RCM TECHNOLOGIES, INC. 10-K

ITEM 9A. CONTROLS AND PROCEDURES   The Company’s management, under the supervision and with the participation of the Company’s Principal Executive Officer and Principal 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 Principal Executive Officer and Principal 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.   As management prepares and executes a virtual financial close process, for the first time, there could be related implications on the internal controls performed specifically in conjunction with the preparation, review, and filing of this report. There is a risk that moving to a virtual environment in response to COVID-19 could result in certain controls (e.g., financial closing and reporting controls) being overridden or performed less frequently, or that management could be designing and implementing new controls in response to new risks. In addition, in instances where relevant controls fail, and there are no compensating controls in place, there may be fewer opportunities to timely identify or remediate control deficiencies. There were otherwise no changes in the Company’s internal control over financial reporting during the fiscal year ended January 1, 2022, that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.   Management ’ s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process designed 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. Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.   Management performed an assessment of the effectiveness of our internal control over financial reporting as of January 1, 2022 based upon criteria in Internal Control-Integrated Framework issued and updated in fiscal 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management determined that the Company’s internal control over financial reporting was effective as of January 1, 2022, based on the criteria in Internal Control-Integrated Framework issued by COSO.   There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter and that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.     46     ITEM 9B. OTHER INFORMATION   None     ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS   None.     47     PART III   ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   The information required by Item 10 shall be included in the 2022 Proxy Statement and is incorporated herein by reference.     ITEM 11. EXECUTIVE COMPENSATION   The information required by Item 11 shall be included in the 2022 Proxy Statement and is incorporated herein by reference.     ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT   AND RELATED STOCKHOLDER MATTERS   Except as set forth below, the information required by Item 12 shall be included in the 2022 Proxy Statement and is incorporated herein by reference.   The table below presents certain information as of January 1, 2022 concerning securities issuable in connection with equity compensation plans that have been approved by the Company’s shareholders and that have not been approved by the Company’s shareholders.   Plan category Number of securities to be potentially issued upon realization of restricted stock awards Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for issuance under equity compensation plans, excluding securities reflected in column (a)   (a) (b) (c) Equity compensation plans    approved by security    holders............................. 545,628 (1) N/A 107,924 Equity compensation plans    not approved by    security holders............... _______________ _______________ _______________         Total.............................. 545,628 (1) N/A 107,924   (1)   Includes time-based restricted stock units of 371,872, time-based restricted stock awards of 48,756 and performance-based restricted stock units of 125,000, none of which have an exercise price.     ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR   INDEPENDENCE   The information required by Item 13 shall be included in the 2022 Proxy Statement and is incorporated herein by reference.     ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES   The information required by Item 14 shall be included in the 2022 Proxy Statement and is incorporated herein by reference.   48     PART IV   ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES   (a) 1. and 2. Financial Statement Schedules  -- See “Index to Financial Statements and Schedules” on F-1.       3.  See Item (b) below.     (b) Exhibits     The following exhibits are filed as part of, or incorporated by reference into, this report (unless otherwise indicated, the file number with respect to each filed document is 1-10245):       (3)(a) Articles of Incorporation, as amended; incorporated by reference to Exhibit 3(a) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 31, 1994, filed with the Securities and Exchange Commission on January 4, 1995.             (3)(b) Certificate of Amendment of Articles of Incorporation; incorporated by reference to Exhibit A to the Registrant’s Proxy Statement, dated February 6, 1996, filed with the Securities and Exchange Commission on January 29, 1996.             (3)(c) Certificate of Amendment of Articles of Incorporation; incorporated by reference to Exhibit B to the Registrant’s Proxy Statement, dated February 6, 1996, filed with the Securities and Exchange Commission on January 29, 1996.             (3)(d) Amended and Restated Bylaws; incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2014 (the “January 2014 8-K”).             (3)(e) Certificate of Designation of Series A-3 Junior Participating Preferred Stock of RCM Technologies, Inc.; incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2020 (the “May 2020 8-K”).             (4)(a) Description of Capital Stock. (Filed herewith)           * (10)(a) RCM Technologies, Inc. 2000 Employee Stock Incentive Plan, dated January 6, 2000; incorporated by reference to Exhibit A to the Registrant’s Proxy Statement, dated March 3, 2000, filed with the Securities and Exchange Commission on February 28, 2000.           * (10)(b) The RCM Technologies, Inc. 2007 Omnibus Equity Compensation Plan; incorporated by reference to Annex A to the Registrant’s Proxy Statement, dated April 20, 2007, filed with the Securities and Exchange Commission on April 19, 2007.           * (10)(c) Executive Severance Agreement between RCM Technologies, Inc. and Kevin Miller dated December 27, 2012; incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K dated December 27, 2012, filed with the Securities and Exchange Commission on December 28, 2012.           * (10)(d) Amendment No. 1 to Executive Severance Agreement between RCM Technologies, Inc. and Kevin Miller dated December 26, 2017; incorporated by reference to Exhibit 10(x) to the Registrant’s Annual Report on Form 10-K for this fiscal year ended January 2, 2021, filed with the Securities and Exchange Commission on March 8, 2018.     49     ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)   (b) Exhibits (Continued)           * (10)(e) RCM Technologies, Inc. Amended and Restated 2014 Omnibus Equity Compensation Plan (as amended through December 17, 2020); incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on December 18, 2020.           * (10)(f) Amendment to RCM Technologies, Inc. 2014 Omnibus Equity Compensation Plan; incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 15, 2021.           * ‌(10)(g) Form of Stock Unit Agreement; incorporated by reference to Exhibit 99.2 to the December 2014 8-K.           * ‌(10)(h) RCM Technologies, Inc. Change in Control Plan for Selected Executive Management (filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 12, 2015 and incorporated herein by reference).           * ‌(10)(i) Amendment 2015-3 to the RCM Technologies, Inc. 2001 Employee Stock Purchase Plan; incorporated by reference to Exhibit A to the Registrant’s Definitive Proxy Statement for the 2015 Annual Meeting filed with the Securities and Exchange Commission on October 30, 2015.           * ‌(10)(j) Amendment 2018-4 to the RCM Technologies, Inc. 2001 Employee Stock Purchase Plan; incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 18, 2018.           * (10)(k) Amendment 2021-5 to the RCM Technologies, Inc. Employee Stock Purchase Plan; incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement for its 2021 Annual Meeting of Stockholders, filed with the Securities and Exchange Commission on November 12, 2021.           * ‌(10)(l) Executive Severance Agreement, dated as of June 1, 2018, by and between the Company and Bradley S. Vizi; incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 7, 2018.             ‌(10)(m) Third Amended & Restated Loan and Security Agreement, dated as of August 9, 2018, by and among the Company and all of its subsidiaries, Citizens Bank of Pennsylvania, a Pennsylvania state chartered bank, in its capacity as administrative agent and arranger, and Citizens Bank of Pennsylvania, as lender; incorporated by reference to Exhibit 10(d) to the Registrant’s Quarterly Report on Form 10-Q for this fiscal quarter ended June 30, 2018, filed with the Securities and Exchange Commission on August 14, 2018.             ‌(10)(n) First Amendment to Third Amended and Restated Loan Agreement, dated as of August 9, 2018, by and among the Company and all of its subsidiaries, and Citizens Bank, N.A., a national banking association (as successor by merger to Citizens Bank of Pennsylvania), in its capacities as lender and as administrative agent and arranger; incorporated by reference to Exhibit 99 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 22, 2019.           50     ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)   (b) Exhibits (Continued)             ‌(10)(o) Amendment No. 2 to Third Amended and Restated Loan Agreement, dated as of June 2, 2020, by and among the Company and all of its subsidiaries, and Citizens Bank, N.A., a national banking association (as successor by merger to Citizens Bank of Pennsylvania), in its capacities as lender and as administrative agent and arranger; incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 2, 2020.             ‌(10)(p) Amendment No. 3 to Third Amended and Restated Loan Agreement, dated as of September 29, 2020, by and among the Company and all of its subsidiaries, and Citizens Bank, N.A., a national banking association (as successor by merger to Citizens Bank of Pennsylvania), in its capacities as lender and as administrative agent and arranger; incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 1, 2020.             (21) Subsidiaries of the Registrant.  (Filed herewith)             (23.1) Consent of Macias, Gini & O’Connell, LLP. (Filed herewith)             (31.1) Certifications of Chief Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.  (Filed herewith)             (31.2) Certifications of Chief Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.  (Filed herewith)             (32.1) Certifications of Chief Executive Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.  (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.  Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)  (Furnished herewith)             (32.2) Certifications of Chief Financial Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.  Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)  (Furnished herewith)     51     ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)   (b) Exhibits (Continued)           * 101.INS XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)           * 101.SCH Inline XBRL Taxonomy Extension Schema Document           * 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document           * 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document           * 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Documents           * 101.DEF Inline XBRL Taxonomy Definition Linkbase Document             104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)           * Constitutes a management contract or compensatory plan or arrangement.           + The Registrant will furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.     