What changed in this filing

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Item 9A. Controls and Procedures

2025-03-13 compared with 2024-03-14 · 268 added, 594 removed, 1122 unchanged (43% of the section changed)

CONTROLS AND PROCEDURES (CONTINUED)

Planned Material Weakness Remediation Activities

To address these material weaknesses, we have commenced actions to formalize the Company's framework and policies to maintain evidence in the operation of control procedures and improve our IT general controls.

Remaining remediation efforts related to the above-identified material weaknesses include:

Planned fiscal year 2024 upgrade of SAP to achieve the appropriate internal control framework infrastructure;

Expand the available resources at the Company with experience designing and implementing control activities, including information technology general controls, through hiring and use of third-party consultants and specialists;

Assess segregation of duties within the GL and revenue system applications and implement an annual user access review, including role design and process transformation to appropriately mitigate significant risks associated with conflicting responsibilities in financial systems;

Perform additional training to ensure a clear understanding of risk assessment, controls, and monitoring activities related to automated processes, systems, and ITGCs related to financial reporting.

We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.

The implementation of these remediation efforts is in progress, may require additional expenditures to implement, and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, and as a result, the timing of when we will be able to remediate the material weaknesses fully is uncertain.

We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting, which may necessitate further implementation and evaluation time.

Changes in Internal Control Over Financial Reporting

Other than the material weaknesses and remediation efforts described above, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended December 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management ’ s Annual Report on Internal Control over Financial Reporting (Continued)

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 28, 2024, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (the “2013 framework”).

Based on that assessment, management concluded that, as of December 28, 2024, the Company’s internal control over financial reporting was effective based on the criteria established in the 2013 framework.

The Company’s independent registered public accounting firm, Withum Smith+Brown, PC, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 28, 2024.

This report follows.

OTHER INFORMATION

Rule 10b5 - 1 Trading Plans

Pursuant to Item 408 (a) of Regulation S-K, the Company’s directors and officers (as defined in Rule 16a - 1 (f) under the Exchange Act) adopted, terminated, or modified a “Rule 10b5 - 1 trading arrangement” in the fiscal year ended December 30, 2023 as follows:

(a) Form 8 -K Disclosure

On March 12, 2025, the Company and Mr.

Vizi entered into an amendment and restatement of his Executive Severance Agreement dated June 1, 2018, which was filed as an exhibit to the Company’s Current Report on Form 8 -K dated June 7, 2018 ( the "Severance Agreement").

The amended and restated agreement modified:

the amount that Mr.

Vizi would receive if either (a) he is involuntarily terminated by the Company for any reason other than "Cause" (as defined in the Severance Agreement), "Disability" (as defined in the Severance Agreement) or death, or (b) he resigns for "Good Reason" (as defined in the Severance Agreement), and, in each case, the termination is not a "Termination Related to a Change in Control" (as defined in the Severance Agreement).

Vizi will receive, among other amounts, the following severance payments in such event (the changes made by the amendment and restatement are noted):

an amount equal to 2.0 times (modified by the amendment and restatement from 1.5 times) the sum of (a) Mr.

Vizi's annual base salary as in effect immediately prior to the termination date (before taking into account any reduction that constitutes Good Reason) ("Annual Base Salary") and (b) highest annual bonus paid to Mr.

Vizi in any of the five fiscal years immediately preceding Mr.

Vizi's termination date or the amount that would be granted to him for the subsequent year, at target (modified by the amendment and restatement to increase the measurement period from three to five years and to add the subsequent year at target), which for all purposes under the Severance Agreement shall be deemed to include the grant date fair value of any restricted stock units granted subject to time-based or performance-based vesting (modified by the amendment and restatement to add performance-based equity, rather than only time-based) only to time-based vesting ("Bonus"), to be paid in installments over the twelve -month period following Mr.

Vizi's termination date;

the multiplier applicable to the amount that Mr.

Vizi would receive, if a Change in Control occurs and he experiences a qualifying termination, from 2.0 times, as set forth in the original Severance Agreement, to 2.99 times, with the definition of Bonus for the purpose of such calculation modified as described above.

The foregoing description of the amendment and restatement to the Severance Agreement is qualified in its entirety by the full text of the Amended and Restated Executive Severance Agreement, a copy of which is filed herewith as Exhibit 10 (m).

OTHER INFORMATION (CONTINUED)

(b) Rule 10b5 - 1 Trading Plans

As disclosed in the table below, during the three months ended December 28, 2024, certain of the Company’s directors and officers (as defined in Rule 16a - 1 (f) under the Exchange Act) adopted a “Rule 10b5 - 1 trading arrangement” (as defined in Item 408 (a) of Regulation S-K):

Adoption Date

4 unchanged sentences

March 7, 2026

650,000 ( 1 )

President, Health

2 unchanged sentences

December 1, 2024

January 1, 2025

December 31, 2026

___________________

( 1 ) The aggregate number of shares that can be sold under the plan is allocated into a series of tranches that would be sold at laddered prices as outlined in the plan.

Other than as disclosed above, no other officer or director of the Company adopted, terminated , or modified a “Rule 10b5 - 1 trading arrangement” or “non-Rule 10b5 - 1 trading arrangement,” as each term is defined in Item 408 (a) of Regulation S-K.

Other than as disclosed above, no other officer or director of the Company adopted, terminated, or modified a “Rule 10b5 - 1 trading arrangement” or a “non-Rule 10b5 - 1 trading arrangement” (as defined in Item 408 (a) of Regulation S-K).

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

1 unchanged sentence

The information required by Item 10 shall be included in the 2025 Proxy Statement and is incorporated herein by reference.

The Company has a Policy Statement - Insider Trading that governs transactions in our securities by our directors, officers and employees, and promote compliance with the laws and rules applicable thereto.

The Policy Statement – Insider Trading is filed with this Annual Report on Form 10-K as Exhibit 19.

EXECUTIVE COMPENSATION

65 unchanged sentences

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 1, 2022, filed with the Securities and Exchange Commission on March 8, 2018.

incorporated by reference to Exhibit 10(x) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017, filed with the Securities and Exchange Commission on March 8, 2018.

RCM Technologies, Inc.

21 unchanged sentences

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.

Executive Severance Agreement, dated as of June 1, 2018, by and between the Company and Bradley S.

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.

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.

Amended and Restated Executive Severance Agreement, dated as of March 12, 2025, by and between the Company and Bradley S.

(Filed herewith)

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)

Exhibits (Continued)

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.

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.

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.

Fourth Amended and Restated Loan Agreement, dated as of April 24, 2023, by and among the Company and all of its subsidiaries, Citizens Bank, N.A., as lender and as administrative agent and arranger;

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 April 28, 2023.

Fifth Amended and Restated Loan Agreement, dated as of December 3, 2024, by and among the Company and all of its subsidiaries, Citizens Bank, N.A., as lender and as administrative agent and arranger;

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 December 5, 2024.

Policy Statement -- Insider Trading (Filed herewith)

Subsidiaries of the Registrant.

2 unchanged sentences

(Filed herewith)

Consent of Macias, Gini & O’Connell, LLP.

(Filed herewith)

Certifications of Chief Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

11 unchanged sentences

RCM Technologies, Inc.

Compensation Recoupment Policy (Filed herewith)

Compensation Recoupment Policy;

incorporated by reference to Exhibit 97 to the Registrant’s Annual Report on Form 10-K for this fiscal year ended December 30, 2023, filed with the Securities and Exchange Commission on March 14, 2024.

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)

21 unchanged sentences

March 13, 2025

Chief Financial Officer, Treasurer and Secretary

(Principal Financial and Accounting Officer)

Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

March 13, 2025

13 unchanged sentences

Financial Reporting

Report of Independent Registered Public Accounting Firm –

Macias, Gini & O’Connell, LLP.

