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 June 29, 2019

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.05 per share	RCMT	The NASDAQ Stock Market LLC

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, 12,955,847 shares outstanding as of August 8, 2019.

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION
		Page
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets as of June 29, 2019 (Unaudited) and December 29, 2018	3
	Unaudited Consolidated Statements of Income for the Thirteen and Twenty-Six Week Periods Ended June 29, 2019 and June 30, 2018	4
	Unaudited Consolidated Statements of Comprehensive Income for the Twenty-Six Week Periods Ended June 29, 2019 and June 30, 2018	5
	Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the Twenty-Six Week Period Ended June 29, 2019	6
	Unaudited Consolidated Statements of Cash Flows for the Twenty-Six Week Periods Ended June 29, 2019 and June 30, 2018	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
Signatures		45

2

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 29, 2019 and December 29, 2018

(In thousands, except share and per share amounts)

			June 29,	December 29,
			2019	2018
			(Unaudited)
Current assets:
	Cash and cash equivalents		$868	$482
	Accounts receivable, net		58,230	52,335
	Transit accounts receivable		1,780	2,569
	Prepaid expenses and other current assets		3,057	3,425
		Total current assets	63,935	58,811
Property and equipment, net			3,083	3,485
Other assets:
	Deposits		214	214
	Goodwill		17,532	17,532
	Operating right of use asset		6,101	-
	Intangible assets, net		578	743
	Deferred tax assets, net, domestic		656	725
		Total other assets	25,081	19,214
		Total assets	$92,099	$81,510

Current liabilities:
	Accounts payable and accrued expenses			$8,106		$9,969
	Transit accounts payable			2,680		2,506
	Accrued payroll and related costs			7,823		9,028
	Finance lease payable			291		-
	Income taxes payable			381		97
	Operating right of use liability			2,093		-
	Liability for contingent consideration from acquisitions			450		1,588
			Total current liabilities	21,824		23,188
Deferred tax liability, foreign				401		398
Finance lease payable				270		-
Liability for contingent consideration from acquisitions				3,845		3,185
Operating right of use liability				4,267		-
Borrowings under line of credit				30,943		27,540
		Total liabilities		61,550		54,311
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;
			15,719,944 shares issued and 12,896,772 shares outstanding at June 29, 2019 and 15,578,345 shares issued and 12,755,173 shares outstanding at December 29, 2018	785		778
	Additional paid-in capital			107,932		107,326
	Accumulated other comprehensive loss			(2,732	)	(2,755	)
	Accumulated deficit			(60,449	)	(63,163	)
	Treasury stock (2,823,172 shares at June 29, 2019 and
			December 29, 2018) at cost	(14,987	)	(14,987	)
			Stockholders’ equity	30,549		27,199
			Total liabilities and stockholders’ equity	$92,099		$81,510

3

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

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Thirteen and Twenty-Six Week Periods Ended June 29, 2019 and June 30, 2018

(Unaudited)

(In thousands, except per share amounts)

		Thirteen Weeks Ended				Twenty-Six Weeks Ended
		June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Revenue		$50,705		$51,710		$102,300		$102,522
Cost of services		37,902		38,975		76,980		77,232
Gross profit		12,803		12,735		25,320		25,290
Operating costs and expenses
	Selling, general and administrative	10,202		10,076		20,667		20,497
	Depreciation and amortization of property    and equipment	325		381		640		778
	Amortization of acquired intangible assets	83		17		165		34
	Severance, professional fees and other charges	-		1,371		-		1,371
Operating costs and expenses		10,610		11,845		21,472		22,680
Operating income		2,193		890		3,848		2,610
Other (expense) income
	Interest expense and other, net	(458	)	(400	)	(887	)	(666	)
	Imputed interest on contingent consideration	(48	)	-		(96	)	-
	Gain (loss) on foreign currency transactions	23		12		34		(29	)
Other expense, net		(483	)	(388	)	(949	)	(695	)
Income before income taxes		1,710		502		2,899		1,915
Income tax expense		459		121		185		483
Net income		$1,251		$381		$2,714		$1,432
Basic and diluted net earnings per share		$0.10		$0.03		$0.21		$0.12

4

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

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Twenty-Six Week Periods Ended June 29, 2019 and June 30, 2018

(Unaudited)

(In thousands)

	June 29, 2019	June 30, 2018
Net income	$2,714	$1,432
Other comprehensive gain (loss)	23	(141	)
Comprehensive income	$2,737	$1,291

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

Twenty-Six Week Periods Ended June 29, 2019 and June 30, 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 29, 2018	15,578,345	$778	$107,326		($2,755	)	($63,163	)	2,823,172	($14,987	)	$27,199
Issuance of stock under    employee stock purchase plan	59,451	3	162		-		-		-	-		165
Translation adjustment	-	-	-		11		-		-	-		11
Share-based compensation expense	-	-	241		-		-		-	-		241
Issuance of stock upon vesting of    restricted stock units	57,148	3	(3	)	-		-		-	-		-
Net income	-	-	-		-		1,463		-	-		1,463
Balance, March 30, 2019	15,694,944	$784	$107,726		($2,744	)	(61,700	)	2,823,172	($14,987	)	$29,079
Issuance of stock under    employee stock purchase plan	-	-	-		-		-		-	-		-
Translation adjustment	-	-	-		12		-		-	-		12
Share-based compensation expense	-	-	207		-		-		-	-		207
Issuance of stock upon vesting of    restricted stock units	25,000	1	(1	)	-		-		-	-		-
Net income	-	-	-		-		1,251		-	-		1,251
Balance, June 29, 2019	15,719,944	$785	$107,932		($2,732	)	($60,449	)	2,823,172	($14,987	)	$30,549

	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	45,408	2	192	-		-		-	-		194
Translation adjustment	-	-	-	(70	)	-		-	-		(70	)
Share-based compensation expense	-	-	112	-		-		-	-		112
Net income	-	-	-	-		1,051		-	-		1,051
Balance, March 31, 2018	15,062,930	$753	$104,844	($2,465	)	($64,827	)	2,823,172	($14,987	)	$23,318
Issuance of stock under    employee stock purchase plan	-	-	-	-		-		-	-		-
Translation adjustment	-	-	-	(71	)	-		-	-		(71	)
Share-based compensation expense	-	-	89	-		-		-	-		89
Net income	-	-	-	-		381		-	-		381
Balance, June 30, 2018	$15,062,930	$753	$104,933	($2,536	)	($64,446	)	2,823,172	($14,987	)	$23,717

6

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

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Twenty-Six Week Periods Ended June 29, 2019 and June 30, 2018

 (Unaudited)

(In thousands)

				June 29, 2019		June 30, 2018
Cash flows from operating activities:
	Net income			$2,714		$1,432
	Adjustments to reconcile net income to net cash used in    operating activities:
		Depreciation and amortization		805		812
		Imputed interest on contingent consideration		96		-
		Share-based compensation expense		448		201
		Provision for losses on accounts receivable		72		323
		Deferred income tax expense		73		66
		Changes in assets and liabilities:
			Accounts receivable	(5,911	)	(6,160	)
			Prepaid expenses and other current assets	658		274
			Net of transit accounts receivable and payable	962		(1,094	)
			Accounts payable and accrued expenses	(1,465	)	(1,425	)
			Accrued payroll and related costs	(1,217	)	1,665
			Right of use assets and liabilities	259		-
			Income taxes payable	29		296
	Total adjustments			(5,191	)	(5,042	)
	Net cash used in operating activities			(2,477	)	(3,610	)
Cash flows from investing activities:
	Property and equipment acquired			(238	)	(598	)
	Increase in deposits			-		(15	)
	Net cash used in investing activities			(238	)	(613	)
Cash flows from financing activities:
	Borrowings under line of credit			52,231		44,044
	Repayments under line of credit			(48,828	)	(42,121	)
	Issuance of stock for employee stock purchase plan			165		194
	Changes in finance lease obligations			146		-
	Contingent consideration paid			(574	)	(300	)
	Net cash provided by financing activities			3,140		1,817
Effect of exchange rate changes on cash and cash equivalents				(39	)	(14	)
Increase (decrease) in cash and cash equivalents				386		(2,420	)
Cash and cash equivalents at beginning of period				482		2,851
Cash and cash equivalents at end of period				$868		$431
Supplemental cash flow information:
	Cash paid for:
		Interest		$828		$446
		Income taxes		$92		$338
Non-cash financing activities:
	Vesting of restricted stock units			$300		$   -

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 29, 2018 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 twenty-six week periods ended June 29, 2019 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 29, 2018 was a 52-week reporting year.  The second fiscal quarters of 2019 and 2018 ended on the following dates, respectively:

Period Ended	Weeks in Quarter	Weeks in Year to Date
June 29, 2019	Thirteen	Twenty-Six
June 30, 2018	Thirteen	Twenty-Six

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, revenue 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 and the line of credit’s variable interest rate.  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

The Company records revenue under ASU 2014-09, Revenue from Contracts with Customers ("ASC 606").  Revenue is 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.

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 revenue 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 revenue is invoiced on a time and materials basis.

The following table presents our revenue disaggregated by revenue source for the thirteen and twenty-six week periods ended June 29, 2019 and June 30, 2018:

	Thirteen Week Periods Ended			Twenty-Six Week Periods Ended
	June 29, 2019		June 30, 2018	June 29, 2019	June 30, 2018
Engineering:
Time and Material	$13,528		$19,220	$27,371	$38,460
Fixed Fee	5,098		2,351	10,267	4,528
Permanent Placement Services	(43	)	-	-	-
Total Engineering	$18,583		$21,571	$37,638	$42,988
Specialty Health Care:
Time and Material	$23,140		$22,584	$47,046	$44,697
Permanent Placement Services	230		274	494	795
Total Specialty Health Care	$23,370		$22,858	$47,540	$45,492
Information Technology:
Time and Material	$8,641		$7,281	$16,950	$13,950
Permanent Placement Services	111		-	172	92
Total Information Technology	$8,752		$7,281	$17,122	$14,042
	$50,705		$51,710	$102,300	$102,522

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 revenue 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.  Revenue under these arrangements are recognized as the costs on these contracts are incurred.  On an infrequent basis, amounts paid in excess of revenue 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 revenue 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.

Deferred revenue was $389 and $150 at June 29, 2019 and December 29, 2018, respectively and is included in accounts payable and accrued expenses in the accompanying consolidated balance sheet at those dates.  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 twenty-six week period ended June 29, 2019, the Company recognized revenue of $150 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:

	June 29, 2019		December 29, 2018
Billed	$32,270		$32,323
Accrued and unbilled	12,620		10,383
Work-in-progress	3,628		2,252
Accounts receivable subject to arbitration	11,204		8,820
Allowance for sales discounts and doubtful accounts	(1,492	)	(1,443	)
Accounts receivable, net	$58,230		$52,335

Unbilled receivables primarily represent revenue earned whereby those services are ready to be billed as of the balance sheet ending date.  Work-in-progress primarily represents revenue 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 is typically obligated to pay the subcontractor or staffing agency whether or not the client pays the Company.  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 $1.8 million and related transit accounts payable was $2.7 million, for a net payable of $0.9 million as of June 29, 2019.  The transit accounts receivable was $2.6 million and related transit accounts payable was $2.5 million, for a net receivable of $0.1 million, as of December 29, 2018.

The Company has a dispute with a customer that is a major utility in the United States. Both parties agreed in fiscal 2017 to resolve this dispute through binding arbitration.  Arbitration hearings with this customer started in fiscal 2018.  Essentially, the customer has not paid the balance of accounts receivable the Company believes are owed for certain disputed projects.  As of June 29, 2019 the total amount of outstanding receivables from this customer on these disputed projects was $11.2 million, subject to potential upward adjustment in damages claimed in 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 June 29, 2019, the total amount of such counter-claims is anticipated to be at least $10.3 million.  The Company believes these counter-claims are retaliatory in nature.  Prior to the Company asserting its claims, the customer had not asserted any counter-claims.  The Company believes these counter-claims asserted by its customer have no merit and were merely asserted as a strategy to reduce the Company’s own 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 prior to reporting its fiscal 2019 financial results.  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 counter-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:

	June 29, 2019	December 29, 2018
Computers and systems	$6,166	$7,200
Equipment and furniture	520	600
Leasehold improvements	475	743
	7,161	8,543
Less: accumulated depreciation and amortization	4,078	5,058
Property and equipment, net	$3,083	$3,485

The Company periodically writes off fully depreciated and amortized assets.  The Company wrote off fully depreciated and amortized assets of $1,620 and $711 during the twenty-six week periods ended June 29, 2019 and June 30, 2018, respectively.  Depreciation and amortization expense of property and equipment for the twenty-six week periods ended June 29, 2019 and June 30, 2018 was $640 and $778, 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.

Future Contingent Payments

As of June 29, 2019, the Company had two active acquisition agreements whereby additional contingent consideration may be earned by the former shareholders: 1) effective October 1, 2017, the Company acquired all of the stock of PSR Engineering Solutions d.o.o. Beograd (Voždovac) (“PSR”) and 2) effective September 30, 2018 the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, “TKE”). The Company estimates future contingent payments at June 29, 2019 as follows:

Fiscal Year Ending	Total
December 28, 2019 (after June 29, 2019)	$        -
January 2, 2021	450
January 1, 2022	2,297
December 31, 2022	1,548
Estimated future contingent consideration payments	$4,295

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)

Future Contingent Payments (Continued)

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 after June 29, 2019 are capped at a cumulative maximum of $9.3 million.  The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of June 29, 2019.  During the twenty-six week period ended June 29, 2019, the Company measured the intangibles acquired at fair value on a non-recurring basis.  Contingent consideration related to acquisitions are recorded at fair value (level 3) with changes in fair value recorded in other (expense) income, net.

The Company paid contingent consideration of $0.6 million and $0.3 million during the twenty-six week periods ended June 29, 2019 and June 30, 2018, respectively.

