 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 Principal 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.)
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Documents
101.DEF*	XBRL Taxonomy Definition Linkbase Document

__________

*Filed herewith

**Furnished herewith

42

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:  November 9, 2018	By: /s/ Bradley S. Vizi
		Bradley S. Vizi Executive Chairman and President (Principal Executive Officer and Duly Authorized Officer of the Registrant)

Date:  November 9, 2018	By: /s/ Kevin D. Miller
		Kevin D. Miller Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer of the Registrant)

43

Exhibit 31.1

RCM TECHNOLOGIES, INC.

CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

CERTIFICATION

I, Bradley S. Vizi, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)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

(d)disclosed in this annual 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:  November 9, 2018 /s/ Bradley S. Vizi Bradley S. Vizi Executive Chairman and President

44

Exhibit 31.2

RCM TECHNOLOGIES, INC.

CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

CERTIFICATION

I, Kevin D. Miller, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)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

(d)disclosed in this annual 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:  November 9, 2018 /s/ Kevin D. Miller Kevin D. Miller Chief Financial Officer

45

Exhibit 32.1

RCM TECHNOLOGIES, INC.

CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

I, Bradley S. Vizi, Executive Chairman and President 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 September 29, 2018 (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/ Bradley S. Vizi

Bradley S. Vizi

Executive Chairman and President

Date:  November 9, 2018

46

Exhibit 32.2

RCM TECHNOLOGIES, INC.

CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

I, Kevin D. Miller, 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 September 29, 2018 (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/ Kevin D. Miller

Kevin D. Miller

Chief Financial Officer

Date:  November 9, 2018

47

EX-31.1

Exhibit 31.1

RCM TECHNOLOGIES, INC.

CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

CERTIFICATION

I, Bradley S. Vizi, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)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

(d)disclosed in this annual 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:  November 9, 2018 /s/ Bradley S. Vizi Bradley S. Vizi Executive Chairman and President

EX-31.2

Exhibit 31.2

RCM TECHNOLOGIES, INC.

CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

CERTIFICATION

I, Kevin D. Miller, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)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

(d)disclosed in this annual 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:  November 9, 2018 /s/ Kevin D. Miller Kevin D. Miller Chief Financial Officer

EX-32.1

Exhibit 32.1

RCM TECHNOLOGIES, INC.

CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

I, Bradley S. Vizi, Executive Chairman and President 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 September 29, 2018 (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/ Bradley S. Vizi

Bradley S. Vizi

Executive Chairman and President

Date:  November 9, 2018

EX-32.2

Exhibit 32.2

RCM TECHNOLOGIES, INC.

CERTIFICATIONS REQUIRED BY RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

I, Kevin D. Miller, 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 September 29, 2018 (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/ Kevin D. Miller

Kevin D. Miller

Chief Financial Officer

Date:  November 9, 2018

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Document And Entity Information - shares	9 Months Ended
	Sep. 29, 2018	Nov. 09, 2018
Document Information [Line Items]
Entity Registrant Name	RCM TECHNOLOGIES INC
Entity Central Index Key	0000700841
Trading Symbol	rcmt
Current Fiscal Year End Date	--12-29
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		12,725,978
Document Type	10-Q
Document Period End Date	Sep. 29, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 29, 2018	Dec. 30, 2017
Current assets:
Cash and cash equivalents	$ 710	$ 2,851
Accounts receivable, net	46,663	46,080
Transit accounts receivable	4,365	3,002
Prepaid expenses and other current assets	3,947	3,706
Total current assets	55,685	55,639
Property and equipment, net	3,694	3,446
Other assets:
Deposits	224	215
Goodwill	11,685	11,685
Intangible assets, net	65	105
Deferred tax assets, net, domestic	2,075	2,189
Total other assets	14,049	14,194
Total assets	73,428	73,279
Current liabilities:
Accounts payable and accrued expenses	8,099	8,634
Transit accounts payable	4,461	4,661
Accrued payroll and related costs	8,658	7,780
Income taxes payable	916	372
Liability for contingent consideration from acquisitions	553	741
Total current liabilities	22,687	22,188
Liability for contingent consideration from acquisitions	1,180	1,350
Borrowings under line of credit	24,460	27,279
Total liabilities	48,751	51,248
Stockholders’ equity:
Preferred stock, $1.00 par value; 5,000,000 shares authorized; no shares issued or outstanding	0	0
Common stock, $0.05 par value; 40,000,000 shares authorized; 15,108,399 shares issued and 12,285,227 shares outstanding at September 29, 2018 and 15,017,522 shares issued and 12,194,350 shares outstanding at December 30, 2017	755	751
Additional paid-in capital	105,243	104,540
Accumulated other comprehensive loss	(2,572)	(2,395)
Accumulated deficit	(63,762)	(65,878)
Treasury stock (2,823,172 shares at September 29, 2018 and December 30, 2017) at cost	(14,987)	(14,987)
Stockholders’ equity	24,677	22,031
Total liabilities and stockholders’ equity	73,428	73,279
Foreign Tax Authority [Member]
Current liabilities:
Deferred tax liability	$ 424	$ 431

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Sep. 29, 2018	Dec. 30, 2017
Preferred stock par value (in dollars per share)	$ 1	$ 1
Preferred stock, authorized (in shares)	5,000,000	5,000,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.05	$ 0.05
Common stock, authorized (in shares)	40,000,000	40,000,000
Common stock, issued (in shares)	15,108,399	15,017,522
Common stock, outstanding (in shares)	12,285,227	12,194,350
Treasury stock, shares (in shares)	2,823,172	2,823,172

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Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017	Sep. 29, 2018	Sep. 30, 2017
Revenues	$ 42,559	$ 43,827	$ 145,081	$ 135,680
Cost of services	31,571	32,109	108,803	100,097
Gross profit	10,988	11,718	36,278	35,583
Operating costs and expenses
Selling, general and administrative	9,412	9,700	29,909	30,092
Depreciation and amortization	344	422	1,156	1,229
Severance, professional fees and other charges			1,371	0
Change in contingent consideration				781
Operating costs and expenses	9,756	10,122	32,436	32,102
Operating income	1,232	1,596	3,842	3,481
Other (expense) income
Interest expense and other, net	(305)	(137)	(971)	(409)
Gain (loss) on foreign currency transactions	10	(17)	(19)	38
Other (expense) income	(295)	(154)	(990)	(371)
Income before income taxes	937	1,442	2,852	3,110
Income tax expense	253	422	736	1,351
Net income	$ 684	$ 1,020	$ 2,116	$ 1,759
Basic and diluted net earnings per share (in dollars per share)	$ 0.06	$ 0.08	$ 0.17	$ 0.15

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Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017
Net income	$ 2,116	$ 1,759
Other comprehensive (loss) gain	(177)	369
Comprehensive income	$ 1,939	$ 2,128

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Consolidated Statement of Changes in Stockholders' Equity (Unaudited) - 9 months ended Sep. 29, 2018 - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance (in shares) at Dec. 30, 2017	15,017,522				2,823,172
Balance at Dec. 30, 2017	$ 751	$ 104,540	$ (2,395)	$ (65,878)	$ (14,987)	$ 22,031
Issuance of stock under employee stock purchase plan (in shares)	90,877
Issuance of stock under employee stock purchase plan	$ 4	381				385
Translation adjustment			(177)			(177)
Share-based compensation expense		322				322
Net income				2,116		2,116
Balance (in shares) at Sep. 29, 2018	15,108,399				2,823,172
Balance at Sep. 29, 2018	$ 755	$ 105,243	$ (2,572)	$ (63,762)	$ (14,987)	$ 24,677

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net income	$ 2,116	$ 1,759
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	1,156	1,229
Change in contingent consideration		781
Share-based compensation expense	322	591
Provision for losses on accounts receivable	945	131
Deferred income tax expense	104	294
Changes in assets and liabilities:
Accounts receivable	(1,664)	3,682
Prepaid expenses and other current assets	(593)	230
Net of transit accounts receivable and payable	(1,560)	(1,189)
Accounts payable and accrued expenses	(219)	(1,313)
Accrued payroll and related costs	905	(185)
Income taxes payable	552	946
Total adjustments	(52)	5,197
Net cash provided by operating activities	2,064	6,956
Cash flows from investing activities:
Property and equipment acquired	(1,414)	(747)
Decrease in deposits	(9)	4
Net cash used in investing activities	(1,423)	(743)
Cash flows from financing activities:
Borrowings under line of credit	64,987	60,411
Repayments under line of credit	(67,807)	(65,271)
Issuance of stock for employee stock purchase plan	385	394
Common stock repurchases		(365)
Contingent consideration paid	(300)	(790)
Net cash used in financing activities	(2,735)	(5,621)
Effect of exchange rate changes on cash and cash equivalents	(47)	(46)
(Decrease) increase in cash and cash equivalents	(2,141)	546
Cash and cash equivalents at beginning of period	2,851	279
Cash and cash equivalents at end of period	710	825
Supplemental cash flow information:
Interest	832	366
Income taxes	338	340
Non-cash investing activities:
Non-cash consideration for business acquisition		133
Non-cash financing activities:
Vesting of restricted stock units		$ 117

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Note 1 - Basis of Presentation

9 Months Ended

Sep. 29, 2018

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 30, 2017

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

and

thirty-nine

week periods ended

September 29, 2018

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 30, 2017

was a

52

-week reporting year. The

third

fiscal quarters of

2018

and

2017

ended on the following dates, respectively:

Period Ended	Weeks in Quarter	Weeks in Year to Date
September 29, 2018	Thirteen	Thirty-Nine
September 30, 2017	Thirteen	Thirty-Nine

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Note 2 - Use of Estimates and Uncertainties

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

2. Use of Estimates and Uncertainties

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 uses estimates to calculate an allowance for doubtful accounts on its accounts receivables, adequacy of reserves, goodwill impairment, if any, equity compensation, the tax rate applied and the valuation of certain assets and liability accounts. These estimates can be significant to the operating results and financial position of the Company.