ITEM 16. FORM 10-K SUMMARY   None. 52     SIGNATURES   Pursuant to the requirements of Section 13 or 15(d) 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:  April 4, 2022   By: /s/ Bradley S. Vizi       Bradley S. Vizi       Executive Chairman and President                 Date:  April 4, 2022   By: /s/ Kevin D. Miller       Kevin D. Miller       Chief Financial Officer, Treasurer and Secretary     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.      Date:  April 4, 2022   By: /s/ Bradley S. Vizi       Bradley S. Vizi       Executive Chairman and President         Date:  April 4, 2022   By: /s/ Kevin D. Miller       Kevin D. Miller       Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)         Date:  April 4, 2022   By: /s/ Roger H. Ballou       Roger H. Ballou       Director         Date:  April 4, 2022   By: /s/ Richard A. Genovese       Richard A. Genovese       Director         Date:  April 4, 2022   By: /s/ Swarna Kakodkar       Swarna Kakodkar       Director         Date:  April 4, 2022   By: /s/ Jayanth S. Komarneni       Jayanth S. Komarneni       Director     53     RCM TECHNOLOGIES, INC.   FORM 10-K   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES           Page     Consolidated Balance Sheets, January 1, 2022 and January 2, 2021 F-2     Consolidated Statements of Operations, Fiscal Years Ended    January 1, 2022 and January 2, 2021 F-3     Consolidated Statements of Comprehensive Income (Loss), Fiscal Years Ended    January 1, 2022 and January 2, 2021 F-4     Consolidated Statements of Changes in Stockholders’ Equity, Fiscal Years Ended    January 1, 2022 and January 2, 2021 F-5     Consolidated Statements of Cash Flows, Fiscal Years Ended    January 1, 2022 and January 2, 2021 F-6     Notes to Consolidated Financial Statements F-7     Report of Independent Registered Public Accounting Firm F-40       F-1       RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 1, 2022 and January 2, 2021 (Amounts in thousands, except share and per share amounts, unless otherwise indicated)       January 1,     January 2,       2022     2021                     Current assets:                    Cash and cash equivalents   $ 235     $ 734      Accounts receivable, net     48,240       36,007      Transit accounts receivable     1,010       2,494      Prepaid expenses and other current assets     2,486       4,699         Total current assets     51,971       43,934                     Property and equipment, net     1,939       2,078                     Other assets:                    Deposits     176       169      Deferred tax assets, net, domestic     535       3,300      Goodwill     16,354       16,354      Operating right of use asset     1,877       2,409      Intangible assets, net     -       95         Total other assets     18,942       22,327                           Total assets   $ 72,852     $ 68,339     Current liabilities:                    Accounts payable and accrued expenses   $ 9,306     $ 7,497      Transit accounts payable     2,064       4,900      Accrued payroll and related costs     13,027       12,877      Finance lease payable     437       247      Income taxes payable     -       436      Operating right of use liability     1,502       1,886      Liability for contingent consideration from acquisitions     103       500      Deferred revenue     3,418       398         Total current liabilities     29,857       28,741                     Deferred tax liability, foreign     142       365   Finance lease payable     502       106   Liability for contingent consideration from acquisitions     600       2,358   Operating right of use liability, net of current position     1,631       2,641   Borrowings under line of credit     14,151       11,890         Total liabilities     46,883       46,101                     Commitments and contingencies (note 16)                                         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;                       16,903,157 shares issued and 10,290,935 shares outstanding at       January 1, 2022 and 16,224,191 shares issued and 11,542,880 shares       outstanding at January 2, 2021     845       811         Stock subscription receivable     -       ( 420 )    Additional paid-in capital     111,068       109,588      Accumulated other comprehensive loss     ( 2,699 )     ( 2,550 )    Accumulated deficit     ( 56,985 )     ( 67,974 )    Treasury stock ( 6,612,222 shares at January 1, 2022 and    4,681,311 at January 2, 2021) at cost     ( 26,260 )     ( 17,217 )       Stockholders’ equity     25,969       22,238                           Total liabilities and stockholders’ equity   $ 72,852     $ 68,339     The accompanying notes are an integral part of these consolidated financial statements.   F-2       RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except per share amounts, unless otherwise indicated)       January 1, 2022     January 2, 2021                     Revenues   $ 203,875     $ 150,409   Cost of services     150,751       111,554   Gross profit     53,124       38,855                     Operating costs and expenses                    Selling, general and administrative     42,019       37,791      Depreciation and amortization of property and equipment     1,007       1,065      Amortization of acquired intangible assets     95       321      Write-off of receivables and professional fees       incurred related to arbitration     -       8,397      Impairment of right of use assets and related costs     -       2,231      Gain on sale of assets     ( 2,420 )     -      Remeasurement of acquisition-related       contingent consideration     ( 1,713 )     -      Operating costs and expenses     38,988       49,805                     Operating income (loss)     14,136       ( 10,950 )                   Other expense (income)                    Interest expense and other, net     365       778      Change in fair value of contingent consideration     52       145      Loss (gain) on foreign currency transactions     ( 195 )     184      Other expense, net     222       1,107                     Income (loss) before income taxes     13,914       ( 12,057 ) Income tax expense (benefit)     2,925       ( 3,188 )                   Net income (loss)   $ 10,989     $ ( 8,869 )                   Basic net earnings (loss) per share   $ 1.00     $ ( 0.73 ) Diluted net earnings (loss) per share   $ 0.95     $ ( 0.73 )   The accompanying notes are an integral part of these consolidated financial statements.   F-3       RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands unless otherwise indicated)         January 1,     January 2,       2022     2021                     Net income (loss)   $ 10,989     $ ( 8,869 ) Other comprehensive (loss) income     ( 149 )     198   Total comprehensive income (loss)   $ 10,840     $ ( 8,671 )   The accompanying notes are an integral part of these consolidated financial statements.   F-4           RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’  EQUITY Fiscal Years Ended January 1, 2022 and January 2, 2021 (Amounts in thousands, except share amounts, unless otherwise indicated)           Common Stock     Stock Subscription Receivable     Additional Paid-in Capital     Accumulated Other Comprehensive Loss     Accumulated Deficit     Treasury Stock     Total       Issued Shares     Amount                                     Shares     Amount                                                                                     Balance, December 28, 2019     15,826,891     $ 791       -     $ 108,452     $ ( 2,748 )   $ ( 59,105 )     2,823,172     $ ( 14,987 )   $ 32,403                         -                                                   Issuance of stock under    employee stock purchase plan     117,983       6       -       202       -       -       -       -       208   Stock subscription receivable     -       -       ( 420 )     420       -       -       -       -       -   Foreign currency translation    adjustment     -       -       -       -       198       -       -       -       198   Share-based compensation expense     -       -       -       528       -       -       -       -       528   Issuance of stock upon vesting    of restricted share awards     279,317       14       -       ( 14 )     -       -       -       -       -   Purchase of treasury stock     -       -       -       -       -       -       1,858,139       ( 2,230 )     ( 2,230 ) Net loss     -       -       -       -       -       ( 8,869 )     -       -       ( 8,869 )                                                                           Balance, January 2, 2021     16,224,191     $ 811     $ ( 420 )   $ 109,588     $ ( 2,550 )   $ ( 67,974 )     4,681,311     $ ( 17,217 )   $ 22,238                                                                             Issuance of stock under    employee stock purchase plan     101,784       5       -       131       -       -       -       -       136   Stock subscription receivable     250,000       13       420       ( 13 )     -       -       -       -       420   Foreign currency translation    adjustment     -       -       -       -       ( 149 )     -       -       -       ( 149 ) Share-based compensation expense     -       -       -       1,358       -       -       -       -       1,358   Issuance of stock upon vesting    of restricted share awards     327,182       16       -       ( 16 )     -       -       -       -       -   Effect of excess tax deduction    over book expense associated with    exercise of equity awards     -       -       -       20       -       -       -       -       20   Purchase of treasury stock     -       -       -       -       -       -       1,930,911     $ ( 9,043 )     ( 9,043 ) Net income     -       -       -       -       -       10,989       -       -       10,989                                                                             Balance, January 1, 2022     16,903,157     $ 845     $ -     $ 111,068     $ ( 2,699 )   $ ( 56,985 )     6,612,222     $ ( 26,260 )   $ 25,969     The accompanying notes are an integral part of these consolidated financial statements.   F-5       RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands unless otherwise indicated)       January 1, 2022     January 2, 2021   Cash flows from operating activities:                    Net income (loss)   $ 10,989     $ ( 8,869 )                      Adjustments to reconcile net income (loss) to net cash provided by      operating activities:                       Depreciation and amortization     1,102       1,386         Gain on sale of assets     ( 2,420 )     -         Remeasurement of acquisition-related contingent consideration     ( 1,713 )     -         Impairment of right of use assets and related costs     -       2,231         Change in fair value of contingent consideration     52       145         Share-based compensation expense     1,358       1,108         Effect of excess tax deduction on equity awards     20       -         Provision for losses on accounts receivable     ( 208 )     7,911         Deferred income tax expense (benefit)     2,542       ( 3,712 )       Amortization of right of use assets     1,057       1,490         Changes in assets and liabilities:                          Accounts receivable     ( 14,710 )     15,947            Net of transit accounts receivable and payable     ( 1,317 )     2,757            Prepaid expenses and other current assets     1,838       ( 162 )          Accounts payable and accrued expenses     1,518       1,587            Accrued payroll and related costs     149       4,557            Right of use liabilities     ( 1,919 )     ( 1,529 )          Income taxes payable     ( 436 )     304            Deferred revenue     3,020       52            Deposits     ( 7 )     41      Total adjustments     ( 10,074 )     34,113      Net cash provided by operating activities     915       25,244                     Cash flows from investing activities:                    Property and equipment acquired     ( 568 )     ( 460 )    Proceeds from sale of assets     6,859       -      Net cash provided by (used in) investing activities     6,291       ( 460 )                   Cash flows from financing activities:                    Borrowings under line of credit     110,481       73,238      Repayments under line of credit     ( 108,220 )     ( 96,109 )    Issuance of stock for employee stock purchase plan     137       208      Changes in finance lease obligations     ( 415 )     ( 394 )    Contingent consideration paid     ( 494 )     ( 345 )    Common stock repurchase     ( 9,043 )     ( 2,230 )    Net cash used in financing activities     ( 7,554 )     ( 25,632 ) Effect of exchange rate changes on cash and cash equivalents     ( 151 )     ( 265 ) Decrease in cash and cash equivalents     ( 499 )     ( 1,113 ) Cash and cash equivalents at beginning of period     734       1,847                     Cash and cash equivalents at end of period   $ 235     $ 734                     Supplemental cash flow information:                    Cash paid for:                       Interest   $ 417     $ 1,026         Income taxes   $ 1,010     $ 264                     Non-cash financing activities:                    Issuance of accrued share-based compensation   $ 580     $ 492      ROU assets obtained in exchange for lease obligations   $ 1,832     $ 258     The accompanying notes are an integral part of these consolidated financial statements.   