TKE

Effective September 30, 2018, the Company acquired the business operations of Thermal Kinetics Engineering, PLLC, a New York professional limited liability company and Thermal Kinetics Systems, LLC, a New York limited liability company (together, “TKE”). TKE is an established Buffalo-based engineering company providing full service process equipment supply, engineering, development and design services for construction and industrial customers.  TKE provides engineering services on construction and industrial processes.  TKE engineers and builds optimal thermal integrations and unique separations approaches for industrial processes and equipment, with clients primarily in the chemical, oil and gas, renewable fuels, pharmaceutical, and industrial manufacturing industries. TKE will complement and expand the Company’s services offerings, providing a stronger depth of experienced engineering resources and capabilities.  The preliminary consideration and estimated fair value of assets acquired and liabilities assumed is as follows:

Cash	$1,066
Common stock of the Company	1,878
Contingent consideration, at fair value	2,935
Total consideration	$5,879

The shareholders of TKE are eligible to receive post-closing contingent consideration upon the business exceeding certain base levels of operating income, potentially earned over three years.  The amount recorded for the contingent consideration represents the acquisition date fair value of expected consideration to be paid based on TKE’s forecasted operating income during the three year period. Expected consideration was valued based on different possible scenarios for projected operating income.  Each case was assigned a probability which was used to calculate an estimate of the forecasted future payments.  Then a discount rate was applied to these forecasted future payments to determine the acquisition date fair value to be recorded.  At the time of the acquisition, the book and tax basis of assets and liabilities acquired are the same. The acquisition has been accounted for under the purchase method of accounting. The total preliminary estimated purchase price has been allocated as follows:

Fixed assets	$12
Restricted covenants	50
Customer relationships	720
Goodwill	5,847
Less: net liabilities assumed	(750	)
Total consideration	$5,879

13

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)

The results of operations of TKE have been included in the consolidated statement of operations as of the effective date of acquisition. The following revenue and operating income of TKE are included in the Company’s consolidated results of operations:

	Thirteen Week		Twenty-Six Week
	Period Ended June 29, 2019		Period Ended June 29, 2019
Revenue	$720		$3,364
Operating (loss) income	($210	)	$173

The following table represents the pro forma revenue and earnings for the thirteen and twenty-six week periods ended June 30, 2018:

	Thirteen Week Period Ended June 30, 2018		Twenty-Six Week Period Ended June 30, 2018
	Historical	Pro Forma Combined (Unaudited)	Historical	Pro Forma Combined (Unaudited)
Revenue	$51,710	$53,530	$102,522	$106,161
Operating income	$890	$1,196	$2,610	$3,222
Diluted net income per share	$0.03	$0.05	$0.12	$0.15

The combined pro forma revenue and operating income for the quarter ended June 30, 2018 was prepared as though the TKE Acquisition had occurred as of January 1, 2018. The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of TKE. This summary is not necessarily indicative of what the results of operations would have been had the TKE Acquisition occurred during such period, nor does it purport to represent results of operations for any future periods.

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 indicators of impairment of goodwill existed during the twenty-six week periods ended June 29, 2019 and June 30, 2018.

There were no changes in the carrying amount of goodwill for the twenty-six week period ended June 29, 2019.

	Engineering	Specialty Health Care	Information Technology	Total
Balance as of June 29, 2019 and    December 29, 2018	$13,096	$2,398	$2,038	$17,532

14

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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.

All of the Company’s intangible assets are associated with the Engineering segment.  Intangible assets other than goodwill are amortized over their useful lives.  Intangible assets are carried at cost, less accumulated amortization.

	Twenty-Six Week Periods Ended
	June 29, 2019	December 29, 2018
Restricted covenants	$38	$51
Customer relationships	540	692
Total intangible assets	$578	$743

Amortization expense of intangible assets for the twenty-six week periods ended June 29, 2019 and June 30, 2018 was $165 and $34, respectively.

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 provides for a $45.0 million revolving credit facility, has no sub-limit for letters of credit, 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 ended December 29, 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 twenty-six week periods ended June 29, 2019 and June 30, 2018 were 4.7% and 3.6%, respectively.

15

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 (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.  The Company was not in compliance with one of its financial covenants as of June 29, 2019, based on the ratio of funded debt to Company’s operating income before depreciation and amortization (subject to certain other adjustments as defined in the Revolving Credit Facility) for the twelve months ended June 29, 2019. However, the Company obtained a waiver from its lender, Citizens Bank.  As of June 29, 2019, the Company was in compliance with all other covenants contained in the Revolving Credit Facility.

Borrowings under the line of credit as of June 29, 2019 and December 29, 2018 were $30.9 million and $27.5 million, respectively.  At June 29, 2019 and December 29, 2018 there were letters of credit outstanding for $1.6 million.  At June 29, 2019, the Company had availability for additional borrowings under the Revolving Credit Facility of $12.5 million.

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 twenty-six week periods ended June 29, 2019 and June 30, 2018 was determined as follows:

	Thirteen Week Periods Ended		Twenty-Six Week Periods Ended
	June 29, 2019	June 30, 2018	June 29, 2019	June 30, 2018
Basic weighted average shares    outstanding	12,880,179	12,239,758	12,868,356	12,239,259
Dilutive effect of outstanding restricted    share units	57,932	21,895	50,727	20,200
Weighted average dilutive shares    outstanding	12,938,111	12,261,653	12,919,083	12,259,459

For all periods presented, there were no anti-dilutive shares not included in the calculation of common stock equivalents as there were no stock options outstanding.

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

	June 29, 2019	December 29, 2018
Time-based restricted stock units outstanding	120,372	147,372
Performance-based restricted stock units outstanding	320,000	200,000
Future grants of options or shares	267,551	442,699
Shares reserved for employee stock purchase plan	326,952	386,403
Total	1,034,875	1,176,474

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 June 29, 2019, 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.

The Company recognized share-based compensation expense of $448 and $201 for the twenty-six week periods ended June 29, 2019, and June 30, 2018, respectively.  The twenty-six week period ended June 29, 2019, includes $152 of expense associated with performance-based restricted stock units, whereas the prior period does not include any expense associated with performance-based restricted stock units. As of June 29, 2019, 40,000 performance-based restricted stock units outstanding were deemed as likely to vest, and all other performance-based restricted stock units outstanding were deemed as unlikely to vest.

As of June 29, 2019, the Company had $0.3 million of total unrecognized compensation cost related to all time-based non-vested share-based awards and performance-based restricted stock units outstanding and deemed as likely to vest. The Company expects to recognize this expense over approximately two years.  These amounts do not include a) performance-based restricted stock units deemed unlikely to vest, b) the cost of any additional share-based awards 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 June 29, 2019, under the 2014 Plan, 120,372 time-based and 320,000 performance-based restricted share units were outstanding and 267,551 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.  In fiscal 2018, 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 1,400,000 shares.

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 December 31, 2018) was 59,451.  As of June 29, 2019, there were 326,952 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.  As of June 29, 2019, there was $40 in accrued dividends.  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 twenty-six week period ended June 29, 2019:

	Number of Time-Based Restricted Stock Units		Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 29, 2018	147,372		$4.46
Granted	20,000		$3.73
Vested	(35,000	)	$4.41
Forfeited or expired	(12,000	)	$5.84
Outstanding non-vested at June 29, 2019	120,372		$4.22

Based on the closing price of the Company’s common stock of $4.00 per share on June 28, 2019 (the last trading day prior to June 29, 2019), the intrinsic value of the time-based non-vested restricted stock units at June 29, 2019 was approximately $481.  As of June 29, 2019, there was approximately $220 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.  As of June 29, 2019, there were no accrued dividends.  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 the twenty-six week period ended June 29, 2019:

	Number of Performance-Based Restricted Stock Units		Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 29, 2018	200,000		$5.06
Granted	167,148		$4.35
Vested	(47,148	)	$3.69
Forfeited or expired	-		$     -
Outstanding non-vested at June 29, 2019	320,000		$4.82

As of June 29, 2019, the Company currently considers the metrics related to 40,000 of the total outstanding 320,000 performance-based restricted stock units as likely to be achieved, with the metrics related to the remaining 280,000 performance-based restricted stock units considered as unlikely to be achieved. The Company will reassess at each reporting date whether achievement of any performance condition is probable and would begin recognizing additional 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. If at a later measurement date the Company determines that the 40,000 performance-based restricted stock units deemed as likely to vest are deemed as unlikely to vest, the expense recognized as of June 29, 2019, will be reversed.  As of June 29, 2019, there was approximately $88 of total unrecognized compensation cost related to performance-based restricted stock units deemed likely to vest. 

12. Treasury Stock Transactions

For both the twenty-six week periods ended June 29, 2019 and June 30, 2018, the Company did not have an active stock purchase program and therefore did not purchase any treasury shares. 

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

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, 2019, 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 consolidated financial statements.

19

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 29, 2018).

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 June 29, 2019	Engineering	Specialty Health Care	Information Technology		Corporate	Total
Revenue	$18,583	$23,370	$8,752		$   -	$50,705
Cost of services	13,324	18,057	6,521		-	37,902
Gross profit	5,259	5,313	2,231		-	12,803
Selling, general and administrative	3,675	4,285	2,242		-	10,202
Depreciation and amortization	302	86	20		-	408
Operating income (loss)	$1,282	$942	($31	)	$   -	$2,193
Total assets as of June 29, 2019	$50,520	$28,030	$8,028		$5,521	$92,099
Capital expenditures	$25	$88	$4		$20	$137

Thirteen Week Period Ended June 30, 2018	Engineering	Specialty Health Care	Information Technology	Corporate		Total
Revenue	$21,571	$22,858	$7,281	$   -		$51,710
Cost of services	15,934	17,771	5,270	-		38,975
Gross profit	5,637	5,087	2,011	-		12,735
Selling, general and administrative	4,104	4,137	1,835	-		10,076
Depreciation and amortization	265	106	27	-		398
Severance, professional fees and    other charges	-	-	-	1,371		1,371
Operating income (loss)	$1,268	$844	$149	($1,371	)	$890
Total assets as of June 30, 2018	$35,602	$26,069	$6,497	$5,645		$73,813
Capital expenditures	$282	$16	$9	$2		$309

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 (Continued)

Twenty-Six Week Period Ended June 29, 2019	Engineering	Specialty Health Care	Information Technology		Corporate	Total
Revenue	$37,638	$47,540	$17,122		$   -	$102,300
Cost of services	27,682	36,593	12,705		-	76,980
Gross profit	9,956	10,947	4,417		-	25,320
Selling, general and administrative	7,491	8,779	4,397		-	20,667
Depreciation and amortization	586	177	42		-	805
Operating income (loss)	$1,879	$1,991	($22	)	$   -	$3,848
Total assets as of June 29, 2019	$50,520	$28,030	$8,028		$5,521	$92,099
Capital expenditures	$87	$104	$17		$30	$238

Twenty-Six Week Period Ended June 30, 2018	Engineering	Specialty Health Care	Information Technology		Corporate		Total
Revenue	$42,988	$45,492	$14,042		$   -		$102,522
Cost of services	31,658	35,156	10,418		-		77,232
Gross profit	11,330	10,336	3,624		-		25,290
Selling, general and administrative	8,225	8,608	3,664		-		20,497
Depreciation and amortization	548	211	53		-		812
Severance, professional fees and    other charges	-	-	-		$1,371		1,371
Operating income (loss)	$2,557	$1,517	($93	)	($1,371	)	$2,610
Total assets as of June 30, 2018	$35,602	$26,069	$6,497		$5,645		$73,813
Capital expenditures	$391	$56	$18		$133		$598

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)

The Company derives a majority of its revenue from offices in the United States.  Revenue 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. Revenue by geographic area for the thirteen and twenty-six week periods ended June 29, 2019 and June 30, 2018 are as follows: 

		Thirteen Week Periods Ended		Twenty-Six Week Periods Ended
		June 29, 2019	June 30, 2018	June 29, 2019	June 30, 2018
Revenue
	U. S.	$44,244	$42,044	$89,546	$83,635
	Canada	4,500	8,005	9,088	15,634
	Puerto Rico	1,209	1,046	2,412	2,029
	Serbia	752	615	1,254	1,224
		$50,705	$51,710	$102,300	$102,522

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

		June 29, 2019	December 29, 2018
Total assets
	U. S.	$72,140	$61,417
	Canada	13,453	14,230
	Puerto Rico	2,083	1,954
	Serbia	4,423	3,909
		$92,099	$81,510

15. Income Taxes

The Company recognized $0.2 million of income tax expense for the twenty-six week period ended June 29, 2019, as compared to an income tax expense of $0.5 million for the comparable prior year period.  The Company recognized a tax benefit of $0.6 million during the Company’s first fiscal quarter of 2019 due to a verbal settlement with the U.S. Internal Revenue Service regarding an uncertain tax position from a previous tax year. Otherwise, the consolidated effective income tax rate for the current period was 27.1% as compared to 25.2% for the comparable prior year period. Not including the discrete tax benefit of $0.6 million due to the verbal settlement, the projected fiscal 2019 income tax rates as of June 29, 2019 were approximately 28.6%, 26.5% and 15.0% 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 consolidated effective income tax rate for the twenty-six week period ended June 29, 2019 was higher than the comparable prior year period was primarily due to the reduction in the rate of Serbian pretax income to consolidated pretax income. The comparable prior year period estimated income tax rates were 28.3%, 26.5% and 17.3% in the United States, Canada and Serbia, respectively, and yielded a consolidated effective income tax rate of approximately 25.2% for the twenty-six week period ended June 30, 2018. 

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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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 $10.3 million in damages (as further described below) as of June 29, 2019.  As of June 29, 2019, the Company did not have an accrual for any such liabilities.

The Company has a dispute with a customer that is a major utility in the United States. Both parties agreed in fiscal 2017 to resolve this dispute through binding arbitration.  Arbitration hearings with this customer started in fiscal 2018.  Essentially, the customer has not paid the balance of accounts receivable the Company believes are owed for certain disputed projects.  As of June 29, 2019 the total amount of outstanding receivables from this customer on these disputed projects was $11.2 million, subject to potential upward adjustment in damages claimed in 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 June 29, 2019, the total amount of such counter-claims is anticipated to be at least $10.3 million.  The Company believes these counter-claims are retaliatory in nature.  Prior to the Company asserting its claims, the customer had not asserted any counter-claims.  The Company believes these counter-claims asserted by its customer have no merit and were merely asserted as a strategy to reduce the Company’s own 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 prior to reporting its fiscal 2019 financial results.  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 counter-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.

17. Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with terms greater than 12 months and requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases. The accounting applied by a lessor is largely unchanged from that applied under the prior standard. After the issuance of Topic 842, the FASB clarified the guidance through several ASUS; hereinafter the collection of lease guidance is referred to as “ASC 842”.

23

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

17. Leases (Continued)

On December 30, 2018, the Company adopted ASC 842 using the modified retrospective method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning December 30, 2018 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840, Leases. The standard had a material impact on the Company’s Consolidated Condensed Balance Sheet but did not have a significant impact on the Company’s consolidated net earnings and cash flows. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the accounting for finance leases remained substantially unchanged. For leases that commenced before the effective date of ASC 842, the Company elected the permitted practical expedients to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases.  Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates before December 30, 2018.