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 general economy, competition, demand for the Company’s services, adverse litigation and claims and the hiring, training and retention of key employees.

F

air Value of Financial Instruments

The Company’s carrying value of financial instruments, consisting primarily of accounts receivable, transit accounts receivable, accounts payable and accrued expenses, and transit accounts payable and borrowings under line of credit approximates fair value due to their liquidity or their short-term nature. The Company does

not

have derivative products in place to manage risks related to foreign currency fluctuations for its foreign operations or for interest rate changes.

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Note 3 - Revenue Recognition

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

3. Revenue Recognition

As of

December 31, 2017,

the Company adopted Accounting Standards Update ("ASU")

2014

-

09,

 

Revenue from Contracts with Customers ("ASC

606"

)

,

using the modified retrospective approach. Revenues are recognized when we satisfy a performance obligation by transferring services promised in a contract to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services. Performance obligations in our contracts represent distinct or separate service streams that we provide to our customers. The adoption of ASC

606

did

not

result in an adjustment to retained earnings in the Company’s consolidated balance sheet as of

December 31, 2017.

We evaluate our revenue contracts with customers based on the

five

-step model under ASC

606:

(

1

) Identify the contract with the customer; (

2

) Identify the performance obligations in the contract; (

3

) Determine the transaction price; (

4

) Allocate the transaction price to separate performance obligations; and (

5

) Recognize revenue when (or as) each performance obligation is satisfied.

The Company derives its revenues from several sources. The Company’s Engineering Services and Information Technology Services segments perform consulting and project solution services. All of the Company’s segments perform staff augmentation services and derive revenue from permanent placement fees. The majority of the Company’s revenues are invoiced on a time and materials basis.

The following table presents our revenues disaggregated by revenue source for the

thirty-nine

weeks periods ended

September 29, 2018

and

September 30, 2017:

	September 29, 2018		September 30, 2017
Engineering:
Time and Material	$	56,639	$	52,843
Fixed Fee		5,773		8,674
Total Engineering	$	62,412	$	61,517
Specialty Health Care:
Time and Material	$	59,457	$	47,554
Permanent Placement Services		1,142		1,658
Total Specialty Health Care	$	60,599	$	49,212
Information Technology:
Time and Material	$	21,875	$	24,671
Permanent Placement Services		195		280
Total Information Technology	$	22,070	$	24,951
	$	145,081	$	135,680

Time and Material

The Company’s IT and Healthcare segments predominantly recognize revenue through time and material work while its Engineering segment recognizes revenue through both time and material and fixed fee work. The Company’s time and material contracts are typically based on the number of hours worked at contractually agreed upon rates, therefore revenues associated with these time and materials contracts are recognized based on hours worked at contracted rates. 

Fixed fee

From time to time and predominantly in our Engineering segment, the Company will enter into contracts requiring the completion of specific deliverables. The Company has master services agreements with many of its customers that broadly define terms and conditions. Actual services performed under fixed fee arrangements are typically delivered under purchase orders that more specifically define terms and conditions related to that fixed fee project. While these master services agreements can often span several years, the Company’s fixed fee purchase orders are typically performed over

six

to

nine

month periods.  In instances where project services are provided on a fixed-price basis, revenue is recorded in accordance with the terms of each contract.  In certain instances, revenue is invoiced at the time certain milestones are reached, as defined in the contract.  Revenues under these arrangements are recognized as the costs on these contracts are incurred.  On an infrequent basis, amounts paid in excess of revenues earned and recognized are recorded as deferred revenue, included in accounts payable and accrued expenses on the accompanying balance sheets.  In other instances, revenue is billed and recorded based upon contractual rates per hour. Additionally, some contracts contain “Performance Fees” (bonuses) for completing a contract under budget.  Performance Fees, if any, are recorded when earned.  Some contracts also limit revenues and billings to specified maximum amounts.  Provisions for contract losses, if any, are made in the period such losses are determined.  For contracts where there is a specific deliverable, the work is

not

complete and the revenue is

not

recognized, the costs incurred are deferred as a prepaid asset.  The associated costs are expensed when the related revenue is recognized.

Permanent Placement Services

The Company earns permanent placement fees from providing permanent placement services. These fees are typically based on a percentage of the compensation paid to the person placed with the Company’s client.

There was

no

deferred revenue balance at

September 29, 2018.

The deferred revenue balance at

December 30, 2017

was

$596

and is included in accounts payable and accrued expense in the accompanying consolidated balance sheet at that date.  Revenue is recognized when the service has been performed. Deferred revenue

may

be recognized over a period exceeding

one

year from the time it was recorded on the balance sheet. For the

thirty-nine

week period ended

September 29, 2018,

the Company recognized revenue of

$596

that was included in deferred revenue at the beginning of the reporting period.

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Note 4 - Accounts Receivable, Transit Accounts Receivable and Transit Accounts Payable

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

4. Accounts Receivable, Transit Accounts Receivable and Transit Accounts Payable

The Company’s accounts receivable are comprised as follows:

	September 29, 2018			December 30, 2017
Billed	$	30,106		$	31,448
Accrued and unbilled		12,131			10,573
Work-in-progress		5,704			5,026
Allowance for sales discounts and doubtful accounts		(1,278	)		(967	)
Accounts receivable, net	$	46,663		$	46,080

Unbilled receivables primarily represent revenues earned whereby those services are ready to be billed as of the balance sheet ending date. Work-in-progress primarily represents revenues earned under contracts which the Company contractually invoices at future dates.

From time to time, the Company’s Engineering segment enters into agreements to provide, among other things, construction management and engineering services.  Pursuant to these agreements, the Company a)

may

engage subcontractors to provide construction or other services; b) typically earns a fixed percentage of the total project value; and c) assumes

no

ownership or risks of inventory.  Under the terms of the agreements, the Company is typically

not

required to pay the subcontractor until after the corresponding payment from the Company’s end-client is received. Upon invoicing the end-client on behalf of the subcontractor or staffing agency the Company records this amount simultaneously as both a “transit account receivable” and “transit account payable” as the amount when paid to the Company is due to and generally paid to the subcontractor within a few days. The Company typically does

not

pay a given transit account payable until the related transit account receivable is collected. The Company’s transit accounts payable generally exceeds the Company’s transit accounts receivable but absolute amounts and spreads fluctuate significantly from quarter to quarter in the normal course of business. The transit accounts receivable was

$4.4

million and related transit accounts payable was

$4.5

million, for a net payable of

$0.1

million, as of

September 29, 2018.

The transit accounts receivable was

$3.0

million and related transit accounts payable was

$4.7

million, for a net payable of

$1.7

million, as of

December 30, 2017.

The Company has a dispute with a customer that is a major utility in the United States. Essentially, the customer has

not

paid the balance of accounts receivable the Company believes are owed for certain disputed projects. The Company recently started arbitration hearings with this customer.  As of

September 29, 2018

the total amount of outstanding receivables from this customer was

$6.2

million, subject to potential upward adjustment in damages claimed in the arbitration.  Additionally, as part of the arbitration process, the customer has asserted counter claims. While the total amount of asserted counter claims is unknown as of

September 29, 2018,

the total amount is anticipated to at least exceed

$11.5

million.  The Company believes these counter claims were retaliatory in nature.  Prior to the arbitration, the customer had

not

asserted any claims.  The Company believes these asserted claims have

no

merit and were merely asserted as a strategy to reduce the Company’s claims in any arbitration award or potential settlement agreement. The Company believes that its accounts receivable balance, subject to reserves, is fully collectible. Furthermore, the Company believes that this arbitration will conclude sometime in the

first

half of the Company’s fiscal

2019.

  While the Company believes the customer’s counter claims to be frivolous and without merit, it can give

no

assurances that it will ultimately

not

have to pay all or a portion of such claims.  The Company is continuing work on

one

of the engagements that have given rise to this dispute and also on several engagements from the same client that are

not

currently part of the arbitration.