F-6     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   Description of Business and Basis of Presentation   RCM Technologies, Inc. (the “Company” or “RCM”) is a premier provider of business and technology solutions designed to enhance and maximize the operational performance of its customers through the adaptation and deployment of advanced engineering, life sciences and information technology services.  Additionally, the Company provides specialty health care staffing services through its Specialty Health Care Services group.  RCM’s offices are primarily located in major metropolitan centers throughout North America.   The consolidated financial statements are comprised of the accounts of the Company and its wholly owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.    Cash and Cash Equivalents   The Company considers its holdings of highly liquid money-market instruments and certificates of deposits to be cash equivalents if the securities mature within 90 days from the date of acquisition.  These investments are carried at cost, which approximates fair value.  The Company’s cash balances are maintained in accounts held by major banks and financial institutions.  The majority of these balances may exceed federally insured amounts.  The Company held $ 21 and $ 42 of cash and cash equivalents in Canadian banks as of January 1, 2022 and January 2, 2021, respectively, which was held principally in Canadian dollars.  The Company held $ 169 and $ 246 of cash and cash equivalents in Serbian banks as of January 1, 2022 and January 2, 2021, respectively, which was held in various currencies.     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, 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.   Accounts Receivable and Allowance for Doubtful Accounts   The Company’s accounts receivable are primarily due from trade customers.  Credit is extended based on evaluation of customers’ financial condition and, generally, collateral is not required.  Accounts receivable payment terms vary and are stated in the financial statements at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole.  The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables previously written off are credited to bad debt expense.     F- 7     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)   Accrued and Unbilled Accounts Receivable and Work-in-Process   Unbilled receivables primarily represent revenues earned whereby those services are ready to be billed as of the balance sheet ending date. Work-in-process primarily represents revenues earned under contracts which the Company is contractually precluded from invoicing until future dates as project milestones are realized.  See Note 4 for further details.   Transit Accounts Receivable and Transit Accounts Payable   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.  In such situations, the Company acts as an agent under the provisions of FASB ASC 606 “Revenue from Contracts with Customers” and therefore recognizing revenue on a “net-basis.”  The Company records revenue on a “net” basis on relevant engineering and construction management projects, which require subcontractor/procurement costs or transit costs. In those situations, the Company charges the client a negotiated fee, which is reported as net revenue when earned.    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.   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.      F- 8     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)   Intangible Assets   The Company’s intangible assets have been generated through acquisitions.  The Company maintains responsibility for valuing and determining the useful life of intangible assets.  As a general rule, the Company amortizes restricted covenants over four years and customer relationships over six years.  However, circumstances may dictate other amortization terms as determined by the Company and assisted by their third party advisors.   Canadian Sales Tax   The Company is required to charge and collect sales tax for all Canadian clients and remits invoiced sales tax monthly to the Canadian taxing authorities whether collected or not.   The Company does not collect the sales tax from its clients until they have paid their respective invoices.  The Company includes uncollected Canadian sales tax invoiced to clients in its prepaid and other current assets.   Goodwill   Goodwill is not amortized but is subject to periodic testing for impairment in accordance with FASB ASC 350 “ Intangibles - Goodwill and Other. ”  The Company tests goodwill for impairment on an annual basis as of the last day of the Company’s fiscal December each year or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. The Company has three reporting units.  The Company uses a market-based approach to determine the fair value of the reporting units.  This approach uses earnings/revenue multiples of similar companies recently completing acquisitions and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units. The Company adopted Accounting Standards Update (“ASU”) 2017 - 04, “Intangibles - Goodwill and Other (Topic 350 ): Simplifying the Test for Goodwill Impairment” effective January 2, 2021 which has eliminated Step 2 from the goodwill impairment test. Under this update, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. To satisfy the “Step 0 Test”, the Company reviewed industry and market conditions, reporting unit specific events as well as overall financial performance and found no impairment of goodwill.   The Company did not record a goodwill impairment charge in fiscal years ended January 1, 2022 and January 2, 2021.  There can be no assurance that future indicators of impairment and tests of goodwill impairment will not result in an impairment charge.     F- 9     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)   Long-Lived and 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.    Software   In accordance with FASB ASC 350 - 40 “Accounting for Internal Use Software,” certain costs related to the development or purchase of internal-use software are capitalized and amortized over the estimated useful life of the software. During the fiscal years ended January 1, 2022 and January 2, 2021, the Company capitalized $ 1,256 and $ 305 , respectively, for software costs.  The net balance after accumulated depreciation for all software costs capitalized as of January 1, 2022 and January 2, 2021 was $ 1,350 and $ 1,389 , respectively.   Income Taxes   The Company makes judgments and interpretations based on enacted tax laws, published tax guidance, as well as estimates of future earnings.  These judgments and interpretations affect the provision for income taxes, deferred tax assets and liabilities and the valuation allowance. The Company evaluated the deferred tax assets and determined on the basis of objective factors that the net assets will be realized through future years’ taxable income.  In the event that actual results differ from these estimates and assessments, additional valuation allowances may be required.  The Company did not have any valuation allowance as of January 1, 2022 or January 2, 2021.   The Company accounts for income taxes in accordance with FASB ACS 740 “Income Taxes” (FASB ASC 740 ) which requires an asset and liability approach of accounting for income taxes.  FASB ASC 740 requires assessment of the likelihood of realizing benefits associated with deferred tax assets for purposes of determining whether a valuation allowance is needed for such deferred tax assets.  Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. The Company measures its deferred tax assets and liabilities using the tax rates that the Company believes will apply in the years in which the temporary differences are expected to be recovered or paid. The Company and its wholly owned United States subsidiaries file a consolidated federal income tax return.  The Company also files tax returns in Canada, Puerto Rico and Serbia.   The Company also follows the provisions of FASB ASC 740 which prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition.  The Company’s policy is to record interest and penalty, if any, as interest expense.     F- 10     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)   Revenue Recognition   The Company records revenue under Accounting Standards Codification ("ASC") Topic 606,   Revenue from Contracts with Customers .  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 Life Sciences and Information Technology segments perform consulting and project solution services.  The Healthcare segment specializes in long-term and short-term staffing and placement services to hospitals, schools and long-term care facilities amongst others.  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 revenues disaggregated by revenue source for the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021:       January 1, 2022     January 2, 2021   Engineering:                 Time and Material   $ 45,035     $ 43,359   Fixed Fee     21,070       14,145   Permanent Placement Services     67       211   Total Engineering   $ 66,172     $ 57,715                     Specialty Health Care:                 Time and Material   $ 97,363     $ 59,692   Permanent Placement Services     1,132       789   Total Specialty Health Care   $ 98,495     $ 60,481                     Life Sciences and Information Technology:                 Time and Material   $ 38,571     $ 31,723   Permanent Placement Services     637       490   Total Life Sciences and Information Technology   $ 39,208     $ 32,213       $ 203,875     $ 150,409       F- 11     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)   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.  From time-to-time, amounts paid in excess of revenue earned and recognized are recorded as deferred revenue, included in accounts payable and accrued expenses on the accompanying consolidated balance sheets.  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 and 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.  The Company guarantees its permanent placements on a prorated basis for 90 days.  In the event a candidate is not retained for the 90 -day period, the Company will provide a suitable replacement candidate.  In the event a replacement candidate cannot be located, the Company will provide a prorated refund to the client.  An allowance for refunds, based upon the Company’s historical experience, is recorded in the financial statements. Permanent placement revenue was $ 1.8 million for the fiscal year ended January 1, 2022 and $ 1.5 million for the fiscal year ended January 2, 2021.   