As a result of the cumulative impact of adopting ASC 842, the Company recorded operating lease ROU assets of $3.9 million and operating lease liabilities of $4.1 million as of December 30, 2018, primarily related to real estate and office equipment leases, based on the present value of the future lease payments on the date of adoption.

The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also consists of any lease incentives received. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition. The Company has lease agreements which require payments for lease and non-lease components.  The Company has elected to account for these as a single lease component with the exception of its real estate leases.

The components of lease expense were as follows:

		Twenty-Six Week Period Ended June 29, 2019
Operating lease cost		$989
	Amortization of ROU assets	$146
	Interest on lease liabilities	3
Total finance lease cost		$149

24

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

17. Leases (Continued)

Supplemental Cash Flow information related to leases was as follows:

		Twenty-Six Week Period Ended June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities
	Operating cash flows from operating leases	$940
	Operating cash flows from finance leases	3
	Financing cash flows from finance leases	144
Right of use assets obtained in exchange for lease obligations
	Operating leases	6,983
	Finance leases	-

Supplemental Balance Sheet information related to leases was as follows:

Operating leases
	Operating lease right of use assets	$6,101
	Other current liabilities	($2,093	)
	Operating lease liabilities	(4,267	)
	Total operating lease liabilities	($6,360	)
Finance leases
	Property and equipment - (ROU assets)	$874
	Accumulated depreciation	(315	)
	Property and equipment, net	$559
	Other current liabilities	($291	)
	Other long term liabilities	(270	)
	Total finance lease liabilities	($561	)
Weighted average remaining lease term
	Operating leases	2.15 Years
	Finance leases	1.95 Years
Weighted average discount rate
	Operating leases	4.04	%
	Finance leases	.90	%

25

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

17. Leases (Continued)

Maturities of lease liabilities are as follows:

Fiscal Year Ending	Operating Leases		Finance Leases
2019	$1,195		$148
2020	1,994		287
2021	1,445		132
2022	1,148		-
2023	877		-
Thereafter	186		-
Total lease payments	6,845		567
Less: imputed interest	(485	)	(6	)
Total	$6,360		$561

26

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) and arbitrations, or other business disputes, 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, and ability to collect accounts receivable from such 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 risk of cyber attacks on our information technology systems or those of our third party vendors; (xv) the Company’s ability to remain in compliance with federal and state wage and hour laws and regulations; (xvi) uncertainties in predictions as to the future need for the Company’s services; (xvii) uncertainties relating to the allocation of costs and expenses to each of the Company’s operating segments; (xviii) 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 litigation; (ixx) 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 (xx) 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.

27

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 revenue 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 revenue 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.  Corporate overhead expenses are allocated to the segments based on revenue for the purpose of segment financial reporting.

28

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 revenue 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 29, 2018. 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 29, 2018.

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.

29

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

Thirteen Week Period Ended June 29, 2019 Compared to Thirteen Week Period Ended June 30, 2018

A summary of operating results for the thirteen week periods ended June 29, 2019 and June 30, 2018 is as follows (in thousands):

	June 29, 2019			June 30, 2018
	Amount		% of Revenue	Amount		% of Revenue
Revenue	$50,705		100.0	$51,710		100.0
Cost of services	37,902		74.7	38,975		75.4
Gross profit	12,803		25.3	12,735		24.6
Selling, general and administrative	10,202		20.1	10,076		19.5
Depreciation and amortization of property and equipment	325		0.6	381		0.8
Amortization of acquired intangible assets	83		0.2	17		-
Severance, professional fees and other charges	-		-	1,371		2.6
	10,610		20.9	11,845		22.9
Operating income	2,193		4.4	890		1.7
Other expense	(483	)	1.0	(388	)	0.8
Income before income taxes	1,710		3.4	502		0.9
Income tax expense	459		0.9	121		0.2
Net income	$1,251		2.5	$381		0.7

The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31.  The fiscal quarters ended June 29, 2019 and June 30, 2018 consisted of thirteen weeks each.

Revenue.  Revenue decreased 1.9%, or $1.0 million, for the thirteen week period ended June 29, 2019 as compared to the thirteen week period ended June 30, 2018 (the “comparable prior year period”).  Revenue decreased $3.0 million in the Engineering segment, increased $0.5 million in the Specialty Health Care segment and increased $1.5 million in the Information Technology segment.  Effective September 30, 2018, the Company’s Engineering segment acquired the business operations of Thermal Kinetics Engineering and affiliate (together, “TKE”). This new business unit generated $0.7 million in revenue for the thirteen week period ended June 29, 2019.  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 June 29, 2019, the Company generated total revenue from its Canadian clients of $4.5 million in U.S. dollars at an Exchange Rate of 74.7% as compared to $8.0 million in U.S. dollars at an Exchange Rate of 77.6% for the comparable prior year period.

Cost of Services and Gross Profit.  Cost of services decreased 2.8%, or $1.1 million, for the thirteen week period ended June 29, 2019 as compared to the comparable prior year period. Cost of services decreased primarily due to the decrease in revenue.  Cost of services as a percentage of revenue for the thirteen week periods ended June 29, 2019 and June 30, 2018 was 74.7% and 75.4%, respectively.  See Segment Discussion for further information regarding changes in cost of services and gross profit.

30

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

Thirteen Week Period Ended June 29, 2019 Compared to Thirteen Week Period Ended June 30, 2018 (Continued)

Selling, General and Administrative.  Selling, general and administrative (“SGA”) expenses were $10.2 million for the thirteen week period ended June 29, 2019 as compared to $10.1 million for the comparable prior year period.  As a percentage of revenue, SGA expenses were 20.1% for the thirteen week period ended June 29, 2019 and 19.5% for the comparable prior year period.   See Segment Discussion for further information on SGA expense changes.

Severance, Professional Fees and Other Charges. The Company did not incur any comparative severance, professional fees and other charges for the thirteen week period ended June 29, 2019 as compared to $1.4 million for the thirteen week period ended June 30, 2018.  The fiscal 2018 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 a frivolous lawsuit with a competitor of the Company, and search fees associated with hiring a senior executive.

Other Expense.  Other expense consists of interest expense, unused line fees and amortized loan costs on the Company’s line of credit, net of interest income, imputed interest on contingent consideration and gains and losses on foreign currency transactions.  Other expense, net increased to $0.5 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 increase in accounts receivable during the thirteen week period ended June 29, 2019, as compared to the comparable prior year period. 

Income Tax Expense.  The Company recognized $0.5 million of income tax expense for the thirteen week period ended June 29, 2019, as compared to an income tax expense of $0.1 million for the comparable prior year period.  The consolidated effective income tax rate for the current period was 26.8% as compared to 24.1% for the comparable prior year period.  The projected fiscal 2019 income tax rates as of June 29, 2019 were approximately 28.6%, 26.5% and 15.0% 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 consolidated effective income tax rate for the thirteen week period ended June 29, 2019 was higher than the comparable prior year period was primarily due to the reduction in the rate of Serbian pretax income to consolidated pretax income.

31

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

Thirteen Week Period Ended June 29, 2019 Compared to Thirteen Week Period Ended June 30, 2018 (Continued)

Segment Discussion

Engineering

Engineering revenue of $18.6 million for the thirteen weeks ended June 29, 2019 decreased 13.9%, or $3.0 million, as compared to the comparable prior year period.  The decrease was due to a decrease of $2.0 million from the Company’s Canadian Power Systems Group, a decrease of $1.3 million from the Company’s Energy Services Group, and a decrease of $0.4 million from the Company’s Aerospace Group, offset by an increase of $0.7 million from the TKE acquisition.  The Company attributes these revenue declines to decreased spending on the part of its Canadian Power Systems and Aerospace clients, increased competition from other vendors to its Canadian Power Systems clients, and timing of large projects from the Company’s Energy Services clients. Gross profit decreased by 6.7%, or $0.4 million, as compared to the comparable prior year period. Gross profit decreased because of the decrease in revenue. Gross margin of 28.3% for the current period increased from 26.1% for the comparable prior year period. The gross margin increase was primarily due to higher utilization on the Company’s fixed labor consultant base, as the Company made a concerted effort to reduce these costs. SGA expense of $3.7 million decreased by $0.4 million as compared to the comparable prior year period. The decrease in SGA expense was primarily due to a lower allocation of corporate-generated SGA expense relative to the Company’s other two segments. The Engineering segment operating income experienced a nominal increase for the thirteen weeks ended June 29, 2019, as compared to the comparable prior year period, as the decrease in gross profit was offset by the decrease in SGA expense.

Specialty Health Care

Specialty Health Care revenue of $23.4 million for the thirteen weeks ended June 29, 2019 increased 2.2%, or $0.5 million, as compared to the comparable prior year period.  The increase was primarily driven by increases of $1.7 million from the New York City office and $0.8 million from the Honolulu office, offset by decreases of $1.0 million from the travel nursing staffing group, $0.5 million from the Chicago office, $0.3 million from the HIM practice, and $0.1 million from the Locum Tenens Group.  The primary reason for revenue increases in New York City and Hawaii was the incremental addition 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 4.4%, or $0.2 million, to $5.3 million for the thirteen weeks ended June 29, 2019, as compared to $5.1 million for the prior year period. The increase in gross profit was primarily driven by an increase in revenue. Gross profit margin for the thirteen weeks ended June 29, 2019, increased to 22.7% as compared to 22.3% for the comparable prior year period. Specialty Health Care experienced operating income of $0.9 million for the thirteen weeks ended June 29, 2019, as compared to $0.8 million for the comparable prior year period. The primary reason for the increase in operating income was the increase in revenue and gross profit.  SGA expense increased by $0.1 million, primarily due to the need to increase SGA infrastructure expense to support the increased activity levels associated with higher revenue and a higher allocation of corporate-generated SGA expense.

32

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

Thirteen Week Period Ended June 29, 2019 Compared to Thirteen Week Period Ended June 30, 2018 (Continued)

Segment Discussion (Continued)

Information Technology

Information Technology revenue of $8.8 million for the thirteen weeks ended June 29, 2019 increased 20.2%, or $1.5 million, as compared to $7.3 million for the comparable prior year period. The Company experienced increases in revenue from all its Information Technology business lines. The Company attributes these increases to investments in management and sales personnel. Gross profit of $2.2 million for the thirteen weeks ended June 29, 2019, increased 10.9%, 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 revenue, offset by a decrease in gross profit margin.  The Information Technology gross profit margin for the thirteen weeks ended June 29, 2019, was 25.5% as compared to 27.6% for the comparable prior year period.  The Company attributes the gross margin decrease to new lower gross margin staffing contracts and lower utilization of the Information Technology’s fixed labor consultants. The Information Technology segment experienced an operating income decrease of $0.2 million as compared to the comparable prior year period.  The decrease in operating income was primarily driven by an increase in SGA expense of $0.4 million. The increase in SGA expense was primarily due to increases in investments in management and sales personnel and a higher allocation of corporate-generated SGA expense. 

33

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

Twenty-Six Week Period Ended June 29, 2019 Compared to Twenty-Six Week Period Ended June 30, 2018

A summary of operating results for the twenty-six week periods ended June 29, 2019 and June 30, 2018 is as follows (in thousands):

	June 29, 2019			June 30, 2018
	Amount		% of Revenue	Amount		% of Revenue
Revenue	$102,300		100.0	$102,522		100.0
Cost of services	76,980		75.2	77,232		75.3
Gross profit	25,320		24.8	25,290		24.7
Selling, general and administrative	20,667		20.2	20,497		20.0
Depreciation and amortization of property and equipment	640		0.6	778		0.8
Amortization of acquired intangible assets	165		0.2	34		-
Severance, professional fees and other charges	-		-	1,371		1.3
	21,472		21.0	22,680		22.1
Operating income	3,848		3.8	2,610		2.6
Other expense	(949	)	1.0	(695	)	(0.8	)
Income before income taxes	2,899		2.8	1,915		1.8
Income tax expense	185		0.2	483		0.5
Net income	$2,714		2.6	$1,432		1.3

The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31.  The fiscal quarters ended June 29, 2019 and June 30, 2018 consisted of twenty-six weeks each.

Revenue.  Revenue decreased 0.2%, or $0.2 million, for the twenty-six week period ended June 29, 2019 as compared to the twenty-six week period ended June 30, 2018 (the “comparable prior year period”).  Revenue decreased $5.3 million in the Engineering segment, increased $2.0 million in the Specialty Health Care segment and increased $3.1 million in the Information Technology segment.  Effective September 30, 2018, the Company’s Engineering segment acquired the business operations of Thermal Kinetics Engineering and affiliate (together, “TKE”). This new business unit generated $3.4 million in revenue for the twenty-six week period ended June 29, 2019.  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 twenty-six week period ended June 29, 2019, the Company generated total revenue from its Canadian clients of $9.1 million in U.S. dollars at an Exchange Rate of 74.9% as compared to $15.6 million in U.S. dollars at an Exchange Rate of 78.3% for the comparable prior year period.

Cost of Services and Gross Profit.  Cost of services decreased 0.3%, or $0.3 million, for the twenty-six week period ended June 29, 2019 as compared to the comparable prior year period. Cost of services decreased due to the decrease in revenue.  Cost of services as a percentage of revenue for the twenty-six week periods ended June 29, 2019 and June 30, 2018 was 75.2% and 75.3%, respectively.  See Segment Discussion for further information regarding changes in cost of services and gross profit.

34

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

Twenty-Six Week Period Ended June 29, 2019 Compared to Twenty-Six Week Period Ended June 30, 2018 (Continued)

Selling, General and Administrative.  Selling, general and administrative (“SGA”) expenses were $20.7 million for the twenty-six week period ended June 29, 2019 as compared to $20.5 million for the comparable prior year period.  As a percentage of revenue, SGA expenses were 20.2% for the twenty-six week period ended June 29, 2019 and 20.0% for the comparable prior year period.   See Segment Discussion for further information on SGA expense changes.

Severance, Professional Fees and Other Charges. The Company did not incur any comparative severance, professional fees and other charges for the thirteen weeks period ended June 29, 2019 as compared to $1.4 million for the thirteen week period ended June 30, 2018.  The fiscal 2018 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 a frivolous lawsuit with a competitor of the Company, and search fees associated with hiring a senior executive.

Other Expense.  Other expense consists of interest expense, unused line fees and amortized loan costs on the Company’s line of credit, net of interest income imputed interest on contingent consideration and gains and losses on foreign currency transactions.  Other expense, net increased to $0.9 million as compared to $0.7 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 increase in accounts receivable during the twenty-six week period ended June 29, 2019, as compared to the comparable prior year period. 

Income Tax Expense.  The Company recognized $0.2 million of income tax expense for the twenty-six week period ended June 29, 2019, as compared to an income tax expense of $0.5 million for the comparable prior year period.  The Company recognized a tax benefit of $0.6 million due to a verbal settlement with the U.S. Internal Revenue Service regarding an uncertain tax position from a previous tax year. Otherwise, the consolidated effective income tax rate for the current period was 27.1% as compared to 25.2% for the comparable prior year period. Not including the discrete tax benefit of $0.6 million due to the verbal settlement, the projected fiscal 2019 income tax rates as of June 29, 2019 were approximately 28.6%, 26.5% and 15.0% 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 consolidated effective income tax rate for the twenty-six week period ended June 29, 2019 was higher than the comparable prior year period was primarily due to the reduction in the rate of Serbian pretax income to consolidated pretax income.

35

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

Twenty-Six Week Period Ended June 29, 2019 Compared to Twenty-Six Week Period Ended June 30, 2018 (Continued)

Segment Discussion

Engineering

Engineering revenues of $37.6 million for the twenty-six weeks ended June 29, 2019 decreased 12.4%, or $5.3 million, as compared to the comparable prior year period.  The decrease was due to a decrease of $4.2 million from the Company’s Canadian Power Systems Group, a decrease of $3.2 million from the Company’s Energy Services Group, and a decrease of $1.4 million from the Company’s Aerospace Group, and offset by an increase of $3.4 million from the TKE acquisition.  The Company attributes these revenue declines to decreased spending on the part of its Canadian Power Systems and Aerospace clients, increased competition from other vendors to its Canadian Power Systems clients, and timing of large projects from the Company’s Energy Services clients. Gross profit decreased by 12.1%, or $1.4 million, as compared to the comparable prior year period. Gross profit decreased primarily because of the decrease in revenue. Gross margin of 26.5% for the current period increased slightly from 26.4% for the comparable prior year period. The Engineering segment operating income decreased by $0.7 million to $1.9 million for the twenty-six weeks ended June 29, 2019, as compared to $2.6 million for the comparable prior year period. The decrease in operating income was primarily due to the decreases in revenue and gross profit, and offset by a decrease of $0.7 million to SGA expense. The decrease in SGA expense was primarily due to a lower allocation of corporate-generated SGA expense relative to the Company’s other two segments.

Specialty Health Care

Specialty Health Care revenue of $47.5 million for the twenty-six weeks ended June 29, 2019 increased 4.5%, or $2.0 million, as compared to the comparable prior year period.  The increase was primarily driven by increases of $3.8 million from the New York City office, and $1.7 million from the Honolulu office, offset by decreases of $2.1 million from the travel nursing staffing group, $0.8 million from the Chicago office, $0.2 million from the HIM practice, $0.2 million from the Locum Tenens Group, and $0.2 million from the Permanent Placement Group. The primary reason for revenue increases in New York City and Hawaii was the incremental addition 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 5.9%, or $0.6 million, to $10.9 million for the twenty-six weeks ended June 29, 2019, as compared to $10.3 million for the prior year period. The increase in gross profit was primarily driven by the increase in revenue. Gross profit margin for the twenty-six weeks ended June 29, 2019, increased to 23.0% as compared to 22.7% for the comparable prior year period. The Company attributes the increase in gross profit margin to bill rate increases on certain major school contracts. Specialty Health Care experienced operating income of $2.0 million for the twenty-six weeks ended June 29, 2019, as compared to $1.5 million for the comparable prior year period. The primary reason for the increase in operating income was the increase to revenue and gross profit.  SGA expense increased by $0.2 million to $8.8 million, as compared to $8.6 million in the comparable prior year period. The increase in SGA expense was primarily due to the need to increase SGA infrastructure expense to support the increased activity levels associated with higher revenue and a higher allocation of corporate-generated SGA expense.

36

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

Twenty-Six Week Period Ended June 29, 2019 Compared to Twenty-Six Week Period Ended June 30, 2018 (Continued)

Segment Discussion (Continued)

Information Technology

Information Technology revenue of $17.1 million for the twenty-six weeks ended June 29, 2019 increased 21.9%, or $3.1 million, as compared to $14.0 million for the comparable prior year period. The Company experienced increases to revenue from all its Information Technology business lines. The Company attributes these increases to investments in management and sales personnel. Gross profit of $4.4 million for the twenty-six weeks ended June 29, 2019, increased 20.6%, or $0.8 million, as compared to $3.6 million for the comparable prior year period. The increase in gross profit was primarily due to the increase in revenue.  The Information Technology gross profit margin was 21.9% for both twenty-six week periods presented. SGA expense increased by $0.7 million to $4.4 million, from $3.7 million for the comparable prior year period. The increase in SGA expense was primarily due to increased investments in management and sales personnel and a higher allocation of corporate-generated SGA expense. The Information Technology segment experienced a negligible increase to operating income as the increase in gross profit approximately offset the increase in SGA expense. 

Liquidity and Capital Resources

The following table summarizes the major captions from the Company’s Consolidated Statements of Cash Flows (in thousands):

		Twenty-Six Week Periods Ended
		June 29, 2019		June 30, 2018
Cash (used in) provided by:
	Operating activities	($2,477	)	($3,610	)
	Investing activities	($238	)	($613	)
	Financing activities	$3,140		$1,817

Operating Activities

Operating activities used $2.5 million of cash for the twenty-six week period ended June 29, 2019 as compared to using $3.6 million in the comparable prior year period.  The major components of cash used in or provided by operating activities in the twenty-six week period ended June 29, 2019 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 twenty-six week period ended June 29, 2019 was $2.7 million as compared to $1.4 million for the comparable prior year period.  An increase in accounts receivables in the twenty-six week period ended June 29, 2019 used $5.9 million of cash as compared to $6.2 million in the comparable prior year period. The Company attributes the increase in accounts receivables for the twenty-six week period ended June 29, 2019 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 revenue will improve during the second half of fiscal 2019.

37

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

Liquidity and Capital Resources (Continued)

Operating Activities (Continued)

The Company’s transit accounts payable usually 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 $0.9 million as of June 29, 2019 and negligible as of December 29, 2018, generating $0.9 million of cash during the twenty-six week period ended June 29, 2019.  The net of transit accounts payable and transit accounts receivable was a net liability of $0.6 million and $1.7 million as of June 30, 2018 and December 30, 2017, respectively, so the cash impact during the twenty-six week period ended June 30, 2018 used $1.1 million in cash.  

Prepaid expenses and other current assets provided $0.7 million of cash for the twenty-six week period ended June 29, 2019 as compared to $0.3 million of cash 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 $1.5 million for the twenty-six week period ended June 29, 2019 as compared to $1.4 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.

Changes in accrued payroll and related costs used $1.2 million for the twenty-six week period ended June 29, 2019 and provided $1.7 million for the twenty-six week period June 30, 2018.  There are three primary factors that generally 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.  A significant portion of these incentive plan accruals are typically paid at the beginning of one fiscal year, pertaining to the prior fiscal year.  The Company’s last major payroll for the twenty-six week period ended June 29, 2019 was paid on June 21, 2019.

Investing Activities

Investing activities used cash of $0.2 million and $0.6 million for the twenty-six week periods ended June 29, 2019 and June 30, 2018, respectively.  Investing activities for both periods presented were primarily related to expenditures for property and equipment.

Financing Activities

Financing activities provided $3.1 million of cash for the twenty-six week period ended June 29, 2019 as compared to $1.8 million in the comparable prior year period.  The Company made net borrowings under its line of credit of $3.4 million during the twenty-six week period ended June 29, 2019 as compared to $1.9 million in the comparable prior year period.  The primary reason for net borrowings during the twenty-six week period ended June 29, 2019 was to fund the $5.9 million increase in accounts receivable. The Company generated cash of $0.2 million from sales of shares from its equity plans for the current and prior year periods.  The Company paid $0.6 million in contingent consideration during the twenty-six week period ended June 29, 2019, as compared to $0.3 million in the comparable prior year period.

38

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

Liquidity and Capital Resources (Continued)

Financing Activities (Continued)

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 provides for a $45.0 million revolving credit facility, has no sub-limit for letters of credit, 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 twenty-six week period ended June 29, 2019 was 4.7%.

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 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.  The Company was not in compliance with one of its financial covenants as of June 29, 2019, based on the ratio of funded debt to Company’s operating income before depreciation and amortization (subject to certain other adjustments as defined in the Revolving Credit Facility) for the twelve months ended March 30, 2018. However, the Company obtained a waiver from its lender, Citizens Bank. While it cannot give any assurance to such effect, the Company believes that it will be in compliance upon issuance of its consolidated financial statements for the thirty-nine week period ended September 28, 2019, or, if not in compliance, will be able to obtain another waiver from Citizens Bank.  As of June 29, 2019, the Company was in compliance with all other covenants contained in the Revolving Credit Facility.

Borrowings under the line of credit as of June 29, 2019 and December 29, 2018 were $30.9 million and $27.5 million, respectively.  At June 29, 2019 and December 29, 2018 there were letters of credit outstanding for $1.6 million.  At June 29, 2019, the Company had availability for additional borrowings under the Revolving Credit Facility of $12.5 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.

39

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

Liquidity and Capital Resources (Continued)

Commitments and Contingencies (Continued)

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. Both parties agreed in fiscal 2017 to resolve this dispute through binding arbitration.  Arbitration hearings with this customer started in fiscal 2018.  Essentially, the customer has not paid the balance of accounts receivable the Company believes are owed for certain disputed projects.  As of June 29, 2019 the total amount of outstanding receivables from this customer on these disputed projects was $11.2 million, subject to potential upward adjustment in damages claimed in 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 June 29, 2019, the total amount of such counter-claims is anticipated to be at least $10.3 million.  The Company believes these counter-claims are retaliatory in nature.  Prior to the Company asserting its claims, the customer had not asserted any counter-claims.  The Company believes these counter-claims asserted by its customer have no merit and were merely asserted as a strategy to reduce the Company’s own 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 prior to reporting its fiscal 2019 financial results.  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 counter-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 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.  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 March 2024.  Certain leases are subject to escalation clauses based upon changes in various factors.

40

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

Liquidity and Capital Resources (Continued)

Commitments and Contingencies (Continued)

Maturities of lease liabilities are as follows:

Fiscal Year Ending	Operating Leases		Finance Leases
2019	$1,195		$148
2020	1,994		287
2021	1,445		132
2022	1,148		-
2023	877		-
Thereafter	186		-
Total lease payments	6,845		567
Less: imputed interest	(485	)	(6	)
Total	$6,360		$561

Future Contingent Payments

As of June 29, 2019, the Company had two active acquisition agreements whereby additional contingent consideration may be earned by the former shareholders: 1) effective October 1, 2017, the Company acquired all of the stock of PSR Engineering Solutions d.o.o. Beograd (Voždovac) (“PSR”) and 2) effective September 30, 2018 the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, “TKE”). The Company estimates future contingent payments at June 29, 2019 as follows:

Fiscal Year Ending	Total
December 28, 2019 (after June 29, 2019)	$        -
January 2, 2021	450
January 1, 2022	2,297
December 31, 2022	1,548
Estimated future contingent consideration payments	$4,295

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 after June 29, 2019 are capped at a cumulative maximum of $9.3 million.  The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of June 29, 2019.  During the twenty-six week period ended June 29, 2019, the Company measured the intangibles acquired at fair value on a non-recurring basis.  Contingent consideration related to acquisitions are recorded at fair value (level 3) with changes in fair value recorded in other (expense) income, net.

41

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 June 29, 2019, 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 thirteen week period ended June 29, 2019, 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 $0.4 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 June 29, 2019, that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

42

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 29, 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.

43

ITEM 6. EXHIBITS

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

44

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:  August 8, 2019	By: /s/ Bradley S. Vizi
		Bradley S. Vizi Executive Chairman and President (Principal Executive Officer and Duly Authorized Officer of the Registrant)

Date:  August 8, 2019	By: /s/ Kevin D. Miller
		Kevin D. Miller Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer of the Registrant)

45

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:  August 8, 2019 /s/ Bradley S. Vizi Bradley S. Vizi Executive Chairman and President

46

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:  August 8, 2019 /s/ Kevin D. Miller Kevin D. Miller Chief Financial Officer

47

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 June 29, 2019 (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:  August 8, 2019

48

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 June 29, 2019 (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:  August 8, 2019

49

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:  August 8, 2019 /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:  August 8, 2019 /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 June 29, 2019 (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:  August 8, 2019

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 June 29, 2019 (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:  August 8, 2019

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 29, 2019	Aug. 07, 2019
Document Information [Line Items]
Entity Registrant Name	RCM TECHNOLOGIES INC
Entity Central Index Key	0000700841
Trading Symbol	rcmt
Current Fiscal Year End Date	--12-28
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)		12,955,847
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Jun. 29, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false
Title of 12(b) Security	Common Stock

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Current assets:
Cash and cash equivalents	$ 868	$ 482
Accounts receivable, net	58,230	52,335
Transit accounts receivable	1,780	2,569
Prepaid expenses and other current assets	3,057	3,425
Total current assets	63,935	58,811
Property and equipment, net	3,083	3,485
Other assets:
Deposits	214	214
Goodwill	17,532	17,532
Operating right of use asset	6,101
Intangible assets, net	578	743
Deferred tax assets, net, domestic	656	725
Total other assets	25,081	19,214
Total assets	92,099	81,510
Current liabilities:
Accounts payable and accrued expenses	8,106	9,969
Transit accounts payable	2,680	2,506
Accrued payroll and related costs	7,823	9,028
Finance lease payable	291
Income taxes payable	381	97
Operating right of use liability	2,093
Liability for contingent consideration from acquisitions	450	1,588
Total current liabilities	21,824	23,188
Deferred tax liability, foreign	401	398
Finance lease payable	270
Liability for contingent consideration from acquisitions	3,845	3,185
Operating right of use liability	4,267
Borrowings under line of credit	30,943	27,540
Total liabilities	61,550	54,311
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; 15,719,944 shares issued and 12,896,772 shares outstanding at June 29, 2019 and 15,578,345 shares issued and 12,755,173 shares outstanding at December 29, 2018	785	778
Additional paid-in capital	107,932	107,326
Accumulated other comprehensive loss	(2,732)	(2,755)
Accumulated deficit	(60,449)	(63,163)
Treasury stock (2,823,172 shares at June 29, 2019 and December 29, 2018) at cost	(14,987)	(14,987)
Stockholders’ equity	30,549	27,199
Total liabilities and stockholders’ equity	$ 92,099	$ 81,510

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Jun. 29, 2019	Dec. 29, 2018
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)	15,719,944	15,578,345
Common stock, outstanding (in shares)	12,896,772	12,755,173
Treasury stock, shares (in shares)	2,823,172	2,823,172

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Revenues	$ 50,705	$ 51,710	$ 102,300	$ 102,522
Cost of services	37,902	38,975	76,980	77,232
Gross profit	12,803	12,735	25,320	25,290
Operating costs and expenses
Selling, general and administrative	10,202	10,076	20,667	20,497
Depreciation and amortization of property and equipment	325	381	640	778
Amortization of acquired intangible assets	83	17	165	34
Severance, professional fees and other charges		1,371		1,371
Operating costs and expenses	10,610	11,845	21,472	22,680
Operating income	2,193	890	3,848	2,610
Other (expense) income
Interest expense and other, net	(458)	(400)	(887)	(666)
Imputed interest on contingent consideration	(48)		(96)
Gain (loss) on foreign currency transactions	23	12	34	(29)
Other expense, net	(483)	(388)	(949)	(695)
Income before income taxes	1,710	502	2,899	1,915
Income tax expense	459	121	185	483
Net income	$ 1,251	$ 381	$ 2,714	$ 1,432
Basic and diluted net earnings per share (in dollars per share)	$ 0.10	$ 0.03	$ 0.21	$ 0.12

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018
Net income	$ 2,714	$ 1,432
Other comprehensive gain (loss)	23	(141)
Comprehensive income	$ 2,737	$ 1,291

XML

Consolidated Statement of Changes in Stockholders' Equity (Unaudited) - 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)	45,408
Issuance of stock under employee stock purchase plan	$ 2	192				194
Translation adjustment			(70)			(70)
Share-based compensation expense		112				112
Net income				1,051		1,051
Issuance of stock under employee stock purchase plan (in shares)	45,408
Balance (in shares) at Mar. 31, 2018	15,062,930				2,823,172
Balance at Mar. 31, 2018	$ 753	104,844	(2,465)	(64,827)	$ (14,987)	23,318
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
Translation adjustment						(141)
Net income						1,432
Balance (in shares) at Jun. 30, 2018	15,062,930				2,823,172
Balance at Jun. 30, 2018	$ 753	104,933	(2,536)	(64,446)	$ (14,987)	23,717
Balance (in shares) at Mar. 31, 2018	15,062,930				2,823,172
Balance at Mar. 31, 2018	$ 753	104,844	(2,465)	(64,827)	$ (14,987)	23,318
Issuance of stock under employee stock purchase plan (in shares)
Issuance of stock under employee stock purchase plan
Translation adjustment			(71)			(71)
Share-based compensation expense		89				89
Net income				381		381
Issuance of stock under employee stock purchase plan (in shares)
Balance (in shares) at Jun. 30, 2018	15,062,930				2,823,172
Balance at Jun. 30, 2018	$ 753	104,933	(2,536)	(64,446)	$ (14,987)	23,717
Balance (in shares) at Dec. 29, 2018	15,578,345				2,823,172
Balance at Dec. 29, 2018	$ 778	107,326	(2,755)	(63,163)	$ (14,987)	27,199
Issuance of stock under employee stock purchase plan (in shares)	59,451
Issuance of stock under employee stock purchase plan	$ 3	162				165
Translation adjustment			11			11
Share-based compensation expense		241				241
Issuance of stock upon vesting of restricted stock units (in shares)	57,148
Issuance of stock upon vesting of restricted stock units	$ 3	(3)
Net income				1,463		1,463
Issuance of stock under employee stock purchase plan (in shares)	59,451
Balance (in shares) at Mar. 30, 2019	15,694,944				2,823,172
Balance at Mar. 30, 2019	$ 784	107,726	(2,744)	(61,700)	$ (14,987)	29,079
Balance (in shares) at Dec. 29, 2018	15,578,345				2,823,172
Balance at Dec. 29, 2018	$ 778	107,326	(2,755)	(63,163)	$ (14,987)	27,199
Translation adjustment						23
Net income						2,714
Balance (in shares) at Jun. 29, 2019	15,719,944				2,823,172
Balance at Jun. 29, 2019	$ 785	107,932	(2,732)	(60,449)	$ (14,987)	30,549
Balance (in shares) at Mar. 30, 2019	15,694,944				2,823,172
Balance at Mar. 30, 2019	$ 784	107,726	(2,744)	(61,700)	$ (14,987)	29,079
Issuance of stock under employee stock purchase plan (in shares)
Issuance of stock under employee stock purchase plan
Translation adjustment			12			12
Share-based compensation expense		207				207
Issuance of stock upon vesting of restricted stock units (in shares)	25,000
Issuance of stock upon vesting of restricted stock units	$ 1	(1)
Net income				1,251		1,251
Issuance of stock under employee stock purchase plan (in shares)
Balance (in shares) at Jun. 29, 2019	15,719,944				2,823,172
Balance at Jun. 29, 2019	$ 785	$ 107,932	$ (2,732)	$ (60,449)	$ (14,987)	$ 30,549

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net income	$ 2,714	$ 1,432
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	805	812
Imputed interest on contingent consideration	96
Share-based compensation expense	448	201
Provision for losses on accounts receivable	72	323
Deferred income tax expense	73	66
Changes in assets and liabilities:
Accounts receivable	(5,911)	(6,160)
Prepaid expenses and other current assets	658	274
Net of transit accounts receivable and payable	962	(1,094)
Accounts payable and accrued expenses	(1,465)	(1,425)
Accrued payroll and related costs	(1,217)	1,665
Right of use assets and liabilities	259
Income taxes payable	29	296
Total adjustments	(5,191)	(5,042)
Net cash used in operating activities	(2,477)	(3,610)
Cash flows from investing activities:
Property and equipment acquired	(238)	(598)
Increase in deposits		(15)
Net cash used in investing activities	(238)	(613)
Cash flows from financing activities:
Borrowings under line of credit	52,231	44,044
Repayments under line of credit	(48,828)	(42,121)
Issuance of stock for employee stock purchase plan	165	194
Changes in finance lease obligations	146
Contingent consideration paid	(574)	(300)
Net cash provided by financing activities	3,140	1,817
Effect of exchange rate changes on cash and cash equivalents	(39)	(14)
Increase (decrease) in cash and cash equivalents	386	(2,420)
Cash and cash equivalents at beginning of period	482	2,851
Cash and cash equivalents at end of period	868	431
Cash paid for:
Interest	828	446
Income taxes	92	338
Non-cash financing activities:
Vesting of restricted stock units	$ 300

XML

Note 1 - Basis of Presentation

6 Months Ended

Jun. 29, 2019

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 29, 2018

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

twenty-six

week periods ended

June 29, 2019

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 29, 2018

was a

52

-week reporting year. The

second

fiscal quarters of

2019

and

2018

ended on the following dates, respectively:

Period Ended	Weeks in Quarter	Weeks in Year to Date
June 29, 2019	Thirteen	Twenty-Six
June 30, 2018	Thirteen	Twenty-Six

XML

Note 2 - Use of Estimates and Uncertainties

6 Months Ended

Jun. 29, 2019

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, revenue 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.

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 and the line of credit’s variable interest rate. 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.

XML

Note 3 - Revenue Recognition

6 Months Ended

Jun. 29, 2019

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

3. Revenue Recognition

The Company records revenue under ASU

2014

-

09,

 

Revenue from Contracts with Customers ("ASC

606"

)

. Revenue is 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.

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 revenue 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 revenue is invoiced on a time and materials basis.

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

thirteen

and

twenty-six

week periods ended

June 29, 2019

and

June 30, 2018:

	Thirteen Week Periods Ended					Twenty-Six Week Periods Ended
	June 29, 2019			June 30, 2018		June 29, 2019		June 30, 2018
Engineering:
Time and Material	$	13,528		$	19,220	$	27,371	$	38,460
Fixed Fee		5,098			2,351		10,267		4,528
Permanent Placement Services		(43	)		-		-		-
Total Engineering	$	18,583		$	21,571	$	37,638	$	42,988
Specialty Health Care:
Time and Material	$	23,140		$	22,584	$	47,046	$	44,697
Permanent Placement Services		230			274		494		795
Total Specialty Health Care	$	23,370		$	22,858	$	47,540	$	45,492
Information Technology:
Time and Material	$	8,641		$	7,281	$	16,950	$	13,950
Permanent Placement Services		111			-		172		92
Total Information Technology	$	8,752		$	7,281	$	17,122	$	14,042
	$	50,705		$	51,710	$	102,300	$	102,522

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 revenue 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.  Revenue under these arrangements are recognized as the costs on these contracts are incurred.  On an infrequent basis, amounts paid in excess of revenue 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 revenue 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.

Deferred revenue was

$389

and

$150

at

June 29, 2019

and

December 29, 2018,

respectively and is included in accounts payable and accrued expenses in the accompanying consolidated balance sheet at those dates.  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

twenty-six

week period ended

June 29, 2019,

the Company recognized revenue of

$150

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

XML

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

6 Months Ended

Jun. 29, 2019

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:

	June 29, 2019			December 29, 2018
Billed	$	32,270		$	32,323
Accrued and unbilled		12,620			10,383
Work-in-progress		3,628			2,252
Accounts receivable subject to arbitration		11,204			8,820
Allowance for sales discounts and doubtful accounts		(1,492	)		(1,443	)
Accounts receivable, net	$	58,230		$	52,335

Unbilled receivables primarily represent revenue earned whereby those services are ready to be billed as of the balance sheet ending date. Work-in-progress primarily represents revenue 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 is typically obligated to pay the subcontractor or staffing agency whether or

not

the client pays the Company. 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

$1.8

million and related transit accounts payable was

$2.7

million, for a net payable of

$0.9

million as of

June 29, 2019.

The transit accounts receivable was

$2.6

million and related transit accounts payable was

$2.5

million, for a net receivable of

$0.1

million, as of

December 29, 2018.

The Company has a dispute with a customer that is a major utility in the United States. Both parties agreed in fiscal

2017

to resolve this dispute through binding arbitration.  Arbitration hearings with this customer started in fiscal

2018.

  Essentially, the customer has

not

paid the balance of accounts receivable the Company believes are owed for certain disputed projects. As of

June 29, 2019

the total amount of outstanding receivables from this customer on these disputed projects was

$11.2

million, subject to potential upward adjustment in damages claimed in 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

June 29, 2019,

the total amount of such counter-claims is anticipated to be at least

$10.3

million.  The Company believes these counter-claims are retaliatory in nature.  Prior to the Company asserting its claims, the customer had

not

asserted any counter-claims.  The Company believes these counter-claims asserted by its customer have

no

merit and were merely asserted as a strategy to reduce the Company’s own 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 prior to reporting its fiscal

2019

financial results.  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 counter-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

6 Months Ended

Jun. 29, 2019

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:

	June 29, 2019		December 29, 2018
Computers and systems	$	6,166	$	7,200
Equipment and furniture		520		600
Leasehold improvements		475		743
		7,161		8,543
Less: accumulated depreciation and amortization		4,078		5,058
Property and equipment, net	$	3,083	$	3,485

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

$1,620

and

$711

during the

twenty-six

week periods ended

June 29, 2019

and

June 30, 2018,

respectively. Depreciation and amortization expense of property and equipment for the

twenty-six

week periods ended

June 29, 2019

and

June 30, 2018

was

$640

and

$778,

respectively.

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Note 6 - Acquisitions

6 Months Ended

Jun. 29, 2019

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.

Future Contingent Payments

As of

June 29, 2019,

the Company had

two

active acquisition agreements whereby additional contingent consideration

may

be earned by the former shareholders:

1

) effective

October 1, 2017,

the Company acquired all of the stock of PSR Engineering Solutions d.o.o. Beograd (Voždovac) (“PSR”) and

2

) effective

September 30, 2018

the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, “TKE”). The Company estimates future contingent payments at

June 29, 2019

as follows:

Fiscal Year Ending	Total
December 28, 2019 (after June 29, 2019)	$	-
January 2, 2021		450
January 1, 2022		2,297
December 31, 2022		1,548
Estimated future contingent consideration payments	$	4,295

Future Contingent Payments

(Continued)

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 after

June 29, 2019

are capped at a cumulative maximum of

$9.3

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

June 29, 2019. 

During the

twenty-six

week period ended

June 29, 2019,

the Company measured the intangibles acquired at fair value on a non-recurring basis. Contingent consideration related to acquisitions are recorded at fair value (level

3

) with changes in fair value recorded in other (expense) income, net.

The Company paid contingent consideration of

$0.6

million and

$0.3

million during the

twenty-six

week periods ended

June 29, 2019

and

June 30, 2018,

respectively.

TKE

Effective

September 30, 2018,

the Company acquired the business operations of Thermal Kinetics Engineering, PLLC, a New York professional limited liability company and Thermal Kinetics Systems, LLC, a New York limited liability company (together, “TKE”). TKE is an established Buffalo-based engineering company providing full service process equipment supply, engineering, development and design services for construction and industrial customers.  TKE provides engineering services on construction and industrial processes. TKE engineers and builds optimal thermal integrations and unique separations approaches for industrial processes and equipment, with clients primarily in the chemical, oil and gas, renewable fuels, pharmaceutical, and industrial manufacturing industries. TKE will complement and expand the Company’s services offerings, providing a stronger depth of experienced engineering resources and capabilities. The preliminary consideration and estimated fair value of assets acquired and liabilities assumed is as follows:

Cash	$	1,066
Common stock of the Company		1,878
Contingent consideration, at fair value		2,935
Total consideration	$	5,879

The shareholders of TKE are eligible to receive post-closing contingent consideration upon the business exceeding certain base levels of operating income, potentially earned over

three

years.  The amount recorded for the contingent consideration represents the acquisition date fair value of expected consideration to be paid based on TKE’s forecasted operating income during the

three

year period. Expected consideration was valued based on different possible scenarios for projected operating income.  Each case was assigned a probability which was used to calculate an estimate of the forecasted future payments.  Then a discount rate was applied to these forecasted future payments to determine the acquisition date fair value to be recorded.  At the time of the acquisition, the book and tax basis of assets and liabilities acquired are the same. The acquisition has been accounted for under the purchase method of accounting. The total preliminary estimated purchase price has been allocated as follows:

Fixed assets	$	12
Restricted covenants		50
Customer relationships		720
Goodwill		5,847
Less: net liabilities assumed		(750	)
Total consideration	$	5,879

The results of operations of TKE have been included in the consolidated statement of operations as of the effective date of acquisition. The following revenue and operating income of TKE are included in the Company’s consolidated results of operations:

	Thirteen Week			Twenty-Six Week
	Period Ended June 29, 2019			Period Ended June 29, 2019
Revenue	$	720		$	3,364
Operating (loss) income	$	(210	)	$	173

The following table represents the pro forma revenue and earnings for the

thirteen

and

twenty-six

week periods ended

June 30, 2018:

	Thirteen Week Period Ended June 30, 2018				Twenty-Six Week Period Ended June 30, 2018
	Historical		Pro Forma Combined (Unaudited)		Historical		Pro Forma Combined (Unaudited)
Revenue	$	51,710	$	53,530	$	102,522	$	106,161
Operating income	$	890	$	1,196	$	2,610	$	3,222
Diluted net income per share	$	0.03	$	0.05	$	0.12	$	0.15

The combined pro forma revenue and operating income for the quarter ended

June 30, 2018

was prepared as though the TKE Acquisition had occurred as of

January 1, 2018.

The pro forma results do

not

include any anticipated cost synergies or other effects of the planned integration of TKE. This summary is

not

necessarily indicative of what the results of operations would have been had the TKE Acquisition occurred during such period, nor does it purport to represent results of operations for any future periods.

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Note 7 - Goodwill

6 Months Ended

Jun. 29, 2019

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

indicators of impairment of goodwill existed during the

twenty-six

week periods ended

June 29, 2019

and

June 30, 2018.

There were

no

changes in the carrying amount of goodwill for the

twenty-six

week period ended

June 29, 2019.

	Engineering		Specialty Health Care		Information Technology		Total
Balance as of June 29, 2019 and December 29, 2018	$	13,096	$	2,398	$	2,038	$	17,532

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Note 8 - Intangible Assets

6 Months Ended

Jun. 29, 2019

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.

All of the Company’s intangible assets are associated with the Engineering segment.  Intangible assets other than goodwill are amortized over their useful lives.  Intangible assets are carried at cost, less accumulated amortization.

	Twenty-Six Week Periods Ended
	June 29, 2019		December 29, 2018
Restricted covenants	$	38	$	51
Customer relationships		540		692
Total intangible assets	$	578	$	743

Amortization expense of intangible assets for the

twenty-six

week periods ended

June 29, 2019

and

June 30, 2018

was

$165

and

$34,

respectively.

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Note 9 - Line of Credit

6 Months Ended

Jun. 29, 2019

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 provides for a

$45.0

million revolving credit facility, has

no

sub-limit for letters of credit, 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 ended

December 29, 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

twenty-six

week periods ended

June 29, 2019

and

June 30, 2018

were

4.7%

and

3.6%,

respectively.

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.  The Company was

not

in compliance with

one

of its financial covenants as of

June 29, 2019,

based on the ratio of funded debt to Company’s operating income before depreciation and amortization (subject to certain other adjustments as defined in the Revolving Credit Facility) for the

twelve

months ended

June 29, 2019.

However, the Company obtained a waiver from its lender, Citizens Bank.  As of

June 29, 2019,

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

Borrowings under the line of credit as of

June 29, 2019

and

December 29, 2018

were

$30.9

million and

$27.5

million, respectively. At

June 29, 2019

and

December 29, 2018

there were letters of credit outstanding for

$1.6

million. At

June 29, 2019,

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

$12.5

million.

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Note 10 - Per Share Data

6 Months Ended

Jun. 29, 2019

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

twenty-six

week periods ended

June 29, 2019

and

June 30, 2018

was determined as follows:

	Thirteen Week Periods Ended				Twenty-Six Week Periods Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Basic weighted average shares outstanding		12,880,179		12,239,758		12,868,356		12,239,259
Dilutive effect of outstanding restricted share units		57,932		21,895		50,727		20,200
Weighted average dilutive shares outstanding		12,938,111		12,261,653		12,919,083		12,259,459

For all periods presented, there were

no

anti-dilutive shares

not

included in the calculation of common stock equivalents as there were

no

stock options outstanding.

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

	June 29, 2019		December 29, 2018
Time-based restricted stock units outstanding		120,372		147,372
Performance-based restricted stock units outstanding		320,000		200,000
Future grants of options or shares		267,551		442,699
Shares reserved for employee stock purchase plan		326,952		386,403
Total		1,034,875		1,176,474

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Note 11 - Share-based Compensation

6 Months Ended

Jun. 29, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

11. Share-Based Compensation

At

June 29, 2019,

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.

The Company recognized share-based compensation expense of

$448

and

$201

for the

twenty-six

week periods ended

June 29, 2019,

and

June 30, 2018,

respectively.  The

twenty-six

week period ended

June 29, 2019,

includes

$152

of expense associated with performance-based restricted stock units, whereas the prior period does

not

include any expense associated with performance-based restricted stock units. As of

June 29, 2019,

40,000

performance-based restricted stock units outstanding were deemed as likely to vest, and all other performance-based restricted stock units outstanding were deemed as unlikely to vest.

As of

June 29, 2019,

the Company had

$0.3

million of total unrecognized compensation cost related to all time-based non-vested share-based awards and performance-based restricted stock units outstanding and deemed as likely to vest. The Company expects to recognize this expense over approximately

two

years.  These amounts do

not

include a) performance-based restricted stock units deemed unlikely to vest, b) the cost of any additional share-based awards 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

June 29, 2019,

under the

2014

Plan,

120,372

time-based and

320,000

performance-based restricted share units were outstanding and

267,551

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.

Incentive S

hare-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.

In fiscal

2018,

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

1,400,000

shares.

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

December 31, 2018)

was

59,451.

As of

June 29, 2019,

there were

326,952

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. As of

June 29, 2019,

there was

$40

in accrued dividends. 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

twenty-six

week period ended

June 29, 2019:

	Number of Time-Based Restricted Stock Units			Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 29, 2018		147,372		$	4.46
Granted		20,000		$	3.73
Vested		(35,000	)	$	4.41
Forfeited or expired		(12,000	)	$	5.84
Outstanding non-vested at June 29, 2019		120,372		$	4.22

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

$4.00

per share on

June 28, 2019 (

the last trading day prior to

June 29, 2019),

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

June 29, 2019

was approximately

$481.

As of

June 29, 2019,

there was approximately

$220

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.  As of

June 29, 2019,

there were

no

accrued dividends. 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 the

twenty-six

week period ended

June 29, 2019:

	Number of Performance- Based Restricted Stock Units			Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 29, 2018		200,000		$	5.06
Granted		167,148		$	4.35
Vested		(47,148	)	$	3.69
Forfeited or expired		-		$	-
Outstanding non-vested at June 29, 2019		320,000		$	4.82

As of

June 29, 2019,

the Company currently considers the metrics related to

40,000

of the total outstanding

320,000

performance-based restricted stock units as likely to be achieved, with the metrics related to the remaining

280,000

performance-based restricted stock units considered as unlikely to be achieved. The Company will reassess at each reporting date whether achievement of any performance condition is probable and would begin recognizing additional 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. If at a later measurement date the Company determines that the

40,000

performance-based restricted stock units deemed as likely to vest are deemed as unlikely to vest, the expense recognized as of

June 29, 2019,

will be reversed. As of

June 29, 2019,

there was approximately

$88

of total unrecognized compensation cost related to performance-based restricted stock units deemed likely to vest. 

XML

Note 12 - Treasury Stock Transactions

6 Months Ended

Jun. 29, 2019

Notes to Financial Statements

Treasury Stock [Text Block]

12. Treasury Stock Transactions

For both the

twenty-six

week periods ended

June 29, 2019

and

June 30, 2018,

the Company did

not

have an active stock purchase program and therefore did

not

purchase any treasury shares. 

XML

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

6 Months Ended

Jun. 29, 2019

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

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, 2019,

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 consolidated financial statements.

XML

Note 14 - Segment Information

6 Months Ended

Jun. 29, 2019

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 29, 2018).

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 June 29, 2019	Engineering		Specialty Health Care		Information Technology			Corporate		Total
Revenue	$	18,583	$	23,370	$	8,752		$	-	$	50,705
Cost of services		13,324		18,057		6,521			-		37,902
Gross profit		5,259		5,313		2,231			-		12,803
Selling, general and administrative		3,675		4,285		2,242			-		10,202
Depreciation and amortization		302		86		20			-		408
Operating income (loss)	$	1,282	$	942	$	(31	)	$	-	$	2,193
Total assets as of June 29, 2019	$	50,520	$	28,030	$	8,028		$	5,521	$	92,099
Capital expenditures	$	25	$	88	$	4		$	20	$	137

Thirteen Week Period Ended June 30, 2018	Engineering		Specialty Health Care		Information Technology		Corporate			Total
Revenue	$	21,571	$	22,858	$	7,281	$	-		$	51,710
Cost of services		15,934		17,771		5,270		-			38,975
Gross profit		5,637		5,087		2,011		-			12,735
Selling, general and administrative		4,104		4,137		1,835		-			10,076
Depreciation and amortization		265		106		27		-			398
Severance, professional fees and other charges		-		-		-		1,371			1,371
Operating income (loss)	$	1,268	$	844	$	149	$	(1,371	)	$	890
Total assets as of June 30, 2018	$	35,602	$	26,069	$	6,497	$	5,645		$	73,813
Capital expenditures	$	282	$	16	$	9	$	2		$	309

Twenty-Six Week Period Ended June 29, 2019	Engineering		Specialty Health Care		Information Technology			Corporate		Total
Revenue	$	37,638	$	47,540	$	17,122		$	-	$	102,300
Cost of services		27,682		36,593		12,705			-		76,980
Gross profit		9,956		10,947		4,417			-		25,320
Selling, general and administrative		7,491		8,779		4,397			-		20,667
Depreciation and amortization		586		177		42			-		805
Operating income (loss)	$	1,879	$	1,991	$	(22	)	$	-	$	3,848
Total assets as of June 29, 2019	$	50,520	$	28,030	$	8,028		$	5,521	$	92,099
Capital expenditures	$	87	$	104	$	17		$	30	$	238

Twenty-Six Week Period Ended June 30, 2018	Engineering		Specialty Health Care		Information Technology			Corporate			Total
Revenue	$	42,988	$	45,492	$	14,042		$	-		$	102,522
Cost of services		31,658		35,156		10,418			-			77,232
Gross profit		11,330		10,336		3,624			-			25,290
Selling, general and administrative		8,225		8,608		3,664			-			20,497
Depreciation and amortization		548		211		53			-			812
Severance, professional fees and other charges		-		-		-		$	1,371			1,371
Operating income (loss)	$	2,557	$	1,517	$	(93	)	$	(1,371	)	$	2,610
Total assets as of June 30, 2018	$	35,602	$	26,069	$	6,497		$	5,645		$	73,813
Capital expenditures	$	391	$	56	$	18		$	133		$	598

The Company derives a majority of its revenue from offices in the United States. Revenue 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. Revenue by geographic area for the

thirteen

and

twenty-six

week periods ended

June 29, 2019

and

June 30, 2018

are as follows:

	Thirteen Week Periods Ended				Twenty-Six Week Periods Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Revenue
U. S.	$	44,244	$	42,044	$	89,546	$	83,635
Canada		4,500		8,005		9,088		15,634
Puerto Rico		1,209		1,046		2,412		2,029
Serbia		752		615		1,254		1,224
	$	50,705	$	51,710	$	102,300	$	102,522

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

	June 29, 2019		December 29, 2018
Total assets
U. S.	$	72,140	$	61,417
Canada		13,453		14,230
Puerto Rico		2,083		1,954
Serbia		4,423		3,909
	$	92,099	$	81,510

XML

Note 15 - Income Taxes

6 Months Ended

Jun. 29, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

15. Income Taxes

The Company recognized

$0.2

million of income tax expense for the

twenty-six

week period ended

June 29, 2019,

as compared to an income tax expense of

$0.5

million for the comparable prior year period.  The Company recognized a tax benefit of

$0.6

million during the Company’s

first

fiscal quarter of

2019

due to a verbal settlement with the U.S. Internal Revenue Service regarding an uncertain tax position from a previous tax year. Otherwise, the consolidated effective income tax rate for the current period was

27.1%

as compared to

25.2%

for the comparable prior year period.

Not

including the discrete tax benefit of

$0.6

million due to the verbal settlement, the projected fiscal

2019

income tax rates as of

June 29, 2019

were approximately

28.6%,

26.5%

and

15.0%

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 consolidated effective income tax rate for the

twenty-six

week period ended

June 29, 2019

was higher than the comparable prior year period was primarily due to the reduction in the rate of Serbian pretax income to consolidated pretax income. The comparable prior year period estimated income tax rates were

28.3%,

26.5%

and

17.3%

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

25.2%

for the

twenty-six

week period ended

June 30, 2018. 

XML

Note 16 - Contingencies

6 Months Ended

Jun. 29, 2019

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

$10.3

million in damages (as further described below) as of

June 29, 2019.

As of

June 29, 2019,

the Company did

not

have an accrual for any such liabilities.

The Company has a dispute with a customer that is a major utility in the United States. Both parties agreed in fiscal

2017

to resolve this dispute through binding arbitration.  Arbitration hearings with this customer started in fiscal

2018.

  Essentially, the customer has

not

paid the balance of accounts receivable the Company believes are owed for certain disputed projects. As of

June 29, 2019

the total amount of outstanding receivables from this customer on these disputed projects was

$11.2

million, subject to potential upward adjustment in damages claimed in 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

June 29, 2019,

the total amount of such counter-claims is anticipated to be at least

$10.3

million.  The Company believes these counter-claims are retaliatory in nature.  Prior to the Company asserting its claims, the customer had

not

asserted any counter-claims.  The Company believes these counter-claims asserted by its customer have

no

merit and were merely asserted as a strategy to reduce the Company’s own 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 prior to reporting its fiscal

2019

financial results.  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 counter-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 - Leases

6 Months Ended

Jun. 29, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

17. Leases

In

February 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No.

2016

-

02,

Leases (Topic

842

)

, which requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with terms greater than

12

months and requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases. The accounting applied by a lessor is largely unchanged from that applied under the prior standard. After the issuance of Topic

842,

the FASB clarified the guidance through several ASUS; hereinafter the collection of lease guidance is referred to as “ASC

842”.

On

December 30, 2018,

the Company adopted ASC

842

using the modified retrospective method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning

December 30, 2018

are presented under ASC

842,

while prior period amounts were

not

adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC

840,

Leases

. The standard had a material impact on the Company’s Consolidated Condensed Balance Sheet but did

not

have a significant impact on the Company’s consolidated net earnings and cash flows. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the accounting for finance leases remained substantially unchanged. For leases that commenced before the effective date of ASC

842,

the Company elected the permitted practical expedients to

not

reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. Consequently, financial information will

not

be updated, and the disclosures required under the new standard will

not

be provided for dates before

December 30, 2018.

As a result of the cumulative impact of adopting ASC

842,

the Company recorded operating lease ROU assets of

$3.9

million and operating lease liabilities of

$4.1

million as of

December 30, 2018,

primarily related to real estate and office equipment leases, based on the present value of the future lease payments on the date of adoption.

The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do

not

provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments

.

The ROU asset also consists of any lease incentives received. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition. The Company has lease agreements which require payments for lease and non-lease components. The Company has elected to account for these as a single lease component with the exception of its real estate leases.

The components of lease expense were as follows:

	Twenty-Six Week Period Ended June 29, 2019
Operating lease cost	$	989
Amortization of ROU assets	$	146
Interest on lease liabilities		3
Total finance lease cost	$	149

Supplemental Cash Flow information related to leases was as follows:

	Twenty-Six Week Period Ended June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	940
Operating cash flows from finance leases		3
Financing cash flows from finance leases		144
Right of use assets obtained in exchange for lease obligations
Operating leases		6,983
Finance leases		-

Supplemental Balance Sheet information related to leases was as follows:

Operating leases
Operating lease right of use assets	$	6,101
Other current liabilities	$	(2,093	)
Operating lease liabilities		(4,267	)
Total operating lease liabilities	$	(6,360	)
Finance leases
Property and equipment - (ROU assets)	$	874
Accumulated depreciation		(315	)
Property and equipment, net	$	559
Other current liabilities	$	(291	)
Other long term liabilities		(270	)
Total finance lease liabilities	$	(561	)
Weighted average remaining lease term
Operating leases (years)		2.15
Finance leases (years)		1.95
Weighted average discount rate
Operating leases		4.04	%
Finance leases		.90	%

Maturities of lease liabilities are as follows:

Fiscal Year Ending	Operating Leases			Finance Leases
2019	$	1,195		$	148
2020		1,994			287
2021		1,445			132
2022		1,148			-
2023		877			-
Thereafter		186			-
Total lease payments		6,845			567
Less: imputed interest		(485	)		(6	)
Total	$	6,360		$	561

XML

Note 3 - Revenue Recognition (Tables)

6 Months Ended

Jun. 29, 2019

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Thirteen Week Periods Ended					Twenty-Six Week Periods Ended
	June 29, 2019			June 30, 2018		June 29, 2019		June 30, 2018
Engineering:
Time and Material	$	13,528		$	19,220	$	27,371	$	38,460
Fixed Fee		5,098			2,351		10,267		4,528
Permanent Placement Services		(43	)		-		-		-
Total Engineering	$	18,583		$	21,571	$	37,638	$	42,988
Specialty Health Care:
Time and Material	$	23,140		$	22,584	$	47,046	$	44,697
Permanent Placement Services		230			274		494		795
Total Specialty Health Care	$	23,370		$	22,858	$	47,540	$	45,492
Information Technology:
Time and Material	$	8,641		$	7,281	$	16,950	$	13,950
Permanent Placement Services		111			-		172		92
Total Information Technology	$	8,752		$	7,281	$	17,122	$	14,042
	$	50,705		$	51,710	$	102,300	$	102,522

XML

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

6 Months Ended

Jun. 29, 2019

Notes Tables

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

	June 29, 2019			December 29, 2018
Billed	$	32,270		$	32,323
Accrued and unbilled		12,620			10,383
Work-in-progress		3,628			2,252
Accounts receivable subject to arbitration		11,204			8,820
Allowance for sales discounts and doubtful accounts		(1,492	)		(1,443	)
Accounts receivable, net	$	58,230		$	52,335

XML

Note 5 - Property and Equipment (Tables)

6 Months Ended

Jun. 29, 2019

Notes Tables

Property, Plant and Equipment [Table Text Block]

	June 29, 2019		December 29, 2018
Computers and systems	$	6,166	$	7,200
Equipment and furniture		520		600
Leasehold improvements		475		743
		7,161		8,543
Less: accumulated depreciation and amortization		4,078		5,058
Property and equipment, net	$	3,083	$	3,485

XML

Note 6 - Acquisitions (Tables)

6 Months Ended

Jun. 29, 2019

Notes Tables

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

Fiscal Year Ending	Total
December 28, 2019 (after June 29, 2019)	$	-
January 2, 2021		450
January 1, 2022		2,297
December 31, 2022		1,548
Estimated future contingent consideration payments	$	4,295

Schedule of Business Combination Consideration Transferred and Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

Cash	$	1,066
Common stock of the Company		1,878
Contingent consideration, at fair value		2,935
Total consideration	$	5,879

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

Fixed assets	$	12
Restricted covenants		50
Customer relationships		720
Goodwill		5,847
Less: net liabilities assumed		(750	)
Total consideration	$	5,879

Business Acquisition, Amounts Included in Statement of Operations [Table Text Block]

	Thirteen Week			Twenty-Six Week
	Period Ended June 29, 2019			Period Ended June 29, 2019
Revenue	$	720		$	3,364
Operating (loss) income	$	(210	)	$	173

Business Acquisition, Pro Forma Information [Table Text Block]

	Thirteen Week Period Ended June 30, 2018				Twenty-Six Week Period Ended June 30, 2018
	Historical		Pro Forma Combined (Unaudited)		Historical		Pro Forma Combined (Unaudited)
Revenue	$	51,710	$	53,530	$	102,522	$	106,161
Operating income	$	890	$	1,196	$	2,610	$	3,222
Diluted net income per share	$	0.03	$	0.05	$	0.12	$	0.15

XML

Note 7 - Goodwill (Tables)

6 Months Ended

Jun. 29, 2019

Notes Tables

Schedule of Goodwill [Table Text Block]

	Engineering		Specialty Health Care		Information Technology		Total
Balance as of June 29, 2019 and December 29, 2018	$	13,096	$	2,398	$	2,038	$	17,532

XML

Note 8 - Intangible Assets (Tables)

6 Months Ended

Jun. 29, 2019

Notes Tables

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

	Twenty-Six Week Periods Ended
	June 29, 2019		December 29, 2018
Restricted covenants	$	38	$	51
Customer relationships		540		692
Total intangible assets	$	578	$	743

XML

Note 10 - Per Share Data (Tables)

6 Months Ended

Jun. 29, 2019

Notes Tables

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

	Thirteen Week Periods Ended				Twenty-Six Week Periods Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Basic weighted average shares outstanding		12,880,179		12,239,758		12,868,356		12,239,259
Dilutive effect of outstanding restricted share units		57,932		21,895		50,727		20,200
Weighted average dilutive shares outstanding		12,938,111		12,261,653		12,919,083		12,259,459

Unissued Shares of Common Stock [Table Text Block]

	June 29, 2019		December 29, 2018
Time-based restricted stock units outstanding		120,372		147,372
Performance-based restricted stock units outstanding		320,000		200,000
Future grants of options or shares		267,551		442,699
Shares reserved for employee stock purchase plan		326,952		386,403
Total		1,034,875		1,176,474

XML

Note 11 - Share-based Compensation (Tables)

6 Months Ended

Jun. 29, 2019

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 29, 2018		147,372		$	4.46
Granted		20,000		$	3.73
Vested		(35,000	)	$	4.41
Forfeited or expired		(12,000	)	$	5.84
Outstanding non-vested at June 29, 2019		120,372		$	4.22

	Number of Performance- Based Restricted Stock Units			Weighted Average Grant Date Fair Value per Share
Outstanding non-vested at December 29, 2018		200,000		$	5.06
Granted		167,148		$	4.35
Vested		(47,148	)	$	3.69
Forfeited or expired		-		$	-
Outstanding non-vested at June 29, 2019		320,000		$	4.82

XML

Note 14 - Segment Information (Tables)

6 Months Ended

Jun. 29, 2019

Notes Tables

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

Thirteen Week Period Ended June 29, 2019	Engineering		Specialty Health Care		Information Technology			Corporate		Total
Revenue	$	18,583	$	23,370	$	8,752		$	-	$	50,705
Cost of services		13,324		18,057		6,521			-		37,902
Gross profit		5,259		5,313		2,231			-		12,803
Selling, general and administrative		3,675		4,285		2,242			-		10,202
Depreciation and amortization		302		86		20			-		408
Operating income (loss)	$	1,282	$	942	$	(31	)	$	-	$	2,193
Total assets as of June 29, 2019	$	50,520	$	28,030	$	8,028		$	5,521	$	92,099
Capital expenditures	$	25	$	88	$	4		$	20	$	137

Thirteen Week Period Ended June 30, 2018	Engineering		Specialty Health Care		Information Technology		Corporate			Total
Revenue	$	21,571	$	22,858	$	7,281	$	-		$	51,710
Cost of services		15,934		17,771		5,270		-			38,975
Gross profit		5,637		5,087		2,011		-			12,735
Selling, general and administrative		4,104		4,137		1,835		-			10,076
Depreciation and amortization		265		106		27		-			398
Severance, professional fees and other charges		-		-		-		1,371			1,371
Operating income (loss)	$	1,268	$	844	$	149	$	(1,371	)	$	890
Total assets as of June 30, 2018	$	35,602	$	26,069	$	6,497	$	5,645		$	73,813
Capital expenditures	$	282	$	16	$	9	$	2		$	309

Twenty-Six Week Period Ended June 29, 2019	Engineering		Specialty Health Care		Information Technology			Corporate		Total
Revenue	$	37,638	$	47,540	$	17,122		$	-	$	102,300
Cost of services		27,682		36,593		12,705			-		76,980
Gross profit		9,956		10,947		4,417			-		25,320
Selling, general and administrative		7,491		8,779		4,397			-		20,667
Depreciation and amortization		586		177		42			-		805
Operating income (loss)	$	1,879	$	1,991	$	(22	)	$	-	$	3,848
Total assets as of June 29, 2019	$	50,520	$	28,030	$	8,028		$	5,521	$	92,099
Capital expenditures	$	87	$	104	$	17		$	30	$	238

Twenty-Six Week Period Ended June 30, 2018	Engineering		Specialty Health Care		Information Technology			Corporate			Total
Revenue	$	42,988	$	45,492	$	14,042		$	-		$	102,522
Cost of services		31,658		35,156		10,418			-			77,232
Gross profit		11,330		10,336		3,624			-			25,290
Selling, general and administrative		8,225		8,608		3,664			-			20,497
Depreciation and amortization		548		211		53			-			812
Severance, professional fees and other charges		-		-		-		$	1,371			1,371
Operating income (loss)	$	2,557	$	1,517	$	(93	)	$	(1,371	)	$	2,610
Total assets as of June 30, 2018	$	35,602	$	26,069	$	6,497		$	5,645		$	73,813
Capital expenditures	$	391	$	56	$	18		$	133		$	598

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

	Thirteen Week Periods Ended				Twenty-Six Week Periods Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Revenue
U. S.	$	44,244	$	42,044	$	89,546	$	83,635
Canada		4,500		8,005		9,088		15,634
Puerto Rico		1,209		1,046		2,412		2,029
Serbia		752		615		1,254		1,224
	$	50,705	$	51,710	$	102,300	$	102,522

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

	June 29, 2019		December 29, 2018
Total assets
U. S.	$	72,140	$	61,417
Canada		13,453		14,230
Puerto Rico		2,083		1,954
Serbia		4,423		3,909
	$	92,099	$	81,510

XML

Note 17 - Leases (Tables)

6 Months Ended

Jun. 29, 2019

Notes Tables

Lease, Cost [Table Text Block]

	Twenty-Six Week Period Ended June 29, 2019
Operating lease cost	$	989
Amortization of ROU assets	$	146
Interest on lease liabilities		3
Total finance lease cost	$	149

Lease, Cash Flow Information [Table Text Block]

	Twenty-Six Week Period Ended June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	940
Operating cash flows from finance leases		3
Financing cash flows from finance leases		144
Right of use assets obtained in exchange for lease obligations
Operating leases		6,983
Finance leases		-

Lease, Balance Sheet Information [Table Text Block]

Operating leases
Operating lease right of use assets	$	6,101
Other current liabilities	$	(2,093	)
Operating lease liabilities		(4,267	)
Total operating lease liabilities	$	(6,360	)
Finance leases
Property and equipment - (ROU assets)	$	874
Accumulated depreciation		(315	)
Property and equipment, net	$	559
Other current liabilities	$	(291	)
Other long term liabilities		(270	)
Total finance lease liabilities	$	(561	)
Weighted average remaining lease term
Operating leases (years)		2.15
Finance leases (years)		1.95
Weighted average discount rate
Operating leases		4.04	%
Finance leases		.90	%

Lease, Liability, Maturity [Table Text Block]

Fiscal Year Ending	Operating Leases			Finance Leases
2019	$	1,195		$	148
2020		1,994			287
2021		1,445			132
2022		1,148			-
2023		877			-
Thereafter		186			-
Total lease payments		6,845			567
Less: imputed interest		(485	)		(6	)
Total	$	6,360		$	561

XML

Note 3 - Revenue Recognition (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Jun. 29, 2019	Dec. 29, 2018
Contract with Customer, Liability, Revenue Recognized	$ 150
Accounts Payable and Accrued Liabilities [Member]
Contract with Customer, Liability, Total	$ 389	$ 150

XML

Note 3 - Revenue Recognition - Revenues Disaggregated by Revenue Source (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Revenues	$ 50,705	$ 51,710	$ 102,300	$ 102,522
Engineering Services [Member]
Revenues	18,583	21,571	37,638	42,988
Health Care [Member]
Revenues	23,370	22,858	47,540	45,492
Technology Service [Member]
Revenues	8,752	7,281	17,122	14,042
Time-and-materials Contract [Member] | Engineering Services [Member]
Revenues	13,528	19,220	27,371	38,460
Time-and-materials Contract [Member] | Health Care [Member]
Revenues	23,140	22,584	47,046	44,697
Time-and-materials Contract [Member] | Technology Service [Member]
Revenues	8,641	7,281	16,950	13,950
Fixed-price Contract [Member] | Engineering Services [Member]
Revenues	5,098	2,351	10,267	4,528
Permanent Placement Services [Member] | Engineering Services [Member]
Revenues	(43)
Permanent Placement Services [Member] | Health Care [Member]
Revenues	230	274	494	795
Permanent Placement Services [Member] | Technology Service [Member]
Revenues	$ 111		$ 172	$ 92

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Note 4 - Accounts Receivable, Transit Accounts Receivable and Transit Accounts Payable (Details Textual) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Accounts Receivable, after Allowance for Credit Loss, Current, Total	$ 58,230	$ 52,335
Loss Contingency, Receivable, Ending Balance	11,200
Loss Contingency, Estimate of Possible Loss	10,300
Collectibility of Receivables [Member]
Loss Contingency, Estimate of Possible Loss	10,300
Transit Accounts Payable [Member]
Accounts Payable, Current, Total	2,700	2,500
Transit Accounts Receivable [Member]
Accounts Receivable, before Allowance for Credit Loss, Current	1,800	2,600
Accounts Receivable, after Allowance for Credit Loss, Current, Total	$ 900	$ 100