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Note 5 - Property and Equipment

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

5. Property and Equipment

Property and equipment are stated at cost and are depreciated on the straight-line method at rates calculated to provide for retirement of assets at the end of their estimated useful lives. The annual rates are

20%

for computer hardware and software as well as furniture and office equipment. Leasehold improvements are amortized over the shorter of the estimated life of the asset or the lease term.

Property and equipment are comprised of the following:

	September 29, 2018		December 30, 2017
Computers and systems	$	7,133	$	6,172
Equipment and furniture		600		938
Leasehold improvements		693		899
		8,426		8,009
Less: accumulated depreciation and amortization		4,732		4,563
Property and equipment, net	$	3,694	$	3,446

The Company periodically writes off fully depreciated and amortized assets.  The Company wrote off fully depreciated and amortized assets of

$994

and

$367

during the

thirty-nine

week periods ended

September 29, 2018

and

September 30, 2017,

respectively. Depreciation expense for the

thirty-nine

week periods ended

September 29, 2018

and

September 30, 2017

was

$1,116

and

$1,179,

respectively.

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Note 6 - Acquisitions

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Business Combination Disclosure [Text Block]

6. Acquisitions

The Company has acquired numerous companies throughout its history and those acquisitions have generally included significant future contingent consideration. The Company gives

no

assurance that it will make acquisitions in the future and if they do make acquisitions gives

no

assurance that such acquisitions will be successful.

The Company made the following acquisitions during fiscal

2017:

RAF

Effective

April 16, 2017,

the Company acquired the business operations of RAF. RAF has been in business since

1991

as a multi-disciplined engineering and consulting and design company, headquartered on Long Island. The firm has been providing Engineering, Design, Permitting, Inspection and Construction Management services to the utility, industrial, commercial, and property management industries. RAF specializes in turnkey above ground tank inspection, repair and cleaning services, as well as concrete, steel, masonry, and roofing routine maintenance inspection and design. The purchase price for RAF was

$133,

all of which was allocated to goodwill as follows:

1

) assumed liabilities of

$123;

and

2

) contingent consideration of

$10

paid in fiscal

2017.

PSR

Effective

October 1, 2017

the Company acquired all of the stock of PSR. PSR was established in Serbia in

2006

and specializes in the design and engineering associated with high voltage substations, design engineering for electrical equipment in power plants,

3D

modeling, commissioning, site supervision and other engineering services for clients in Europe, North America, South America and the Middle East. At the time of acquisition, PSR had a highly trained staff of approximately

30

engineers. PSR has acted as a subcontractor to the Company for over

three

years. The total purchase price of

$3,248

included cash at closing of

$1,000,

estimated contingent consideration of

$1,763

and

$485

due to seller upon realization of net working capital recorded at closing. As part of the working capital recorded at closing, the Company received cash of

$237.

The Company allocated

$58

to fixed assets and the balance to goodwill.

Future Contingent Payments

As of

September 29, 2018,

the Company had

three

active acquisition agreements whereby additional contingent consideration

may

be earned by the former shareholders:

1

) effective

July 1, 2012

the Company acquired certain assets of BGA, LLC (“BGA”);

2

) effective

July 5, 2015,

the Company acquired certain assets of Substation Design Services, LLC (“SDS”); and

3

) effective

October 1, 2017,

the Company acquired all of the stock of PSR Engineering Solutions d.o.o. Beograd (Voždovac) (“PSR”). The Company estimates future contingent payments at

September 29, 2018

as follows:

Fiscal Years Ending	Total
December 29, 2018 (after September 29, 2018)	$	553
December 28, 2019		450
January 2, 2021		730
Estimated future contingent consideration payments	$	1,733

Estimates of future contingent payments are subject to significant judgment and actual payments

may

materially differ from estimates. Potential future contingent payments to be made to all active acquisitions are capped at cumulative maximum of

$2.4

million. The Company estimates future contingent consideration in payments based on forecasted performance and recorded at the net present value of those expected payments as of

September 29, 2018.

The measurement is based on significant inputs that are

not

observable in the market, which “Fair Value Measurements and Disclosures” (ASU Topic

820

-

10

-

35

) refers to as Level

3

inputs. There has been

no

change in the fair value of contingent consideration for the

thirty-nine

week period ended

September 29, 2018.

The Company paid contingent consideration of

$0.3

million and

$0.8

million during the

thirty-nine

week periods ended

September 29, 2018

and

September 30, 2017,

respectively.

XML

Note 7 - Goodwill

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Goodwill Disclosure [Text Block]

7. Goodwill

Goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired in business combinations.  The Company tests goodwill for impairment on an annual basis as of the last day of the Company's fiscal year or more frequently if events occur or circumstances change indicating that the fair value of goodwill

may

be below the carrying amount.  The Company has determined that

no

impairment of goodwill existed during the

thirty-nine

week period ended

September 29, 2018.

There were

no

changes in the carrying amount of goodwill for the

thirty-nine

week period ended

September 29, 2018.

	Engineering		Specialty Health Care		Information Technology		Total
Balance as of September 29, 2018 and December 30, 2017	$	7,249	$	2,398	$	2,038	$	11,685

XML

Note 8 - Intangible Assets

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

8. Intangible 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 the Company determines that 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. The Company’s intangible assets consist of customer relationships and non-compete agreements. During all periods presented, the Company determined that

no

impairment of intangible assets exists.

Intangible assets are substantially attributable to the Company’s Engineering segment and include the following:

	Thirty-Nine Week Periods Ended
	September 29, 2018		December 30, 2017
Customer contracts and relations	$	56	$	88
Non-compete agreements		9		17
Intangible assets, net	$	65	$	105

Amortization expense of intangible assets for the

thirty-nine

week periods ended

September 29, 2018

and

September 30, 2017

was

$40

and

$50,

respectively.

XML

Note 9 - Line of Credit

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

9. Line of Credit

The Company and its subsidiaries amended and restated its Revolving Credit Facility with Citizens Bank of Pennsylvania on

August 9, 2018. 

As amended and restated, the Revolving Credit Facility now provides for a

$45.0

million revolving credit facility (increased from

$40.0

million),

no

longer has a sub-limit for letters of credit (from a sub-limit of

$5.0

million) and expires on

August 8, 2023.

The amended and restated Revolving Credit Facility provides the Company with waivers from certain financial covenant calculations of up to

$1.4

million in the borrowers’ fiscal year ending on

December 31, 2018

for certain expenses, including severance accrued for the Company’s former chief executive officer and related payroll taxes, continuation of certain benefits and professional fees, charges incurred related to transactional financial advisory fees, legal fees associated with defending an ongoing frivolous lawsuit with a competitor of the Company, and search fees associated with hiring a senior executive.  Except as noted, all material terms remain unchanged.

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, typically borrowed in fixed

30

-day increments or (ii) the agent bank’s prime rate generally borrowed over shorter durations.  The Company also pays unused line fees based on the amount of the Revolving Credit Facility that is

not

drawn.  Unused line fees are recorded as interest expense.  The effective weighted average interest rate, including unused line fees, for the

thirty-nine

week period ended

September 29, 2018

was

3.8%.

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 a covenant that restricts on the Company’s ability to borrow in order to pay dividends.  As of

September 29, 2018,

the Company was in compliance with all covenants contained in the Revolving Credit Facility.

Borrowings under the line of credit as of

September 29, 2018

and

December 30, 2017

were

$24.5

million and

$27.3

million, respectively. At

September 29, 2018

and

December 30, 2017

there were letters of credit outstanding for

$0.8

million. At

September 29, 2018,

the Company had availability for additional borrowings under the Revolving Credit Facility of

$19.7

million.

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Note 10 - Per Share Data

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

1 0 . Per Share Data

The Company uses the treasury stock method to calculate the weighted-average shares used for diluted earnings per share. The number of common shares used to calculate basic and diluted earnings per share for the

thirteen

and

thirty-nine

week periods ended

September 29, 2018

and

September 30, 2017

was determined as follows:

	Thirteen Week Periods Ended				Thirty-Nine Week Periods Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Basic weighted average shares outstanding		12,284,727		12,009,181		12,254,415		11,972,600
Dilutive effect of outstanding restricted stock awards		32,723		141,914		24,165		116,610
Weighted average dilutive shares outstanding		12,317,450		12,151,095		12,278,580		12,089,210

For both the

thirteen

and

thirty-nine

week periods ended

September 29, 2018,

there were

no

anti-dilutive shares

not

included in the calculation of common stock equivalents as there were

no

stock options outstanding.  For both the

thirteen

and the

thirty-nine

week periods ended

September 30, 2017

there were

15,000

absolute anti-dilutive shares

not

included in the calculation of common stock equivalents.  These were determined to be anti-dilutive because the exercise prices of the associated stock options for the periods were higher than the average market price of the Company’s common stock for the same periods.

