UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

For the quarterly period ended SeptemberMarch 28, 20192020

OR

For the transition period from ____________________________ to ____________________________

Commission file number: 1-10245

RCM TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey  08109-4613

(Address of Principal Executive Offices)                                          (Zip Code)

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES [X]     NO [  ]

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

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

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

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

YES [  ]     NO [X]

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

Common Stock, $0.05 par value, 12,955,84713,135,970 shares outstanding as of November 7, 2019.May 12, 2020.

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SeptemberMarch 28, 20192020 and December 29, 201828, 2019

The accompanying consolidated interim financial statements of RCM Technologies, Inc. and subsidiaries (“RCM” or the “Company”) are unaudited. The year-end consolidated balance sheet was derived from audited statements but does not include all disclosures required by accounting principles generally accepted in the United States. These statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission pertaining to reports on Form 10-Q and should be read in conjunction with the Company’s consolidated financial statements and the notes thereto for the year ended December 29, 201828, 2019 included in the Company’s Annual Report Form 10-K for such period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.

The consolidated financial statements for the unaudited interim periods presented include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows for such interim periods.

Results for the thirteen and thirty-nine week periodsperiod ended SeptemberMarch 28, 20192020 are not necessarily indicative of results that may be expected for the full year.

The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31.  The fiscal year ended December 29, 201828, 2019 (fiscal 2019) was a 52-week reporting year.  The thirdcurrent fiscal year ending January 2, 2021 (fiscal 2020) is a 53-week reporting year.  The fiscal quarters of 2019for the current year (fiscal 2020) and 2018 ended on the following dates, respectively:prior year (fiscal 2019) align as follows:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.

The Company uses estimates to calculate an allowance for doubtful accounts on its accounts receivables, adequacy of reserves, goodwill impairment, if any, equity compensation, the tax rate applied and the valuation of certain assets and liability accounts.  These estimates can be significant to the operating results and financial position of the Company.  The estimates are based upon various factors including current and historical trends, as well as other pertinent industry and regulatory authority information, including the potential future effects of COVID-19.  Management regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes.

The Company has risk participation arrangements with respect to workers compensation and health care insurance.  The amounts included in the Company’s costs related to this risk participation are estimated and can vary based on changes in assumptions, the Company’s claims experience or the providers included in the associated insurance programs.

The Company can be affected by a variety of factors including uncertainty relating to the performance of the general economy, competition, demand for the Company’s services, adverse litigation and claims and the hiring, training and retention of key employees.

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

The Company records revenue under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers.  Revenue is recognized when we satisfy a performance obligation by transferring services promised in a contract to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services.  Performance obligations in our contracts represent distinct or separate service streams that we provide to our customers.

The Company derives its revenue from several sources.  The Company’s Engineering Services and Information Technology Services 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 thirteen and thirty-nine week periods ended SeptemberMarch 28, 20192020 and September 29, 2018:March 30, 2019:

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

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

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

Deferred revenue was $288$0.6 million and $150$0.4 million at SeptemberMarch 28, 20192020 and December 29, 2018,28, 2019, respectively and is included in accounts payable and accrued expenses in the accompanying consolidated balance sheet at those dates.  Revenue is recognized when the service has been performed.  Deferred revenue may be recognized over a period exceeding one year from the time it was recorded on the balance sheet.  For the thirty-ninethirteen week periodperiods ended SeptemberMarch 28, 2020 and March 30, 2019, the Company recognized revenue of $150$0.4 million and $0.1 million that was included in deferred revenue at the beginning of theeach respective reporting period.

The Company’s accounts receivable are comprised as follows:

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

From time to time, the Company’s Engineering segment enters into agreements to provide, among other things, construction management and engineering services.  Pursuant to these agreements, the Company a) may engage subcontractors to provide construction or other services; b) typically earns a fixed percentage of the total project value; and c) assumes no ownership or risks of inventory.  Under the terms of the agreements, the Company is typically not required to pay the subcontractor until after the corresponding payment from the Company’s end-client is received. Upon invoicing the end-client on behalf of the subcontractor or staffing agency the Company records this amount simultaneously as both a “transit account receivable” and “transit account payable” as the amount when paid to the Company is due to and generally paid to the subcontractor within a few days. The Company typically does not pay a given transit account payable until the related transit account receivable is collected. The Company is typically obligated to pay the subcontractor or staffing agency whether or not the client pays the Company.  The Company’s transit accounts payable generally exceeds the Company��sCompany’s transit accounts receivable but absolute amounts and spreads fluctuate significantly from quarter to quarter in the normal course of business. The transit accounts receivable was $3.7 million and related transit accounts payable was $4.5 million, for a net payable of $0.8 million, as of September 28, 2019.  The transit accounts receivable was $2.6$1.9 million and related transit accounts payable was $2.5 million, for a net payable of $0.6 million, as of March 28, 2020.  The transit accounts receivable was $4.9 million and related transit accounts payable was $4.6 million, for a net receivable of $0.1$0.3 million, as of December 29, 2018.28, 2019.