January 1, 2022

Consolidated Balance Sheets, December 30, 2023, December 31, 2022

and January 1, 2022

Consolidated Balance Sheets, December 28, 2024 and December 30, 2023

Consolidated Statements of Operations, Fiscal Years Ended

December 30, 2023, December 31, 2022 and January 1, 2022

December 28, 2024 and December 30, 2023

Consolidated Statements of Comprehensive Income (Loss), Fiscal Years Ended

December 30, 2023, December 31, 2022 and January 1, 2022

December 28, 2024 and December 30, 2023

Consolidated Statements of Changes in Stockholders’ Equity, Fiscal Years Ended

December 30, 2023, December 31, 2022 and January 1, 2022

December 28, 2024 and December 30, 2023

Consolidated Statements of Cash Flows, Fiscal Years Ended

December 30, 2023, December 31, 2022 and January 1, 2022

December 28, 2024 and December 30, 2023

Notes to Consolidated Financial Statements

22 unchanged sentences

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Fixed-Price Contracts

7 unchanged sentences

We evaluated management’s application of their revenue recognition policies in the determination of revenue recognition conclusions.

Our audit procedures included, among others, selecting a sample of revenue transactions and performing the following procedures:

Our audit procedures included, among other, selecting a sample of revenue transactions and performing the following procedures:

we reviewed the signed contract;

2 unchanged sentences

We also tested for proper revenue recognition cut off.

/s/ WithumSmith+Brown, PC

We have served as the Company's auditor since 2022.

/s/ WithumSmith+Brown, PC

Red Bank, New Jersey

8 unchanged sentences

and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 28, 2024, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 30, 2023, based on the COSO criteria.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management’s assessment in section “Item 9A” Management’s Report on Internal Control over Financial Reporting.

Management has identified that the Company did not design and maintain information technology controls relevant to preparing its financial statements, specifically concerning (i).

separation of duties to their SAP ERP and General Ledger and (ii) user access controls that ensure appropriate segregation of duties and adequately restrict user access to financial applications, programs, and data.

As a result, the Company's related process-level IT-dependent manual and automated controls that rely upon the affected ITGCs, or information coming from IT systems with affected ITGCs, were also deemed ineffective.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 30, 2023 and December 31, 2022, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for the fiscal years ended December 30, 2023 and December 31, 2022, and the related notes.

This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report, dated March 14, 2024, on the consolidated financial statements, which expressed an unqualified opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 28 , 2024, and the results of its operations and its cash flows for the year ended December 28 , 2024, in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28 , 2024, based on criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Basis for Opinion

17 unchanged sentences

March 13, 2025

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 sheet of RCM Technologies, Inc.

and Subsidiaries (the “Company") as of January 1, 2022 and the related consolidated statement of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended January 1, 2022, 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 the results of its operations and its cash flows for the year ended January 1, 2022, 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 audit.

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 audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.

/s/ Macias Gini & O’Connell LLP

We have served as the Company’s auditor since 2019.

San Diego, California

April 4, 2022

PCAOB ID Number 324

RCM TECHNOLOGIES, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 30, 2023, December 31, 2022 and January 1, 2022

December 28, 2024 and December 30, 2023

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

2 unchanged sentences

$ 4,729 $ 6,284

Accounts receivable, net

Accounts receivable, net of provision for credit losses of $ 1,570 and $ 1,600

at December 28, 2024 and December 30, 2023, respectively

77,960 70,690

Transit accounts receivable

8,891 3,280 1,010

Prepaid expenses and other current assets

4,637 4,636 2,486

Total current assets

1 unchanged sentence

Property and equipment, net

4,005 2,098 1,939

Other assets:

Deferred tax assets, net, domestic

Deferred tax assets, foreign

1 unchanged sentence

Operating right of use asset

2,779 3,665 1,877

Intangible assets, net

8 unchanged sentences

Accrued payroll and related costs

11,203 13,023 13,027

Finance lease payable

1 unchanged sentence

Operating right of use liability

693 1,349 1,502

Contingent consideration from acquisitions

Deferred liabilities

1,881 1,119 3,418

Deferred revenue

Total current liabilities

2 unchanged sentences

Deferred income taxes, net, domestic

1,568 1,495 -

Finance lease payable

Contingent consideration from acquisitions, net of current portion

1,671 1,970 600

Operating right of use liability, net of current portion

2,268 2,932 1,631

Finance lease payable, net of current position

Contingent consideration from acquisitions, net of current position

Operating right of use liability, net of current position

Borrowings under line of credit

10 unchanged sentences

17,838,372 shares issued and 7,602,113 shares outstanding at

December 30, 2023, 17,287,967 shares issued and 9,285,318 shares outstanding at

December 31, 2022 and 16,903,157 shares issued and 10,290,935 shares

outstanding at January 1, 2022

December 28, 2024 and 17,673,427 shares issued and 7,844,821

shares outstanding at December 30, 2023

Additional paid-in capital

4 unchanged sentences

( 5,938 ) ( 19,265 )

Treasury stock, 9,828,606 shares at December 30, 2023,

8,002,649 shares at December 31, 2022 and 6,612,222 shares at January 1, 2022

Treasury stock, 10,236,259 shares at December 28, 2024 and

9,828,606 shares at December 30, 2023

( 77,393 ) ( 69,593 )

3 unchanged sentences

$ 132,077 $ 120,484

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

RCM TECHNOLOGIES, INC.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

(Dollars in thousands, except per share amounts, unless otherwise indicated)

$ 263,237 $ 284,680 $ 203,875

Cost of services

186,541 201,753 150,751

76,696 82,927 53,124

Operating costs and expenses

Selling, general and administrative

52,185 53,395 42,019

Depreciation and amortization of property and equipment

1,032 995 1,007

Amortization of acquired intangible assets

Impairment of intangible assets

Potential stock issuance and financing transactions

Remeasurement of contingent consideration

Gain on sale of assets

( 395 ) ( 219 ) ( 2,420 )

Remeasurement of acquisition-related

contingent consideration

- ( 88 ) ( 1,713 )

Operating costs and expenses

53,004 54,129 38,988

Operating income

23,692 28,798 14,136

Other expense (income)

Interest expense and other, net

1,399 370 365

Change in fair value of contingent consideration

Loss (gain) on foreign currency transactions

98 ( 52 ) ( 195 )

(Gain) loss on foreign currency transactions

Other expense, net

1,497 318 222

Income before income taxes

22,195 28,480 13,914

Income tax expense

5,364 7,591 2,925

$ 16,831 $ 20,889 $ 10,989

Basic net earnings per share

$ 2.03 $ 2.08 $ 1.00

Diluted net earnings per share

$ 1.96 $ 2.00 $ 0.95

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

RCM TECHNOLOGIES, INC.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

(Dollars in thousands unless otherwise indicated)

$ 16,831 $ 20,889 $ 10,989

Other comprehensive income (loss)

50 ( 164 ) ( 149 )

Total comprehensive income

$ 16,881 $ 20,725 $ 10,840

Other comprehensive (loss) income

Comprehensive income

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

RCM TECHNOLOGIES, INC.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’ EQUITY

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

(Amounts in thousands, except share amounts, unless otherwise indicated)

1 unchanged sentence

Treasury Stock

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

Equity compensation expense from

awards issued

- - - 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 )

Foreign currency translation

- - - - ( 149 ) - - - ( 149 )

- - - - - 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

Balance, December 31, 2022

Issuance of stock under

employee stock purchase plan

83,879 4 - 404 - - - - 408

Equity compensation expense from

awards issued

- - - 1,582 - - - - 1,582

Issuance of stock upon vesting

of restricted share awards

262,931 12 - ( 12 ) - - - - -

Effect of excess tax deduction

over book expense associated with

exercise of equity awards

- - - 206 - - - - 206

over book expense associated

with exercises of equity awards

Common stock issued for

38,000 2 - 630 - - - - 632

Purchase of treasury stock

- - - - - - 1,390,427 ( 17,560 ) $ ( 17,560 )

Foreign currency translation

- - - - ( 164 ) - - - ( 164 )