The deferred revenue balance as of January 1, 2022 and January 2, 2021 was $ 3.4 million and $ 0.4 million, respectively. These amounts are included in accounts payable and accrued expense in the accompanying consolidated balance sheets at that date.  Revenue is recognized when the service has been performed.  Deferred revenue may be recognized over a period exceeding one year from the time it was recorded on the balance sheet, although this is an infrequent occurrence.  In each of the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021, the Company recognized revenue of $ 0.4 million that was included in deferred revenue at the beginning of the period.     F- 12     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)   Revenue Recognition (Continued)   Transit Receivables and Transit Payables 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 $ 1.0 million and related transit accounts payable was $ 2.1 million, for a net payable of $ 1.1 million, as of January 1, 2022. The transit accounts receivable was $ 2.5 million and related transit accounts payable was $ 4.9 million, for a net payable of $ 2.4 million, as of January 2, 2021.   Concentration   During the fiscal year ended January 1, 2022, no client accounted for 10% or more of total revenues.  As of January 1, 2022, the following clients represented more than 10.0% of the Company’s accounts receivable, net: Ginkgo Bioworks was 15.3% and Hawaii Department of Education was 14.2%.   No other customer accounted for 10% or more of the Company’s accounts receivable, net. The Company’s five , ten and twenty largest customers accounted for approximately 35.8 %, 52.5 % and 65.1%, respectively, of the Company’s revenues for the fiscal year ended January 1, 2022.   During the fiscal year ended January 2, 2021, New York City Board of Education represented 10.6 % of the Company’s revenues.  No other client accounted for 10% or more of total revenues during the year.  As of January 2, 2021, the following clients represented more than 10.0% of the Company’s accounts receivable, net: New York City Board of Education was 11.8 % and Hawaii Department of Education was 10.6%.   No other customer accounted for 10% or more of the Company’s accounts receivable, net. The Company’s five , ten and twenty largest customers accounted for approximately 33.4%, 46.6 % and 60.7%, respectively, of the Company’s revenues for the fiscal year ended January 2, 2021.     F- 13     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)   Foreign Currency Translation   The functional currency of the Company’s Canadian and Serbian subsidiaries is the local currency. Assets and liabilities are translated at period-end exchange rates.  Income and expense items are translated at weighted average rates of exchange prevailing during the year.  Any translation adjustments are included in the accumulated other comprehensive income account in stockholders’ equity.  Transactions executed in different currencies resulting in exchange adjustments are translated at spot rates and resulting foreign exchange transaction gains and losses are included in the results of operations.   Comprehensive Income   Comprehensive income consists of net income and foreign currency translation adjustments.   Per Share Data   Basic net income per share is calculated using the weighted-average number of common shares outstanding during the period.  Diluted net income per share is calculated using the weighted-average number of common shares plus dilutive potential common shares outstanding during the period.  Potential dilutive common shares consist of stock options and other stock-based awards under the Company’s stock compensation plans, when their impact is dilutive.  Because of the Company’s capital structure, all reported earnings pertain to common shareholders and no other adjustments are necessary.    Share - Based Compensation   The Company recognizes share-based compensation over the vesting period of an award based on fair value at the grant date determined using the Black-Scholes option pricing model.  Certain assumptions are used to determine the fair value of stock-based payment awards on the date of grant and require subjective judgment.  Because employee stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, the existing models may not provide a reliable single measure of the fair value of the employee stock options.  Management assesses the assumptions and methodologies used to calculate estimated fair value of stock-based compensation when share-based awards are granted.  Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies and thereby materially impact our fair value determination.  If an employee leaves the firm before the vesting period has been met, those shares are forfeited and removed from the share – based compensation expense calculation. See Note 11 for additional share-based compensation information.   Restricted share awards are recognized at their fair value.  The amount of compensation cost is measured on the grant date fair value of the equity instrument issued.  The compensation cost of the restricted share awards is recognized over the vesting period of the restricted share awards on a straight-line basis.  Restricted share awards typically include dividend accrual equivalents, which means that any dividends paid by the Company during the vesting period become due and payable after the vesting period assuming the grantee’s restricted stock unit fully vests.  Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying consolidated balance sheet.  Dividends for restricted share awards that ultimately do not vest are forfeited.     F- 14     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)   Advertising Costs   Advertising costs are expensed as incurred.  Total advertising expense was $ 914 and $ 800 for the fiscal years ended January 1, 2022 and January 2, 2021, respectively.   Fair Value Measurements   The Company values its financial assets and liabilities based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  In order to increase consistency and comparability in fair value measurements, a fair value hierarchy was established that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:   Level 1:   Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.  The fair value hierarchy gives the highest priority to Level 1 inputs.   Level 2:   Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data.   Level 3:   Unobservable inputs are used when little or no market data is available.  The fair value hierarchy gives the lowest priority to Level 3 inputs.   In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.   Reclassification   Certain prior year amounts have been reclassified to conform with the current year presentation.  These classifications had no effect on the previously reported results of operations.     2. FISCAL YEAR   The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31.  The fiscal year ended January 1, 2022 ( fiscal 2021 ) was a 52 -week reporting year.  The fiscal year ended January 2, 2021 ( fiscal 2020 ) was a 53 -week reporting year.     F- 15     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)     3. 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 estimates are based upon various factors including current and historical trends, as well as other pertinent industry and regulatory authority information, including the potential future effects of COVID- 19. Management regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes.   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, 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.   The Company re-measures the fair value of the contingent consideration at each reporting period and any change in the fair value from either the passage of time or events occurring after the acquisition date, is recorded in earnings in the accompanying consolidated statement of operations.       F- 16     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars 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:       January 1, 2022     January 2, 2021   Billed   $ 37,396     $ 25,926   Accrued and unbilled     10,231       8,219   Work-in-progress     1,810       3,612   Allowance for sales discounts and doubtful accounts     ( 1,197 )     ( 1,750 )                   Accounts receivable, net   $ 48,240     $ 36,007     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.   5.      PROPERTY AND EQUIPMENT   Property and equipment are comprised of the following:       January 1, 2022     January 2, 2021   Computers and systems   $ 4,133     $ 4,686   Equipment and furniture     86       264   Leasehold improvements     159       236         4,378       5,185                     Less: accumulated depreciation and amortization     2,439       3,107                     Property and equipment, net   $ 1,939     $ 2,078     The Company periodically writes off fully depreciated and amortized assets.  The Company wrote off fully depreciated and amortized assets of $ 1,671 and $ 1,529 during the fiscal years ended January 1, 2022 and January 2, 2021, respectively.  In addition, $ 713 of assets not fully depreciated were included in the sale of the Canadian Power Systems business.  For the fiscal years ended January 1, 2022 and January 2, 2021, depreciation and amortization expense for property and equipment was $ 1,007 and $ 1,065 , respectively.     F- 17     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   6.      ACQUISITIONS   The purchase method of accounting in accordance with FASB ASC 805, “Business Combination,” was applied for all acquisitions.  This requires the cost of an acquisition to be allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition with the excess cost accounted for as goodwill.  Goodwill arising from the acquisitions is attributable to expected sales synergies from combining the operations of the acquired business with those of the Company.   Future Contingent Payments As of January 1, 2022, 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 January 1, 2022 as follows:   Fiscal Year Ending   Total   December 31, 2022   $ 103   December 30, 2023     600   Estimated future contingent consideration payments   $ 703     Estimates of future contingent payments are subject to significant judgment and actual payments may materially differ from estimates. In the fourth quarter of 2021, the Company remeasured the value of its contingent consideration. The primary driver for remeasuring the contingent consideration was the performance by Thermal Kinetics Engineering (“TKE”) acquired by RCM in 2018.   TKE had very high yearly EBIT targets to achieve earn-out consideration.  TKE performed quite well but two factors contributed to TKE not hitting its targets.  The first was the COVID- 19 pandemic which overlapped earn-out years 2 and 3.   TKE had numerous projects in its pipeline that were delayed or eliminated by prospective clients.   The second factor relates to a specific client in earn-out year 2.   This client experienced some problems with the product output, TKE agreed to fix the equipment to keep a valued client happy, thus the additional cost caused TKE to miss its earn-out target.  Based on these factors, the Company decided to amend its asset purchase agreement with TKE to a total of $ 0.7 million. Potential future contingent payments to be made to all active acquisitions after January 1, 2022 are capped at a cumulative maximum of $0.7 million.  The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of January 1, 2022.  Contingent consideration related to acquisitions is recorded at fair value (level 3 ) with changes in fair value recorded in other (expense) income, net.     F- 18     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   6.      ACQUISITIONS (CONTINUED)   For acquisitions that involve contingent consideration, the Company records a liability equal to the fair value of the estimated contingent consideration obligation as of the acquisition date. The Company determines the acquisition date fair value of the contingent consideration based on the likelihood of paying the additional consideration. The fair value is estimated using projected future operating results and the corresponding future earn-out payments that can be earned upon the achievement of specified operating objectives and financial results by acquired companies using Level 3 inputs and the amounts are then discounted to present value. These liabilities are measured quarterly at fair value, and any change in the fair value of the contingent consideration liability is recognized in the consolidated statements of operations. During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the consolidated statements of operations.   In the fourth quarter of 2021, the Company remeasured the value of its contingent consideration. The primary driver for remeasuring the contingent consideration was the performance by Thermal Kinetics Engineering (“TKE”) acquired by RCM in 2018.   This remeasurement lead to a $1.7M reduction to the contingent consideration liability.  TKE had very high yearly EBIT targets to achieve earn-out consideration.  TKE performed quite well but two factors contributed to TKE not hitting its targets.  The first was the COVID- 19 pandemic which overlapped earn-out years 2 and 3.   TKE had numerous projects in its pipeline that were delayed or eliminated by prospective clients.   The second factor relates to a specific client in earn-out year 2.   This client experienced some problems with the product output, TKE agreed to fix the equipment to keep a valued client happy, thus the additional cost caused TKE to miss its earn-out target.  Based on these factors, the Company decided to amend its asset purchase agreement with TKE.   The Company paid contingent consideration of $ 0.5 million and $ 0.3 million during the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021, respectively.    The changes in the liability for contingent consideration from acquisitions for the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021 are as follows:   Balance as of December 28, 2019   $ 3,058                Contingent payments made     ( 345 )    Changes in fair value of contingent payments     145             Balance as of January 2, 2021   $ 2,858                Contingent payments made     ( 494 )    Changes in fair value of contingent consideration     52      Remeasurement of contingent consideration     ( 1,713 )           Balance as of January 1, 2022   $ 703         F- 19     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   6.      ACQUISITIONS (CONTINUED)   Sale of Assets On July 30, 2021, the Company sold the principal assets and certain liabilities of its Pickering and Kincardine offices, located in Ontario, Canada. These two offices were often referred to as Canada Power Systems and principally provided engineering services to two major nuclear power providers in Canada. The two Canada Power Systems offices were part of a reporting unit within the Company’s Engineering segment. The Company will continue to offer other engineering services in Canada and similar services in the United States.  The Company evaluated this transaction under ASC 205 - 20, discontinued operations and determined it did not meet the requirements to be treated as such.  For the fifty-two week period ended January 1, 2022 and fifty-three week period ended January 2, 2021, these two offices generated revenue of $ 4.9 million and $ 11.8 million, respectively.  The Company recorded a gain on the sale of these net assets of $ 2.4 million.  The purchase agreement provides for a typical indemnity escrow held by an independent escrow agent in the amount of $ 0.8 million. The escrow has not been recognized in the Company’s financial statements, as the Company does not control the escrow. Provided there are no asserted indemnity claims, the Company expects to receive the $ 0.8 million about 18 months from the purchase date.   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.  During the fifty-two week period ended January 1, 2022, the Company reviewed the carrying value of goodwill due to the events and circumstances surrounding the COVID- 19 pandemic.  While COVID- 19 has negatively impacted the Company and may continue to negatively impact the Company in the future, the Company did not conclude in such review that this negative impact is permanent.  The Company reviewed industry and market conditions, reporting unit specific events as well as overall financial performance and determined that no indicators of impairment of goodwill existed during the fifty-two week period ended January 1, 2022 and fifty-three week period ended January 2, 2021.  As such, no impairment loss on the Company’s goodwill during the fifty-two week period ended January 1, 2022 or the fifty-three week period ended January 2, 2021 was recorded as a result of such review.    The changes in the carrying amount of goodwill for the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021 are as follows:       Engineering     Specialty Health Care     Information Technology     Total   Balance as of December 28, 2019   $ 11,918     $ 2,398     $ 2,038     $ 16,354                                        No change in fiscal 2020     -       -       -       -                                     Balance as of January 2, 2021   $ 11,918     $ 2,398     $ 2,038     $ 16,354                                        No change in fiscal 2021     -       -       -       -                                     Balance as of January 1, 2022   $ 11,918     $ 2,398     $ 2,038     $ 16,354           F- 20     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars 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 the fifty-two week period ended January 1, 2022, the Company reviewed the carrying value of its intangible assets due to the events and circumstances surrounding the COVID- 19 pandemic. While COVID- 19 has negatively impacted the Company and may continue to negatively impact the Company in the future, the Company did not conclude in such review that this negative impact is permanent. As such, no impairment loss on the Company’s intangible assets during the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021 was recorded as a result of such review.   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.   Details of intangible assets by class at January 1, 2022 and January 2, 2021:       January 1, 2022     January 2, 2021   Restricted covenants   $ -     $ 12   Customer relationships     -       83                     Total intangible assets   $ -     $ 95     Amortization of acquired intangible assets for the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021 was $ 95 and $ 321 , respectively. The remaining intangible asset balance will be amortized during fiscal 2021.     F- 21     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   9.      LINE OF CREDIT   The Company and its subsidiaries amended and restated its Revolving Credit Facility with Citizens Bank of Pennsylvania on October 18, 2019.  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.   On September 29, 2020, the Company entered into an amendment to its Revolving Credit Facility. The amendment (i) modifies certain aspects of the financial covenants under the Loan Agreement, including the manner in which the measurement periods for certain components of the financial covenants are determined, (ii) modifies the required compliance levels for certain ratios under the Loan Agreement, and (iii) permitted the repayment of $ 2.2 million of indebtedness to a third party incurred in connection with the previously disclosed June 2020 repurchase of stock.   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.  At the option of Citizens Bank, LIBOR can be replaced with SOFR (Secured Overnight Financing Rate). The LIBOR alternative is being phased out in 2022.   Citizens Bank has not indicated when this switch will occur, but in any event, the Company does not believe there will be any material impact on its borrowing rate. 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 fifty-two week period ended January 1, 2022 and fifty-three week period ended January 2, 2021 were 2.0 % and 2.7 %, 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.  As of January 1, 2022, the Company was in compliance with all covenants contained in the Revolving Credit Facility (as amended).  The Company believes that it will maintain compliance with its financial covenants for the foreseeable future.      Borrowings under the line of credit as of January 1, 2022 and January 2, 2021 were $ 14.2 million and $ 11.9 million, respectively.  At both January 1, 2022 and January 2, 2021, there were letters of credit outstanding for $ 1.9 million. At January 1, 2022, the Company had availability for additional borrowings under the Revolving Credit Facility of $ 28.9 million.   Impact to Line of Credit from COVID- 19   The Company is negatively impacted by COVID- 19 as more fully described in Footnote 19 as well as the Segment Discussion, and Liquidity and Capital Resources sections in Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company believes that its current line of credit is adequate to provide the necessary liquidity while COVID- 19 impacts its operations.  While the Company does expect to be in compliance with its financial covenants in the line of credit for the foreseeable future, the Company can give no assurance that the line of credit will be available to the Company.     F- 22     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   10.   PER SHARE DATA   The Company uses the treasury stock method to calculate the weighted-average shares outstanding used for diluted earnings per share.  The number of weighted-average shares used to calculate basic and diluted earnings per share for the fiscal years ended January 1, 2022 and January 2, 2021 was determined as follows:       Fiscal Years Ended       January 1, 2022     January 2, 2021   Basic weighted average shares outstanding     11,035,361       12,152,042   Dilutive effect of outstanding restricted share awards     589,740       -                     Weighted average dilutive shares outstanding     11,625,101       12,152,042     Because the year ended January 2, 2021 recorded a net loss, the otherwise dilutive effect of 46,873 outstanding restricted share awards has not been included in the weighted average diluted shares outstanding.  For the years ended January 1, 2022 and January 2, 2021, there were no anti-dilutive shares included in the calculation of common stock equivalents.   Unissued shares of common stock were reserved for the following purposes:       January 1, 2022     January 2, 2021   Time-based restricted stock awards outstanding     420,628       459,805   Unvested subscription restricted share awards     -       250,000   Performance-based restricted stock awards outstanding     125,000       -   Future grants of options or shares     107,924       520,929   Shares reserved for employee stock purchase plan     448,110       149,894                     Total     1,101,662       1,380,628       F- 23     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   11.   SHARE BASED COMPENSATION   At January 1, 2022, 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 typically vest over periods ranging from one to three years and expire within 10 years of issuance.  The Company may also issue immediately vested equity awards.  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 or forfeited.    Share-based compensation expense of $ 1,358 and $ 1,108 was recognized for the fiscal years ended January 1, 2022 and January 2, 2021, respectively.  Fiscal year ended January 2, 2021 did not include any expense associated with performance-based awards.  As of January 1, 2022, there were 125,000 performance-based restricted stock units outstanding.   As of January 1, 2022, the Company had $ 0.7 million of total unrecognized compensation cost related to all time-based non-vested share-based awards outstanding. The Company expects to recognize this expense over approximately two years.  These amounts do not include a) the cost of any additional share-based awards granted in future periods or b) the impact of any potential changes in the Company’s forfeiture rate.    2014 Omnibus Equity Compensation Plan (the 2014 Plan)   The 2014 Plan, approved by the Company’s shareholders in December 2014, initially provided 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 and fiscal 2020, 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 and 850,000 shares, respectively, so that the total number of shares of stock reserved for issuance under the Plan is 1,975,000 shares.  The expiration date of the Plan is December 17, 2030, unless the 2014 Plan is terminated earlier by the Board or is extended by the Board with the approval of the stockholders.  The Compensation Committee of the Board of Directors determines the vesting period at the time of grant.    As of January 1, 2022, under the 2014 Plan, 420,628 time-based shares were outstanding, there were 125,000 performance-based restricted stock units outstanding and 107,924 shares were available for awards thereunder.   The market value of equity grants for the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021 was $ 2.9 million and $ 1.5 million respectively.  These amounts are based on the equity price on the last trading day in the period presented.     F- 24     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   11.   SHARE BASED COMPENSATION (CONTINUED)   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, subject to maximum purchases in any one fiscal year of 3,000 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. During the fiscal years ended January 1, 2022 and January 2, 2021, there were 101,784 and 117,983 shares issued under the Purchase Plan for net proceeds of $ 137 and $ 208 , respectively.  As of January 1, 2022, there were 448,110 shares available for issuance under the Purchase Plan.  Compensation expense, representing the discount to the quoted market price, for the Purchase Plan for the fiscal years ended January 1, 2022 and January 2, 2021 was $ 134 and $ 44 , respectively.   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.   On October 20, 2021, the Company’s Board of Directors approved amendments to the Purchase Plan, subject to the approval of the Company’s shareholders, to increase by an additional 400,000 the total number of shares of stock reserved for issuance or transfer under the Purchase Plan, and to extend the termination date of the Purchase Plan to December 31, 2030.   Time-Based Restricted Stock Awards / Stock Subscription Receivable   From time-to-time the Company issues time-based restricted stock awards.  These time-based restricted stock awards 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 award fully vests.  Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheet.  As of January 1, 2022, there were no accrued dividends.  Dividends for time-based restricted stock awards that ultimately do not vest are forfeited.        F- 25     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   11.   SHARE BASED COMPENSATION (CONTINUED)   Time-Based Restricted Stock Awards / Stock Subscription Receivable (Continued)   The following summarizes the activity in the time-based restricted stock awards under the 2014 Plan during the fifty-two week period ended January 1, 2022:       Number of Time-Based Restricted Stock Awards     Weighted Average Grant Date Fair Value per Share   Outstanding non-vested at January 2, 2021     709,805     $ 1.92   Granted     163,005     $ 3.81   Vested     ( 452,182 )   $ 1.89   Forfeited or expired     -       -   Outstanding non-vested at January 1, 2022     420,628     $ 2.69     Based on the closing price of the Company’s common stock of $ 7.12 per share on December 31, 2021 ( the last trading day prior to January 1, 2022), the intrinsic value of the time-based non-vested restricted stock units at January 1, 2022 was approximately $ 3.0 million.  As of January 1, 2022, there was approximately $ 0.7 million of total unrecognized compensation cost related to time-based restricted stock units, which is expected to be recognized over the average weighted remaining vesting period of the restricted stock units through fiscal 2024.   In December 2020, the Company granted members of senior management one -time restricted stock awards of an aggregate of 250,000 shares in exchange for a stock subscription receivable. The shares were acquired by senior management through repayment of the stock subscription receivable from equal biweekly salary reductions over twelve months beginning in January 2021 and ending in December 2021.    During the fifty-two week period ended January 1, 2022, the Company awarded 125,000 immediately vested share awards at an average price of $2.17.   During fiscal 2020, the Company awarded 100,092 immediately vested share awards at an average price of $ 1.33 .   Performance-Based Restricted Stock Awards   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 awards 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 condensed consolidated balance sheet.  As of January 1, 2022, there were no accrued dividends for performance-based restricted stock units.  Dividends for performance-based restricted stock units that ultimately do not vest are forfeited.         F- 26     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   11.   SHARE BASED COMPENSATION (CONTINUED)   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 fifty-two week period ended January 1, 2022:       Number of Performance-Based Restricted Stock Awards     Weighted Average Grant Date Fair Value per Share   Outstanding non-vested at January 2, 2021     -       -   Granted     125,000     $ 3.26   Vested     -       -   Forfeited or expired     -       -   Outstanding non-vested at January 1, 2022     125,000     $ 3.26     As of January 1, 2022, there were 125,000 performance-based restricted stock units outstanding. The Company assesses at each reporting date whether achievement of any performance condition is probable and recognizes the expense 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 performance-based restricted stock awards deemed as likely to vest are deemed as unlikely to vest, the expense recognized will be reversed.    The Company has estimated as of January 1, 2022 that the 125,000 performance-based stock units will be earned in fiscal 2021. The total expense recorded for the 125,000 performance-based stock units earned is $271.       Number of Restricted Stock Awards     Weighted Average Grant Date Fair Value per Share   Outstanding non-vested at December 28, 2019     391,725     $ 4.36   Granted – time-based vesting     719,805     $ 1.88   Granted – performance-based vesting     -       -   Vested     ( 179,225 )   $ 3.78   Forfeited or expired     ( 222,500 )   $ 4.55   Outstanding non-vested at January 2, 2021     709,805     $ 1.92   Granted – time-based vesting     163,005     $ 3.81   Granted – performance-based vesting     125,000     $ 3.26   Vested     ( 452,182 )   $ 1.89   Forfeited or expired     -       -   Outstanding non-vested at January 1, 2022     545,628     $ 2.82     Based on the closing price of the Company’s common stock of $ 7.12 per share on December 31, 2021, the intrinsic value of all outstanding unvested equity awards at January 1, 2022 was $ 3.9 million.      F- 27     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   12.   TREASURY STOCK TRANSACTIONS   On January 13, 2021, the Company’s Board of Directors authorized a program to repurchase shares of the Company’s common stock constituting, in the aggregate, up to an amount not to exceed $ 7.5 million.  All of these repurchases are conducted under the safe harbor from liability under certain market manipulation rules provided by Rule 10b - 18 under the Securities Exchange act of 1934, as amended. On November 12, 2021, the Company’s Board of Directors further increased the total amount available to repurchase shares up to an amount not to exceed $ 19.1 million (including the initial $7.5 million authorized), consistent with the maximum limitation set forth by the Company’s revolving line of credit. The program is designed to provide the Company with enhanced flexibility over the long term to optimize its capital structure. Shares of the common stock may be repurchased in the open market or through negotiated transactions. The program may be terminated or suspended at any time at the discretion of the Company.    During the fifty-two week period ended January 1, 2022, the Company purchased 1,930,911 shares at an average price of $ 4.68 per share.  As of January 1, 2022, the Company has $ 10.1 million available for future treasury stock purchases.   On June 2, 2020, the Company entered into a stock purchase agreement with certain stockholders of the Company, whereby the Company purchased an aggregate of 1,858,139 shares of the Company’s common stock for a negotiated purchase price of $ 1.20 per share or $ 2.2 million in total. The negotiated price of $1.20 per share was less than the lowest trading price of the stock on the day of the repurchase.  The consideration paid by the Company consisted entirely of an unsecured subordinated promissory note for $ 2.2 million. The note accrued interest at an annual rate of 9.0 %, compounded annually, payable quarterly in arrears commencing on September 1, 2020 and continuing on each December 1, March 1, June 1 and September 1 thereafter, and initially had a maturity date of August 10, 2023 . On September 25, 2020, the Company repaid the subordinated promissory note in the amount of $ 2.2 million.  The shares repurchased on June 2, 2020 were not purchased under a stock repurchase plan.   13.   NEW ACCOUNTING STANDARDS   In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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.  In February 2020, the FASB issued ASU 2020 - 02, Financial Instruments-Credit Losses (Topic 326 ) and Leases (Topic 842 ) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016 - 02, Leases (Topic 842 ),  which amends the effective date of the original pronouncement for smaller reporting companies.  ASU 2016 - 13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements.   In March 2020, the FASB issued ASU No. 2020 - 04, Reference Rate Reform (Topic 848 ): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard only applies to contracts and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due to reference rate reform. This guidance provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the LIBOR and other interbank offered rates to alternative reference rates. The Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.     F- 28     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   14.   SEGMENT INFORMATION   The Company follows ASC280, “Segment Reporting,” 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).   Segment operating income (loss) 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:   Fiscal Year Ended January 1, 2022   Engineering     Specialty Health Care     Information Technology     Corporate     Total                                             Revenue   $ 66,172     $ 98,495     $ 39,208     $ -     $ 203,875                                             Cost of services     50,109       73,177       27,465       -       150,751                                             Gross profit     16,063       25,318       11,743       -       53,124                                             Selling, general and administrative     14,210       19,490       8,319       -       42,019                                             Depreciation and amortization of    property and equipment     521       373       113       -       1,007                                             Amortization of acquired intangible assets     95       -       -       -       95                                             Remeasurement of acquisition-related    contingent consideration     ( 1,713 )     -       -       -       ( 1,713 )                                           Gain on sale of assets     ( 2,420 )     -       -       -       ( 2,420 )                                           Operating income (loss)   $ 5,370     $ 5,455     $ 3,331     $ -     $ 14,136                                             Total assets as of January 1, 2022   $ 28,343     $ 32,809     $ 8,676     $ 3,024     $ 72,852   Capital expenditures   $ 481     $ 563     $ 173     $ 359     $ 1,576       F- 29     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   14.   