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Note 4 - Accounts Receivable, Transit Accounts Receivable and Transit Accounts Payable - Accounts Receivable (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Allowance for sales discounts and doubtful accounts	$ (1,492)	$ (1,443)
Accounts receivable, net	58,230	52,335
Billed Revenues [Member]
Accounts receivable, current	32,270	32,323
Unbilled Revenues [Member]
Accounts receivable, current	12,620	10,383
Work In Progress [Member]
Accounts receivable, current	3,628	2,252
Accounts Receivable Subject to Arbitration [Member]
Accounts receivable, current	$ 11,204	$ 8,820

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Note 5 - Property and Equipment (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Annual Depreciation Rate	20.00%		20.00%
Write Off of Fully Depreciated Property and Equipment			$ 1,620	$ 711
Depreciation, Total	$ 325	$ 381	$ 640	$ 778

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Note 5 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Property and equipment	$ 7,161	$ 8,543
Less: accumulated depreciation and amortization	4,078	5,058
Property and equipment, net	3,083	3,485
Computers and Systems [Member]
Property and equipment	6,166	7,200
Equipment and Furniture [Member]
Property and equipment	520	600
Leasehold Improvements [Member]
Property and equipment	$ 475	$ 743

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Note 6 - Acquisitions (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	$ 9,300
Payment for Contingent Consideration Liability, Financing Activities	$ 574	$ 300

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Note 6 - Acquisitions - Maximum Deferred Consideration Payments (Details) $ in Thousands	Jun. 29, 2019 USD ($)
December 28, 2019 (after June 29, 2019)
January 2, 2021	450
January 1, 2022	2,297
December 31, 2022	1,548
Estimated future contingent consideration payments	$ 4,295

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Note 6 - Acquisitions - Preliminary Consideration and Estimated Fair Value Assets Acquired and Liabilities Assumed (Details) - TKE [Member] $ in Thousands	Sep. 30, 2018 USD ($)
Cash	$ 1,066
Common stock of the Company	1,878
Contingent consideration, at fair value	2,935
Total consideration	$ 5,879

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Note 6 - Acquisitions - Preliminary Estimated Purchase Price Allocation (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018	Sep. 30, 2018
Goodwill	$ 17,532	$ 17,532
TKE [Member]
Fixed assets			$ 12
Goodwill			5,847
Less: net liabilities assumed			(750)
Total consideration			5,879
TKE [Member] | Restricted Covenants [Member]
Intangible assets, net			50
TKE [Member] | Customer Relationships [Member]
Intangible assets, net			$ 720

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Note 6 - Acquisitions - Revenue and Operating Income Included in Consolidated Income (Details) - TKE [Member] - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 29, 2019	Jun. 29, 2019
Revenue	$ 720	$ 3,364
Operating (loss) income	$ (210)	$ 173

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Note 6 - Acquisitions - Proforma Revenue and Earnings (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Revenue	$ 50,705	$ 51,710	$ 102,300	$ 102,522
Operating income	$ 2,193	$ 890	$ 3,848	$ 2,610
Diluted net income per share (in dollars per share)		$ 0.03		$ 0.12
TKE [Member]
Revenue		$ 53,530		$ 106,161
Operating income		$ 1,196		$ 3,222
Diluted net income per share (in dollars per share)		$ 0.05		$ 0.15

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Note 7 - Goodwill (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018
Goodwill, Impairment Loss	$ 0	$ 0
Goodwill, Period Increase (Decrease), Total	$ 0

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Note 7 - Goodwill - Changes in Carrying Amount of Goodwill (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Balance	$ 17,532	$ 17,532
Engineering [Member]
Balance	13,096
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		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Impairment of Intangible Assets (Excluding Goodwill), Total	$ 0	$ 0	$ 0	$ 0
Amortization of Intangible Assets, Total	$ 83	$ 17	$ 165	$ 34

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Note 8 - Intangible Assets - Intangible Assets by Class (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Intangible assets, net	$ 578	$ 743
Restricted Covenants [Member]
Intangible assets, net	38	51
Customer Relationships [Member]
Intangible assets, net	$ 540	$ 692

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Note 9 - Line of Credit (Details Textual) - USD ($) $ in Thousands	Aug. 09, 2018	Jun. 29, 2019	Dec. 29, 2018	Jun. 30, 2018
Long-term Line of Credit, Noncurrent		$ 30,943	$ 27,540
Citizens Bank of Pennsylvania [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 45,000
Line of Credit, Loan Covenants, Waiver Granted, Amount of Certain Expenses Excluded	$ 1,400
Debt Instrument, Interest Rate, Effective Percentage		4.70%		3.60%
Long-term Line of Credit, Noncurrent		$ 30,900	27,500
Letters of Credit Outstanding, Amount		1,600	$ 1,600
Line of Credit Facility, Remaining Borrowing Capacity		$ 12,500

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Note 10 - Per Share Data (Details Textual) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	0	0	0

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Note 10 - Per Share Data - Weighted Average Number of Common Shares (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Basic weighted average shares outstanding (in shares)	12,880,179	12,239,758	12,868,356	12,239,259
Dilutive effect of outstanding restricted share units (in shares)	57,932	21,895	50,727	20,200
Weighted average dilutive shares outstanding (in shares)	12,938,111	12,261,653	12,919,083	12,259,459

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Note 10 - Per Share Data - Unissued Shares of Common Stock Were Reserved for the Following Purposes (Details) - shares	Jun. 29, 2019	Dec. 29, 2018
Future grants of options or shares (in shares)	267,551	442,699
Shares reserved for employee stock purchase plan (in shares)	326,952	386,403
Total (in shares)	1,034,875	1,176,474
Time-based Restricted Stock Units [Member]
Restricted stock units outstanding (in shares)	120,372	147,372
Performance-based Restricted Stock Units [Member]
Restricted stock units outstanding (in shares)	320,000	200,000

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Note 11 - Share-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		6 Months Ended		12 Months Ended
	Dec. 31, 2018	Jun. 29, 2019	Jun. 30, 2018	Dec. 29, 2018	Dec. 31, 2016	Dec. 27, 2015	Jun. 28, 2019	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period		10 years
Share-based Payment Arrangement, Expense		$ 448	$ 201
Common Stock, Capital Shares Reserved for Future Issuance		1,034,875		1,176,474
Share Price							$ 4
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		267,551
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant		326,952
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		300,000
Common Stock, Capital Shares Reserved for Future Issuance				1,400,000		1,100,000
Stock Issued During Period, Shares, Employee Stock Purchase Plans	59,451
Performance-based Restricted Stock Units [Member]
Share-based Payment Arrangement, Expense		$ 152	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Likely to Vest		40,000
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		320,000		200,000
Dividends Payable		$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Unlikely to Vest		280,000
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount		$ 88
Time-based Restricted Stock Units [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total		$ 300
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition		2 years
Time-based Restricted Stock Units [Member] | The 2014 Plan [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total		$ 220
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance		120,372		147,372
Dividends Payable		$ 40
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Aggregate Intrinsic Value, Nonvested		$ 481
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]	6 Months Ended
	Jun. 29, 2019 $ / shares shares
Time-based Restricted Stock Units [Member]
Outstanding non-vested (in shares) | shares	147,372
Outstanding non-vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 4.46
Granted (in shares) | shares	20,000
Granted, weighted average grant date fair value (in dollars per share) | $ / shares	$ 3.73
Vested (in shares) | shares	(35,000)
Vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 4.41
Forfeited or expired (in shares) | shares	(12,000)
Forfeited or expired, weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.84
Outstanding non-vested (in shares) | shares	120,372
Outstanding non-vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 4.22
Performance-based Restricted Stock Units [Member]
Outstanding non-vested (in shares) | shares	200,000
Outstanding non-vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.06
Granted (in shares) | shares	167,148
Granted, weighted average grant date fair value (in dollars per share) | $ / shares	$ 4.35
Vested (in shares) | shares	(47,148)
Vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 3.69
Forfeited or expired (in shares) | shares
Forfeited or expired, weighted average grant date fair value (in dollars per share) | $ / shares
Outstanding non-vested (in shares) | shares	320,000
Outstanding non-vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 4.82

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Note 12 - Treasury Stock Transactions (Details Textual) - shares shares in Thousands	6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018
Stock Repurchase Program, 2016 [Member]
Treasury Stock, Shares, Acquired	0	0

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Note 14 - Segment Information - Results of the Segments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018	Dec. 29, 2018
Revenues	$ 50,705	$ 51,710	$ 102,300	$ 102,522
Cost of services	37,902	38,975	76,980	77,232
Gross profit	12,803	12,735	25,320	25,290
Selling, general and administrative	10,202	10,076	20,667	20,497
Depreciation and amortization	408	398	805	812
Operating income (loss)	2,193	890	3,848	2,610
Total assets	92,099	73,813	92,099	73,813	$ 81,510
Capital expenditures	137	309	238	598
Severance, professional fees and other charges		1,371		1,371
Engineering [Member]
Revenues	18,583	21,571	37,638	42,988
Cost of services	13,324	15,934	27,682	31,658
Gross profit	5,259	5,637	9,956	11,330
Selling, general and administrative	3,675	4,104	7,491	8,225
Depreciation and amortization	302	265	586	548
Operating income (loss)	1,282	1,268	1,879	2,557
Total assets	50,520	35,602	50,520	35,602
Capital expenditures	25	282	87	391
Severance, professional fees and other charges
Specialty Health Care [Member]
Revenues	23,370	22,858	47,540	45,492
Cost of services	18,057	17,771	36,593	35,156
Gross profit	5,313	5,087	10,947	10,336
Selling, general and administrative	4,285	4,137	8,779	8,608
Depreciation and amortization	86	106	177	211
Operating income (loss)	942	844	1,991	1,517
Total assets	28,030	26,069	28,030	26,069
Capital expenditures	88	16	104	56
Severance, professional fees and other charges
Information Technology [Member]
Revenues	8,752	7,281	17,122	14,042
Cost of services	6,521	5,270	12,705	10,418
Gross profit	2,231	2,011	4,417	3,624
Selling, general and administrative	2,242	1,835	4,397	3,664
Depreciation and amortization	20	27	42	53
Operating income (loss)	(31)	149	(22)	(93)
Total assets	8,028	6,497	8,028	6,497
Capital expenditures	4	9	17	18
Severance, professional fees and other charges
Corporate Segment [Member]
Revenues
Cost of services
Gross profit
Selling, general and administrative
Depreciation and amortization
Operating income (loss)		(1,371)		(1,371)
Total assets	5,521	5,645	5,521	5,645
Capital expenditures	$ 20	2	$ 30	133
Severance, professional fees and other charges		$ 1,371		$ 1,371

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Note 14 - Segment Information - Revenues by Geographic Area (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Revenues	$ 50,705	$ 51,710	$ 102,300	$ 102,522
UNITED STATES
Revenues	44,244	42,044	89,546	83,635
CANADA
Revenues	4,500	8,005	9,088	15,634
PUERTO RICO
Revenues	1,209	1,046	2,412	2,029
SERBIA
Revenues	$ 752	$ 615	$ 1,254	$ 1,224

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Note 14 - Segment Information - Total Assets by Geographic Area (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018	Jun. 30, 2018
Total assets	$ 92,099	$ 81,510	$ 73,813
UNITED STATES
Total assets	72,140	61,417
CANADA
Total assets	13,453	14,230
PUERTO RICO
Total assets	2,083	1,954
SERBIA
Total assets	$ 4,423	$ 3,909

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Note 15 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 29, 2019	Mar. 30, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Income Tax Expense (Benefit), Total	$ 459		$ 121	$ 185	$ 483
Effective Income Tax Rate Reconciliation, Tax Settlement, Domestic, Amount		$ 600
Effective Income Tax Rate Reconciliation, Percent, Total				27.10%	25.20%
Domestic Tax Authority [Member] | Internal Revenue Service (IRS) [Member]
Effective Income Tax Rate Reconciliation, Percent, Total				28.60%	28.30%
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				15.00%	17.30%

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Note 16 - Contingencies (Details Textual) $ in Thousands	6 Months Ended
	Jun. 29, 2019 USD ($)
Loss Contingency, Damages Sought, Value	$ 10,300
Estimated Litigation Liability	0
Loss Contingency, Receivable, Ending Balance	11,200
Loss Contingency, Estimate of Possible Loss	$ 10,300

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Note 17 - Leases (Details Textual) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 30, 2018	Dec. 29, 2018
Operating Lease, Right-of-Use Asset	$ 6,101
Operating Lease, Liability, Total	$ 6,360
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset		$ 3,900
Operating Lease, Liability, Total		$ 4,100

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Note 17 - Leases - Lease Expense (Details) $ in Thousands	6 Months Ended
	Jun. 29, 2019 USD ($)
Operating lease cost	$ 989
Finance lease cost, Amortization of ROU assets	146
Finance lease cost, Interest on lease liabilities	3
Total finance lease cost	$ 149

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Note 17 - Leases - Cash Flow Information (Details) $ in Thousands	6 Months Ended
	Jun. 29, 2019 USD ($)
Operating cash flows from operating leases	$ 940
Operating cash flows from finance leases	3
Financing cash flows from finance leases	144
Operating leases	6,983
Finance leases

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Note 17 - Leases - Balance Sheet Information (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Operating lease right of use assets	$ 6,101
Other current liabilities	(2,093)
Operating lease liabilities	(4,267)
Total operating lease liabilities	(6,360)
Property and equipment - (ROU assets)	874
Accumulated depreciation	(315)
Property and equipment, net	559
Other current liabilities	(291)
Other long term liabilities	(270)
Total finance lease liabilities	$ (561)
Operating leases (years) (Year)	2 years 54 days
Finance leases (years) (Year)	1 year 346 days
Operating leases	4.04%
Finance leases	0.90%

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Note 17 - Leases - Maturities of Lease Liabilities (Details) $ in Thousands	Jun. 29, 2019 USD ($)
2019, operating leases	$ 1,195
2019, finance leases	148
2020, operating leases	1,994
2020, finance leases	287
2021, operating leases	1,445
2021, finance leases	132
2022, operating leases	1,148
2022, finance leases
2023, operating leases	877
2023, finance leases
Thereafter, operating leases	186
Thereafter, finance leases
Total lease payments, operating leases	6,845
Total lease payments, finance leases	567
Less: imputed interest, operating leases	(485)
Less: imputed interest, finance leases	(6)
Total, operating leases	6,360
Total, finance leases	$ 561