- - - - - 20,889 - - 20,889

Balance, December 30, 2023

17,287,967 $ 863 $ - $ 113,878 $ ( 2,863 ) $ ( 36,096 ) 8,002,649 $ ( 43,820 ) $ 31,962

Issuance of stock under

employee stock purchase plan

66,501 3 - 699 - - - - 702

Retirement of common shares

Equity compensation expense from

awards issued

- - - 2,092 - - - - 2,092

Issuance of stock upon vesting

of restricted share awards

310,959 16 - ( 16 ) - - - - -

Effect of excess tax deduction

over book expense associated with

exercise of equity awards

- - - - ( 206 )

Common stock issued for

8,000 - - 132 - - - - 132

Purchase of treasury stock

- - - - - - 1,825,957 ( 25,773 ) ( 25,773 )

Foreign currency translation

- - - - 50 - - - -

- - - - - 16,831 - - 16,831

Balance, December 28, 2024

17,673,427 $ 882 $ - $ 116,579 $ ( 2,813 ) $ ( 19,265 ) 9,828,606 $ ( 69,593 ) $ 25,790

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

RCM TECHNOLOGIES, INC.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

(Dollars in thousands unless otherwise indicated)

Cash flows from operating activities:

$ 16,831 $ 20,889 $ 10,989

Adjustments to reconcile net income (loss) to net cash provided by

1 unchanged sentence

Depreciation and amortization

1,214 1,041 1,102

Gain on sale of assets

( 395 ) ( 219 ) ( 2,420 )

Remeasurement of acquisition-related contingent consideration

- ( 88 ) ( 1,713 )

Change in fair value of contingent consideration

Equity compensation expense from awards issued

2,092 1,582 1,358

Effect of excess tax deduction on equity awards

( 206 ) 206 20

Provision for losses on accounts receivable

656 ( 1,038 ) ( 208 )

Remeasurement of contingent consideration

Provision for credit losses on accounts receivable

Deferred income tax expense

41 2,054 2,542

Change in operating right of use assets

919 1,001 1,057

Changes in operating assets and liabilities:

Accounts receivable

( 20,576 ) ( 1,509 ) ( 14,710 )

Prepaid expenses and other current assets

3 ( 2,350 ) 1,838

Net of transit accounts receivable and payable

15,724 5,433 ( 1,317 )

Accounts payable and accrued expenses

( 1,506 ) 4,919 1,518

Accrued payroll and related costs

( 1,825 ) 24 149

Right of use liabilities

( 1,353 ) ( 1,642 ) ( 1,919 )

Income taxes payable

242 276 ( 436 )

Deferred revenue

762 ( 2,299 ) 3,020

( 141 ) 3 ( 7 )

Total adjustments and changes in operating assets and liabilities

( 4,349 ) 7,394 ( 10,074 )

Net cash provided by operating activities

12,482 28,283 915

Cash flows from investing activities:

Property and equipment acquired

( 2,931 ) ( 889 ) ( 568 )

Payments for business acquired

- ( 4,150 ) -

Proceeds from sale of assets

395 219 6,859

Net cash (used in) provided by investing activities

( 2,536 ) ( 4,820 ) 6,291

Net cash used in investing activities

Cash flows from financing activities:

Borrowings under line of credit

148,957 105,184 110,481

Repayments under line of credit

( 126,936 ) ( 110,552 ) ( 108,220 )

Issuance of stock for employee stock purchase plan

Retirement of common shares

Changes in finance lease obligations

( 463 ) ( 508 ) ( 415 )

Contingent consideration paid

( 339 ) ( 99 ) ( 494 )

Common stock repurchase

( 25,773 ) ( 17,560 ) ( 9,043 )

Net cash used in financing activities

( 3,852 ) ( 23,127 ) ( 7,554 )

Effect of exchange rate changes on cash and cash equivalents

( 149 ) ( 232 ) ( 151 )

Increase (decrease) in cash and cash equivalents

5,945 104 ( 499 )

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

$ 6,284 $ 339 $ 235

Supplemental cash flow information:

Cash paid for:

$ 1,192 $ 297 $ 417

$ 4,447 $ 5,095 $ 1,010

Non-cash investing activities:

Contingent consideration relating to acquisitions

$ - $ 1,927 $ -

Value of shares issued pursuant to acquisitions

$ - $ 631 $ -

Fixed assets acquired in acquisitions

Non-cash financing activities:

Issuance of accrued share-based compensation

$ - $ - $ 580

Non-cash operating activities:

Right of use assets obtained in exchange for lease obligations

$ 33 $ 3,047 $ 1,832

Non-cash financing activities:

Value of shares issued as contingent consideration

$ 132 $ - $ -

Software purchased under finance lease

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

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

2 unchanged sentences

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, with additional offices in the Netherlands, Serbia and Germany.

Additionally, the Company provides specialty healthcare staffing services through its Specialty Health Care Services group.

RCM’s offices are primarily located in major metropolitan centers throughout North America, with additional offices in the Netherlands, Philippines, Serbia and Germany.

The consolidated financial statements are comprised of the accounts of the Company and its wholly owned subsidiaries.

5 unchanged sentences

Any loss incurred or lack of access to uninsured funds could have a significant adverse impact on the Company’s financial condition, results of operations and cash flows.

The Company held $ 103 , $ 79 and $ 21 of cash and cash equivalents in Canadian banks as of December 30, 2023, December 31, 2022 and January 1, 2022, respectively, which was held principally in Canadian dollars.

The Company held $ 638 , $ 203 and $ 169 of cash and cash equivalents in Serbian banks as of December 30, 2023, December 31, 2022 and January 1, 2022, respectively, which was held in various currencies.

The Company held $ 269 and $ 103 of cash and cash equivalents in Canadian banks as of December 28, 2024 and December 30, 2023, respectively, which was held principally in Canadian dollars.

The Company held $ 496 and $ 638 of cash and cash equivalents in Serbian banks as of December 28, 2024 and December 30, 2023, respectively, which was held in various currencies.

The Company held $ 556 of cash and cash equivalents in German banks as of December 28, 2024, which was held primarily in Euros.

The office in Germany was opened in April 2023.

The Company held $ 4 , $ 16 and $ 2 of cash and cash equivalents in Netherlands banks as of December 30, 2023, December 31, 2022 and January 1, 2022, respectively, which was held in various currencies.

The Company held $ 2 and $ 4 of cash and cash equivalents in Netherlands banks as of December 28, 2024 and December 30, 2023, respectively, which was held in various currencies.

Fair Value of Financial Instruments

1 unchanged sentence

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

Accounts Receivable and Provision for Credit Losses

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.

The Company adopted ASU 2016 - 13 in the first quarter of 2023.

There was no material impact on the results of operation.

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.

Accounts receivable payment terms vary and are stated in the financial statements at amounts due from customers net of a provision for credit losses.

Accounts outstanding longer than the payment terms are considered past due.

The Company determines its provision by considering a number of factors, including 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.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

24 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

14 unchanged sentences

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 December 30, 2017 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 December 30, 2023, December 31, 2022 and January 1, 2022.

The Company did not record a goodwill impairment charge in fiscal years ended December 28, 2024 and December 30, 2023.

There can be no assurance that future indicators of impairment and tests of goodwill impairment will not result in an impairment charge.

RCM TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Long-Lived and Intangible Assets

3 unchanged sentences

The Company’s intangible assets consist of customer relationships and non-compete agreements.

RCM TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 December 30, 2023, December 31, 2022 and January 1, 2022, the Company capitalized $ 1,947 , $ 282 and $ 1,256 , respectively, for software costs.

The net balance after accumulated depreciation for all software costs capitalized as of December 30, 2023, December 31, 2022 and January 1, 2022 was $ 2,325 , $ 977 and $ 1,350 , respectively.

During the fiscal years ended December 28, 2024 and December 30, 2023, the Company capitalized $ 4,141 and $ 1,947 , respectively, for software costs.

The net balance after accumulated depreciation for all software costs capitalized as of December 28, 2024 and December 30, 2023 was $ 5,622 and $ 2,325 , respectively.

The Company makes judgments and interpretations based on enacted tax laws, published tax guidance, as well as estimates of future earnings.

2 unchanged sentences

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 December 30, 2023, December 31, 2022 and January 1, 2022.

The Company did not have any valuation allowance as of December 28, 2024 and December 30, 2023.

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.

4 unchanged sentences

The Company and its wholly owned United States subsidiaries file a consolidated federal income tax return.

The Company also files tax returns in Canada, Germany, Puerto Rico and Serbia.

The Company also files tax returns in Canada, Germany, Philippines, 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.

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

1 unchanged sentence

Revenue Recognition

The Company records revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers .

The Company records revenue under Financial Accounting Standard Board (“FASB”) 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.

7 unchanged sentences

The Company derives its revenue from several sources.

The Company’s Engineering Services, Life Sciences and Information Technology segments perform consulting and project solution services.

The Company’s Engineering Services and Life Sciences, Data and Solutions 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 revenue disaggregated by revenue source for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022:

The following table presents our revenue disaggregated by revenue source for the fiscal years ended December 28, 2024 and December 30, 2023:

Specialty Health Care:

2 unchanged sentences

Permanent Placement Services

1,300 1,447 1,132

Total Specialty Health Care

6 unchanged sentences

$ 96,459 $ 84,675

Life Sciences and Information Technology:

Life Sciences, Data and Solutions:

Time and Material

$ 30,547 $ 35,368

6,551 3,022 1,390

Permanent Placement Services

Total Life Sciences and Information Technology

Total Life Sciences, Data and Solutions

$ 39,242 $ 42,321

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

2 unchanged sentences

Time and Material

The Company’s Health Care segment predominantly recognizes revenue through time and material work while its Engineering and Life Sciences and Information Technology segments recognize revenue through both time and material and fixed fee work.

The Company’s Health Care segment predominantly recognizes revenue through time and material work while its Engineering and Life Sciences, Data and Solutions segments recognize 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.

4 unchanged sentences

In instances where project services are provided on a fixed-price basis, revenue is recorded in accordance with the terms of each contract.

For engineering contracts estimated costs are budgeted by project, the Company then recognizes revenue by applying the costs incurred to date against the total budgeted costs and applying the percentage of completed cost against the total contract value to recognize revenue for each period.

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.

From time-to-time, amounts paid in excess of revenue earned and recognized are recorded as deferred revenue.

Some contracts also limit revenue and billings to specified maximum amounts.

9 unchanged sentences

An allowance for refunds, based upon the Company’s historical experience, is recorded in the financial statements.

Permanent placement revenue was $ 1.7 million, $ 2.2 million and $ 1.8 million for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

The deferred revenue balance as of December 30, 2023, December 31, 2022 and January 1, 2022 was $ 1.9 million, $ 1.1 million and $ 3.4 million, respectively.

Permanent placement revenue was $ 1.5 million and $ 1.7 million for the fiscal years ended December 28, 2024 and December 30, 2023, respectively.

The deferred revenue balance as of December 28, 2024 and December 30, 2023 was $ 4.2 million and $ 1.9 million, respectively.

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 fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, the Company recognized revenue of $ 1.1 million, $ 3.4 million and $ 0.4 million, respectively, that was included in deferred revenue at the beginning of the period.

In fiscal years ended December 28, 2024 and December 30, 2023, the Company recognized revenue of $ 1.9 million and $ 1.1 million, respectively, that was included in deferred revenue at the beginning of the period.

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

13 unchanged sentences

The transit accounts receivable was $ 8.9 million and related transit accounts payable was $ 31.1 million, for a net payable of $ 22.2 million, as of December 30, 2023.

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.

Concentrations

1 unchanged sentence

During the fiscal year ended December 30, 2023, the Company had two customers exceed 10% of consolidated revenue, representing 17.1 % and 10.1 % of consolidated revenue, respectively.

During the fiscal year ended January 1, 2022, no client accounted for 10% or more of consolidated revenue.

All customers exceeding 10% of consolidated revenue during the periods presented are included in the Company’s Specialty Health Care segment.

1 unchanged sentence

The Company’s five , ten and twenty largest customers accounted for approximately 39.1 %, 50.4 % and 62.7 %, respectively, of the Company’s revenue for the fiscal year ended December 30, 2023.

The Company’s five, ten and twenty largest customers accounted for approximately 35.8 %, 52.5 % and 65.1%, respectively, of the Company’s revenue for the fiscal year ended January 1, 2022.

As of December 30, 2023, two clients represented more than 10% of the Company’s accounts receivable, net, representing 21.2 % and 14.7 %, respectively.

As of December 31, 2022, two clients represented more than 10% of the Company’s accounts receivable, net, representing 16.1 % and 12.5 %, respectively.

As of January 1, 2022, two clients represented more than 10% of the Company’s accounts receivable, net, representing 15.3 % and 14.2 %.

As of December 28, 2024, three clients represented more than 10% of the Company's accounts receivable, net, representing 20.4 % and 12.5 % from the Company's two largest Specialty Health Care clients and 11.4 % from the Company's largest Engineering client.

As of December 30, 2023, two clients represented more than 10% of the Company's accounts receivable, net, representing 21.2 % and 14.7 % from the Company's two largest Specialty Health Care clients.

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

30 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

2 unchanged sentences

Advertising costs are expensed as incurred.

Total advertising expense was $ 781 , $ 925 and $ 914 for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

Total advertising expense was $ 719 and $ 781 for the fiscal years ended December 28, 2024 and December 30, 2023, respectively.

Fair Value Measurements

9 unchanged sentences

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.

The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31.

The fiscal years ended December 30, 2023 ( fiscal 2023 ), December 31, 2022 ( fiscal 2022 ) and January 1, 2022 ( fiscal 2021 ) consisted of fifty-two weeks each.

The fiscal years ended December 28, 2024 ( fiscal 2024 ) and December 30, 2023 ( fiscal 2023 ) consisted of fifty-two weeks each.

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

2 unchanged sentences

Actual results could differ from those estimates.

The Company uses estimates to determine an allowance for doubtful accounts on its accounts receivable, litigation, medical claims, vacation, goodwill impairment, if any, equity compensation, the tax rate applied and the valuation of certain assets and liability accounts.

The Company uses estimates to determine a provision for credit losses on its accounts receivable, contingent consideration, litigation, medical claims, vacation, goodwill impairment, if any, equity compensation, the tax rate applied and the valuation of certain assets and liability accounts.

In addition, the Company reviews its estimated costs to complete a contract and adjusts those costs when necessary.

2 unchanged sentences

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 Company has risk participation arrangements with respect to workers compensation and healthcare 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.

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

ACCOUNTS RECEIVABLE, TRANSIT ACCOUNTS RECEIVABLE AND TRANSIT ACCOUNTS PAYABLE

ACCOUNTS RECEIVABLE

The Company’s accounts receivable are comprised as follows:

2 unchanged sentences

Work-in-progress

6,442 4,991 1,810

Allowance for sales discounts and doubtful accounts

Provision for credit losses

( 1,570 ) ( 1,600 )

10 unchanged sentences

Laboratory equipment

6,360 4,630 4,378

accumulated depreciation and amortization

2,355 2,532 2,439

Property and equipment, net

1 unchanged sentence

The Company periodically writes off fully depreciated and amortized assets.

The Company wrote off fully depreciated and amortized assets of $ 1,201 , $ 901 and $ 1,671 during the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

For the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, depreciation and amortization expense for property and equipment was $ 1,052 , $ 995 and $ 1,007 , respectively.

The Company wrote off fully depreciated and amortized assets of $ 1,604 and $ 1,201 during the fiscal years ended December 28, 2024 and December 30, 2023, respectively.

For the fiscal years ended December 28, 2024 and December 30, 2023, depreciation and amortization expense for property and equipment was $ 1,419 and $ 1,032 , respectively.