SEGMENT INFORMATION (CONTINUED)   Fiscal Year Ended January 2, 2021   Engineering     Specialty Health Care     Information Technology     Corporate     Total                                             Revenue   $ 57,715     $ 60,481     $ 32,213     $ -     $ 150,409                                             Cost of services     41,227       47,116       23,211       -       111,554                                             Gross profit     16,488       13,365       9,002       -       38,855                                             Selling, general and administrative     13,021       15,601       9,169       -       37,791                                             Depreciation and amortization of    property and equipment     638       319       108       -       1,065                                             Amortization of acquired intangible assets     321       -       -       -       321                                             Write-off of receivables and    professional fees incurred    related to arbitration     8,397       -       -       -       8,397                                             Impairment of right of use assets and    related costs     -       -       -       2,231       2,231                                             Operating income (loss)   $ ( 5,889 )   $ ( 2,555 )   $ ( 275 )   $ ( 2,231 )   $ ( 10,950 )                                           Total assets as of January 2, 2021   $ 33,782     $ 19,141     $ 7,498     $ 7,918     $ 68,339   Capital expenditures   $ 26     $ 36     $ 48     $ 350     $ 460     The Company derives a majority of its revenue from offices in the United States. Revenues reported for each operating segment are all from external customers.  The Company is domiciled in the United States and its segments operate in the United States, Canada, Puerto Rico and Serbia. Revenues by geographic area for the fiscal years ended January 1, 2022 and January 2, 2021 are as follows:          Fiscal Year Ended       January 1,     January 2,       2022     2021   Revenues                    United States   $ 186,169     $ 126,238      Canada     9,578       15,310      Puerto Rico     5,237       5,702      Serbia     2,891       3,159       $ 203,875     $ 150,409       F- 30     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   14.   SEGMENT INFORMATION (CONTINUED)   Total assets by geographic area as of the reported periods are as follows:       Fiscal Year Ended       January 1,     January 2,       2022     2021   Total Assets                    United States   $ 67,296     $ 56,308      Canada     1,327       7,067      Puerto Rico     963       1,483      Serbia     3,266       3,481       $ 72,852     $ 68,339     15.   INCOME TAXES   Generally, the Company’s relative income or loss generated in each of its jurisdictions can materially impact the consolidated effective income tax rate of the Company, particularly the ratio of Canadian and Serbian pretax income, versus United States pretax income.  The consolidated effective income tax rate for fiscal 2021 was 21.0 % as compared to 26.4 % for the comparable prior year period.  The Company’s United States Federal statutory tax rate for the fifty-two week period ended January 1, 2022 and the comparable prior year period, before any adjustments, was 21.0 % .   The income tax provisions reconciled to the tax computed at the United States Federal statutory rate for both fiscal 2021 and 2020 are as follows:       January 1, 2022     January 2, 2021   Federal statutory rate     21.0 %     21.0 % Tax expense on taxable (loss)    income at federal statutory rate   $ 2,922     $ ( 2,532 ) State and Puerto Rico income taxes,    net of Federal income tax benefit     519       ( 535 ) Permanent differences domestic     ( 114 )     154   Permanent differences foreign     ( 657 )     -   Remeasurement of contingent consideration     ( 359 )     -   Intangible asset deferred tax liability true-up     491       -   Foreign income tax rates     89       ( 21 ) Adjustments to prior year federal taxes     46       ( 53 ) Other     ( 12 )     ( 201 ) Total income tax expense   $ 2,925     $ ( 3,188 )     F- 31     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   15.   INCOME TAXES (CONTINUED)   The components of income tax expense are as follows:       Fiscal Years Ended       January 1, 2022     January 2, 2021   Current                    Federal   $ 47     $ ( 32 )    State and local     45       174      Foreign     292       382         384       524                     Deferred                    Federal     2,152       ( 2,844 )    State     612       ( 851 )    Foreign     ( 223 )     ( 17 )       2,541       ( 3,755 ) Total   $ 2,925     $ ( 3,188 )   The components of earnings before income taxes by United States and foreign jurisdictions were as follows:       Fiscal Years Ended       January 1, 2022     January 2, 2021   United States   $ 10,880     $ ( 13,898 ) Foreign jurisdictions     3,034       1,841       $ 13,914     $ ( 12,057 )   A reconciliation of the unrecognized tax benefits for the year January 1, 2022:   Unrecognized Tax Benefits         Balance as of December 28, 2019           Gross increases: tax positions in prior period   $ -     Gross increases: tax positions in current period   $ -   Balance as of January 2, 2021   $ -     Gross increases: tax positions in prior period   $ -     Gross increases: tax positions in current period   $ 1,196             Balance as of January 1, 2022   $ 1,196     The total amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits will not change during the next 12  months. However, changes in the occurrence, expected outcomes and timing of those events could cause the Company’s current estimate to change materially in the future.     F- 32     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   15.   INCOME TAXES (CONTINUED)   The Company accounts for penalties or interest related to uncertain tax positions as part of its provision for income taxes and records such amounts to interest expense.  The Company recorded no expense for penalties or interest in the fiscal years ended January 1, 2022 and January 2, 2021.   At January 1, 2022 and January 2, 2021, deferred tax assets and liabilities consist of the following:       January 1, 2022     January 2, 2021   Deferred tax assets:                 Allowance for doubtful accounts   $ 297     $ 455   Federal and state net operating loss carryforward     1,153       2,634   Reserves and accruals     800       881   Lease liability     844       1,174   Other     314       318   Total deferred tax assets     3,408       5,462                     Deferred tax liabilities:                 Acquisition amortization, net     ( 1,428 )     ( 716 ) Prepaid expense deferral     ( 552 )     ( 602 ) Bonus depreciation to be reversed     ( 392 )     ( 280 ) Right of use assets     ( 501 )     ( 564 ) Canada deferred tax liability, net     ( 142 )     ( 365 ) Total deferred tax liabilities     ( 3,015 )     ( 2,527 ) Total deferred tax assets (liabilities), net   $ 393     $ 2,935     The Company has gross net operating losses of $ 2.9 million and $ 8.6 million to be applied to the net income of future federal and state tax returns, respectively. The principal amount of the federal net operating loss has an unlimited life. The Company conducts business in many states. Net operating losses in these states expire at differing periods but the majority of these expire from 2038 through 2040.   The Company conducts its operations in multiple tax jurisdictions in the United States, Canada, Puerto Rico and Serbia. The Company and its subsidiaries file a consolidated United States Federal income tax return and file in various states. The Company’s federal income tax returns have been examined through 2017. The Company has no open federal audits as of January 1, 2022. The Company is no longer subject to audits by state and local tax authorities for tax years prior to 2018. The Company is no longer subject to audit in Canada for the tax years prior to tax year 2017.   The Company is no longer subject to audit in Puerto Rico for the tax years prior to tax year 2011.   The Company has no open state audits as of January 1, 2022.   Differences between the effective tax rate and the applicable U.S. federal statutory rate may arise, primarily from the effect of state and local income taxes, share-based compensation, and potential tax credits available to the Company.     F- 33     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars 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 ordinary business course.  These matters may relate to professional liability, tax, compensation, contract, competitor disputes, and employee-related matters and include individual and class action lawsuits, as well as inquiries and investigations by governmental agencies regarding the Company’s employment and compensation practices. Additionally, some of the Company’s clients may also become subject to claims, governmental inquiries and investigations, and legal actions relating to the Company’s professional services. Depending upon the particular facts and circumstances, the Company may also be subject to indemnification obligations under its contracts with such clients relating to these matters.   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.  The Company records a liability when management believes an adverse outcome from a loss contingency is both probable and the amount, or a range, can be reasonably estimated. From time to time, the Company must estimate the potential loss even though the party adverse to the Company has not asserted any specific amounts.  Significant judgment is required to determine both probability of loss and the estimated amount. The Company reviews its loss contingencies at least quarterly and adjusts its accruals and/or disclosures to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, or other new information, as deemed necessary. 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.    The Company is exposed to various asserted claims as of January 1, 2022, where the Company believes it has a probability of loss. Additionally, the Company is exposed to other asserted claims whereby an amount of loss has not been declared, and the Company cannot determine the potential loss. Any of these various claims could result in an unfavorable outcome or settlement that exceeds the accrued amounts. However, the Company believes that such matters will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows. As of January 1, 2022, the Company has accrued $ 2.9 million for asserted claims.  Included in the January 1, 2022 accrual of $2.9 million, the Company has reserved $ 1.6 million for the settlement of a class-action suit in California that alleges the Company did not properly pay its travel nurses overtime wages. While the Company believes it did not violate any overtime wage laws, it decided to settle this class action lawsuit in December 2020.  The Company paid the $ 1.6 million settlement in early January 2022.     F- 34     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   17.   RETIREMENT PLANS   Profit Sharing Plans   The Company maintains a 401 (k) profit sharing plan for the benefit of eligible employees in the United States and other similar plans in Canada, Puerto Rico and Serbia (the “Retirement Plans”).  The 401 (k) plan includes a cash or deferred arrangement pursuant to Section 401 (k) of the Internal Revenue Code sponsored by the Company to provide eligible employees an opportunity to defer compensation and have such deferred amounts contributed to the 401 (k) plan on a pre-tax basis, subject to certain limitations.  The Company, at the discretion of the Board of Directors, may make contributions of cash to match deferrals of compensation by participants in the Retirement Plans.  Contributions to the Retirement Plans charged to operations by the Company for the fiscal years ended January 1, 2022 and January 2, 2021 were $ 721 and $ 217 , respectively.   18.   COMMITMENTS   Executive Severance Agreements   The Company is a party to Executive Severance Agreement (the “Executive Severance Agreement”) each of Bradley S. Vizi, the Company's Executive Chairman and President (dated as of June 1, 2018), and Kevin Miller, the Company’s Chief Financial Officer (dated as of February 28, 2014, as amended), which set forth the terms and conditions of certain payments to be made by the Company to the executive in the event, while employed by the Company, such executive experiences (a) a termination of employment unrelated to a “Change in Control” (as defined therein) or (b) there occurs a Change in Control and either (i) the executive’s employment is terminated for a reason related to the Change in Control or (ii) in the case of Mr. Miller, the executive remains continuously employed with the Company for a period of three months following the Change in Control. Each Executive Severance Agreement also provide for certain payments, if either (a) the executive is involuntarily terminated by the Company for any reason other than “Cause” (as defined therein), “Disability” (as defined therein) or death, or (b) the executive resigns for “Good Reason” (as defined therein), and, in each case, the termination is not a “Termination Related to a Change in Control” (as defined therein).   Leases   Leases are recorded in accordance with FASB ASC 842, Leases which requires lessees to recognize a right-of-use (“ROU”) asset and an operating right of use 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.   At January 1, 2021, in connection with the continuing developments from COVID- 19, the Company reduced its leased office space as a result of its employees moving to a remote work environment.  The Company does not believe there is an opportunity to sublet any of the vacant office space due to the current commercial rental marketplace.  This decision and reduction in the use of the office spaces resulted in a right-of-use asset impairment of $ 1.9 million. This loss was determined by identifying the fair value of the impacted right-of-use assets as compared to the carrying value of the assets as of the measurement date, in accordance with Property, Plant and Equipment Topic of the FASB ASC.  The fair value of the right-of-use assets was based on the remaining term of each lease. In addition, the Company wrote off a total of $ 0.3 million in other office lease costs and obsolete equipment.          F- 35     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   18.   COMMITMENTS (CONTINUED)   Leases (Continued)   The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, right of use 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. Right of use 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 the lease commencement date in determining the present value of lease payments . The right of use asset also consists of any lease incentives received. The lease terms used to calculate the right of use 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:       Fifty-Two Week Period Ended January 1, 2022     Fifty-Three Week Period Ended January 2, 2021                     Operating lease cost   $ 1,891     $ 2,524                     Finance lease cost                    Amortization of right of use assets   $ 401     $ 366      Interest on lease liabilities     9       10   Total finance lease cost   $ 410     $ 376     Supplemental Cash Flow information related to leases was as follows:       Fifty-Two Week Period Ended January 1, 2022     Fifty-Three Week Period Ended January 2, 2021                     Cash paid for amounts included in the measurement of lease liabilities                    Operating cash flows from operating leases   $ 1,957     $ 2,589      Operating cash flows from finance leases   $ 9     $ 7      Financing cash flows from finance leases   $ 415     $ 402                     Right of use assets obtained in exchange for lease obligations                    Operating leases   $ 830     $ 1,257      Finance leases   $ 1,002     $ 258       F- 36     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   18.   COMMITMENTS (CONTINUED)   Leases (Continued)   Supplemental Balance Sheet information as of January 1, 2022 related to leases was as follows:       Fifty-Two Week Period Ended January 1, 2022     Fifty-Three Week Period Ended January 2, 2021   Operating leases                    Operating lease right of use assets   $ 1,877     $ 2,409                        Operating right of use liability - current   $ ( 1,502 )   $ ( 1,886 )    Operating right of use liability - non-current     ( 1,631 )     ( 2,641 )    Total operating lease liabilities   $ ( 3,133 )   $ ( 4,527 )                   Finance leases              Property and equipment - (right of use assets)   $ 1,367     $ 1,140      Accumulated depreciation     ( 375 )     ( 746 )    Property and equipment, net   $ 992     $ 394                        Finance lease liability - current   $ ( 437 )   $ ( 247 )    Finance lease liability - non-current     ( 502 )     ( 106 )    Total finance lease liabilities   $ ( 939 )   $ ( 353 )                   Weighted average remaining lease term                    Operating leases   1.80 Years     2.03 Years      Finance leases   2.34 years     1.45 Years                     Weighted average discount rate                    Operating leases     3.32 %     4.06 %    Finance leases     1.15 %     2.63 %     F- 37     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   18.   COMMITMENTS (CONTINUED)   Leases (Continued)   Maturities of lease liabilities are as follows:   Fiscal Year   Operating Leases     Finance Leases   2022   $ 1,579     $ 446   2023     1,097       337   2024     396       168   2025     133       -   Thereafter     50       -                     Total lease payments   $ 3,255     $ 951   Less: imputed interest     ( 122 )     ( 12 ) Total   $ 3,133     $ 939       19.   RELATED PARTY TRANSACTIONS   There have been no related party transactions during the time periods presented.      F- 38     RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended January 1, 2022 and January 2, 2021 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)   20.   STOCKHOLDER RIGHTS PLAN   On May 22, 2020, the Board of Directors of the Company approved a stockholder rights plan (the “Rights Plan”) and declared a dividend distribution to stockholders of record as of the close of business on June 2, 2020 of one preferred stock purchase right (a “Right”) for each outstanding share of Common Stock of the Company. Each Right entitled the holder to purchase from the Company a unit consisting of one one -hundredth of a share (a “Unit”) of a newly-authorized series of junior participating preferred stock of the Company, upon the occurrence of certain events, at a purchase price of $ 5.60 per Unit.   The initial issuance of the Rights as a dividend had no financial accounting or reporting impact. The fair value of the Rights was nominal because the Rights were not exercisable when issued and no value is attributable to them. Additionally, the Rights did not meet the definition of a liability under generally accepted accounting principles in the United States and were therefore not accounted for as a long-term obligation.  Accordingly, the Rights Plan had no impact on the Company’s Consolidated Financial Statements.   The Rights expired in accordance with their terms on May 22, 2021 and the Rights Plan is no longer in effect.   21.   COVID- 19   In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID- 19 ) as a pandemic, which continues to present various health, business and other challenges throughout the United States. As a result, we have temporarily closed or reduced most of our office locations, with most of our workforce working from home, and have seen a reduction in customer demand. The duration and ultimate magnitude of the disruption remains uncertain. Therefore, we experienced a negative impact during fiscal 2020 and fiscal 2021, and this matter may continue to negatively impact our business, results of operations, and financial position throughout fiscal 2022 and possibly beyond, and the related financial impact cannot be reasonably estimated at this time.     F- 39         REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     To the Board of Directors and Stockholders of RCM Technologies, Inc. and Subsidiaries     Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheets of RCM Technologies, Inc. and Subsidiaries (the “Company") as of January 1, 2022 and January 2, 2021, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the years ended January 1, 2022 and January 2, 2021, and the related notes (collectively referred to as the “financial statements”).  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 1, 2022 and January 2, 2021, and the results of its operations and its cash flows for the years ended January 1, 2022 and January 2, 2021, in conformity with accounting principles generally accepted in the United States of America.    Basis for Opinion   These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the Company’s financial statements based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.   Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.    Critical Audit Matters   The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate     F-40     Realizability of deferred tax assets   Description of the Matter   As discussed in Note 15 to the financial statements, the Company had gross deferred tax assets of $3.4 million, of which $1.2 million related to net operating loss carryforwards as of January 1,  2022, and a gross deferred tax liability of $3.0 million. The assessment of the realizability of these deferred tax assets is based on the Company’s evaluation of available evidence to determine whether sufficient future taxable income will be generated to allow for the realization of such deferred tax assets. The Company records a valuation allowance to reduce its deferred tax assets to an amount that is more than 50% likely of being realized.   We identified the evaluation of the realizability of deferred tax assets as a critical audit matter. A high degree of auditor judgment was necessary to assess the evidence used by the Company to evaluate the realizability of deferred tax assets relating to the net operating loss carryforwards. Specifically, assessing the Company’s determination of the reversal of existing taxable temporary differences, cumulative pre-tax losses and the relevance of such losses to forecasted future taxable income required subjective auditor judgment. In addition, specialized skills were required to evaluate the Company’s application of income tax regulations.   How We Addressed the Matter in Our Audit   We evaluated the design and obtained an understanding of certain internal controls related to the Company’s income tax process. This included controls related to the application of income tax regulations and the Company’s consideration of available evidence to determine whether sufficient future taxable income will be generated to allow for the realization of existing deferred tax assets. We involved income tax professionals with specialized skills and knowledge, who assisted in evaluating the Company’s application of income tax regulations used in its realizability analysis. This included evaluating the scheduling of the reversal of existing taxable temporary differences to assess the utilization of net operating loss carryforwards in each tax jurisdiction before their scheduled expiration. We evaluated the Company’s consideration of cumulative pre-tax losses and the net deferred tax position in assessing whether deferred tax assets were more than 50% likely of being realized.     /s/ Macias, Gini & O’Connell LLP     We have served as the Company’s auditor since 2019.      Macias, Gini & O’Connell, LLP San Diego, California Firm ID 324 April 4, 2022     F-41