The Company has a dispute with a customer that is a major utility in the United States. Both parties agreed in fiscal 2017 to resolve this dispute through binding arbitration.  Arbitration hearings with this customer started in fiscal 2018.  Essentially, the customer hasdid not paidpay the balance of accounts receivable the Company believes arewere owed for certain disputed projects.  As of SeptemberDecember 28, 2019, and December 29, 2018, the total amount of outstandingrecorded receivables from this customer on these disputed projects was $12.2 million and $8.9 million, respectively, subject to potential upward adjustment in damages claimed in arbitration.$14.1 million.  Additionally, as part of the arbitration process, the customer has asserted counter-claims. While the total amount of asserted counter-claims is unknown as of September 28, 2019, the total amount of such counter-claims is anticipated to be at least $10.3 million. The arbitrator rendered a decision in this dispute in April 2020, awarding the Company believes these$7.4 million. The counter-claims are retaliatoryasserted against the Company of $10.3 million were denied in nature.  Priortheir entirety. For the thirteen week period ended March 28, 2020, the Company recorded a charge of $8.0 million, including $6.7 million constituting the portion of the accounts receivable relating to the Company asserting its claims,disputed projects that was not awarded by the arbitrator, $0.7 million from other projects with this customer hadthat were not asserted any counter-claims.  The Company believes these counter-claims asserted by its customer have no merit and were merely asserted as a strategy to reduce the Company’s own claims in any arbitration award or potential settlement agreement. The Company believes that its accounts receivable balance, subject to reserves, is fully collectible. Furthermore, the Company believes that this arbitration will conclude prior to reporting its fiscal 2019 financial results.  While the Company believes the customer’s counter-claims to be frivolous and without merit, it can give no assurances that it will ultimately not have to pay all or a portion of such counter-claims.  The Company is continuing work on one of the engagements that have given rise to this dispute and also on several engagements from the same client that are not currently part of the arbitration, $0.4 million in professional fees related to the dispute and arbitration, and $0.2 million of transit accounts receivable associated with disputed projects that were part of the arbitration. The Company decided to write off the $0.7 million of accounts receivable from other projects not part of the arbitration for business reasons.

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

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

As of SeptemberMarch 28, 2019,2020, the Company had two active acquisition agreements whereby additional contingent consideration may be earned by the former shareholders: 1) effective October 1, 2017, the Company acquired all of the stock of PSR Engineering Solutions d.o.o. Beograd (Voždovac) (“PSR”) and 2) effective September 30, 2018, the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, “TKE”). The Company estimates future contingent payments at SeptemberMarch 28, 20192020 as follows:

Estimates of future contingent payments are subject to significant judgment and actual payments may materially differ from estimates.  Potential future contingent payments to be made to all active acquisitions after SeptemberMarch 28, 20192020 are capped at a cumulative maximum of $6.3 million.  The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of SeptemberMarch 28, 2019.2020.  During the thirty-ninethirteen week period ended SeptemberMarch 28, 2019,2020, the Company measured the intangibles acquiredcontingent consideration at fair value on a non-recurring basis.  Contingent consideration related to acquisitions are recorded at fair value (level 3) with changes in fair value recorded in other (expense) income, net.

For acquisitions that involve contingent consideration, the Company records a liability equal to the fair value of the estimated contingent consideration obligation as of the acquisition date. The Company determines the acquisition date fair value of the contingent consideration based on the likelihood of paying the additional consideration. The fair value is estimated using projected future operating results and the corresponding future earn-out payments that can be earned upon the achievement of specified operating objectives and financial results by acquired companies using Level 3 inputs and the amounts are then discounted to present value. These liabilities are measured quarterly at fair value, and any change in the fair value of the contingent consideration liability is recognized in the consolidated statements of comprehensive (loss) income. During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the consolidated statements of comprehensive (loss) income.