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

3 unchanged sentences

Goodwill arising from the acquisitions is attributable to expected sales synergies from combining the operations of the acquired business with those of the Company.

TalentHerder Acquisition

Effective October 2, 2022, the Company acquired the business operations of TalentHerder, LLC, a California limited liability company.

TalentHerder is a leading talent acquisition services company.

TalentHerder’s business bridges the gap between in-house and external recruiting, specializing in high-growth companies.

It works with clients to help identify and hire top-quality talent across all critical functions, enabling companies to scale teams quickly, efficiently, and cost-effectively.

TalentHerder’s proven recruitment processes can help scale both in-person and remote working environments for companies across the globe.

The acquisition will bolster the Company’s existing capabilities by expanding its recruitment process outsourcing ("RPO") service footprint, enhancing the Company's candidate sourcing reach, and enabling the Company's in-house recruiting team to respond more rapidly to client needs.

The consideration and estimated fair value of assets acquired and liabilities assumed is as follows:

Common stock of the Company

Contingent consideration, at fair value

Total consideration

The seller of TalentHerder is eligible to receive post-closing contingent consideration upon the business exceeding certain base levels of operating income, potentially earned over five years.

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

Expected consideration was valued based on different possible scenarios for projected operating income.

Each case was assigned a probability which was used to calculate an estimate of the forecasted future payments.

Then a discount rate was applied to these forecasted future payments to determine the acquisition date fair value to be recorded.

The preliminary estimated purchase price has been allocated as follows:

Property and equipment, net

Customer relationships

Total consideration

The goodwill is expected to be fully deductible for tax purposes over a period of 15 years, except for the portion of contingent consideration which is deductible only when paid.

RCM TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

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

ACQUISITIONS AND DIVESTITURES (CONTINUED)

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 TKE.

This remeasurement led to a $ 1.7 million reduction to the contingent consideration liability relating to the TKE acquisition.

TKE had high yearly performance targets to achieve earn-out consideration.

Two factors primarily contributed to TKE not hitting its performance targets.

The first was the COVID- 19 pandemic which overlapped earn-out years two and three.

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 three.

This client was dissatisfied with the product output, and TKE agreed to fix the equipment.

The additional cost caused TKE to miss its earn-out target.

Based on these factors, the Company determined to amend its asset purchase agreement with TKE, whereby TKE could receive maximum contingent consideration of $ 0.4 million in 2022 and $ 0.3 million in 2023.

TKE earned $ 0.3 million in 2022, so the Company recorded a remeasurement of contingent consideration for $ 0.1 million in 2022.

Potential future contingent payments to be made to all active acquisitions after December 28, 2024 are capped at a cumulative maximum of $ 0.2 million.

The Company paid contingent consideration of $ 0.3 million, $ 0.1 million and $ 0.5 million during the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

The changes in the liability for contingent consideration from acquisitions for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022 are as follows:

Balance as of January 2, 2021

Contingent payments made

Changes in fair value of contingent consideration

Remeasurement of contingent consideration

Balance as of January 1, 2022

Contingent payments made

Remeasurement of contingent consideration

Acquisition of TalentHerder

The changes in the liability for contingent consideration from acquisitions for the fiscal years ended December 28, 2024 and December 30, 2023 are as follows:

Balance as of December 31, 2022

2 unchanged sentences

Balance as of December 30, 2023

RCM TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

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

ACQUISITIONS AND DIVESTITURES (CONTINUED)

Remeasurement of contingent consideration

Balance as of December 28, 2024

Future Contingent Payments

As of December 30, 2023, the Company had two acquisition agreements whereby additional contingent consideration may be earned by the sellers:

1 ) effective September 30, 2018, the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC, and 2 ) effective October 2, 2022, the Company acquired certain assets of TalentHerder LLC.

As of December 28, 2024, the Company had one acquisition agreement whereby additional contingent consideration may be earned by the sellers:

effective September 30, 2018, the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC.

The Company estimates future contingent payments at December 28, 2024 as follows:

The four quarters following December 30, 2023

Estimated future contingent consideration payments

Payable in fiscal 2025

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.

4 unchanged sentences

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.

RCM TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

ACQUISITIONS AND DIVESTITURES (CONTINUED)

Estimates of future contingent payments are subject to significant judgment and actual payments may materially differ from estimates.

The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of December 28, 2024.

Contingent consideration related to acquisitions is recorded at fair value (level 3 ) with changes in fair value recorded in other (expense) income, net.

Contingent consideration related to acquisitions is recorded at fair value (level 3 ) with changes in fair value recorded in operating expense.

Divestiture of Assets

2 unchanged sentences

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.

The transaction netted a gain on sale of assets of $ 2.4 million for the year ended January 1, 2022.

The purchase agreement provided for a typical indemnity escrow held by an independent escrow agent.

The net proceeds released from the escrow account generated a gain on sale of assets of $ 0.4 million and $ 0.2 million for the years ended December 30, 2023, and December 31, 2022, respectively.

For the fiscal year ended January 1, 2022, these two offices generated revenue of $ 4.9 million.

RCM TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

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

The net proceeds released from the escrow account generated a gain on sale of assets of $ 0.4 million for the year ended December 30, 2023.

Goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired in business combinations.

The Company tests goodwill for impairment on an annual basis as of the last day of the Company's fiscal year or more frequently if events occur or circumstances change indicating that the fair value of goodwill may be below the carrying amount.

The Company 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 fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022.

As such, no impairment loss on the Company’s goodwill during the fiscal years ended December 30, 2023, December 31, 2022 or January 1, 2022 was recorded as a result of such review.

The changes in the carrying amount of goodwill for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022 are as follows:

Balance as of January 2, 2021

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 in its Engineering and Specialty Health Care segments during the fiscal year ended December 28, 2024 and for all segments during the year ended December 30, 2023.

Since the Company remeasured contingent consideration associated with its Life Sciences, Data and Solutions segment, the Company determined that further testing was necessary.

After comparing the fair value of the Life Sciences, Data and Solutions segment to its carrying amount, the Company determined that no impairment loss occurred for the Company’s goodwill during the fiscal years ended December 28, 2024 or December 30, 2023.

The changes in the carrying amount of goodwill for the fiscal years ended December 28, 2024 and December 30, 2023 are as follows:

Balance as of December 31, 2022

$ 11,918 $ 2,398 $ 7,831 $ 22,147

No change in fiscal 2023

Balance as of January 1, 2022

$ 11,918 $ 2,398 $ 2,038 $ 16,354

Acquisition of TalentHerder

- - 5,793 5,793

Balance as of December 30, 2023

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

3 unchanged sentences

Assets to be disposed of by sale, if any, are reported at the lower of the carrying amount or fair value less cost to sell.

The Company’s intangible assets consist of customer relationships and non-compete agreements.

During all periods presented, the Company determined that no impairment of intangible assets exists.

All of the Company’s intangible assets are associated with the Engineering segment.

Intangible assets other than goodwill are amortized over their useful lives.

Intangible assets are carried at cost, less accumulated amortization.

Details of intangible assets by class at December 30, 2023, December 31, 2022 and January 1, 2022:

Customer relationships

The Company’s intangible assets historically consist of customer relationships and non-compete agreements.

The Company determined that during the fiscal year ended December 28, 2024, its intangible asset balance became worthless and was written off.

The changes in the carrying amount of intangible assets for the fiscal years ended December 28, 2024 and December 30, 2023 are as follows:

Balance as of December 31, 2022

$ - $ - $ 865 $ 865

Total intangible assets

Amortization in fiscal 2023

Balance as of December 30, 2023

$ - $ - $ 683 $ 683

Amortization of acquired intangible assets for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022 was $ 182 , $ 46 and $ 95 , respectively.

The remaining intangible asset balance will be amortized through fiscal 2027.

Estimated future amortization expense, by fiscal years, for these intangibles assets are as follows:

RCM TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

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

Amortization in fiscal 2024

Impairment in fiscal 2024

Balance as of December 28, 2024

$ - $ - $ - $ -

LINE OF CREDIT

On April 24, 2023, the Company entered into a Fourth Amended and Restated Loan Agreement (the “Fourth Amended and Restated Loan Agreement”) with Citizens Bank, N.A., as lender (in such capacity, the “Lender”) and as administrative agent and arranger (in such capacity, the “Administrative Agent”), to amend and restate in its entirety that certain Third Amended and Restated Agreement dated as of the August 9, 2018 ( as the same has been amended and modified prior to the date hereof, the “Existing Loan Agreement”).

The Fourth Amended and Restated Loan Agreement provides for a $ 45.0 million revolving credit facility (the “Revolving Credit Facility”), has no limitation for letters of credit, and expires on April 24, 2026.

On December 3, 2024, the Company entered into a Fifth Amended and Restated Loan Agreement (the “Fifth Amended and Restated Loan Agreement”) with Citizens Bank, N.A., as lender (in such capacity, the “Lender”) and as administrative agent and arranger (in such capacity, the “Administrative Agent”), to amend and restate in its entirety that certain Fourth Amended and Restated Agreement dated as of April 24, 2023 ( as the same has been amended and modified prior to the date hereof, the “Existing Loan Agreement”).

The Fifth Amended and Restated Loan Agreement is increased from $ 45.0 million under the Fourth Amended and Restated Agreement to $ 65.0 million (with an accordion feature permitting the increase of the total commitment by an additional $ 20.0 million, subject to the consent of the Administrative Agent and the Lenders), and permits the Borrowers to request the issuance of trade and standby letters of credit thereunder.

The Fifth Amended and Restated Loan Agreement has a maturity date of December 3, 2029.

Borrowings under the Revolving Credit Facility bear interest at one of two alternative rates, as selected by the Company at each incremental borrowing.

3 unchanged sentences

Unused line fees are recorded as interest expense.

The effective weighted average interest rate, including unused line fees, for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022 were 6.5 %, 2.2 % and 2.0 %, respectively.

All borrowings under the Fourth Amended and Restated Loan Agreement remain collateralized with substantially all of the Company’s assets, as well as the capital stock of its subsidiaries.

The Revolving Credit Facility also contains various financial and non-financial covenants, such as a covenant that restricts the Company’s ability to borrow in order to pay dividends.

As of December 30, 2023, the Company was in compliance with all covenants contained in the Revolving Credit Facility .

The Company believes that it will maintain compliance with its financial covenants for the foreseeable future.

Borrowings under the line of credit as of December 30, 2023, December 31, 2022 and January 1, 2022 were $ 30.8 million, $ 8.8 million and $ 14.2 million, respectively.

At December 30, 2023, December 31, 2022 and January 1, 2022, there were letters of credit outstanding for $ 2.0 million, $ 1.9 million, and $1.9 million, respectively.

At December 30, 2023, the Company had availability for additional borrowings under the Revolving Credit Facility of $ 12.1 million.

The effective weighted average interest rate, including unused line fees, for the fiscal years ended December 28, 2024 and December 30, 2023 were 6.6 % and 6.5 %, respectively.

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

LINE OF CREDIT (CONTINUED)

All borrowings under the Fifth Amended and Restated Loan Agreement remain collateralized with substantially all of the Company’s assets, as well as the capital stock of its subsidiaries.

The Revolving Credit Facility also contains various financial and non-financial covenants, such as a covenant that restricts the Company’s ability to borrow in order to pay dividends.

As of December 28, 2024, the Company was in compliance with all covenants contained in the Revolving Credit Facility.

The Company believes that it will maintain compliance with its financial covenants for the foreseeable future.

Borrowings under the line of credit as of December 28, 2024 and December 30, 2023 were $ 35.0 million and $ 30.8 million, respectively.

There were letters of credit outstanding at December 28, 2024 and December 30, 2023 for $ 7.4 million and $ 2.0 million, respectively.

At December 28, 2024 and December 30, 2023, the Company had availability for additional borrowings under the Revolving Credit Facility of $ 22.6 million and $ 12.1 million, respectively.

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 December 30, 2023, December 31, 2022 and January 1, 2022 was determined as follows:

The number of weighted-average shares used to calculate basic and diluted earnings per share for the fiscal years ended December 28, 2024 and December 30, 2023 was determined as follows:

Fiscal Years Ended

5 unchanged sentences

7,939,381 8,592,572

For the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, there were no anti-dilutive shares included in the calculation of common stock equivalents as there were no stock options outstanding.

For the fiscal years ended December 28, 2024 and December 30, 2023, there were no anti-dilutive shares included in the calculation of common stock equivalents as there were no stock options outstanding.

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

11 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

8 unchanged sentences

Discussion of share and share-based awards herein references awards of shares and share units.

Share-based compensation expense of $ 2.1 million, $ 1.6 million, and $ 1.4 million was recognized for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

Share-based compensation for performance-based equity agreements were $ 0.7 million, $ 0.8 million and $ 0.4 million for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

Share-based compensation expense of $ 2.9 million and $ 2.1 million was recognized for the fiscal years ended December 28, 2024 and December 30, 2023, respectively.

Share-based compensation for performance-based equity agreements was $ 1.6 million and $ 0.7 million for the fiscal years ended December 28, 2024 and December 30, 2023, respectively.

As of December 28, 2024, there were 300,000 performance-based restricted stock awards outstanding.

Share-based compensation expense is included in selling, general and administrative expense in the Company’s statement of operations.

As of December 30, 2023, the Company had $ 3.2 million of total unrecognized compensation cost, with nearly all of the unrecognized compensation cost related to time-based non-vested share-based awards outstanding.

As of December 28, 2024, the Company had $ 8.0 million of total unrecognized compensation cost, with approximately $ 2.6 million related to time-based non-vested share-based awards outstanding and $ 5.4 million related to performance-based non-vested share-based awards outstanding.

The Company expects to recognize the expense associated with time-based non-vested share-based awards through fiscal 2029.

These amounts do not include a) the cost of any additional share-based awards granted after December 30, 2023 or b) the impact of any potential changes in the Company’s forfeiture rate.

If earned, the Company will recognize the expense associated with performance-based non-vested share-based awards straight-line through fiscal 2027.

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.

Incentive Share-Based Plans

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

6 unchanged sentences

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 December 30, 2023, December 31, 2022 and January 1, 2022, there were 66,501 , 83,879 and 101,784 shares issued under the Purchase Plan for net proceeds of $ 0.7 million, $ 0.4 million and $ 0.1 million, respectively.

During the fiscal years ended December 28, 2024 and December 30, 2023, there were 45,611 and 66,501 shares issued under the Purchase Plan for net proceeds of $ 0.7 million and $ 0.7 million, respectively.

As of December 28, 2024, there were 252,119 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 December 30, 2023, December 31, 2022 and January 1, 2022 was $ 0.3 million, $ 0.3 million and $ 0.1 million, respectively.

Compensation expense, representing the discount to the quoted market price, for the Purchase Plan for the fiscal years ended December 28, 2024 and December 30, 2023 was $ 0.3 million and $ 0.3 million, respectively.

2014 Omnibus Equity Compensation Plan (the 2014 Plan)

10 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

2 unchanged sentences

As of December 28, 2024, under the 2014 Plan, 289,421 time-based shares were outstanding, 300,000 performance-based restricted stock awards were outstanding and 295,680 shares were available for awards thereunder.

The intrinsic value of all equity grants for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022 was $ 13.8 million, $ 3.5 million and $ 2.9 million, respectively.

The intrinsic value of all equity grants as of December 28, 2024 and December 30, 2023 was $ 12.5 million and $ 13.8 million, respectively.

These amounts are based on the equity price on the last trading day in the period presented.

4 unchanged sentences

Value per Share

Outstanding non-vested at January 1, 2022

Outstanding non-vested at December 31, 2022

274,939 $ 3.59

16 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

1 unchanged sentence

Performance-Based Restricted Stock Awards

From time-to-time the Company issues performance-based restricted stock awards to its executives.

From time-to-time the Company issues performance-based restricted stock awards to its employees.

Performance-based restricted stock awards are typically vested based on certain multi-year performance metrics as determined by the Board of Directors Compensation Committee.

The following summarizes the activity in the performance-based restricted stock awards during the fiscal year ended December 28, 2024:

Performance-Based

Grant Date Fair

Value per Share

Outstanding non-vested at January 1, 2022

125,000 $ 3.26

Outstanding non-vested at December 31, 2022

225,000 $ 8.73

4 unchanged sentences

300,000 $ 28.79

( 62,500 ) $ 11.96

Forfeited or expired

( 37,500 ) $ 11.96

Outstanding non-vested at December 28, 2024

300,000 $ 28.79

As of December 30, 2023, there was one outstanding grant for performance-based restricted stock awards issued to Bradley Vizi, the Company’s Chief Executive Officer.

In December 2022, the Company issued a performance-based restricted stock unit grant of 100,000 shares, subject to increase up to 125,000 shares, based on fiscal 2023 performance (the “2023 Grant”).

The Company has not made a determination as to how many shares it expects to issue under the 2023 Grant.

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.

1 unchanged sentence

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.

Share-based compensation for performance-based equity agreement was $ 0.7 million, $ 0.8 million and $ 0.4 million for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

During the fiscal year ended December 30, 2023, the Company awarded 4,762 immediately vested share awards at an average price of $ 10.50 .

Share-based compensation for performance-based equity agreement was $ 1.6 million and $ 0.7 million for the fiscal years ended December 28, 2024 and December 30, 2023, respectively.

There were no immediately vested share awards during the fiscal year ended December 28, 2024.

During the fiscal year ended December 30, 2023, the Company awarded 4,762 immediately vested share awards at an average price of $ 10.50 .

During the fiscal year ended January 1, 2022, the Company awarded 125,000 immediately vested share awards at an average price of $ 2.17 .

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

SHARE BASED COMPENSATION (CONTINUED)

Number of Restricted

Weighted Average

1 unchanged sentence

Value per Share

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

( 452,182 ) $ 1.89

Forfeited or expired

Outstanding non-vested at January 1, 2022

Outstanding non-vested at December 31, 2022

499,939 $ 5.91

3 unchanged sentences

( 306,197 ) $ 4.18

( 136,931 ) $ 3.46

Forfeited or expired

6 unchanged sentences

300,000 $ 28.79

( 163,901 ) $ 10.94

Forfeited or expired

4 unchanged sentences

TREASURY STOCK TRANSACTIONS

On April 25, 2023, the Board authorized a program to repurchase shares of its common stock up to an amount not to exceed $ 25.0 million.

This program succeeds the Company’s prior repurchase program authorized in November 2021, which was substantially completed in April 2023.

The program is designed to provide the Company with enhanced flexibility over the long term to optimize its capital structure.

On March 29, 2024, the Board authorized a program to repurchase shares of its common stock up to an amount not to exceed $ 50.0 million, inclusive of amounts remaining under the existing repurchase authorization.

The program (the Treasury Stock Repurchase Plan) 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.

5 unchanged sentences

During the fiscal year ended December 30, 2023, the Company purchased 1,825,957 shares at an average price of $ 14.00 per share.

During the fiscal year ended January 1, 2022, the Company purchased 1,930,911 shares at an average price of $ 4.68 per share.

As of December 28, 2024, the Company has $ 42.2 million available for future treasury stock purchases.

The Company accrued $ 0.2 million in excise tax associated with its Treasury Stock Repurchase Plan during the fiscal year ended December 30, 2023.

The Company accrued $ 25 in excise tax associated with its Treasury Stock Repurchase Plan during the fiscal year ended December 28, 2024.

Excise tax is recorded directly to additional paid-in capital.

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

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.

CECL estimates of expected credit losses on trade receivables over their life will be required to be recorded at inception, based on historical information, current conditions, and reasonable and supportable forecasts.

The Company adopted the standard in its first quarter of 2023.

There was no material impact on the results of operations.

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.

In December 2022, the FASB issued ASU No.

2022 - 06, Deferral of the sunset date of Topic 848.

This update defers the sunset date from December 31, 2022 to December 31, 2024.

The Company may elect to apply the amendments prospectively through December 31, 2024.

The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.

In November 2023, the Financial Accounting Standard Board (FASB) issued ASU 2023 - 07, “Segment reporting (Topic 280 )”, which is intended to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses.

In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures , which is intended to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses.

The amendments require disclosure of significant segment expenses regularly provided to the chief operating decision maker (CODM) as well as other segment items, extend certain annual disclosures to interim periods, clarify the applicability to single reportable segment entities, permit more than one measure of profit or loss to be reported under certain conditions, and require disclosure of the title and position of the CODM.

The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements.

Early adoption is also permitted.

We are currently evaluating the provisions of this ASU and expect to adopt them for the fiscal year ending December 28, 2024.

We adopted this ASU for the fiscal year ended December 28, 2024.

In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ):

1 unchanged sentence

ASU 2023 - 09 is effective for the Company’s annual reporting periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis, with a retrospective option.

We are currently evaluating the effect that adoption of ASU 2023 - 09 will have on our disclosures.

We are currently evaluating the effect that adoption of this ASU will have on our disclosures.

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

2 unchanged sentences

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:

The Company reports segment information based on the management approach, which designates the internal reporting used by the Chief Operating Decision Makers (“CODMs”), who were Bradley Vizi, Chief Executive Officer, and Kevin Miller.

Chief Financial Officer.

The Company’s CODMs are responsible for making decisions regarding the Company’s business, including resource allocations and performance assessments based on historical and future segment revenue, operating expenses, and operating income (loss) before interest and taxes.

The tables below summarize the results of operations and total assets by segment provided to the CODMs.

Segment operating income (loss) includes selling, general, and administrative expenses directly attributable to that segment and charges for allocating corporate costs to each of the operating segments.

Please refer to the segment discussion on pages 34 and 35 of the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Annual Report on Form 10 -K.

Fiscal Year Ended

12 unchanged sentences

- - 683 - 683

Gain on sale of assets

Potential stock issuance and financing

- - - 323 323

Remeasurement of contingent consideration

- - ( 1,759 ) - ( 1,759 )

Operating income

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

13 unchanged sentences

Amortization of acquired intangible assets

Remeasurement of acquisition-related

contingent consideration

- - 182 - 182

1 unchanged sentence

- ( 395 ) - - ( 395 )

Operating income

Operating income (loss)

$ 13,539 $ 3,531 $ 6,622 $ - $ 23,692

3 unchanged sentences

$ 141 $ 724 $ 123 $ 1,943 $ 2,931

RCM TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

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

SEGMENT INFORMATION (CONTINUED)

Fiscal Year Ended

January 1, 2022

Specialty Health Care

Life Sciences and IT

$ 98,495 $ 66,172 $ 39,208 $ - $ 203,875

Cost of services

73,177 50,109 27,465 - 150,751

25,318 16,063 11,743 - 53,124

Selling, general and administrative

19,491 14,210 8,318 - 42,019

Depreciation and amortization of

property and equipment

373 521 113 - 1,007

Amortization of acquired intangible assets

Remeasurement of acquisition-related

contingent consideration

- ( 1,713 ) - - ( 1,713 )

Gain on sale of assets

- ( 2,420 ) - - ( 2,420 )

Operating income

$ 5,454 $ 5,370 $ 3,312 $ - $ 14,136

Total assets as of January 1, 2022

$ 32,809 $ 28,343 $ 8,676 $ 3,024 $ 72,852

Property and equipment acquired

$ 563 $ 481 $ 173 $ 359 $ 1,576

The Company derives a majority of its revenue from offices in the United States.

Revenue reported for each operating segment are all from external customers.

The Company is domiciled in the United States and its segments operate in the United States, Canada, Germany, Puerto Rico and Serbia.

Revenue by geographic area for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022 are as follows:

The Company is domiciled in the United States and its segments operate in the United States, Canada, Germany, Philippines, Puerto Rico and Europe.

The Company does not derive any revenue in the Philippines.

Revenue by geographic area for the fiscal years ended December 28, 2024 and December 30, 2023 are as follows:

Fiscal Year Ended

2 unchanged sentences

$ 278,380 $ 263,237

6,515 5,180 5,237

3,664 2,630 2,891

$ 263,237 $ 284,680 $ 203,875

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

5 unchanged sentences

$ 132,077 $ 120,484

3,476 1,401 963

4,347 3,365 3,266

$ 120,484 $ 87,964 $ 72,852

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 years ended December 30, 2023, December 31, 2022 and January 1, 2022 were 24.2 %, 26.7 % and 21.0 %, respectively.

The Company’s United States Federal statutory tax rate for fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, before any adjustments, was 21.0%.

The consolidated effective income tax rate for fiscal years ended December 28, 2024 and December 30, 2023 were 34.0 % and 24.2 %, respectively.

The Company’s United States Federal statutory tax rate for fiscal years ended December 28, 2024 and December 30, 2023, before any adjustments, was 21.0 %.

The income tax provisions reconciled to the tax computed at the United States Federal statutory rate for fiscal years 2024 and 2023 are as follows:

December 30, 2023

December 31, 2022

Federal statutory rate

21.0 % 21.0 % 21.0 %

% of Earnings

Tax expense on taxable

6 unchanged sentences

188 0.9 ( 269 ) ( 1.2 )

Intangible asset deferred liability true-up 797 4.0 - -

Foreign income tax rates

108 0.5 25 0.1

Foreign tax adjustment 174 0.9 - -

191 0.9 ( 135 ) ( 0.6 )

Total income tax expense

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

6 unchanged sentences

$ 6,863 $ 5,364

217 2,507 2,152

( 143 ) 718 612

( 33 ) 25 ( 223 )

41 3,250 2,541

$ 5,364 $ 7,591 $ 2,925

The components of earnings before income taxes by United States and foreign jurisdictions were as follows:

4 unchanged sentences

$ 20,190 $ 22,195

$ 22,195 $ 28,480 $ 13,914

A reconciliation of the unrecognized tax benefits for the year December 30, 2023:

A reconciliation of the unrecognized tax benefits for the years December 28, 2024 and December 30, 2023:

Unrecognized Tax Benefits

Balance as of January 2, 2021

Gross increases:

tax positions in prior period

Gross increases:

tax positions in current period

Balance as of January 1, 2022

Balance as of December 31, 2022

Gross increases:

11 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

4 unchanged sentences

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 tax expense.

The Company recorded no expense for penalties or interest in the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022.

At December 30, 2023, December 31, 2022 and January 1, 2022, deferred tax assets and liabilities consist of the following:

The Company recorded no expense for penalties or interest in the fiscal years ended December 28, 2024 and December 30, 2023.

At December 28, 2024 and December 30, 2023, deferred tax assets and liabilities consist of the following:

Deferred tax assets:

Allowance for doubtful accounts

$ 421 $ 270 $ 297

Provision for credit losses

Federal and state net operating loss carryforward

1 unchanged sentence

Lease liability

777 1,118 844

Net operating loss carryforward, Germany

Total deferred tax assets

2,808 2,459 3,408

Deferred tax liabilities:

4 unchanged sentences

Fixed assets, net of depreciation

( 906 ) ( 689 )

Right of use assets

1 unchanged sentence

Deferred tax liability, net, Canada

( 187 ) ( 166 ) ( 142 )

Total deferred tax liabilities

5 unchanged sentences

The foreign net operating losses have an indefinite carryforward period.

The Company conducts its operations in multiple tax jurisdictions in the United States, Canada, Germany, Puerto Rico and Serbia.

The Company conducts its operations in multiple tax jurisdictions in the United States, Canada, Germany, Philippines, 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 has no open federal or state audits as of December 30, 2023.

The Company is no longer subject to audits by state and local tax authorities for tax years prior to 2019.

The Company has no open Federal audits as of December 28, 2024.

Except for limited exceptions, the Company is no longer subject to audits by state and local tax authorities for tax years prior to 2020.

The Company is no longer subject to audit in Canada for the tax years prior to tax year 2020.

The Company is under audit in Canada for tax years 2021 and 2022.

The Company is no longer subject to audit in Puerto Rico for the tax years prior to tax year 2019.

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

23 unchanged sentences

As of December 28, 2024, the Company has accrued $ 2.8 million for asserted claims.

In April 2022, a client of the Company’s Industrial Processing Group alleged that a system partially designed by the Company is not operating as intended and that the Company is responsible.

In April 2022, a client of the Company’s Engineering segment alleged that a system partially designed by the Company is not operating as intended and that the Company is responsible.

The Company has not determined if it has any liability.

1 unchanged sentence

Furthermore, the Company believes that if it were found liable, any damages would be covered by insurance, subject to a deductible of $ 0.5 million and maximum coverage of $ 5.0 million.

While the clients estimated damages are not known, the client has either inferred or asserted during settlement discussions that it’s damages significantly exceed the Company’s insurance coverage of $ 5 million.

While the Company attempts to find a mutually agreeable solution, the Company has reserved $ 0.5 million for this project.

The Company can give no assurance that its liability is limited to $3.3 million or that liability over $0.5 million, if any, will be covered by insurance.

The Company is also subject to other pending legal proceedings and claims that arise from time to time in the ordinary course of its business, which may not be covered by insurance.

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

CONTINGENCIES (CONTINUED)

The Company is also subject to other pending legal proceedings and claims that arise from time to time in the ordinary course of its business, which may not be covered by insurance.

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 Company maintains a 401 (k) profit sharing plan for the benefit of eligible employees in the United States and other similar plans in Canada, Philippines, 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 December 30, 2023, December 31, 2022 and January 1, 2022 were $ 698 , $ 626 and $ 721 , respectively.

Executive Severance Agreements

The Company is a party to an Executive Severance Agreement (the “Executive Severance Agreement”) with each of Bradley S.

Vizi, the Company's Executive Chairman and President (dated as of June 1, 2018), and Kevin D.

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).

Contributions to the Retirement Plans charged to operations by the Company for the fiscal years ended December 28, 2024 and December 30, 2023 were $ 460 and $ 698 , respectively.

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.

RCM TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

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

COMMITMENTS (CONTINUED)

Leases (Continued)

The Company determines if an arrangement is a lease at inception.

7 unchanged sentences

The Company has elected to account for these as a single lease component with the exception of its real estate leases.

RCM TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

COMMITMENTS (CONTINUED)

Leases (Continued)

The components of lease expense were as follows:

4 unchanged sentences

Amortization of right of use assets

$ 484 $ 487 $ 401

Interest on lease liabilities

Total finance lease cost

$ 488 $ 494 $ 410

Supplemental Cash Flow information related to leases was as follows:

5 unchanged sentences

Financing cash flows from finance leases

$ 462 $ 508 $ 415

Right of use assets obtained in exchange for lease obligations

Operating leases

$ 33 $ 2,790 $ 830

Finance leases

- $ 257 $ 1,002

RCM TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

1 unchanged sentence

Leases (Continued)

Supplemental Balance Sheet information as of December 30, 2023, December 31, 2022 and January 1, 2022 related to leases was as follows:

Supplemental Balance Sheet information as of December 28, 2024 and December 30, 2023 related to leases was as follows:

Operating leases

17 unchanged sentences

Finance lease liability - non-current

- ( 232 ) ( 502 )

Total finance lease liabilities

2 unchanged sentences

Operating leases

8.61 6.78 1.80

Finance leases

.50 1.50 2.34

Weighted average discount rate

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022

Fiscal Years Ended December 28, 2024 and December 30, 2023

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

3 unchanged sentences

Total lease payments

$ 3,443 $ 233

imputed interest

( 913 ) ( 123 )

$ 5,401 $ 1,810

RELATED PARTY TRANSACTIONS

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures