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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------
|  | For the quarterly period ended June 30, 2002                                           

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR
THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------
|  | For the transition period
from                        to                       

Commission File Number: 0-22145

RWD TECHNOLOGIES, INC.(Exact name of Registrant as specified in its Charter)

Maryland(State or other jurisdiction of
incorporation or organization)

52-1552720(I.R.S. Employer
Identification No.)10480 Little Patuxent Parkway
Columbia, Maryland(Address of principal executive offices)

21044-3530(Zip Code)


(410) 730-4377(Registrant's telephone number, including area code)

None(Former name, former address and former fiscal yearif changed since last report)

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 ý    No o

As
of July 31, 2002, 15,387,064 shares of common stock, $0.10 par value ("Common Stock"), of the Registrant were outstanding.

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RWD TECHNOLOGIES, INC.
INDEX
FORM 10-Q



|                             |  |                                                                                                                    
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------------
|PART IFINANCIAL INFORMATION
|Item 1.                      |  | Financial Statements                                                                                               
|                             |  | Consolidated Condensed Balance Sheets as of June 30, 2002 (Unaudited) and December 31, 2001                        
|                             |  | Consolidated Statements of Operations for the Three Months and Six Months ended June 30, 2002, and 2001 (Unaudited)
|                             |  | Consolidated Statements of Cash Flows for the Six Months ended June 30, 2002, and 2001 (Unaudited)                 
|                             |  | Notes to Consolidated Financial Statements                                                                         
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                              
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                                         
|PART IIOTHER INFORMATION   
|Item 1.                      |  | Legal Proceedings                                                                                                  
|Item 2.                      |  | Changes in Securities                                                                                              
|Item 3.                      |  | Defaults Upon Senior Securities                                                                                    
|Item 4.                      |  | Submission of Matters to a Vote of Security Holders                                                                
|Item 5.                      |  | Other Information                                                                                                  
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                                   
|Signatures                  

Forward-Looking Statements

Certain statements, contained herein, including statements regarding anticipated future results, development of the Company's services, products, markets and
future demands for the Company's services, products, and other statements regarding matters that are not historical facts, are forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements include risks and uncertainties, particularly those described in the Company's filings with the Securities and Exchange Commission;
consequently, actual results may differ materially from those expressed or implied thereby.

i

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PART IFINANCIAL INFORMATION

Item 1. Financial Statements

RWD TECHNOLOGIES, INC.  Consolidated Condensed Balance Sheets  (In thousands)

|                                                        |                                                                                 | June 30, 2002              |                                            | December 31, 2001 |       
|------------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ----------------- | ------
|
|ASSETS                                                  |                                                                                 |                            |                                            |                   |       
|CURRENT ASSETS:                                         |                                                                                 |                            |                                            |                   |       
|                                                        | Cash and investments                                                            |                            | $                                          | 21,243            |       
|                                                        | Contract accounts receivable, net                                               |                            |                                            | 16,702            |       
|                                                        | Costs and estimated earnings in excess of billings on
    uncompleted contracts |                            |                                            | 8,536             |       
|                                                        | Income tax receivable                                                           |                            |                                            | 6,292             |       
|                                                        | Prepaid expenses and other                                                      |                            |                                            | 1,947             |       
|                                                        | Deferred tax assets                                                             |                            |                                            | 3,027             |       
|                                                        |                                                                                 |                            |                                            |                   |       
|                                                        |                                                                                 | Total Current Assets       |                                            |                   | 57,747
|Fixed assets, net                                       |                                                                                 |                            | 11,711                                     |                   |       
|Goodwill, net                                           |                                                                                 |                            |                                           |                   |       
|Capitalized software development costs and other assets |                                                                                 |                            | 7,956                                      |                   |       
|                                                        |                                                                                 |                            |                                            |                   |       
|                                                        |                                                                                 | Total Assets               |                                            | $                 | 77,414
|                                                        |                                                                                 |                            |                                            |                   |       
|LIABILITIES AND STOCKHOLDERS' EQUITY                    |                                                                                 |                            |                                            |                   |       
|CURRENT LIABILITIES:                                    |                                                                                 |                            |                                            |                   |       
|                                                        | Accounts payable and accrued expenses                                           |                            | $                                          | 11,304            |       
|                                                        | Credit line payable of majority-owned subsidiary                                |                            |                                            | 1,224             |       
|                                                        | Billings in excess of costs and estimated earnings on
    uncompleted contracts |                            |                                            | 814               |       
|                                                        | Current portion of long-term debt                                               |                            |                                            | 511               |       
|                                                        |                                                                                 |                            |                                            |                   |       
|                                                        |                                                                                 | Total Current Liabilities  |                                            |                   | 13,853
|NONCURRENT LIABILITIES:                                 |                                                                                 |                            |                                            |                   |       
|                                                        | Long-term debt, net of current portion                                          |                            |                                            | 3,014             |       
|                                                        | Deferred tax liabilities                                                        |                            |                                            | 3,027             |       
|                                                        |                                                                                 |                            |                                            |                   |       
|                                                        |                                                                                 | Total Liabilities          |                                            |                   | 19,894
|                                                        |                                                                                 |                            |                                            |                   |       
|STOCKHOLDERS' EQUITY:                                   |                                                                                 |                            |                                            |                   |       
|                                                        | Common stock                                                                    |                            |                                            | 1,539             |       
|                                                        | Additional paid-in capital                                                      |                            |                                            | 47,684            |       
|                                                        | Accumulated comprehensive income (loss)                                         |                            |                                            | 88                |       
|                                                        | Retained earnings                                                               |                            |                                            | 8,209             |       
|                                                        |                                                                                 |                            |                                            |                   |       
|                                                        |                                                                                 | Total Stockholders' Equity |                                            |                   | 57,520
|                                                        |                                                                                 |                            |                                            |                   |       
|                                                        |                                                                                 |                            | Total Liabilities and Stockholders' Equity |                   | $     
|                                                        |                                                                                 |                            |                                            |                   |       

See
accompanying notes to consolidated financial statements.