The Company paiddid not pay contingent consideration of $0.6 millionduring the thirteen week period ended March 28, 2020 and $0.3paid $0.2 million during the thirty-ninethirteen week periodsperiod ended September 28, 2019 and September 29, 2018, respectively.

Goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired in business combinations.  The Company tests goodwill for impairment on an annual basis as of the last day of the Company's fiscal year or more frequently if events occur or circumstances change indicating that the fair value of goodwill may be below the carrying amount.  The Company has determined that no indicators of impairment of goodwill existed during the thirty-ninethirteen week periods ended SeptemberMarch 28, 20192020 and September 29, 2018.March 30, 2019.  During the first quarter of 2020, the Company reviewed the carrying value of goodwill due to the events and circumstances surrounding the COVID-19 pandemic.  While COVID-19 has negatively impacted the Company, and the Company expects this negative impact to continue at least over the next two quarters, the Company does not believe at this time that this negative impact is permanent. As such, no impairment loss on the Company’s goodwill during the three months ended March 28, 2020 was recorded as a result of such review.  There was no impairment loss recognized on the Company’s goodwill during the three months ended March 30, 2019.

The changes in the carrying amount of goodwill for the thirty-nine week period ended Septemberas of March 28, 2020 and December 28, 2019 areis as follows:

The Company evaluates long-lived assets and intangible assets with definite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  When the Company determines that it is probable that undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value.  Assets to be disposed of by sale, if any, are reported at the lower of the carrying amount or fair value less cost to sell.  The Company’s intangible assets consist of customer relationships and non-compete agreements.  During all periods presented, the Company determined that no impairment of intangible assets exists.  During the thirteen week period ended March 28, 2020, the Company reviewed the carrying value of its intangible assets due to the events and circumstances surrounding the COVID-19 pandemic.  While COVID-19 has negatively impacted the Company, and the Company expects this negative impact to continue at least over the next two quarters, the Company does not believe at this time that this negative impact is permanent. As such, no impairment loss on the Company’s intangible assets during the thirteen week period ended March 28, 2020 was recorded as a result of such review. There was no impairment loss recognized on the Company’s intangible assets or goodwill during the thirteen week period ended March 30, 2019.

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.

The Company and its subsidiaries amended and restated its Revolving Credit Facility with Citizens Bank of Pennsylvania on October 18, 2019.  As amended and restated, the Revolving Credit Facility provides for a $45.0 million revolving credit facility, has no sub-limit for letters of credit, and expires on August 8, 2023.

Borrowings under the Revolving Credit Facility bear interest at one of two alternative rates, as selected by the Company at each incremental borrowing.  These alternatives are: (i) LIBOR (London Interbank Offered Rate), plus applicable margin, typically borrowed in fixed 30-day increments or (ii) the agent bank’s prime rate generally borrowed over shorter durations.  The Company also pays unused line fees based on the amount of the Revolving Credit Facility that is not drawn.  Unused line fees are recorded as interest expense.  The effective weighted average interest rate, including unused line fees, for the thirty-ninethirteen week periods ended SeptemberMarch 28, 2020 and March 30, 2019 were 3.7% and September 29, 2018 were 4.6% and 3.8%4.7%, respectively.

All borrowings under the Revolving Credit Facility are collateralized by all of the assets of the Company and its subsidiaries and a pledge of the stock of its subsidiaries.  The Revolving Credit Facility also contains various financial and non-financial covenants, such as a covenant that restricts on the Company’s ability to borrow in order to pay dividends.  As of SeptemberMarch 28, 2019,2020, the Company was in compliance with all covenants contained in the Revolving Credit Facility.Facility, except its financial covenant for the ratio of debt to EBITDA (earnings before interest, depreciation and amortization). The Company obtained an express waiver from Citizens Bank as of March 28, 2020. Beginning with the fiscal quarter ending June 28, 2020 and continuing for the foreseeable future thereafter, the Company believes that it may not be in compliance with its debt to EBITDA covenant. While the Company believes that Citizens Bank will provide future waivers or make changes to its current agreement so that compliance with the current debt to EBITDA covenant is no longer applicable, the Company can give no assurance that this will occur.  Because the Company may not be in compliance with its debt to EBITDA covenant in the future, the Company has classified its revolving line of credit as a current liability as of March 28, 2020.