Unissued shares of common stock were reserved for the following purposes:

	September 29, 2018		December 30, 2017
Time-based restricted stock units outstanding		96,195		87,034
Performance-based restricted stock units outstanding		240,000		400,000
Future grants of options or shares		483,071		332,232
Shares reserved for employee stock purchase plan		86,403		177,280
Total		905,669		996,546

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Note 11 - Share-based Compensation

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

11. Share-Based Compensation

At

September 29, 2018,

the Company had

two

share-based employee compensation plans. The Company measures the fair value of share-based awards, if and when granted, based on the Black-Scholes method and using the closing market price of the Company’s common stock on the date of grant. Awards vest over periods ranging from

one

to

three

years and expire within

10

years of issuance. Share-based compensation expense related to time-based awards is amortized in accordance with applicable vesting periods using the straight-line method. The Company expenses performance-based awards only when the performance metrics are likely to be achieved and the associated awards are therefore likely to vest. Performance-based share awards that are likely to vest are also expensed on a straight-line basis over the vesting period but

may

vest on a retroactive basis or be reversed, depending on when it is determined that they are likely to vest, or in the case of a reversal when they are later determined to be unlikely to vest.

Share-based compensation expense of

$322

and

$591

was recognized for the

thirty-nine

week periods ended

September 29, 2018

and

September 30, 2017,

respectively. Share based compensation for the

thirty-nine

week period ended

September 29, 2018

did

not

include any expense associated with performance-based restricted stock units since they were, as of

September 29, 2018,

determined to be unlikely to vest.

As of

September 29, 2018,

the Company had approximately

$253

of total unrecognized compensation cost related to all time-based non-vested share-based awards granted under the Company’s various share-based plans, which the Company expects to recognize over approximately a

two

-year period. These amounts do

not

include a) performance-based restricted stock units, b) the cost of any additional share-based awards that

may

be granted in future periods or c) the impact of any potential changes in the Company’s forfeiture rate.

Incentive S

hare-Based

Plans

2014

Omnibus Equity Compensation Plan (the

2014

Plan)

The

2014

Plan, approved by the Company’s shareholders in

December 2014,

provides for the issuance of up to

625,000

shares of the Company’s common stock to officers, non-employee directors, employees of the Company and its subsidiaries or consultants and advisors utilized by the Company. In fiscal

2016,

the Company amended and restated the

2014

Plan with shareholder approval to increase the aggregate number of shares of stock reserved for issuance under the Plan by an additional

500,000

shares so that the total number of shares of stock reserved for issuance under the Plan is

1,125,000

shares. The expiration date of the Plan is

December 1, 2026.

The Compensation Committee of the Board of Directors determines the vesting period at the time of grant.

As of

September 29, 2018,

under the

2014

Plan,

96,195

time-based and

240,000

performance-based restricted share units were outstanding and

483,071

shares were available for awards thereunder.

Employee Stock Purchase Plan

The Company implemented the

2001

Employee Stock Purchase Plan (the “Purchase Plan”) with shareholder approval, effective

January 1, 2001.

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 shares of common stock through payroll deductions for up to

10%

of qualified compensation.

In fiscal

2015,

the Company amended the Purchase Plan with shareholder approval to increase the aggregate number of shares of stock reserved for issuance or transfer under the Plan by an additional

300,000

shares so that the total number of shares of stock reserved for issuance or transfer under the Plan shall be

1,100,000

shares and to extend the expiration date of the Plan to

December 31, 2025.

The Company has

two

offering periods in the Purchase Plan coinciding with the Company’s

first

two

fiscal quarters and the last

two

fiscal quarters. Actual shares are issued on the

first

business day of the subsequent offering period for the prior offering period payroll deductions. The number of shares issued at the beginning of the current period (on

July 2, 2018)

was

45,469.

As of

September 29, 2018,

there were

86,403

shares available for issuance under the Purchase Plan.

Time-Based Restricted Stock Units

From time-to-time the Company issues time-based restricted stock units. These time-based restricted stock units typically include dividend accrual equivalents, which means that any dividends paid by the Company during the vesting period become due and payable after the vesting period assuming the grantee’s restricted stock unit fully vests. Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying consolidated balance sheet. Dividends for time-based restricted stock units that ultimately do

not

vest are forfeited.

To date, the Company has issued time-based restricted stock units only under its

2007

Omnibus Equity Compensation Plan and the

2014

Plan. The

2007

Plan has expired and there are

no

time-based restricted stock units outstanding thereunder. The following summarizes the activity in the time-based restricted stock units under the

2014

Plan during the

thirty-nine

week period ended

September 29, 2018:

	Number of Time-Based Restricted Stock Units		Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 30, 2017		87,034	$	5.88
Granted		15,000	$	5.33
Vested		-		-
Forfeited or expired		5,839	$	6.85
Outstanding non-vested at September 29, 2018		96,195	$	5.74

Based on the closing price of the Company’s common stock of

$4.27

per share on

September 28, 2018 (

the last trading day prior to

September 29, 2018),

the intrinsic value of the time-based non-vested restricted stock units at

September 29, 2018

was approximately

$411.

As of

September 29, 2018,

there was approximately

$253

of total unrecognized compensation cost related to time-based restricted stock units, which is expected to be recognized over the vesting period of the restricted stock units.

Performance Based Restricted Stock Units

From time-to-time the Company issues performance-based restricted stock units to its executives.  Performance-based restricted stock units are typically vested based on certain multi-year performance metrics as determined by the Board of Directors Compensation Committee. These performance-based restricted stock units typically include dividend accrual equivalents, which means that any dividends paid by the Company during the vesting period become due and payable after the vesting period on any stock units that actually vest, if any.  Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying consolidated balance sheet.  Dividends for performance-based restricted stock units that ultimately do

not

vest are forfeited.   

To date, the Company has issued performance-based restricted stock units only under the

2014

Plan.  The following summarizes the activity in the performance-based restricted stock units during

2018:

	Number of Performance-Based Restricted Stock Units		Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 30, 2017		400,000	$	5.11
Granted		200,000	$	5.66
Vested		-		-
Forfeited or expired		360,000	$	5.29
Outstanding non-vested at September 29, 2018		240,000	$	5.29

As of

September 29, 2018,

the Company considers the metrics related to

240,000

of the performance-based restricted stock units unlikely to be achieved, thus

no

performance condition is probable of achievement and

no

compensation cost has been recognized on the performance-based restricted stock units. The Company will reassess at each reporting date whether achievement of any performance condition is probable and would begin recognizing compensation cost if and when achievement of the performance condition becomes probable. The Company will then recognize the appropriate expense cumulatively in the year performance becomes probable and recognize the remaining compensation cost over the remaining requisite service period.

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Note 12 - Treasury Stock Transactions

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Treasury Stock [Text Block]

12. Treasury Stock Transactions

For the

thirty-nine

week period ended

September 29, 2018,

the Company did

not

have an active stock purchase program and therefore did

not

purchase any treasury shares.  For the

thirty-nine

week period ended

September 30, 2017,

the Company purchased

59,312

shares at an average price of

$6.16.

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Note 13 - New Accounting Standards and Updates from the Securities Exchange Commission ("SEC")

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

13. New Accounting Standards and Updates from the Securities Exchange Commission (“SEC”)

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

)

,

in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU

2016

-

02

requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU

2016

-

02

is effective for fiscal years beginning after

December 15, 2018 (

including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. The Company will adopt ASU

2016

-

02

in the

first

quarter of

2019.

A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.  An entity

may

choose to use either (

1

) its effective date or (

2

) the beginning of the earliest comparative period presented in the financial statements as its date of initial application.  If an entity chooses the

second

option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date.  The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company will adopt the new standard on

January 1, 2019

and use the effective date of initial application.  Consequently, financial information will

not

be updated and the disclosures required under the new standard will

not

be provided for dates and periods before

January 1, 2019. 

The new standard provides a number of optional practical expedients in transition. The Company expects to elect the “package of expedients”, which permits the Company

not

to reassess under the new standard the Company’s prior conclusions about lease identification and initial direct costs. Although the Company is in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements, the Company expects the most significant change will be related to the recognition of right-of-use assets and lease liabilities on the Company's balance sheet for real estate operating leases.

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments - Credit Losses (Topic

326

).

The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. This ASU is effective for financial statements issued for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. The Company does

not

expect the adoption of ASU

2016

-

13

to have a material impact on its financial statements.

In

August 2018,

the SEC issued the final rule on Disclosures About Changes in Stockholders’ Equity For filings on Form

10

-Q, which extends to interim periods the annual requirement in SEC Regulation S-

X,

Rule

3

-

04,2

to disclose (

1

) changes in stockholders’ equity and (

2

) the amount of dividends per share for each class of shares (as opposed to common stock only, as previously required). Pursuant to the final rule, registrants must now analyze changes in stockholders’ equity, in the form of a reconciliation, for “the current and comparative year-to-date [interim] periods, with subtotals for each interim period,” i.e., a reconciliation covering each period for which an income statement is presented. Rule

3

-

04

permits the disclosure of changes in stockholders’ equity (including dividend-per-share amounts) to be made either in a separate financial statement or in the notes to the financial statements. The final rule is effective for all filings made on or after

November 5, 2018.