1

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RWD TECHNOLOGIES, INC.  Consolidated Statements of Operations  (Unaudited) (In thousands, except per share data)

|                                                                                                             |                               | Three Months Ended June 30, |        | Six Months Ended June 30, |       
|------------------------------------------------------------------------------------------------------------ | ----------------------------- | --------------------------- | ------ | ------------------------- | ------
|
|Revenue:                                                                                                     |                               |                             |        |                           |       
|                                                                                                             | Consulting services           |                             | $      | 26,270                    |       
|                                                                                                             | Products and product services |                             |        | 3,691                     |       
|                                                                                                             |                               |                             |        |                           |       
|                                                                                                             |                               | Total revenue               |        |                           | 29,961
|                                                                                                             |                               |                             |        |                           |       
|Cost of revenue:                                                                                             |                               |                             |        |                           |       
|                                                                                                             | Consulting services           |                             |        | 24,978                    |       
|                                                                                                             | Products and product services |                             |        | 1,468                     |       
|                                                                                                             |                               |                             |        |                           |       
|                                                                                                             |                               | Total cost of revenue       |        |                           | 26,446
|                                                                                                             |                               |                             |        |                           |       
|Gross profit                                                                                                 |                               |                             | 3,515  |                           |       
|Selling, general and administrative expenses                                                                 |                               |                             | 6,850  |                           |       
|                                                                                                             |                               |                             |        |                           |       
|Operating loss                                                                                               |                               |                             | (3,335 | )                         |       
|Other income, net                                                                                            |                               |                             | 88     |                           |       
|                                                                                                             |                               |                             |        |                           |       
|Loss before income taxes and cumulative effect of a change
    in accounting principle                       |                               |                             | (3,247 | )                         |       
|Income tax benefit                                                                                           |                               |                             | (1,027 | )                         |       
|                                                                                                             |                               |                             |        |                           |       
|Loss before cumulative effect of a change in
    accounting principle                                        |                               |                             | (2,220 | )                         |       
|Cumulative effect on prior years of changing method
    of accounting for goodwill (net of $692 tax benefit) |                               |                             |       |                           |       
|                                                                                                             |                               |                             |        |                           |       
|Net loss                                                                                                     |                               | $                           | (2,220 | )                         | $     
|                                                                                                             |                               |                             |        |                           |       
|Basic and diluted loss per share:                                                                            |                               |                             |        |                           |       
|Loss before cumulative effect of a change in
    accounting principle                                        |                               | $                           | (0.14  | )                         | $     
|Cumulative effect on prior years of changing method
    of accounting for goodwill                           |                               |                             |       |                           |       
|                                                                                                             |                               |                             |        |                           |       
|Net loss per share                                                                                           |                               | $                           | (0.14  | )                         | $     
|                                                                                                             |                               |                             |        |                           |       
|Weighted average shares outstanding:                                                                         |                               |                             |        |                           |       
|                                                                                                             | Basic calculation             |                             |        | 15,375                    |       
|                                                                                                             |                               |                             |        |                           |       
|                                                                                                             | Diluted calculation           |                             |        | 15,375                    |       
|                                                                                                             |                               |                             |        |                           |       

See
accompanying notes to consolidated financial statements.

2

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RWD TECHNOLOGIES, INC.  Consolidated Statements of Cash Flows  (Unaudited) (In thousands)

|                                               |                                                                             | Six Months Ended June 30, |                                                                                   
|---------------------------------------------- | --------------------------------------------------------------------------- | ------------------------- | ----------------------------------------------------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                             |                           |                                                                                   
|                                               | Net loss                                                                    |                           | $                                                                                 
|                                               | Adjustments to reconcile net loss to net cash used by operating activities: |                           |                                                                                   
|                                               |                                                                             |                           | Depreciation and amortization                                                     
|                                               |                                                                             |                           | Loss on disposal of fixed assets                                                  
|                                               |                                                                             |                           | Cumulative effect on prior years of changing method of
    accounting for goodwill
|                                               |                                                                             |                           | Deferred income taxes                                                             
|                                               |                                                                             |                           | Effect of changes in:                                                             
|                                               |                                                                             |                           |                                                                                   
|                                               |                                                                             |                           |                                                                                   
|                                               |                                                                             |                           |                                                                                   
|                                               |                                                                             |                           |                                                                                   
|                                               |                                                                             |                           |                                                                                   
|                                               |                                                                             |                           |                                                                                   
|                                               |                                                                             |                           |                                                                                   
|                                               |                                                                             |                           |                                                                                   
|                                               |                                                                             |                           |                                                                                   
|                                               |                                                                             |                           | Net cash used by operating activities                                             
|                                               |                                                                             |                           |                                                                                   
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                             |                           |                                                                                   
|                                               | Sale of investments, net                                                    |                           |                                                                                   
|                                               | Purchase of fixed assets                                                    |                           |                                                                                   
|                                               | Proceeds from sale of fixed assets                                          |                           |                                                                                   
|                                               |                                                                             |                           |                                                                                   
|                                               |                                                                             |                           | Net cash (used) provided by investing activities                                  
|                                               |                                                                             |                           |                                                                                   
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                             |                           |                                                                                   
|                                               | Payments on long-term debt                                                  |                           |                                                                                   
|                                               | Borrowings on long-term debt                                                |                           |                                                                                   
|                                               | Borrowings under line of credit                                             |                           |                                                                                   
|                                               | Payments under line of credit                                               |                           |                                                                                   
|                                               | Issuance of common stock                                                    |                           |                                                                                   
|                                               | Repurchase of common stock                                                  |                           |                                                                                   
|                                               |                                                                             |                           |                                                                                   
|                                               |                                                                             |                           | Net cash provided by financing activities                                         
|                                               |                                                                             |                           |                                                                                   
|NET DECREASE IN CASH AND CASH EQUIVALENTS      |                                                                             |                           | (638                                                                              
|Effect of exchange rate changes on cash        |                                                                             |                           | 167                                                                               
|CASH AND CASH EQUIVALENTS, beginning of period |                                                                             |                           | 3,676                                                                             
|                                               |                                                                             |                           |                                                                                   
|CASH AND CASH EQUIVALENTS, end of period       |                                                                             | $                         | 3,205                                                                             
|                                               |                                                                             |                           |                                                                                   
|Supplemental Cash Flow Disclosures:            |                                                                             |                           |                                                                                   
|                                               | Income taxes paid                                                           |                           | $                                                                                 
|                                               | Interest paid                                                               |                           | $                                                                                 

See
accompanying notes to consolidated financial statements.

3

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RWD TECHNOLOGIES, INC.  Notes to Consolidated Financial Statements  (Unaudited)

1.    Summary of Significant Accounting Policies:

Organization and Business

RWD Technologies, Inc. (the "Company") was incorporated on January 22, 1988, in the State of Maryland. The Company provides a broad range of
integrated solutions and products designed to improve the productivity and effectiveness of workers in complex operating environments.

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for
a fair presentation, have been included. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended
December 31, 2001, included in the Company's Annual Report on Form 10-K.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its greater than 50% owned subsidiaries. The earnings in consolidated subsidiaries
are recorded net of minority interests. Investments in 20%- through 50%-owned affiliated companies in which the Company exercises significant influence over operating and financial affairs are
included under the equity method of accounting. Otherwise, investments are included at cost. All significant intercompany accounts and transactions have been eliminated.

Reclassifications

Certain reclassifications were made to prior year's amounts to conform to current year presentation.

2.    Basic and Diluted Net Loss per Share:

Basic loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period, less shares that may be
repurchased, and excludes any dilutive effects of options, warrants, and convertible securities. Diluted net loss per share is computed based on the combined weighted-average number of shares and
share equivalents outstanding. For the quarter ended June 30, 2002 and June 30, 2001 and for the six months ended June 30, 2002 and June 30, 2001, potentially dilutive
stock options have been excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive. No reconciling items exist between the net loss used for
basic and diluted net loss per share.

3.    Comprehensive Loss:

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner
sources. It includes all changes in

4

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equity during a period, except those resulting from investments by owners and distributions to owners. The Company's comprehensive loss for the periods presented is listed below:

|                                                                                   |  | Three Months Ended
June 30, |        | Six Months Ended
June 30, |  
|---------------------------------------------------------------------------------- |  | --------------------------- | ------ | ------------------------- | -
|
|
|Net loss                                                                           |  | $                           | (2,220 | )                         | $
|Effect of unrealized gain (loss) on investments
    available-for-sale, net of tax |  |                             | 7      |                           |  
|Effect of unrealized gain (loss) on foreign exchange,
    net of tax               |  |                             | 158    |                           |  
|                                                                                   |  |                             |        |                           |  
|Comprehensive loss                                                                 |  | $                           | (2,055 | )                         | $
|                                                                                   |  |                             |        |                           |  

4.    Business Segments:

The Company has three distinct operating segments: Enterprise Systems, which provides products and services supporting the implementation of
enterprise-wide software products and applications; Performance Solutions, which addresses all aspects of manufacturing processes in order to promote continuous improvements; and
Latitude360, which encompasses the design and delivery of information systems to end-users of technology as well as Web-based training.

The
accounting policies for these segments are the same as those described in the summary of significant accounting policies. Depreciation and amortization expense is reported in each
operating segment. However, the Company's tangible assets are not managed as distinct asset groups. All tangible assets not specifically identified to a segment are recorded at the corporate level
with depreciation

5

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expense allocated to operating segments based on headcount. Interest expense, interest income, and income taxes are reported at the corporate level only and are not disclosed below.

|                                                                 |                       | Three Months Ended
June 30, |        | Six Months Ended
June 30,
|---------------------------------------------------------------- | --------------------- | --------------------------- | ------ | -------------------------
|
|
|Revenue (all external):                                          |                       |                             |        |                          
|                                                                 | Enterprise Systems    |                             | $      | 13,707                   
|                                                                 | Performance Solutions |                             |        | 11,465                   
|                                                                 | Latitude360           |                             |        | 4,789                    
|                                                                 |                       |                             |        |                          
|Total Revenue                                                    |                       | $                           | 29,961 |                          
|                                                                 |                       |                             |        |                          
|Gross Profit (Loss):                                             |                       |                             |        |                          
|                                                                 | Enterprise Systems    |                             | $      | 3,127                    
|                                                                 | Performance Solutions |                             |        | 2,658                    
|                                                                 | Latitude360           |                             |        | (2,270                   
|                                                                 |                       |                             |        |                          
|Total Gross Profit                                               |                       | $                           | 3,515  |                          
|                                                                 |                       |                             |        |                          
|Depreciation and Amortization Expense
    Allocated To Segments: |                       |                             |        |                          
|                                                                 | Enterprise Systems    |                             | $      | 711                      
|                                                                 | Performance Solutions |                             |        | 208                      
|                                                                 | Latitude360           |                             |        | 1,188                    
|                                                                 |                       |                             |        |                          
|Total Allocated to Segments                                      |                       |                             | 2,107  |                          
|Amount not Allocated to Segments                                 |                       |                             | 539    |                          
|                                                                 |                       |                             |        |                          
|Total Depreciation and Amortization Expense                      |                       | $                           | 2,646  |                          
|                                                                 |                       |                             |        |                          
|Revenue (by geography):                                          |                       |                             |        |                          
|                                                                 | United States         |                             | $      | 24,406                   
|                                                                 | United Kingdom        |                             |        | 4,390                    
|                                                                 | Other                 |                             |        | 1,165                    
|                                                                 |                       |                             |        |                          
|Total Revenue                                                    |                       | $                           | 29,961 |                          
|                                                                 |                       |                             |        |                          