Borrowings under the line of credit as of SeptemberMarch 28, 2020 and December 28, 2019 and December 29, 2018 were $31.7$32.8 million and $27.5$34.8 million, respectively.  At SeptemberMarch 28, 20192020 and December 29, 201828, 2019 there were letters of credit outstanding for $1.7 million and $1.6 million.million, respectively.  At SeptemberMarch 28, 2019,2020, the Company had availability for additional borrowings under the Revolving Credit Facility of $11.7$10.5 million.

The Company uses the treasury stock method to calculate the weighted-average shares used for diluted earnings per share.  The number of common shares used to calculate basic and diluted earnings per share for the thirteen and thirty-nine week periods ended SeptemberMarch 28, 20192020 and September 29, 2018March 30, 2019 was determined as follows:

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

At SeptemberMarch 28, 2019,2020, the Company had two share-based employee compensation plans.  The Company measures the fair value of share-based awards, if and when granted, based on the Black-Scholes method and using the closing market price of the Company’s common stock on the date of grant.  Awards vest over periods ranging from one to three years and expire within 10 years of issuance.  Share-based compensation expense related to time-based awards is amortized in accordance with applicable vesting periods using the straight-line method.  The Company expenses performance-based awards only when the performance metrics are likely to be achieved and the associated awards are therefore likely to vest.  Performance-based share awards that are likely to vest are also expensed on a straight-line basis over the vesting period but may vest on a retroactive basis or be reversed, depending on when it is determined that they are likely to vest, or in the case of a reversal when they are later determined to be unlikely to vest.

As of SeptemberMarch 28, 2019,2020, the Company had $0.1$0.6 million of total unrecognized compensation cost related to all time-based non-vested share-based awards and performance-based restricted stock units outstanding and deemed as likely to vest. The Company expects to recognize this expense over approximately two years.  These amounts do not include a) performance-based restricted stock units deemed unlikely to vest, b) the cost of any additional share-based awards granted in future periods or c) the impact of any potential changes in the Company’s forfeiture rate. 

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

As of SeptemberMarch 28, 2019,2020, under the 2014 Plan, 120,372281,725 time-based and 320,000160,000 performance-based restricted share units were outstanding and 267,551158,326 shares were available for awards thereunder.

The Company implemented the 2001 Employee Stock Purchase Plan (the “Purchase Plan”) with shareholder approval, effective January 1, 2001.  Under the Purchase Plan, employees meeting certain specific employment qualifications are eligible to participate and can purchase shares of common stock semi-annually through payroll deductions at the lower of 85% of the fair market value of the stock at the commencement or end of the offering period.  The purchase plan permits eligible employees to purchase shares of common stock through payroll deductions for up to 10% of qualified compensation.

In fiscal 2015, the Company amended the Purchase Plan with shareholder approval to increase the aggregate number of shares of stock reserved for issuance or transfer under the Plan by an additional 300,000 shares so that the total number of shares of stock reserved for issuance or transfer under the Plan shall be 1,100,000 shares and to extend the expiration date of the Plan to December 31, 2025.  In fiscal 2018, the Company amended the Purchase Plan with shareholder approval to increase the aggregate number of shares of stock reserved for issuance or transfer under the Plan by an additional 300,000 shares so that the total number of shares of stock reserved for issuance or transfer under the Plan shall be 1,400,000 shares.

The Company has two offering periods in the Purchase Plan coinciding with the Company’s first two fiscal quarters and the last two fiscal quarters.  Actual shares are issued on the first business day of the subsequent offering period for the prior offering period payroll deductions.  The number of shares issued aton December 30, 2019 (the first business day following the beginning of the current period (on July 1, 2019)previous offering period) was 59,075.57,251.  As of SeptemberMarch 28, 2019,2020, there were 267,877210,626 shares available for issuance under the Purchase Plan.

From time-to-time the Company issues time-based restricted stock units.  These time-based restricted stock units typically include dividend accrual equivalents, which means that any dividends paid by the Company during the vesting period become due and payable after the vesting period assuming the grantee’s restricted stock unit fully vests.  Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying consolidated balance sheet.  As of SeptemberMarch 28, 2019,2020, there was $40 in accrued dividends.  Dividends for time-based restricted stock units that ultimately do not vest are forfeited.