The staff of the SEC has indicated it would

not

object if the filer’s

first

presentation of the changes in shareholders’ equity is included in its Form

10

-Q for the quarter that begins after the effective date of the amendments. Therefore, the Company expects to conform to this rule in its Form

10

-Q for the quarter ending

March 31, 2019.

The Company believes that the final rule will

not

have a material effect on its consolidated financial statements and disclosures.

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Note 14 - Segment Information

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

1 4 . Segment Information

The Company follows “Disclosures about Segments of an Enterprise and Related Information,” which establishes standards for companies to report information about operating segments, geographic areas and major customers. The accounting policies of each reportable segment are the same as those described in the summary of significant accounting policies (see Note

1

to the Company’s Consolidated Financial Statements included in its Annual Report on Form

10

-K for the year ended

December 30, 2017).

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 reportable segments consistent with the Company’s management system:

Thirteen Week Period Ended September 29, 2018	Engineering		Specialty Health Care			Information Technology		Corporate		Total
Revenue	$	19,424	$	15,106		$	8,029	$	-	$	42,559
Cost of services		14,049		11,665			5,857		-		31,571
Gross profit		5,375		3,441			2,172		-		10,988
Selling, general and administrative		3,780		3,648			1,984		-		9,412
Depreciation and amortization		236		85			23		-		344
Operating income (loss)	$	1,359	$	(292	)	$	165	$	-	$	1,232
Total assets as of September 29, 2018	$	40,643	$	18,874		$	7,110	$	6,801	$	73,428
Capital expenditures	$	465	$	151		$	90	$	110	$	816

Thirteen Week Period Ended September 30, 2017	Engineering		Specialty Health Care			Information Technology			Corporate		Total
Revenue	$	21,708	$	14,335		$	7,784		$	-	$	43,827
Cost of services		15,533		10,805			5,771			-		32,109
Gross profit		6,175		3,530			2,013			-		11,718
Selling, general and administrative		3,968		3,750			1,982			-		9,700
Depreciation and amortization		297		86			39			-		422
Operating income (loss)	$	1,910	$	(306	)	$	(8	)	$	-	$	1,596
Total assets as of September 30, 2017	$	33,721	$	16,178		$	10,212		$	3,937	$	64,048
Capital expenditures	$	138	$	44		$	-		$	13	$	195

Thirty-Nine Week Period Ended September 29, 2018	Engineering		Specialty Health Care		Information Technology		Corporate			Total
Revenue	$	62,412	$	60,599	$	22,070	$	-		$	145,081
Cost of services		45,706		46,822		16,275		-			108,803
Gross profit		16,706		13,777		5,795		-			36,278
Selling, general and administrative		12,006		12,255		5,648		-			29,909
Depreciation and amortization		785		294		77		-			1,156
Severance, professional fees and other charges		-		-		-		1,371			1,371
Operating income (loss)	$	3,915	$	1,228	$	70	$	(1,371	)	$	3,842
Total assets as of September 29, 2018	$	40,643	$	18,874	$	7,110	$	6,801		$	73,428
Capital expenditures	$	856	$	207	$	108	$	243		$	1,414

Thirty-Nine Week Period Ended September 30, 2017	Engineering		Specialty Health Care		Information Technology			Corporate			Total
Revenue	$	61,517	$	49,212	$	24,951		$	-		$	135,680
Cost of services		44,598		37,069		18,430			-			100,097
Gross profit		16,919		12,143		6,521			-			35,583
Selling, general and administrative		12,184		11,429		6,479			-			30,092
Change in contingent consideration		-		-		-			781			781
Depreciation and amortization		863		246		120			-			1,229
Operating income (loss)	$	3,872	$	468	$	(78	)	$	(781	)	$	3,481
Total assets as of September 30, 2017	$	33,721	$	16,178	$	10,212		$	3,937		$	64,048
Capital expenditures	$	247	$	459	$	-		$	41		$	747

The Company derives a majority of its revenue from offices in the United States. Revenues reported for each operating segment are all from external customers. The Company is domiciled in the United States and its segments operate in the United States, Canada, Puerto Rico and Serbia. Revenues by geographic area for the

thirty-nine

week periods ended

September 29, 2018

and

September 30, 2017

are as follows:

	Thirteen Week Periods Ended				Thirty-Nine Week Periods Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Revenues
U. S.	$	34,729	$	34,207	$	118,364	$	110,083
Canada		6,308		8,703		21,942		22,420
Puerto Rico		1,113		917		3,142		3,177
Serbia		409		-		1,633		-
	$	42,559	$	43,827	$	145,081	$	135,680

Total assets by geographic area as of the reported periods are as follows:

	September 29, 2018		December 30, 2017
Total assets
U. S.	$	50,309	$	52,595
Canada		17,382		15,419
Puerto Rico		1,823		1,891
Serbia		3,914		3,374
	$	73,428	$	73,279

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Note 15 - Income Taxes

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

15. Income Taxes

On

December 22, 2017,

the SEC issued guidance under Staff Accounting Bulletin

No.

118,

Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB

118”

), directing taxpayers to consider the impact of the Tax Act as “provisional” when it does

not

have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. The changes in the Tax Act are broad and complex. The final impacts of the Tax Act

may

differ from the Company’s estimates due to, among other things, changes in interpretations of the Tax Act, or any updates to estimates the Company has utilized to calculate the impacts of the Tax Act. The SEC has issued rules that would allow for a measurement period of up to

one

year after the enactment date of the Tax Act to finalize the related tax impacts. The Company currently anticipates finalizing any resulting adjustments before the end of its fiscal year ending

December 29, 2018. 

The Company, based on current knowledge, estimated the impact of SAB

118

on its income tax provision for the

fifty-two

week period ended

December 30, 2017. 

The total impact was an increase to its fiscal

2017

tax expense of

$1.2

million, including

$1.0

million for a reduction in deferred tax benefit and

$0.2

million related to transition repatriation taxes. Any subsequent changes to the Company’s fiscal

2017

tax expense estimates, if any, could materially impact the Company’s fiscal

2018

tax provision. As of

September 29, 2018,

the Company is unaware of any factors or potential revisions that would materially change the Company’s estimated fiscal

2017

or fiscal

2018

tax provisions.

The projected fiscal

2018

effective income tax rates as of

September 29, 2018

for the

thirty-nine

week period ended

September 29, 2018

are approximately

28.1%,

26.5%

and

15.2%

in the United States, Canada and Serbia, respectively, and yielded a consolidated effective income tax rate of approximately

25.8%

for the

thirty-nine

week period ended

September 29, 2018. 

The comparable prior year period estimated income tax rates were

42.5%

and

26.5%

in the United States and Canada, respectively, and yielded a consolidated effective income tax rate of approximately

34.7%

for the

thirty-nine

week period ended

September 30, 2017. 

The Company did

not

have Serbian operations for the comparable prior year period. The significant decrease in the tax rate in the United States for the

thirty-nine

week period ended

September 29, 2018

as compared to the comparable prior year period was due to the reduction in the Company’s federal income tax rate to

21.0%

from

34.0%

as provided for in the Tax Cuts and Jobs Act. The consolidated effective income tax rate for the comparable prior year period is impacted by a discrete permanent difference due to the increase in contingent consideration of

$0.8

million. The consolidated effective income tax rate for the comparable prior year period after eliminating this discrete permanent difference was

37.9%.

The relative income or loss generated in each jurisdiction can materially impact the overall effective income tax rate of the Company.

XML

Note 16 - Contingencies

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Contingencies Disclosure [Text Block]

16. Contingencies

From time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business.  As such, the Company is required to assess the likelihood of any adverse outcomes to these matters as well as potential ranges of losses and possible recoveries.  The Company

may

not

be covered by insurance as it pertains to some or all of these matters. A determination of the amount of the provision required for these commitments and contingencies, if any, which would be charged to earnings, is made after careful analysis of each matter.  Once established, a provision

may

change in the future due to new developments or changes in circumstances, and could increase or decrease the Company’s earnings in the period that the changes are made.  Asserted claims in these matters sought approximately

$11.5

million in damages (as further described below) as of

September 29, 2018.

As of

September 29, 2018,

the Company had a negligible accrual for any such liabilities.

The Company has a dispute with a customer that is a major utility in the United States. Essentially, the customer has

not

paid the balance of accounts receivable the Company believes are owed for certain disputed projects. The Company recently started arbitration hearings with this customer.  As of

September 29, 2018

the total amount of outstanding receivables from this customer was

$6.2

million, subject to potential upward adjustment in damages claimed in the arbitration.  Additionally, as part of the arbitration process, the customer has asserted counter claims. While the total amount of asserted counter claims is unknown as of

September 29, 2018,

the total amount is anticipated to at least exceed

$11.5

million.  The Company believes these counter claims were retaliatory in nature.  Prior to the arbitration, the customer had

not

asserted any claims.  The Company believes these asserted claims have

no

merit and were merely asserted as a strategy to reduce the Company’s claims in any arbitration award or potential settlement agreement. The Company believes that its accounts receivable balance, subject to reserves, is fully collectible. Furthermore, the Company believes that this arbitration will conclude sometime in the

first

half of the Company’s fiscal

2019.

  While the Company believes the customer’s counter claims to be frivolous and without merit, it can give

no

assurances that it will ultimately

not

have to pay all or a portion of such claims.  The Company is continuing work on

one

of the engagements that have given rise to this dispute and also on several engagements from the same client that are

not

currently part of the arbitration.

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

not

be covered by insurance.

XML

Note 17 - Severance, Professional Fees and Other Charges

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Severance, Professional Fees and Other Charges Disclosure [Text Block]

17.

 

Severance

, Professional Fees

and Other Charges

The Company recorded

$1.4

million in severance, professional fees and other charges for the

thirty-nine

week period ended

September 29, 2018. 

These charges include severance accrued for the Company’s former chief executive officer and related payroll taxes, continuation of certain benefits and professional fees, totaling approximately

$0.9

million. The additional charges of

$0.5

million incurred related to transactional financial advisory fees, legal fees associated with defending an ongoing lawsuit with a competitor of the Company, and search fees associated with hiring a senior executive. The Company did

not

incur any such charges in the comparable prior year period.

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Note 18 - Subsequent Events

9 Months Ended

Sep. 29, 2018

Notes to Financial Statements

Subsequent Events [Text Block]

18.

  Subsequent Events

Effective

October 1, 2018,

the Company acquired substantially all of the assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, “TKE”).  TKE provides full service process equipment supply, engineering, development, and design services to the chemical, food processing and industrial manufacturing industries.  The Company paid approximately

$3.7

million in upfront consideration, including

$1.8

million in cash and

440,751

shares of the Company’s common stock, and will pay additional contingent consideration of up to a maximum of

$7.6

million over the next

three

years.

XML

Note 3 - Revenue Recognition (Tables)

9 Months Ended

Sep. 29, 2018

Notes Tables

Disaggregation of Revenue [Table Text Block]

	September 29, 2018		September 30, 2017
Engineering:
Time and Material	$	56,639	$	52,843
Fixed Fee		5,773		8,674
Total Engineering	$	62,412	$	61,517
Specialty Health Care:
Time and Material	$	59,457	$	47,554
Permanent Placement Services		1,142		1,658
Total Specialty Health Care	$	60,599	$	49,212
Information Technology:
Time and Material	$	21,875	$	24,671
Permanent Placement Services		195		280
Total Information Technology	$	22,070	$	24,951
	$	145,081	$	135,680

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Note 4 - Accounts Receivable, Transit Accounts Receivable and Transit Accounts Payable (Tables)

9 Months Ended

Sep. 29, 2018

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	September 29, 2018			December 30, 2017
Billed	$	30,106		$	31,448
Accrued and unbilled		12,131			10,573
Work-in-progress		5,704			5,026
Allowance for sales discounts and doubtful accounts		(1,278	)		(967	)
Accounts receivable, net	$	46,663		$	46,080

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Note 5 - Property and Equipment (Tables)

9 Months Ended

Sep. 29, 2018

Notes Tables

Property, Plant and Equipment [Table Text Block]

	September 29, 2018		December 30, 2017
Computers and systems	$	7,133	$	6,172
Equipment and furniture		600		938
Leasehold improvements		693		899
		8,426		8,009
Less: accumulated depreciation and amortization		4,732		4,563
Property and equipment, net	$	3,694	$	3,446

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Note 6 - Acquisitions (Tables)

9 Months Ended

Sep. 29, 2018

Notes Tables

Schedule of Business Acquisitions by Acquisition, Contingent Consideration [Table Text Block]

Fiscal Years Ending	Total
December 29, 2018 (after September 29, 2018)	$	553
December 28, 2019		450
January 2, 2021		730
Estimated future contingent consideration payments	$	1,733

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Note 7 - Goodwill (Tables)

9 Months Ended

Sep. 29, 2018

Notes Tables

Schedule of Goodwill [Table Text Block]

	Engineering		Specialty Health Care		Information Technology		Total
Balance as of September 29, 2018 and December 30, 2017	$	7,249	$	2,398	$	2,038	$	11,685

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Note 8 - Intangible Assets (Tables)

9 Months Ended

Sep. 29, 2018

Notes Tables

Schedule of Acquired Finite-Lived Intangible Assets by Major Class [Table Text Block]

	Thirty-Nine Week Periods Ended
	September 29, 2018		December 30, 2017
Customer contracts and relations	$	56	$	88
Non-compete agreements		9		17
Intangible assets, net	$	65	$	105

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Note 10 - Per Share Data (Tables)

9 Months Ended

Sep. 29, 2018

Notes Tables

Schedule of Weighted Average Number of Shares [Table Text Block]

	Thirteen Week Periods Ended				Thirty-Nine Week Periods Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Basic weighted average shares outstanding		12,284,727		12,009,181		12,254,415		11,972,600
Dilutive effect of outstanding restricted stock awards		32,723		141,914		24,165		116,610
Weighted average dilutive shares outstanding		12,317,450		12,151,095		12,278,580		12,089,210

Unissued Shares of Common Stock [Table Text Block]

	September 29, 2018		December 30, 2017
Time-based restricted stock units outstanding		96,195		87,034
Performance-based restricted stock units outstanding		240,000		400,000
Future grants of options or shares		483,071		332,232
Shares reserved for employee stock purchase plan		86,403		177,280
Total		905,669		996,546

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Note 11 - Share-based Compensation (Tables)

9 Months Ended

Sep. 29, 2018

Notes Tables

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

	Number of Time-Based Restricted Stock Units		Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 30, 2017		87,034	$	5.88
Granted		15,000	$	5.33
Vested		-		-
Forfeited or expired		5,839	$	6.85
Outstanding non-vested at September 29, 2018		96,195	$	5.74

	Number of Performance-Based Restricted Stock Units		Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 30, 2017		400,000	$	5.11
Granted		200,000	$	5.66
Vested		-		-
Forfeited or expired		360,000	$	5.29
Outstanding non-vested at September 29, 2018		240,000	$	5.29

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Note 14 - Segment Information (Tables)

9 Months Ended

Sep. 29, 2018

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Thirteen Week Period Ended September 29, 2018	Engineering		Specialty Health Care			Information Technology		Corporate		Total
Revenue	$	19,424	$	15,106		$	8,029	$	-	$	42,559
Cost of services		14,049		11,665			5,857		-		31,571
Gross profit		5,375		3,441			2,172		-		10,988
Selling, general and administrative		3,780		3,648			1,984		-		9,412
Depreciation and amortization		236		85			23		-		344
Operating income (loss)	$	1,359	$	(292	)	$	165	$	-	$	1,232
Total assets as of September 29, 2018	$	40,643	$	18,874		$	7,110	$	6,801	$	73,428
Capital expenditures	$	465	$	151		$	90	$	110	$	816

Thirteen Week Period Ended September 30, 2017	Engineering		Specialty Health Care			Information Technology			Corporate		Total
Revenue	$	21,708	$	14,335		$	7,784		$	-	$	43,827
Cost of services		15,533		10,805			5,771			-		32,109
Gross profit		6,175		3,530			2,013			-		11,718
Selling, general and administrative		3,968		3,750			1,982			-		9,700
Depreciation and amortization		297		86			39			-		422
Operating income (loss)	$	1,910	$	(306	)	$	(8	)	$	-	$	1,596
Total assets as of September 30, 2017	$	33,721	$	16,178		$	10,212		$	3,937	$	64,048
Capital expenditures	$	138	$	44		$	-		$	13	$	195

Thirty-Nine Week Period Ended September 29, 2018	Engineering		Specialty Health Care		Information Technology		Corporate			Total
Revenue	$	62,412	$	60,599	$	22,070	$	-		$	145,081
Cost of services		45,706		46,822		16,275		-			108,803
Gross profit		16,706		13,777		5,795		-			36,278
Selling, general and administrative		12,006		12,255		5,648		-			29,909
Depreciation and amortization		785		294		77		-			1,156
Severance, professional fees and other charges		-		-		-		1,371			1,371
Operating income (loss)	$	3,915	$	1,228	$	70	$	(1,371	)	$	3,842
Total assets as of September 29, 2018	$	40,643	$	18,874	$	7,110	$	6,801		$	73,428
Capital expenditures	$	856	$	207	$	108	$	243		$	1,414

Thirty-Nine Week Period Ended September 30, 2017	Engineering		Specialty Health Care		Information Technology			Corporate			Total
Revenue	$	61,517	$	49,212	$	24,951		$	-		$	135,680
Cost of services		44,598		37,069		18,430			-			100,097
Gross profit		16,919		12,143		6,521			-			35,583
Selling, general and administrative		12,184		11,429		6,479			-			30,092
Change in contingent consideration		-		-		-			781			781
Depreciation and amortization		863		246		120			-			1,229
Operating income (loss)	$	3,872	$	468	$	(78	)	$	(781	)	$	3,481
Total assets as of September 30, 2017	$	33,721	$	16,178	$	10,212		$	3,937		$	64,048
Capital expenditures	$	247	$	459	$	-		$	41		$	747

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	Thirteen Week Periods Ended				Thirty-Nine Week Periods Ended
	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
Revenues
U. S.	$	34,729	$	34,207	$	118,364	$	110,083
Canada		6,308		8,703		21,942		22,420
Puerto Rico		1,113		917		3,142		3,177
Serbia		409		-		1,633		-
	$	42,559	$	43,827	$	145,081	$	135,680

Schedule of Disclosure on Geographic Areas, Long-Lived Assets in Individual Foreign Countries by Country [Table Text Block]

	September 29, 2018		December 30, 2017
Total assets
U. S.	$	50,309	$	52,595
Canada		17,382		15,419
Puerto Rico		1,823		1,891
Serbia		3,914		3,374
	$	73,428	$	73,279

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Note 3 - Revenue Recognition (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Sep. 29, 2018	Dec. 30, 2017
Contract with Customer, Liability, Revenue Recognized	$ 596
Accounts Payable and Accrued Liabilities [Member]
Contract with Customer, Liability, Total	$ 0	$ 596

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Note 3 - Revenue Recognition - Revenues Disaggregated by Revenue Source (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017	Sep. 29, 2018	Sep. 30, 2017
Revenues	$ 42,559	$ 43,827	$ 145,081	$ 135,680
Engineering Services [Member]
Revenues			62,412	61,517
Health Care [Member]
Revenues			60,599	49,212
Technology Service [Member]
Revenues			22,070	24,951
Time-and-materials Contract [Member] | Engineering Services [Member]
Revenues			56,639	52,843
Time-and-materials Contract [Member] | Health Care [Member]
Revenues			59,457	47,554
Time-and-materials Contract [Member] | Technology Service [Member]
Revenues			21,875	24,671
Fixed-price Contract [Member] | Engineering Services [Member]
Revenues			5,773	8,674
Permanent Placement Services [Member] | Health Care [Member]
Revenues			1,142	1,658
Permanent Placement Services [Member] | Technology Service [Member]
Revenues			$ 195	$ 280

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Note 4 - Accounts Receivable, Transit Accounts Receivable and Transit Accounts Payable (Details Textual) - USD ($) $ in Millions	Sep. 29, 2018	Dec. 30, 2017
Liabilities, Net	$ 0.1	$ 1.7
Loss Contingency, Receivable, Ending Balance	6.2
Loss Contingency, Estimate of Possible Loss	11.5
Collectibility of Receivables [Member]
Loss Contingency, Estimate of Possible Loss	11.5
Transit Accounts Payable [Member]
Accounts Payable, Current, Total	4.5	4.7
Transit Accounts Receivable [Member]
Accounts Receivable, Gross, Current	$ 4.4	$ 3.0

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Note 4 - Accounts Receivable, Transit Accounts Receivable and Transit Accounts Payable - Accounts Receivable (Details) - USD ($) $ in Thousands	Sep. 29, 2018	Dec. 30, 2017
Allowance for sales discounts and doubtful accounts	$ (1,278)	$ (967)
Accounts receivable, net	46,663	46,080
Billed Revenues [Member]
Accounts receivable, current	30,106	31,448
Unbilled Revenues [Member]
Accounts receivable, current	12,131	10,573
Work In Progress [Member]
Accounts receivable, current	$ 5,704	$ 5,026

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Note 5 - Property and Equipment (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017
Annual Depreciation Rate	20.00%
Write Off of Fully Depreciated Property and Equipment	$ 994	$ 367
Depreciation, Total	$ 1,116	$ 1,179

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Note 5 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($) $ in Thousands	Sep. 29, 2018	Dec. 30, 2017
Property and equipment	$ 8,426	$ 8,009
Less: accumulated depreciation and amortization	4,732	4,563
Property and equipment, net	3,694	3,446
Computers and Systems [Member]
Property and equipment	7,133	6,172
Equipment and Furniture [Member]
Property and equipment	600	938
Leasehold Improvements [Member]
Property and equipment	$ 693	$ 899

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Note 6 - Acquisitions (Details Textual) - USD ($) $ in Thousands			9 Months Ended		12 Months Ended
	Oct. 01, 2017	Apr. 16, 2017	Sep. 29, 2018	Sep. 30, 2017	Dec. 30, 2017
Payment for Contingent Consideration Liability, Financing Activities			$ 300	$ 790
Payments to Acquire Businesses, Gross			300	$ 800
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High			$ 2,400
RAF Services, Inc [Member]
Business Combination, Consideration Transferred, Total		$ 133
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Liabilities, Total		$ 123
Payment for Contingent Consideration Liability, Financing Activities					$ 10
PSR Engineering Solutions d.o.o. Beograd (Voždovac) [Member]
Business Combination, Consideration Transferred, Total	$ 3,248
Payments to Acquire Businesses, Gross	1,000
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	1,763
Business Combination, Consideration Transferred, Liabilities Incurred	485
Cash Acquired from Acquisition	237
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Property, Plant, and Equipment, Total	$ 58

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Note 6 - Acquisitions - Maximum Deferred Consideration Payments (Details) $ in Thousands	Sep. 29, 2018 USD ($)
December 29, 2018 (after September 29, 2018)	$ 553
December 28, 2019	450
January 2, 2021	730
Estimated future contingent consideration payments	$ 1,733

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Note 7 - Goodwill (Details Textual) $ in Thousands	9 Months Ended
	Sep. 29, 2018 USD ($)
Goodwill, Impairment Loss	$ 0
Goodwill, Period Increase (Decrease), Total	$ 0

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Note 7 - Goodwill - Changes in Carrying Amount of Goodwill (Details) - USD ($) $ in Thousands	Sep. 29, 2018	Dec. 30, 2017
Balance	$ 11,685	$ 11,685
Engineering [Member]
Balance	7,249
Specialty Health Care [Member]
Balance	2,398
Information Technology [Member]
Balance	$ 2,038

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Note 8 - Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017	Sep. 29, 2018	Sep. 30, 2017
Impairment of Intangible Assets (Excluding Goodwill), Total	$ 0	$ 0	$ 0	$ 0
Amortization of Intangible Assets, Total			$ 40	$ 50

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Note 8 - Intangible Assets - Intangible Assets by Class (Details) - USD ($) $ in Thousands	Sep. 29, 2018	Dec. 30, 2017
Intangible assets, net	$ 65	$ 105
Customer-Related Intangible Assets [Member]
Intangible assets, net	56	88
Noncompete Agreements [Member]
Intangible assets, net	$ 9	$ 17

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Note 9 - Line of Credit (Details Textual) - USD ($) $ in Thousands	Aug. 09, 2018	Sep. 29, 2018	Aug. 08, 2018	Dec. 30, 2017
Long-term Line of Credit, Noncurrent		$ 24,460		$ 27,279
Citizens Bank of Pennsylvania [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 45,000	$ 40,000
Line of Credit, Loan Covenants, Waiver Granted, Amount of Certain Expenses Excluded	$ 1,400
Debt Instrument, Interest Rate, Effective Percentage		3.80%
Long-term Line of Credit, Noncurrent		$ 24,500		27,300
Letters of Credit Outstanding, Amount		800		$ 800
Line of Credit Facility, Remaining Borrowing Capacity		$ 19,700
Citizens Bank of Pennsylvania [Member] | Letter of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity			$ 5,000

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Note 10 - Per Share Data (Details Textual) - shares	3 Months Ended		9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017	Sep. 29, 2018	Sep. 30, 2017
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	15,000	0	15,000

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Note 10 - Per Share Data - Weighted Average Number of Common Shares (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017	Sep. 29, 2018	Sep. 30, 2017
Basic weighted average shares outstanding (in shares)	12,284,727	12,009,181	12,254,415	11,972,600
Dilutive effect of outstanding restricted stock awards (in shares)	32,723	141,914	24,165	116,610
Weighted average dilutive shares outstanding (in shares)	12,317,450	12,151,095	12,278,580	12,089,210

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Note 10 - Per Share Data - Unissued Shares of Common Stock Were Reserved for the Following Purposes (Details) - shares	Sep. 29, 2018	Dec. 30, 2017
Future grants of options or shares (in shares)	483,071	332,232
Shares reserved for employee stock purchase plan (in shares)	86,403	177,280
Total (in shares)	905,669	996,546
Time-based Restricted Stock Units [Member]
Restricted stock units outstanding (in shares)	96,195	87,034
Performance-based Restricted Stock Units [Member]
Restricted stock units outstanding (in shares)	240,000	400,000