5.    Goodwill and Intangible Assets (in thousands, except per share data):

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized, but instead will be subject to periodic impairment testing under a fair value approach. The Company applied these new rules beginning
January 1, 2002 and ceased amortizing goodwill. Goodwill, net of accumulated amortization, as of December 31, 2001 was $12,529. Goodwill amortization for both quarters ended
March 31, 2001 and June 30, 2001 was $179.

Under
SFAS No. 142, the Company is required to test all existing goodwill for impairment as of January 1, 2002, on a "reporting unit" basis. A reporting unit is an
operating segment, or one level below an operating segment, the "component" level. The component level is used if it constitutes a business for which discrete financial information is available and
segment management regularly reviews the operating results of that component. The Company tested the reporting unit related to the 1999 acquisition of Merrimac Interactive Media Corporation, which
generated goodwill of $14,290.

A
fair value approach was used to test goodwill for impairment. An impairment is recognized for the amount, if any, by which the carrying amount of goodwill exceeds its implied fair
value. The fair

6

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value of the reporting unit and the related implied fair value of its respective goodwill was established using discounted cash flows by an independent appraiser. As appropriate, comparative market
multiples were used to corroborate results of the discounted cash flows.

As
a result of testing goodwill for impairment in accordance with SFAS No. 142 as of January 1, 2002, the Company recorded a non-cash transitional impairment
charge of $12,529, which is $11,837 after tax, or $0.77 loss per share. This amount is reported in the Statement of Operations as a cumulative effect on prior years of changing a method of accounting
for goodwill. The charge relates to a component of the Latitude360 segment.

Goodwill

The 2001 results on a historical basis do not reflect the non-amortization provisions of SFAS No. 142. If the Company adopted SFAS
No. 142 on January 1, 2001, the historical net loss, basic and diluted net loss per common share would have been decreased to the "as adjusted" amounts indicated below.

|                               |  | Three Months Ended
June 30, 2001 |        | Six Months Ended
June 30, 2001 |  
|------------------------------ |  | -------------------------------- | ------ | ------------------------------ | -
|
|As reported  historical basis |  | $                                | (1,600 | )                              | $
|Add: Goodwill amortization     |  |                                  | 179    |                                |  
|Income tax effect              |  |                                  | (76    | )                              |  
|                               |  |                                  |        |                                |  
|As adjusted                    |  | $                                | (1,497 | )                              | $
|                               |  |                                  |        |                                |  

6.    Income Taxes:

The Company estimates its income tax expense or benefit in interim financial reporting periods by applying the estimated effective annual income tax rate to
year-to-date income or loss before income taxes. Effects of changes in tax laws that affect previously recorded deferred income tax assets or liabilities are also recorded in
the period that these changes are enacted. Income tax provisions in 2002 associated with the reported loss before the cumulative effect of adopting a new method of accounting for goodwill are
determined assuming the cumulative effect adjustment is not a component of the pretax loss. The Company's estimate of its 2002 consolidated effective annual income tax rate is subject to change based
on a variety of factors, including estimates of income or loss in U.S. Federal, state and foreign taxing jurisdictions, and the proportionate contribution to income or loss of domestic and foreign
operations.

For
the year ended December 31, 2002, the Company estimates that its effective annual income tax rate before the cumulative effect of a change in accounting principle and the
effect of enacted tax law changes will be approximately 32%. In addition to the income tax benefit associated with 2002 operations, in the first quarter of 2002, the Company recorded an income tax
benefit of $1.8 million as a result of an enacted U.S. Federal tax law change extending the net operating loss carryback period from two to five years. This change in tax law resulted in a
$1.8 million reduction of a previously recorded valuation allowance for deferred tax assets.

7

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7.    Long-Term Debt (in thousands):

The Company entered into two new long-term debt agreements during the six months ended June 30, 2002. Information related to the debt
agreements as of June 30, 2002 is summarized as follows:

|                     |  | June 30, 2002
Interest Rate |  | Maturities Through |  | June 30, 2002
|-------------------- |  | --------------------------- |  | ------------------ |  | -------------
|Note payable         |  | 5.07%                       |  | March 2007         |  | $            
|Note payable         |  | 0.00%                       |  | February 2012      |  |              
|                     |  |                             |  |                    |  |              
|                     |  |                             |  |                    |  |              
|Less current portion |  |                             |  |                    |  |              
|                     |  |                             |  |                    |  |              
|                     |  |                             |  |                    |  | $            
|                     |  |                             |  |                    |  |              

In
March 2002, the Company obtained a $490 loan from a commercial bank for funding of operating equipment needs at the Applied Technology Laboratory ("ATL") at the
University of Maryland, Baltimore County ("UMBC"). Monthly principal and interest repayments of $9 began April 2002 and are due ratably over five years. The interest rate on the loan is the
bank's Certificate of Deposit Annual Rate plus 250 basis points.

In
February 2002, the Company obtained a $500 interest-free loan from the Baltimore County Economic Development Authority to provide additional funding for leasehold
improvements to the Company's new ATL facility. Monthly principal repayments of $4 began March 2002 and are due ratably over ten years.

8

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview

RWD Technologies, Inc. (the "Company") provides a broad range of integrated products and solutions designed to improve the productivity and effectiveness
of workers in complex operating environments. As the scope and complexity of technology used by business increases and the global business environment becomes more competitive, companies are
increasingly focused on maximizing their return on their advanced technology and eCommerce investments. As the Company's business evolves, strategic initiatives focus on aligning the organization to
best serve the customers, emphasizing learning products, expanding strategic partnerships, and pursuing additional international business.

Critical Accounting Policies

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, which require estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the year. Actual results could differ from those estimates. The following policies are considered to be the most critical in understanding the judgments that are involved in
preparing the financial statements and the uncertainties that could impact the results of operations, financial condition, and cash flows.

Goodwill and Intangible Assets.In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the Company
tests goodwill and intangible assets deemed to have indefinite lives for impairment at least annually. As a result of testing goodwill for impairment in accordance with SFAS No. 142, the
Company recorded a non-cash charge of $12.5 million ($11.8 million after tax, or $0.77 loss per share), which is reported as a cumulative effect on prior years of changing a
method of accounting for goodwill in the Statement of Operations discussed in Note 5 of this Report.

Software Development Costs.The Company accounts for software development costs in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."

Costs
incurred prior to the establishment of technological feasibility are expensed as incurred. Capitalized computer software development costs are amortized, beginning when the product
is first available for general release to customers. Periodic amortization is computed on a product-by-product basis at the greater of the amount determined with reference to
total estimated revenues to be generated by the product or the amount computed on a straight-line basis with reference to the product's expected life cycle. Product amortization expense
for the quarters ended June 30, 2001 and June 30, 2002 was approximately $0.2 million and $1.2 million, respectively. Net capitalized software development costs as of
December 31, 2001 and June 30, 2002 were $6.4 million and $5.9 million, respectively.

The
Company evaluates capitalized software development costs for impairment by comparing the net book value against estimated net realizable value. Net realizable value is based on the
Company's estimate of future sales and to the extent these sales do not occur in the future, the net book value of capitalized software development costs may be impaired and written down to net
realizable value.

Costs
incurred in the search for, or the evaluation of, software product alternatives and for the conceptual formulation and the translation of knowledge into a design are considered
research and development expenses and are charged to expense as incurred. Software maintenance costs are also expensed as incurred.

Revenue Recognition.The majority of the Company's revenue is generated from consulting fees. The majority of the Company's
consulting contracts are on a time-and-materials basis, although many

9

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of the contracts contain initial "not-to-exceed" amounts and Company performance obligations. The Company's remaining consulting contracts are on a fixed-price basis. Revenue
is recognized using the percentage of completion method. Consulting contracts generally vary in length from one to 36 months.

Earned
revenue is based on the percentage that direct labor and other contract costs incurred to date bear to total estimated costs, after giving effect to the most recent estimates of
total cost. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known. Earned revenue reflects the original
contract price adjusted for agreed-upon claim and change order revenue, if any. Losses expected to be incurred on jobs in process, after consideration of estimated minimum recoveries from
claims and change orders, are charged to income as soon as such losses are known.

The
Company recognizes revenue from the sale of software license agreements in accordance with American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP")
No. 97-2, "Software Revenue Recognition" and SOP No. 98-9, "Modification of SOP 97-2 with Respect to Certain Transactions."

Revenue
from the sale of multiple-element software license agreements is generally recognized under the residual method at the time of delivery of software products to the customer and
when collectibility is probable and there is persuasive evidence of an agreement. Under the residual method, the Company defers revenue on any undelivered element, as indicated by vendor-specific
objective evidence of the fair market value of the undelivered element, and recognizes the residual amount in the period in which delivery takes place. The Company does not grant its customers a right
of return for a full or partial refund on its products. Revenue from all maintenance, hosting, and customer support agreements is recognized ratably over the term of the agreement, generally one year,
with the unrecognized portion at the balance sheet date being recorded as deferred revenue. Revenue from professional services and training relating to products are recognized as the services are
performed.

Income Taxes.The Company estimates its income tax expense or benefit in interim financial reporting periods by applying the
estimated effective annual income tax rate to year-to-date income or loss before income taxes. Effects of changes in tax laws that affect previously recorded deferred income
tax assets or liabilities are also recorded in the period that these changes are enacted. Income tax provisions in 2002 associated with the reported loss before the cumulative effect of adopting a new
method of accounting for goodwill are determined assuming the cumulative effect adjustment is not a component of the pretax loss. The Company's estimate of its 2002 consolidated effective annual
income tax rate is subject to change based on a variety of factors, including estimates of income or loss in U.S. Federal, state and foreign taxing jurisdictions, and the proportionate contribution to
income or loss of domestic and foreign operations.

For
the year ended December 31, 2002, the Company estimates that its effective annual income tax rate before the cumulative effect of a change in accounting principle and the
effect of enacted tax law changes will be approximately 32%. In addition to the income tax benefit associated with 2002 operations, in the first quarter of 2002, the Company recorded an income tax
benefit of $1.8 million as a result of an enacted U.S. Federal tax law change extending the net operating loss carryback period from two to five years. This change in tax law resulted in a
$1.8 million reduction of a previously recorded valuation allowance for deferred tax assets.

Long-Lived Assets.In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the Company records impairment losses on long-lived assets used in operations whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment is recognized to the extent that the sum of undiscounted estimated future cash flows expected to result from the use of the assets is less than the carrying
value. As of December 31, 2001 and June 30, 2002, management evaluated the Company's asset base, under the guidelines established by SFAS No. 144, and believes that no impairment
has occurred.

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Results of Operations



Revenue.Consolidated revenue decreased by $0.4 million, or 1.5%, from $30.4 million for the quarter ended
June 30, 2001 to $30.0 million for the quarter ended June 30, 2002. Performance by segment was as follows:



Gross Profit.Gross profit for the total Company decreased $0.8 million, or 17.5%, from $4.3 million for the
quarter ended June 30, 2001, to $3.5 million for the quarter ended June 30, 2002, and decreased from 14.0% of revenue for the second quarter of 2001 to 11.7% of revenue for the
2002 period. Performance by segment was as follows:



Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.5 million, from
$7.3 million for the second quarter of 2001 to $6.8 million for the second quarter of

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2002, decreasing from 23.9% of total revenue for the second quarter of 2001 to 22.9% of total revenue for the 2002 period. During the second quarter of 2002, there were decreases in indirect and
marketing salaries and related personnel costs of $0.9 million, travel and conference expenses of $0.1 million, and bad debt expenses of $0.2 million. These decreases were
partially offset by an increase in rent expense of $0.7 million and an increase in professional services of $0.2 million. As required, the Company implemented SFAS No. 142,
"Goodwill and Other Intangible Assets." As a result of the new accounting standard, the Company no longer amortizes goodwill, which resulted in an expense reduction of approximately
$0.2 million for the quarter ended June 30, 2002.

Operating Loss.As a result of the preceding, the Company's operating loss increased by $0.3 million, from an
operating loss of $3.0 million for the second quarter of 2001 to an operating loss of $3.3 million for the second quarter of 2002.

Other Income.Other income decreased $0.1 million from $0.2 million for the second quarter of 2001 to
$0.1 million for the second quarter of 2002. This decrease resulted from lower interest income and higher interest expense, which was partially offset by a decrease in losses on the disposal of
fixed assets.

Net loss.Net loss increased $0.6 million from a loss of $1.6 million for the second quarter of 2001 to a loss
of $2.2 million for the second quarter of 2002. The results included the tax benefit related to performance for the second quarter of 2002.



Revenue.Consolidated revenue decreased by $1.4 million, or 2.2%, from $60.5 million for the six months ended
June 30, 2001 to $59.1 million for the six months ended June 30, 2002. Performance by segment was as follows:



Gross Profit.Gross profit for the total Company decreased by $0.5 million, or 5.7%, from $9.3 million for the
six months ended June 30, 2001, to $8.8 million for the six months ended June 30,

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2002, and decreased from 15.5% of revenue for the six months ended June 30, 2001 to 14.9% of revenue for the 2002 period. Performance by segment was as follows:

| |  | Enterprise Systems.Gross profit increased by $2.4 million, or 58.6%, from $4.1 million for the six months ended June 30, 2001, to $6.5 million for the six months ended
June 30, 2002. Gross profit margin increased from 17.5% of the segment's revenue for the six months ended June 30, 2001 to 24.6% for the 2002 period. This increase in gross profit and gross profit margin was due to the increase of product
sales of $3.0 million and a decrease in operating costs as a percentage of revenue of 7.1% from 82.5% for the six months ended June 30, 2001 to 75.4% for the six months ended June 30, 2002.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Performance Solutions. Gross profit increased by $1.8 million, or 50.8%, from $3.5 million for the six months ended June 30, 2001, to $5.3 million for the six months
ended June 30, 2002. Gross profit margin increased from 17.1% of the segment's revenue for the six months ended June 30, 2001 to 24.4% for the 2002 period. This increase in gross profit margin is due to an increase in staff utilization and
reduced operating costs.                                                                                                                                                                      
| |  | Latitude360.Gross profit decreased $4.7 million from a profit of $1.7 million for the six months ended June 30, 2001, to a loss of $3.0 million for the six months ended
June 30, 2002. Gross profit margin decreased from 10.4% of the segment's revenue for the six months ended June 30, 2001 to a negative 28.1% for the 2002 period. This decrease primarily resulted from declining revenues and increased costs
associated with product development and product support efforts, the amortization of capitalized product costs, costs associated with staff reductions, and a reduction in staff utilization.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.3 million, from
$13.7 million for the six months ended June 30, 2001 to $13.4 million for the 2002 period, remaining consistent at 22.7% of total revenue for the six months ended June 30,
2001 and June 30, 2002. During the six months ended June 30, 2002, there were decreases in indirect and marketing salaries and related personnel costs of $1.5 million, travel and
conference expenses of $0.2 million, and bad debt expenses of $0.1 million. These decreases were partially offset by an increase in rent expense of $1.3 million and an increase in
professional services of $0.6 million. During the six months ended June 30, 2002, the Company implemented SFAS No. 142, "Goodwill and Other Intangible Assets." As a result of the
new accounting standard, the Company no longer amortizes goodwill, which resulted in an expense reduction of approximately $0.4 million for the six months ended June 30, 2002.

Operating Loss.As a result of the preceding, the Company's operating loss increased by $0.2 million, from an
operating loss of $4.4 million for the six months ended June 30, 2001 to an operating loss of $4.6 million for the six months ended June 30, 2002.

Other Income.Other income decreased $0.3 million from $0.4 million for the six months ended June 30,
2001 to $0.1 million for the six months ended June 30, 2002. This resulted from a decrease in interest income and an increase in interest expense which was partially offset by a decrease
in the losses on disposal of fixed assets.

Income Tax Benefit.Income tax benefit increased $1.6 million, from $1.7 million for the six months ended
June 30, 2001 to $3.3 million for the six months ended June 30, 2002. This increase is due a change in U.S. Federal tax law which extended the net operating loss carryback period
from two to five years.
During the first quarter of 2002, the Company recorded an income tax benefit of $1.8 million as a result of this legislation. This increase in the tax benefit was partially offset by a decrease
in the effective tax rate due to changes in the Company's most recent projections of year-end 2002 taxable income.

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Loss before cumulative effect of a change in accounting principle.Loss before required accounting changes decreased by
$0.9 million, from a loss of $2.2 million for the six months ended June 30, 2001 to a loss of $1.3 million for the six months ended June 30, 2002.

Cumulative effect on prior years of changing method of accounting for goodwill.As a result of the implementation of SFAS
No. 142, the Company recognized an impairment loss of $11.8 million, net of $0.7 million tax benefit, on goodwill related to an acquisition in 1999. The effects of adopting the
new accounting standard on 2002 and 2001 financial statements is discussed in Note 5 of this Report.

Net loss.Net loss increased $10.9 million, from a net loss of $2.2 million for the six months ended
June 30, 2001 to a net loss of $13.1 million for the six months ended June 30, 2002. The results included the tax benefit of the loss for the six months ended June 30, 2002
plus the elimination of the valuation allowance of $1.8 million resulting from new tax laws, and the cumulative effects of adopting SFAS No. 142 related to goodwill and intangible
assets.

Outlook for the Current Year.The Company believes that the IT and eLearning systems environment will continue to be
challenging. Company-wide efforts will be two-fold; strive to maintain current revenues and continue to focus on costs. The previously announced goal of $0.20 per share for
operating results for 2002 does not appear to be achievable at the present time.

Liquidity and Capital Resources

The Company's cash and investments were $21.2 million as of June 30, 2002, compared to $22.8 million as of December 31, 2001. The
Company's working capital was $43.9 million as of June 30, 2002, and $41.5 million as of December 31, 2001.

The
Company's operating activities used cash of approximately $0.6 million for the six months ended June 30, 2002, compared to using cash of $2.9 million for the six
months ended June 30, 2001. This change is due to improving earnings before non-cash items, which consist principally of depreciation and amortization and a goodwill impairment
charge. For the six months ended June 30, 2002, earnings before depreciation and amortization and non-cash charges were $2.0 million, compared to $1.7 million in the
comparable 2001 period. The Company also increased its working capital by $2.4 million for the six
months ended June 30, 2002 compared to the six months ended June 30, 2001. This increase in working capital was primarily due to reductions in investments in capitalized product costs
during 2002 and decreases in current liabilities due to workforce reductions and overall cost containment efforts.

Investing
activities used cash of approximately $1.6 million for the six months ended June 30, 2002, compared to providing cash of $2.4 million for the six months
ended June 30, 2001. Cash used for investing activities for the six months ended June 30, 2002 and 2001 consisted primarily of purchases of fixed assets. For the six months ended 2002,
cash used for investing activities also included payments for other assets related to collateral on loans obtained in conjunction with funding the Company's new ATL facility. Cash from investing
activities for the six months ended June 30, 2002 and 2001 included sales of investments. Cash from investing activities for the six months ended June 30, 2001 also included proceeds
from the sale of fixed assets.

Financing
activities provided cash of approximately $1.5 million for the six months ended June 30, 2002, compared to providing $0.2 million for the six months ended
June 30, 2001. Cash provided by financing activities consisted of the borrowings on long-term debt and borrowings on a credit line by a majority-owned subsidiary. During the six
months ended June 30, 2002, the Company obtained a $0.5 million interest-free loan from the Baltimore County Economic Development Authority to provide additional funding for
the ATL at UMBC. Monthly principal repayments began March 2002 and are due ratably over a ten-year period. Additionally, the Company obtained a $0.5 million loan from a

14

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commercial bank for funding of operating equipment needs at the ATL facility. Monthly principal and interest payments began April 2002 and are due ratably over a five-year period.

The
Company has a $10.0 million unsecured revolving line of credit with a commercial bank, which bears interest at the 30-day LIBOR rate (1.84% on June 30,
2002), plus 1.2%. The Company utilizes this line of credit regularly to finance a portion of its working capital needs. There was no balance outstanding on the line of credit as of December 31,
2001 or June 30, 2002 and the Company was in compliance with all financial covenants under the loan agreement. The highest borrowing level was $1.9 million during the six months ended
June 30, 2002 and $4.1 million for the fiscal year ended 2001.

The
Company's majority-owned subsidiary, SAP Learning Solutions Pte Ltd ("SAPLS"), has a Singapore dollar ("SGD") revolving credit facility with a major bank intended for general
working capital requirements. The revolving credit facility is secured by a SGD3.0 million (approximately $1.7 million) standby letter of credit provided by the Company and a
SGD2.0 million (approximately $1.1 million) corporate guarantee by the Company's joint venture partner. As of December 31, 2001 and June 30, 2002, there was
$0.7 million and $1.2 million, respectively, outstanding under this line of credit.

During
the six months ended June 30, 2002, the Company made $1.6 million in capital expenditures, primarily for operating equipment and furniture and fixtures to support
its professional and administrative staff, the majority of which was installed at the Company's the new ATL facility. These
capital expenditures were primarily funded from available cash, although the Company entered into leases for some of the equipment for the new facility.

During
2002, the Company anticipates it will reduce the level of capital and product development expenditures from 2001 levels. The Company expects to fund those expenditures from a
combination of available cash and alternative financing methods, such as equipment leases or asset-based borrowings. The Company believes its existing cash balances, cash provided by future
operations, and its line of credit will be sufficient to meet the Company's working capital and other cash needs at least through 2003.

Contractual Cash Obligations and Other Commercial Commitments (in thousands)

The following tables reflect a summary of the Company's contractual cash obligations and other commercial commitments as of June 30, 2002:

|Contractual Cash Obligations       |  | Total |        | Due in less
than 1 year |   | Due in
1-3 years |  | Due in
4-5 years |        | Due after
5 years
|---------------------------------- |  | ----- | ------ | ----------------------- | - | ---------------- |  | ---------------- | ------ | -----------------
|Long-term debt (1)                 |  | $     | 3,496  |                         | $ | 498              |  | $                | 1,859  |                  
|Capital lease obligations          |  |       | 29     |                         |   | 13               |  |                  | 16     |                  
|Operating leases                   |  |       | 25,688 |                         |   | 6,630            |  |                  | 10,007 |                  
|                                   |  |       |        |                         |   |                  |  |                  |        |                  
|Total Contractual Cash Obligations |  | $     | 29,213 |                         | $ | 7,141            |  | $                | 11,882 |                  
|                                   |  |       |        |                         |   |                  |  |                  |        |                  

|Other Commercial Commitments     |  | Total |       | Due in less
than 1 year |   | Due in
1-3 years |  | Due in
4-5 years |   | Due after
5 years
|-------------------------------- |  | ----- | ----- | ----------------------- | - | ---------------- |  | ---------------- | - | -----------------
|Lines of credit (1)(2)(5)        |  | $     | 1,224 |                         | $ | 1,224            |  | $                |  |                  
|Standby letters of credit (3)(4) |  |       | 2,925 |                         |   | 2,925            |  |                  |  |                  
|                                 |  |       |       |                         |   |                  |  |                  |   |                  
|Total Commercial Commitments     |  | $     | 4,149 |                         | $ | 4,149            |  | $                |  |                  
|                                 |  |       |       |                         |   |                  |  |                  |   |                  

---

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Effects of Inflation

Inflation has not had a significant effect on the Company's business during the past three years. The Company cannot predict what effect, if any, inflation may
have on its future results of operations.

Business Risks

The following are some of the factors that may cause the Company's future results of operations to differ materially from management's expectations and historic
trends.



16

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company does not have significant interest rate risk related to its line of credit, which has an interest rate equivalent to the 30-day LIBOR rate
(1.84% on June 30, 2002), plus 1.2%. The Company does not have significant foreign currency risk related to foreign sales because of the amount of funds maintained in foreign payroll and
operating accounts. The Company does not have any derivative commodity instruments or other financial instruments such as interest swaps, foreign currency forwards, futures and options, or foreign
currency denominated debt, except for credit line debt of its majority-owned subsidiary, SAPLS. The Company does not have commodity price risk or other relevant market risks.

17

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PART IIOTHER INFORMATION

Item 1. Legal Proceedings

From time of time, the Company is party to routine litigation in the ordinary course of business. The Company is not currently party to any material litigation.

Item 4. Submission of Matters to a Vote of Security Holders

At the 2002 Annual Meeting of Stockholders held on Friday, April 26, 2002, the shareholders of RWD Technologies, Inc. Common Stock took the
following actions:



|                    |  | Term Expiration |  | For        |  | Withheld
|------------------- |  | --------------- |  | ---------- |  | --------
|Class I Directors:  |  |                 |  |            |  |         
|H. Shelton          |  | 2004            |  | 13,850,220 |  | 519,366 
|Class II Directors: |  |                 |  |            |  |         
|J. Brown            |  | 2005            |  | 13,846,485 |  | 523,101 
|R. Rubin            |  | 2005            |  | 13,823,720 |  | 545,866 
|D. Sohr             |  | 2005            |  | 13,967,472 |  | 402,114 
|D. Yager            |  | 2005            |  | 13,965,546 |  | 404,040 



For the motion

Against the motion

Abstain from voting
on the motion11,011,050

1,304,023

7,565




For the motion

Against the motion

Abstain from voting on
the motion11,454,925

859,427

8,286


Item 5. Other Information

Change in Independent Public Accountants

In May 2002, the Company changed independent public accountants. The Company's prior public accountants issued an audit opinion for the Consolidated
Financial Statements as of December 31, 2001.

Sarbanes-Oxley Act of 2002

The Registrant has filed with the Securities and Exchange Commission the certifications of its Chief Executive Officer and Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002.

18

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Item 6. Exhibits and Reports on Form 8-K.



Exhibit No.

Description10.1

Employment Agreement, dated as of May 17, 2002, between RWD and David Yager.






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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                       |  | RWD TECHNOLOGIES, INC.
|---------------------- |  | ----------------------
|                       |  | By:                   
|                       |  | By:                   
|Dated: August 14, 2002 | 

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

|Name                                         |  | Capacity                                                               |  | Date           
|-------------------------------------------- |  | ---------------------------------------------------------------------- |  | ---------------
|                                             |  |                                                                        |  |                
|/s/ROBERT W. DEUTSCHRobert W. Deutsch, Ph.D. |  | Chairman of the Board,
Chief Executive Officer, President and Director |  | August 14, 2002
|/s/BETH MARIE BUCKBeth Marie Buck, CPA       |  | Chief Financial Officer and Vice President                             |  | August 14, 2002

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