To date, the Company has issued time-based restricted stock units only under its 2007 Omnibus Equity Compensation Plan and the 2014 Plan.  The 2007 Plan has expired and there are no time-based restricted stock units outstanding thereunder.  The following summarizes the activity in the time-based restricted stock units under the 2014 Plan during the thirty-ninethirteen week period ended SeptemberMarch 28, 2019:2020:

Based on the closing price of the Company’s common stock of $3.04$1.30 per share on SeptemberMarch 27, 20192020 (the last trading day prior to SeptemberMarch 28, 2019)2020), the intrinsic value of the time-based non-vested restricted stock units at SeptemberMarch 28, 20192020 was approximately $366.  As of SeptemberMarch 28, 2019,2020, there was approximately $138$0.6 million of total unrecognized compensation cost related to time-based restricted stock units, which is expected to be recognized over the average weighted remaining vesting period of the restricted stock units.

From time-to-time the Company issues performance-based restricted stock units to its executives.  Performance-based restricted stock units are typically vested based on certain multi-year performance metrics as determined by the Board of Directors Compensation Committee. These performance-based restricted stock units typically include dividend accrual equivalents, which means that any dividends paid by the Company during the vesting period become due and payable after the vesting period on any stock units that actually vest, if any.  Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying consolidated balance sheet.  As of SeptemberMarch 28, 2019,2020, there were no accrued dividends.dividends for performance-based restricted stock units.  Dividends for performance-based restricted stock units that ultimately do not vest are forfeited.  

To date, the Company has issued performance-based restricted stock units only under the 2014 Plan.  The following summarizes the activity in the performance-based restricted stock units during the thirty-ninethirteen week period ended SeptemberMarch 28, 2019:2020:

As of SeptemberMarch 28, 2019,2020, the Company currently considers the metrics related to all 160,000 of the total outstanding 320,000 performance-based restricted stock units as unlikely to be achieved. The Company will reassess at each reporting date whether achievement of any performance condition is probable and would begin recognizing additional compensation cost if and when achievement of the performance condition becomes probable.  The Company will then recognize the appropriate expense cumulatively in the year performance becomes probable and recognize the remaining compensation cost over the remaining requisite service period. If at a later measurement date the Company determines that performance-based restricted stock units deemed as likely to vest are deemed as unlikely to vest, the expense recognized will be reversed.  As of SeptemberMarch 28, 2019,2020, there was approximately $1.5$0.8 million of total unrecognized compensation cost related to performance-based restricted stock units deemed likelyunlikely to vest. 

For both the thirty-ninethirteen week periods ended SeptemberMarch 28, 20192020 and September 29, 2018,March 30, 2019, the Company did not have an active stock purchase program and therefore did not purchase any treasury shares. 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities.  ThisIn February 2020, the FASB issued ASU is2020-02, 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 financial statements issuedthe Company for interim and annual periods in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.2022.  The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not expect the adoption of ASU 2016-13 to haveanticipate a material impact on results of operations. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements.

The Company follows “Disclosures about Segments of an Enterprise and Related Information,” which establishes standards for companies to report information about operating segments, geographic areas and major customers.  The accounting policies of each reportable segment are the same as those described in the summary of significant accounting policies (see Note 1 to the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 29, 2018)28, 2019).

Segment operating (loss) income includes selling, general and administrative expenses directly attributable to that segment as well as charges for allocating corporate costs to each of the operating segments.  The following tables reflect the results of the reportable segments consistent with the Company’s management system:

The Company derives a majority of its revenue from offices in the United States.  Revenue reported for each operating segment are all from external customers.  The Company is domiciled in the United States and its segments operate in the United States, Canada, Puerto Rico and Serbia. Revenue by geographic area for the thirteen and thirty-nine week periods ended SeptemberMarch 28, 20192020 and September 29, 2018March 30, 2019 are as follows:

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

The Company recognized $0.3$2.2 million of income tax expensebenefit for the thirty-ninethirteen week period ended SeptemberMarch 28, 2019,2020, as compared to an income tax expensebenefit of $0.7$0.3 million for the comparable prior year period.  The Company recognized a tax benefit of $0.6 million during the Company’s first fiscal quarter of 2019 due to a verbal settlement with the U.S. Internal Revenue Service regarding an uncertain tax position from a previous tax year. Otherwise, theThe consolidated effective income tax rate for both the current period was 25.9% as compared to 25.8% forand the comparable prior year period. Not including the discrete tax benefit of $0.6 million due to the verbal settlement, theperiod was 27.4%. The projected fiscal 20192020 income tax rates as of SeptemberMarch 28, 20192020, were approximately 28.3%27.0%, 26.5%28.1%, and 15.0%15.5% in the United States, Canada, and Serbia, respectively. The relative income or loss generated in each jurisdiction can materially impact the overall effective income tax rate of the Company, particularly the ratio of Canadian and Serbian pretax income versus U.S. pretax income.  The comparable prior year period estimated income tax rates were 28.1%, 26.5%, and 15.2%15.1% in the United States, Canada, and Serbia, respectively, and yielded a consolidatedrespectively. 