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Note 11 - Share-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		9 Months Ended		12 Months Ended
	Jul. 02, 2018	Sep. 29, 2018	Sep. 30, 2017	Dec. 31, 2016	Jan. 02, 2016	Sep. 28, 2018	Dec. 30, 2017	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period		10 years
Allocated Share-based Compensation Expense, Total		$ 322	$ 591
Common Stock, Capital Shares Reserved for Future Issuance		905,669					996,546
Share Price						$ 4.27
The 2014 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized		1,125,000						625,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized				500,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant		483,071
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant		86,403
Share-based Compensation Arrangement by Share-based Payment Award, Discount from Market Price, Offering Date		85.00%
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate		10.00%
Additional Shares of Common Stock Reserved for Future Issuance					300,000
Common Stock, Capital Shares Reserved for Future Issuance					1,100,000
Stock Issued During Period, Shares, Employee Stock Purchase Plans	45,469
Performance-based Restricted Stock Units [Member]
Allocated Share-based Compensation Expense, Total		$ 0
Performance-based Restricted Stock Units [Member] | The 2014 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance		240,000					400,000
Time-based Restricted Stock Units [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total		$ 253
Time-based Restricted Stock Units [Member] | The 2014 Plan [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total		$ 253
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition		2 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance		96,195					87,034
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Aggregate Intrinsic Value, Nonvested		$ 411
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		1 year
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		3 years

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Note 11 - Share-based Compensation - Restricted Stock Units Activity (Details) - The 2014 Plan [Member]	9 Months Ended
	Sep. 29, 2018 $ / shares shares
Time-based Restricted Stock Units [Member]
Outstanding non-vested (in shares) | shares	87,034
Outstanding non-vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.88
Granted (in shares) | shares	15,000
Granted, weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.33
Vested (in shares) | shares
Vested, weighted average grant date fair value (in dollars per share) | $ / shares
Forfeited or expired (in shares) | shares	5,839
Forfeited or expired, weighted average grant date fair value (in dollars per share) | $ / shares	$ 6.85
Outstanding non-vested (in shares) | shares	96,195
Outstanding non-vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.74
Performance-based Restricted Stock Units [Member]
Outstanding non-vested (in shares) | shares	400,000
Outstanding non-vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.11
Granted (in shares) | shares	200,000
Granted, weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.66
Vested (in shares) | shares	0
Vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 0
Forfeited or expired (in shares) | shares	360,000
Forfeited or expired, weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.29
Outstanding non-vested (in shares) | shares	240,000
Outstanding non-vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.29

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Note 12 - Treasury Stock Transactions (Details Textual) - Stock Repurchase Program, 2016 [Member] - $ / shares	9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017
Treasury Stock, Shares, Acquired	0	59,312
Treasury Stock Acquired, Average Cost Per Share		$ 6.16

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Note 14 - Segment Information - Results of the Segments (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017	Sep. 29, 2018	Sep. 30, 2017	Dec. 30, 2017
Revenues	$ 42,559	$ 43,827	$ 145,081	$ 135,680
Cost of services	31,571	32,109	108,803	100,097
Gross profit	10,988	11,718	36,278	35,583
Selling, general and administrative	9,412	9,700	29,909	30,092
Depreciation and amortization	344	422	1,156	1,229
Operating income (loss)	1,232	1,596	3,842	3,481
Total assets	73,428	64,048	73,428	64,048	$ 73,279
Capital expenditures	816	195	1,414	747
Severance, professional fees and other charges			1,371	0
Change in contingent consideration				781
Engineering [Member]
Revenues	19,424	21,708	62,412	61,517
Cost of services	14,049	15,533	45,706	44,598
Gross profit	5,375	6,175	16,706	16,919
Selling, general and administrative	3,780	3,968	12,006	12,184
Depreciation and amortization	236	297	785	863
Operating income (loss)	1,359	1,910	3,915	3,872
Total assets	40,643	33,721	40,643	33,721
Capital expenditures	465	138	856	247
Severance, professional fees and other charges
Change in contingent consideration
Specialty Health Care [Member]
Revenues	15,106	14,335	60,599	49,212
Cost of services	11,665	10,805	46,822	37,069
Gross profit	3,441	3,530	13,777	12,143
Selling, general and administrative	3,648	3,750	12,255	11,429
Depreciation and amortization	85	86	294	246
Operating income (loss)	(292)	(306)	1,228	468
Total assets	18,874	16,178	18,874	16,178
Capital expenditures	151	44	207	459
Severance, professional fees and other charges
Change in contingent consideration
Information Technology [Member]
Revenues	8,029	7,784	22,070	24,951
Cost of services	5,857	5,771	16,275	18,430
Gross profit	2,172	2,013	5,795	6,521
Selling, general and administrative	1,984	1,982	5,648	6,479
Depreciation and amortization	23	39	77	120
Operating income (loss)	165	(8)	70	(78)
Total assets	7,110	10,212	7,110	10,212
Capital expenditures	90		108
Severance, professional fees and other charges
Change in contingent consideration
Corporate Segment [Member]
Revenues
Cost of services
Gross profit
Selling, general and administrative
Depreciation and amortization
Operating income (loss)			(1,371)	(781)
Total assets	6,801	3,937	6,801	3,937
Capital expenditures	$ 110	$ 13	243	41
Severance, professional fees and other charges			$ 1,371
Change in contingent consideration				$ 781

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Note 14 - Segment Information - Revenues by Geographic Area (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017	Sep. 29, 2018	Sep. 30, 2017
Revenues	$ 42,559	$ 43,827	$ 145,081	$ 135,680
UNITED STATES
Revenues	34,729	34,207	118,364	110,083
CANADA
Revenues	6,308	8,703	21,942	22,420
PUERTO RICO
Revenues	1,113	917	3,142	3,177
SERBIA
Revenues	$ 409		$ 1,633

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Note 14 - Segment Information - Total Assets by Geographic Area (Details) - USD ($) $ in Thousands	Sep. 29, 2018	Dec. 30, 2017	Sep. 30, 2017
Total assets	$ 73,428	$ 73,279	$ 64,048
UNITED STATES
Total assets	50,309	52,595
CANADA
Total assets	17,382	15,419
PUERTO RICO
Total assets	1,823	1,891
SERBIA
Total assets	$ 3,914	$ 3,374

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Note 15 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 29, 2018	Sep. 30, 2017	Sep. 29, 2018	Sep. 30, 2017	Dec. 30, 2017
Tax Adjustments, Settlements, and Unusual Provisions					$ 1,200
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability					1,000
Effective Income Tax Rate Reconciliation, Repatriation of Foreign Earnings, Amount					$ 200
Effective Income Tax Rate Reconciliation, Percent, Total			25.80%	34.70%
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability				$ 781
Effective Income Tax Rate Reconciliation, Excluding Discrete Permanent Differences, Percent				37.90%
Domestic Tax Authority [Member] | Internal Revenue Service (IRS) [Member]
Effective Income Tax Rate Reconciliation, Percent, Total			28.10%	42.50%
Foreign Tax Authority [Member] | Canada Revenue Agency [Member]
Effective Income Tax Rate Reconciliation, Percent, Total			26.50%	26.50%
Foreign Tax Authority [Member] | Ministry of Finance, Republic of Serbia [Member]
Effective Income Tax Rate Reconciliation, Percent, Total			15.20%

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Note 16 - Contingencies (Details Textual) $ in Millions	9 Months Ended
	Sep. 29, 2018 USD ($)
Loss Contingency, Damages Sought, Value	$ 11.5
Loss Contingency, Receivable, Ending Balance	6.2
Loss Contingency, Estimate of Possible Loss	$ 11.5

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Note 17 - Severance, Professional Fees and Other Charges (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017	Sep. 29, 2018	Sep. 30, 2017
Severance, Professional Fees and Other Charges			$ 1,371	$ 0
Transactional Advisory Fees, Legal Fees, and Search Fees [Member]
Severance, Professional Fees and Other Charges			500
Former Chief Executive Officer [Member] | Severance Accrued and Related Payroll Taxes, Continuation of Certain Benefits and Professional Fees [Member]
Severance, Professional Fees and Other Charges			$ 900

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Note 18 - Subsequent Events (Details Textual) - USD ($) $ in Thousands		9 Months Ended
	Oct. 01, 2018	Sep. 29, 2018	Sep. 30, 2017
Payments to Acquire Businesses, Gross		$ 300	$ 800
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High		$ 2,400
TKE [Member] | Subsequent Event [Member]
Business Combination, Consideration Transferred, Total	$ 3,700
Payments to Acquire Businesses, Gross	$ 1,800
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares	440,751
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	$ 7,600