Differences between the effective income tax rate and the applicable U.S. federal statutory rate may arise, primarily from the effect of approximately 25.8%state and local income taxes, share-based compensation, and potential tax credits available to the Company. The actual 2020 effective tax rate may vary from the estimate depending on the actual operating income earned in various jurisdictions, the potential availability of tax credits, and the exercise of stock options and vesting of share-based awards. The Company's estimate for the thirty-nine week period ended September 29, 2018.  The consolidated2020 effective income tax rate has not been adjusted for the thirty-nine week period ended September 28, 2019 was higher than the comparable prior year period primarily dueany potential impact related to the reduction in Serbian pretax income relative to consolidated pretax income. COVID-19.

From time to time, the Company is a defendant or plaintiff in various legal actions that arise in the normal course of business.  As such, the Company is required to assess the likelihood of any adverse outcomes to these matters as well as potential ranges of losses and possible recoveries.  The Company may not be covered by insurance as it pertains to some or all of these matters.  A determination of the amount of the provision required for these commitments and contingencies, if any, which would be charged to earnings, is made after careful analysis of each matter.  Once established, a provision may change in the future due to new developments or changes in circumstances and could increase or decrease the Company’s earnings in the period that the changes are made.  Asserted claims in these matters sought approximately $10.3 million in damages (as further described below) as of SeptemberMarch 28, 2019.2020 are uncertain as no open claims have asserted any specific amounts.  As of SeptemberMarch 28, 2019,2020, the Company did not have an accrual for any such liabilities.  As described in the following paragraph, these claims were denied in their entireties as a result of the arbitration.

The Company has a dispute with a customer that is a major utility in the United States. Both parties agreed in fiscal 2017 to resolve this dispute through binding arbitration.  Arbitration hearings with this customer started in fiscal 2018.  Essentially, the customer hasdid not paidpay the balance of accounts receivable the Company believes arewere owed for certain disputed projects.  As of SeptemberDecember 28, 2019, and December 29, 2018, the total amount of outstandingrecorded receivables from this customer on these disputed projects was $12.2 million and $8.9 million, respectively, subject to potential upward adjustment in damages claimed in arbitration.$14.1 million.  Additionally, as part of the arbitration process, the customer has asserted counter-claims. While the total amount of asserted counter-claims is unknown as of September 28, 2019, the total amount of such counter-claims is anticipated to be at least $10.3 million. The arbitrator rendered a decision in this dispute in April 2020, awarding the Company believes these$7.4 million. The counter-claims are retaliatoryasserted against the Company of $10.3 million were denied in nature.  Priortheir entirety. For the thirteen week period ended March 28, 2020, the Company recorded a charge of $8.0 million, including $6.7 million constituting the portion of the accounts receivable relating to the Company asserting its claims,disputed projects that was not awarded by the arbitrator, $0.7 million from other projects with this customer hadthat were not asserted any counter-claims.  The Company believes these counter-claims asserted by its customer have no merit and were merely asserted as a strategy to reduce the Company’s own claims in any arbitration award or potential settlement agreement. The Company believes that its accounts receivable balance, subject to reserves, is fully collectible. Furthermore, the Company believes that this arbitration will conclude prior to reporting its fiscal 2019 financial results.  While the Company believes the customer’s counter-claims to be frivolous and without merit, it can give no assurances that it will ultimately not have to pay all or a portion of such counter-claims.  The Company is continuing work on one of the engagements that have given rise to this dispute and also on several engagements from the same client that are not currently part of the arbitration, $0.4 million in professional fees related to the dispute and arbitration, and $0.2 million of transit accounts receivable associated with disputed projects that were part of the arbitration. The Company decided to write off the $0.7 million of accounts receivable from other projects not part of the arbitration for business reasons.

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.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842),are recorded in accordance with FASB ASC 842, Leases which requires lessees to recognize a right-of-use (“ROU”) asset and a leasean 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. The accounting applied by a lessor is largely unchanged from that applied under the prior standard. After the issuance of Topic 842, the FASB clarified the guidance through several ASUS; hereinafter the collection of lease guidance is referred to as “ASC 842”.

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

The components of lease expense were as follows:

Supplemental Cash Flow information related to leases was as follows: