** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, 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 March 31, 2003**                                                                                                                                                                                                                                          |
|           |   |                                                                                                                                                                                                                                                                                        |
|           |   | **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** |   |

** **

**RWDTECHNOLOGIES, INC.**

(Exact name of Registrantas specified in its Charter)

** **

| **Maryland**                                                                         |   | **52-1552720**                               |
|--------------------------------------------------------------------------------------|--------|----------------------------------------------|
| (State or other  jurisdiction of   incorporation or organization)                    |   |  (I.R.S. Employer   Identification No.) |
|                                                                                 |   |                                         |
| **5521 Research Park Drive****Baltimore,  Maryland**                                 |   | **21228**                                    |
| (Address of principal  executive offices)                                            |   | (Zip Code)                                   |
|                                                                                 |
| **(410) 869-1000**                                                                   |
| (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) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the Registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  **Yes  ****ý No  ****o**

 

As of April 30, 2003, 15,397,588 shares of commonstock, $0.10 par value (“Common Stock”), of the Registrant were outstanding.

 

 

----

 

**RWD TECHNOLOGIES, INC.**

 

**INDEX**

 

FORM 10-Q

 

**PART I - FINANCIAL INFORMATION**

 
| Item  1. | Financial  Statements                                                                                  |
|----------|--------------------------------------------------------------------------------------------------------|
|     |                                                                                                   |
|     | Consolidated  Condensed Balance Sheets as of March 31, 2003 (Unaudited) and December 31,  2002         |
|     |                                                                                                   |
|     | Consolidated  Statements of Operations for the Three Months ended March 31, 2003 and 2002  (Unaudited) |
|     |                                                                                                   |
|     | Consolidated  Statements of Cash Flows for the Three Months ended March 31, 2003 and 2002  (Unaudited) |
|     |                                                                                                   |
|     | Notes  to Consolidated Condensed Financial Statements (Unaudited)                                      |
|     |                                                                                                   |
| Item 2.  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations            |
|     |                                                                                                   |
| Item  3. | Quantitative  and Qualitative Disclosures About Market Risk                                            |
|     |                                                                                                   |
| Item  4. | Controls  and Procedures                                                                               |

 

**PARTII - 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     |
|           |
| Certifications |

 

i

----

 

**PARTI - FINANCIAL INFORMATION**

 

**Item 1****.  Financial Statements**

 

# RWDTECHNOLOGIES, INC.

Consolidated CondensedBalance Sheets

(In thousands)

 
|                                                                         |   | **March 31, 2003** |       | **December 31, 2002** |       |
|------------------------------------------------------------------------------|--------|--------------------|------------|-----------------------|------------|
|                                                                         |   | (Unaudited)        |       |                  |       |
| **ASSETS**                                                                   |   |               | ** ** |                  | ** ** |
| CURRENT ASSETS:                                                              |   |               |       |                  |       |
| Cash                                                                         |   | $                  | 3,381      |                  | $          | 3,694 |   |
| Restricted cash                                                              |   | 1,429              |       | 67                    |       |
| Investments                                                                  |   | 6,919              |       | 7,618                 |       |
| Restricted  investments                                                      |   | 9,087              |       | 10,441                |       |
| Contract  accounts receivable, net                                           |   | 14,549             |       | 19,053                |       |
| Costs and  estimated earnings in excess of billings on uncompleted contracts |   | 6,412              |       | 6,005                 |       |
| Income tax  refund receivable                                                |   | 7,792              |       | 7,802                 |       |
| Prepaid expenses  and other current assets                                   |   | 3,802              |       | 1,703                 |       |
| Deferred tax  assets                                                         |   | 388                |       | 388                   |       |
| Total Current Assets                                                         |   | 53,759             |       | 56,771                |       |
| Fixed assets,  net                                                           |   | 8,886              |       | 9,675                 |       |
| Capitalized  software development costs and other assets, net                |   | 4,144              |       | 4,251                 |       |
| Restricted  investments, net of current portion                              |   | 2,383              |       | 2,508                 |       |
| Total Assets                                                                 |   | $                  | 69,172     |                  | $          | 73,205 |   |
|                                                                         |   |               |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                               |   |               | ** ** |                  | ** ** |
| CURRENT  LIABILITIES:                                                        |   |               |       |                  |       |
| Accounts payable  and accrued expenses                                       |   | $                  | 6,701      |                  | $          | 7,330 |   |
| Accrued payroll  and related benefits                                        |   | 5,390              |       | 6,049                 |       |
| Credit lines  payable                                                        |   | 8,058              |       | 4,705                 |       |
| Billings in  excess of costs and estimated earnings on uncompleted contracts |   | 381                |       | 744                   |       |
| Deferred revenue                                                             |   | 3,031              |       | 2,682                 |       |
| Current portion  of long-term debt                                           |   | 577                |       | 567                   |       |
| Total Current Liabilities                                                    |   | 24,138             |       | 22,077                |       |
| NONCURRENT LIABILITIES:                                                      |   |               |       |                  |       |
| Long-term debt,  net of current portion                                      |   | 2,595              |       | 2,712                 |       |
| Deferred tax  liabilities                                                    |   | 388                |       | 388                   |       |
| Total  Liabilities                                                           |   | 27,121             |       | 25,177                |       |
| STOCKHOLDERS’  EQUITY:                                                  |   |               |       |                  |       |
| Common stock                                                                 |   | 1,540              |       | 1,542                 |       |
| Accumulated  other comprehensive income (loss)                               |   | 28                 |       | (117                  | )          |
| Additional  paid-in capital                                                  |   | 46,216             |       | 46,499                |       |
| Retained  (deficit) earnings                                                 |   | (5,733             | )          | 104                   |       |
| Total  Stockholders’ Equity                                             |   | 42,051             |       | 48,028                |       |
| Total  Liabilities and Stockholders’ Equity                             |   | $                  | 69,172     |                  | $          | 73,205 |   |
|                                                                              |        |                    |            |                       |            |  |  |  |

 

See accompanying notes toconsolidated financial statements.

 

1

----

 

RWD TECHNOLOGIES, INC.

Consolidated Statementsof Operations

(Unaudited) (Inthousands, except per share data)

 
|                                                                                |   | **Three  Months Ended March 31,** |   |
|-------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                |   | **2003**                          |   | **2002** |   |
| Revenue:                                                                            |   |                              |   |   |   |
| Consulting  services                                                                |   | $                                 | 19,892 |   | $ | 26,717 |   |
| Products and  product services                                                      |   | 3,563                             |   | 2,464 |   |
| Total revenue                                                                       |   | 23,455                            |   | 29,181 |   |
| Cost of revenue:                                                                    |   |                              |   |   |   |
| Consulting  services                                                                |   | 19,754                            |   | 21,669 |   |
| Products and  product services                                                      |   | 3,034                             |   | 2,167 |   |
| Total cost of  revenue                                                              |   | 22,788                            |   | 23,836 |   |
| Gross profit                                                                        |   | 667                               |   | 5,345 |   |
| Selling, general  and administrative expenses                                       |   | 6,421                             |   | 6,579 |   |
| Severance and  lease termination expenses                                           |   | 582                               |   | 43 |   |
| Operating loss                                                                      |   | (6,336                            | )      | (1,277 | ) |
| Other income  (expense), net                                                        |   | 280                               |   | (36 | ) |
| Loss before  income taxes and cumulative effect of a change in accounting principle |   | (6,056                            | )      | (1,313 | ) |
| Provision for  (benefit from) income taxes                                          |   | 35                                |   | (2,262 | ) |
| (Loss) income  before cumulative effect of a change in accounting principle         |   | (6,091                            | )      | 949 |   |
| Cumulative  effect on prior years of changing method of accounting for goodwill     |   | —                            |   | (12,529 | ) |
| Net loss                                                                            |   | $                                 | (6,091 | ) | $ | (11,580 | ) |
|                                                                                |   |                              |   |   |   |
| Basic and  diluted (loss) earnings per share:                                       |   |                              |   |   |   |
| (Loss) earnings  before cumulative effect of a change in accounting principle       |   | $                                 | (0.40  | ) | $ | 0.06 |   |
| Cumulative  effect on prior years of changing method of accounting for goodwill     |   | —                            |   | (0.82 | ) |
| Net loss per  share                                                                 |   | $                                 | (0.40  | ) | $ | (0.76 | ) |
|                                                                                |   |                              |   |   |   |
| Weighted average  shares outstanding – basic and diluted                       |   | 15,407                            |   | 15,307 |   |

 

See accompanying notes toconsolidated financial statements.

 

2

----

 

RWD TECHNOLOGIES, INC.

Consolidated Statements of Cash Flows

(Unaudited) (Inthousands)

 
|                                                                            |   | **Three  Months Ended March 31,** |   |
|---------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                            |   | **2003**                          |   | **2002** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                           |   |                              |   |   |   |
| Net loss                                                                        |   | $                                 | (6,091 | ) | $ | (11,580 | ) |
| Adjustments to reconcile net loss to net cash used by operating  activities:    |   |                              |   |   |   |
| Depreciation and amortization                                                   |   | 1,635                             |   | 2,385 |   |
| (Gain) loss on disposal of fixed assets                                         |   | (18                               | )      | 20 |   |
| Cumulative effect on prior years of changing method of accounting for  goodwill |   | —                            |   | 12,529 |   |
| Deferred income taxes                                                           |   | —                            |   | (2,513 | ) |
| Net change in current assets and liabilities                                    |   | 757                               |   | (1,039 | ) |
| Net cash used by operating activities                                           |   | (3,717                            | )      | (198 | ) |
|                                                                            |   |                              |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                           |   |                              |   |   |   |
| Increase in capitalized software development costs and other assets             |   | (442                              | )      | (1,396 | ) |
| Purchases of investments                                                        |   | (11,506                           | )      | (7,115 | ) |
| Proceeds from sales of investments                                              |   | 12,322                            |   | 9,138 |   |
| Purchase of fixed assets                                                        |   | (357                              | )      | (1,052 | ) |
| Proceeds from sale of fixed assets                                              |   | 38                                |   | — |   |
| Net cash provided by (used in) investing activities                             |   | 55                                |   | (425 | ) |
|                                                                            |   |                              |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                           |   |                              |   |   |   |
| Principal portion paid on long-term debt                                        |   | (107                              | )      | (28 | ) |
| Borrowings on long-term debt                                                    |   | —                            |   | 990 |   |
| Borrowings under lines of credit                                                |   | 15,577                            |   | 3,411 |   |
| Payments on lines of credit                                                     |   | (12,200                           | )      | (3,252 | ) |
| Issuance of common stock                                                        |   | 1                                 |   | 15 |   |
| Repurchase of common stock                                                      |   | (33                               | )      | (17 | ) |
| Net cash provided by financing activities                                       |   | 3,238                             |   | 1,119 |   |
|                                                                            |   |                              |   |   |   |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                            |   | (424                              | )      | 496 |   |
| Effect of Exchange Rate Changes on Cash                                         |   | 111                               |   | (16 | ) |
| CASH AND CASH EQUIVALENTS, beginning of period                                  |   | 3,694                             |   | 3,676 |   |
| CASH AND CASH EQUIVALENTS, end of period                                        |   | $                                 | 3,381  |   | $ | 4,156 |   |
| Supplemental Cash Flow Disclosures:                                             |   |                              |   |   |   |
| Income taxes paid                                                               |   | $                                 | 76     |   | $ | 190 |   |
| Interest paid                                                                   |   | $                                 | 86     |   | $ | 66 |   |

 

See accompanying notes toconsolidated financial statements.

 

3

----

 

RWD TECHNOLOGIES, INC.

# Notes to Consolidated CondensedFinancial Statements

# (Dollarsin thousands)

(Unaudited)

 

**1.             Summary of Significant AccountingPolicies:**

 

*Organizationand Business*

 

RWD Technologies,Inc. (the ‘‘Company’’) was incorporated on January 22, 1988, in the State ofMaryland. The Company provides a broad range of integrated solutions andproducts designed to improve the productivity and effectiveness of workers incomplex operating environments.

 

*Basisof Presentation*

 

The accompanyingunaudited consolidated condensed financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesfor interim financial information and with the instructions to Form 10-Q.Accordingly, they do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States for completefinancial statements. In the opinion of management, all adjustments, consistingof normal recurring adjustments considered necessary for a fair presentation,have been included. These financial statements should be read in conjunctionwith the audited consolidated financial statements of the Company for the fiscalyear ended December 31, 2002, included in the Company’s Annual Report on Form10-K.

 

*Principlesof Consolidation*

 

The consolidatedfinancial statements include the accounts of the Company and its greater than50% owned subsidiaries.  Investments in20%- through 50%-owned affiliated companies in which the Company exercisessignificant influence over operating and financial affairs are included underthe equity method of accounting. Otherwise, investments are included at cost.  All significant intercompany accounts and transactions have beeneliminated.

 

*Reclassifications*

 

Certainreclassifications were made to prior quarters’ and prior year’s amounts toconform to current quarter presentation.

 

**2.             Basic and Diluted Net Loss perShare:**

 

Basic loss pershare has been computed using the weighted-average number of shares of commonstock outstanding during the period, less shares that may be repurchased.  Diluted net loss per share is computed basedon the combined weighted-average number of shares and share equivalentsoutstanding.  For all periods presented,potentially dilutive stock options have been excluded from the computation ofdiluted net loss per share, as their inclusion would be anti-dilutive.  No reconciling items exist between the netloss used for basic and diluted net loss per share.

 

4

----

 

**3.****                                      ComprehensiveLoss:**

 

Comprehensive lossincludes all changes in stockholders’ equity during a period except thoseresulting from investments by or distributions to shareholders.  The Company’s non-owner changes instockholders’ equity consist of foreign currency translation adjustments andunrealized gains and losses on available-for-sale investments.  The Company’s comprehensive loss for theperiods presented is listed below:

 

|                                                                     |   | **Three  Months Ended March 31,** |   |
|--------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                     |   | **(in  thousands)**               |   |
|                                                                     |   | **2003**                          |   | **2002** |   |
| Net loss                                                                 |   | $                                 | (6,091 | ) | $ | (11,580 | ) |
| Effect of  unrealized loss on investments available-for-sale, net of tax |   | —                            |   | (3 | ) |
| Effect of  unrealized gain on foreign currency translation, net of tax   |   | 145                               |   | 52 |   |
| Comprehensive  loss                                                      |   | $                                 | (5,946 | ) | $ | (11,531 | ) |

 

**4.             Stock-Based Compensation:**

 

The Company hascomputed pro forma net loss and loss per share assuming that the fair valuemethod of accounting for its employee and director stock option grants wasadopted.  These computations are basedon the Black-Scholes option-pricing model. The Black-Scholes option pricingmodel and other models were developed for use in estimating the fair value oftraded options that have no vesting restrictions and are fully transferable. Inaddition, option valuation models require the input of highly subjectiveassumptions, including the expected stock price volatility. Because theCompany’s stock options have characteristics significantly different from thoseof traded options and because changes in the subjective input assumptions canmaterially affect the fair value estimate, in management’s opinion, theexisting models do not necessarily provide a reliable single measure of thefair value of its stock options.

 

Pro forma net loss and loss per share are summarizedas follows:

 

|                                                                                                |   | **Three  months ended March 31,** |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                |   | **(in  thousands)**               |   |
|                                                                                                |   | **2003**                          |   | **2002** |   |
| Net Loss:                                                                                           |   |                              |   |   |   |
| As reported                                                                                         |   | $                                 | (6,091 | ) | $ | (11,580 | ) |
| Stock-based  employee compensation expense determined under fair value based method for  all awards |   | (1,023                            | )      | (924 | ) |
| Pro forma                                                                                           |   | $                                 | (7,114 | ) | $ | (12,504 | ) |
|                                                                                                |   |                              |   |   |   |
| Basic and  Diluted Loss Per Share:                                                                  |   |                              |   |   |   |
| As reported                                                                                         |   | $                                 | (0.40  | ) | $ | (0.76 | ) |
| Pro forma                                                                                           |   | (0.46                             | )      | (0.82 | ) |
|                                                                                                     |        |                                   |        |  |  |  |  |  |  |

 

5

----

 

**5.****              BusinessSegments:**

 

The Companydetermines operating segments using the management approach.  The management approach designates theinternal organization that is used by management for making operating decisionsand assessing performance as the source of the Company’s reportablesegments.  The Company has identifiedthree operating segments:  EnterpriseSystems, which provides products and services supporting the implementation of enterprise-widesystems and applications; Performance Solutions, which addresses all aspects ofmanufacturing processes in order to promote continuous improvements; andApplied Technology Solutions, which encompasses the design and delivery ofinformation systems to end-users of technology as well as Web-based training.

 

The accountingpolicies for these segments are the same as those described in the summary ofsignificant accounting policies. Depreciation and amortization expense isreported in each operating segment. However, the Company’s tangible assets arenot managed as distinct asset groups. All tangible assets not specificallyidentified to a segment are recorded at the corporate level with depreciationexpense allocated to operating segments based on headcount. Interest expense,interest income, and income taxes are reported at the corporate level only andare not disclosed below.

 

|                                                              |   | **Three  Months Ended March 31,** |       |
|-------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                              |   | **(in  thousands)**               |       |
|                                                              |   | **2003**                          |       | **2002** |   |
| **Revenue (all external):**                                       |   |                              |       |   |   |
| Enterprise  Systems                                               |   |                              |       |   |   |
| Consulting  services                                              |   | $                                 | 7,442      |   | $ | 11,100 |   |
| Products and  product services                                    |   | 2,917                             |       | 1,661 |   |
|                                                              |   | 10,359                            |       | 12,761 |   |
| Performance  Solutions                                            |   |                              |       |   |   |
| Consulting  services                                              |   | 9,913                             |       | 10,403 |   |
| Products and  product services                                    |   | —                            |       | — |   |
|                                                              |   | 9,913                             |       | 10,403 |   |
| Applied  Technology Solutions                                     |   |                              |       |   |   |
| Consulting  services                                              |   | 2,537                             |       | 5,214 |   |
| Products and product  services                                    |   | 646                               |       | 803 |   |
|                                                              |   | 3,183                             |       | 6,017 |   |
| **Total Revenue**                                                 |   | $                                 | 23,455     |   | $ | 29,181 |   |
|                                                              |   |                              |       |   |   |
| **Gross Profit (Loss):**                                          |   |                              | ** ** |   | ** ** |
| Enterprise  Systems                                               |   | $                                 | (341       | ) | $ | 3,417 |   |
| Performance  Solutions                                            |   | 1,720                             |       | 2,686 |   |
| Applied  Technology Solutions                                     |   | (712                              | )          | (758 | ) |
| **Total Gross Profit**                                            |   | $                                 | 667        |   | $ | 5,345 |   |
|                                                              |   |                              | ** ** |   | ** ** |
| **Depreciation and Amortization  Expense Allocated To Segments:** |   |                              |       |   |   |
| Enterprise  Systems                                               |   | $                                 | 759        |   | $ | 823 |   |
| Performance  Solutions                                            |   | 137                               |       | 201 |   |
| Applied  Technology Solutions                                     |   | 278                               |       | 813 |   |
| **Total  Allocated to Segments**                                  |   | 1,174                             |       | 1,837 | ** ** |
| **Amount  not Allocated to Segments**                             |   | 461                               |       | 548 | ** ** |
| **Total  Depreciation and Amortization Expense**                  |   | $                                 | 1,635      |   | $ | 2,385 |   |
|                                                              |   |                              |       |   |   |
| **Revenue  (by geography):**                                      |   |                              |       |   |   |
| United States                                                     |   | $                                 | 19,572     |   | $ | 24,001 |   |
| United Kingdom                                                    |   | 3,539                             |       | 4,491 |   |
| Other                                                             |   | 344                               |       | 689 |   |
| **Total  Revenue**                                                |   | $                                 | 23,455     |   | $ | 29,181 |   |

 

6

----

 

**6.****              SubsequentEvents:**

 

On April 29, 2003,the Company announced that it signed a definitive merger agreement withResearch Park Acquisition, Inc. (“RPA”), an entity owned by Dr. Robert W.Deutsch, Chairman, CEO and President of the Company, and some of his familymembers.  Dr. Deutsch and members of hisfamily have contributed their shares of common stock in the Company to RPA,which shares represent approximately 66 percent of the Company’s outstandingcommon stock.  The merger agreementprovides that, at the closing of the merger, each outstanding share of theCompany’s common stock (other than Company common stock owned by RPA) willconvert into the right to receive $2.10 in cash.  The proposed transaction price represents a 144 percent premiumover the average closing price during the 30 trading days preceding the datethe merger agreement was signed.

 

The transactionwas unanimously approved by the Board of Directors, with Dr. Deutsch and JaneC. Brown, his daughter, abstaining, following the unanimous recommendation of aSpecial Committee of the Board.  Themerger agreement contains customary fiduciary termination rights.  The closing of the merger is subject tovarious conditions, including stockholder approval by the holders of a majorityof the Company’s common stock not held by RPA at a special meeting of thestockholders.  As soon as practical, theCompany will promptly file proxy materials with the Securities and ExchangeCommission for the meeting of the stockholders to vote on the proposedtransaction.  It is anticipated thatthis meeting will be held in early August 2003, with the exact timing dependenton the completion and review of the necessary filings.

 

As a result of themerger, the Company will become a privately-held company.  Accordingly, upon closing, the registrationof the Company’s common stock under the Securities Exchange Act of 1934, asamended, will terminate.

 

There are nofinancing contingencies to the merger and the Company intends to pay the mergerconsideration from working capital which will require restructuring of bankingarrangements to remove the restrictions on cash.  

 

**Item 2****.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

*Certainstatements contained herein, including statements regarding anticipated futureresults, development of the Company’s services, products, markets and futuredemands for the Company’s services, products, and other statements regardingmatters that are not historical facts, are “forward-looking statements,” asdefined in the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements includerisks and uncertainties, particularly those described in the Company’s filingswith the Securities and Exchange Commission, including those described in thisQuarterly Report under the caption “Business Risks.”  Consequently, actual results may differ materially from thoseexpressed or implied by these forward-looking statements.*

 

**Overview**

 

RWD Technologies,Inc. (the “Company”) provides a broad range of integrated products andsolutions designed to improve the productivity and effectiveness of workers incomplex operating environments.  As thescope and complexity of technology used by businesses increases and the globalbusiness environment becomes more competitive, companies are increasinglyfocused on maximizing their return on their advanced technology and eCommerceinvestments.  As the Company’s businessevolves, strategic initiatives focus on aligning the organization to best servethe customers, emphasizing learning products, expanding strategic partnerships,and pursuing additional international business.

 

7

----

 

The Company’sprincipal service segments are: *Enterprise Systems*, which providesproducts and services supporting the implementation of enterprise-wide systemsand applications; *Performance Solutions*, which addresses all aspects ofmanufacturing processes in order to promote continuous improvements andeliminate waste; and *Applied Technology Solutions*, whichencompasses the design and delivery of information to end-users of technologyas well as Web-based training.

 

**CriticalAccounting Policies**

 

The consolidatedfinancial statements are prepared in conformity with accounting principlesgenerally accepted in the United States, which require estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during the year.Actual results could differ from those estimates. The following policies areconsidered to be the most critical to understanding the judgments that areinvolved in preparing the financial statements and the uncertainties that couldimpact the results of operations, financial condition, and cash flows.

##### *** ***

##### ***Capitalized Software Development Costs:***

 

The Companydevelops and markets software products designed principally for clients of theEnterprise Systems and Applied Technology Solutions segments.  Development costs are capitalized when thetechnological feasibility of a product or product enhancement is establishedand expensed as research and development costs prior to such adetermination.  Amortization ofcapitalized costs is recognized on a product-by-product basis over the expecteduseful life when the product is available for general release.  For each product with unamortizedcapitalized costs, the Company periodically evaluates capitalized softwaredevelopment costs for impairment by estimating future cash flows for eachproduct.  To the extent that theunamortized costs exceed these estimated future cash flows, additional amortizationexpense is recorded.

 

As of March 31,2003, the Company had unamortized capitalized software development costs ofapproximately $3.1 million.  During thefirst quarter of 2003, the Company capitalized $0.4 million of softwaredevelopment costs and recorded amortization of $0.5 million.  Because the process of capitalizing softwarecosts requires the Company to ascertain the date that technological feasibilitywas established, and the amortization of software costs requires the Company toestimate product lives and future cash flows, reported results of operationsare sensitive to these estimates.  Ifthe Company revises estimates of product lives or the estimated future cashflows from sales of its software products, the amount of future amortizationcould be materially affected.

##### *** ***

##### ***Revenue Recognition:***

 

The majority ofthe Company’s revenue is generated from consulting fees. The majority of theCompany’s consulting contracts are on a time-and-materials basis, although manyof the contracts contain initial “not-to-exceed” amounts and Companyperformance obligations. The Company’s remaining consulting contracts are on afixed-price basis. Revenue is recognized using the proportional performancemethod.  Consulting contracts generallyvary in length from 1 to 36 months.

 

Earned revenue isbased on the percentage that direct labor and other contract costs incurred todate bear to total estimated costs, after giving effect to the most recentestimates of total cost. The cumulative impact of revisions in total costestimates during the progress of work is reflected in the period in which thesechanges become known. Earned revenue reflects the original contract priceadjusted for agreed-upon claim and change order revenue, if any.  Losses expected to be incurred on jobs inprocess, after 

 

8

----

 

consideration ofestimated minimum recoveries from claims and change orders, are charged toincome as soon as such losses are known.

 

Revenue from thesale of multiple-element software license agreements is generally recognizedunder the residual method at the time of delivery of software products to thecustomer and when collectibility is probable and there is persuasive evidenceof an agreement. Under the residual method, the Company defers revenue on anyundelivered element, as indicated by vendor-specific objective evidence of thefair market value of the undelivered element, and recognizes the residualamount in the period in which delivery takes place.  Any modifications to vendor-specific objective evidenceestablished by the Company would affect the timing of revenue recognition.  The Company generally does not grant itscustomers a right of return for a full or partial refund on its products.Revenue from all maintenance, hosting, and customer support agreements isrecognized ratably over the term of the agreement, generally one year, with theunrecognized portion at the balance sheet date being recorded as deferredrevenue. Revenue from professional services and training relating to productsis recognized as the services are performed.

##### *** ***

##### ***Income Taxes:***

 

The Companyestimates its income tax expense or benefit in interim financial reportingperiods by applying the estimated effective annual income tax rate toyear-to-date income or loss before income taxes.  Effects of changes in tax laws that affect previously recordeddeferred income tax assets or liabilities are also recorded in the period thatthese changes are enacted.  TheCompany’s estimate of its 2003 consolidated effective annual income tax rate issubject to change based on a variety of factors, including estimates of incomeor loss in U.S. Federal, state, and foreign taxing jurisdictions and theproportionate contribution to income or loss of domestic and foreignoperations.

 

**Resultsof Operations**

 

***Quarter Ended March 31, 2003, Compared toQuarter Ended March 31, 2002***

 

*Revenue.*  Consolidated revenue decreased by $5.7million, or 19.6 percent, from $29.2 million for the quarter ended March 31,2002 to $23.5 million for the quarter ended March 31, 2003.  Consulting services decreased $6.8 million,or 25.5 percent, from $26.7 million for the quarter ended March 31, 2002 to$19.9 million for the 2003 period. Products and product services increased $1.1 million, or 44.6 percent,from $2.5 million for the quarter ended March 31, 2003 to $3.6 million for the2003 period.  During the first quarterof 2003, $1.8 million of revenue was deferred because the Company had yet toreceive executed contracts for consulting services rendered during thequarter.  Performance by segment was asfollows:

 

•                  *Enterprise Systems. *Revenue decreased by $2.4 million, or 18.8 percent,from $12.8 million for the quarter ended March 31, 2002 to $10.4 million forthe 2003 period, representing 43.8 percent of the Company’s total revenue forthe first quarter of 2002 and 44.1 percent of the Company’s total revenue forthe 2003 period.  The decrease inrevenue was due to weakened demand, pricing pressures, and an unstablegeopolitical environment.  The declinein consulting services revenue of $3.7 million included approximately $0.2million due to the contract deferrals previously noted.  This decline was partially offset by anincrease in products and product services revenue of $1.3 million, or 75.7percent, over the same period last year as a result of continued development ofpartnerships, alliances, and international diversification.

 

9

----

 

•                  *Performance Solutions*.  Revenue decreased by $0.5 million, or 4.7percent, from $10.4 million for the quarter ended March 31, 2002, to $9.9million for the quarter ended March 31, 2003, representing 35.6 percent of theCompany’s total revenue for the first quarter of 2002 and 42.3 percent of theCompany’s total revenue for the 2003 period. This decrease in revenue resulted primarily from the contractdeferrals previously noted, which would have contributed approximately $1.6million in additional revenue.

 

•                  *AppliedTechnology Solutions*. Revenue decreased by $2.8 million, or 47.1 percent, from $6.0 millionfor the quarter ended March 31, 2002, to $3.2 million for the quarter endedMarch 31, 2003, representing 20.6 percent of the Company’s total revenue forthe first quarter of 2002 and 13.6 percent of the Company’s total revenue forthe 2003 period.  The decrease inrevenue was due to longer sales cycles, lower levels of spending by thepharmaceutical industry, and continued pricing pressures.

 

*Gross Profit.*  Gross profit for the total Company decreased$4.6 million, or 87.5 percent from $5.3 million for the quarter ended March 31,2002, to $0.7 million for the quarter ended March 31, 2003, and decreased from18.3 percent of revenue for the first quarter of 2002 to 2.8 percent of revenuefor the 2003 period.  During the firstquarter of 2003, $1.1 million of gross profitwas deferred because the Company had yet to receive executed contracts forconsulting services rendered during the quarter.  Performance by segment was as follows:

 

•                  *EnterpriseSystems.*Gross profit decreased by $3.7 million from $3.4 millionfor the quarter ended March 31, 2002, to a loss of $0.3 million for the quarterended March 31, 2003. Gross profit margin decreased from 26.8 percent of thesegment’s revenue for the first quarter of 2002 to a negative 3.3 percent forthe first quarter of 2003.  This declinein gross profit margin resulted primarily from decreased professional staffutilization, as well as increased travel, recruiting, and relocation expensesrelated to international expansion.

 

•                  *PerformanceSolutions*. Gross profit decreased by $1.0 million, or 35.9 percent,from $2.7 million for the quarter ended March 31, 2002, to $1.7 million for thequarter ended March 31, 2003. Gross profit margin decreased from 25.8 percentof the segment’s revenue for the first quarter of 2002 to 17.4 percent for thefirst quarter of 2003.  This decrease ingross profit margin resulted primarily from the contract deferral previouslynoted, which would have contributed approximately $1.0 million in additionalgross profit.

 

•                  *AppliedTechnology Solutions.*Lossesdecreased $0.1 million, or 6.1 percent, from a loss of $0.8 million for thefirst quarter of 2002, to a loss of $0.7 million for the 2003 period.  The gross margin decreased from a negative12.6 percent of the segment’s revenue for the first quarter of 2002 to anegative 22.4 percent for the first quarter of 2003.  The reduction in the gross loss reflects significant costreduction efforts in the midst of a decline in revenue and staff utilization.

 

*Selling, General and AdministrativeExpenses*. Selling, general and administrative expensesdecreased $0.2 million, from $6.6 million for the first quarter of 2002 to $6.4million for the first quarter of 2003, increasing from 22.5 percent of totalrevenue for the first quarter of 2002 to 27.4 percent of total revenue for the2003 period.  Rent expense declined $0.6million due to charges taken in the last six months of 2002 for vacant space.  Professional services expenses declined $0.1million.  These decreases were partiallyoffset by increases in personnel costs of $0.5 million.

 

10

----

 

*Severance and Lease TerminationExpenses*.  Severanceand lease termination costs increased $0.5 million, to $0.6 million for thefirst quarter of 2003, increasing to 2.5 percent of total revenue for the 2003period.  During the first quarter of2003, the Company’s workforce decreased as the result of both involuntaryreductions and voluntary separations. The Company’s total number of employees was 882 and 816 at December 31,2002 and March 31, 2003, respectively, compared to 951 and 931 at December 31,2001 and March 31, 2002 respectively.

* *

*Operating Loss*. Asa result of the preceding, the Company’s operating loss increased by  $5.0 million, from an operating loss of $1.3million for the first quarter of 2002 to an operating loss of $6.3 million forthe first quarter of 2003.

* *

*Other Income (Expense).*Other income  was $0.3 million for thefirst quarter of 2003 compared to an expense of less than $0.1 million for thefirst quarter of 2002.  This differenceresulted primarily from an increase in interest income derived from income taxrefunds.

* *

*Income Tax Expense (Benefit)*.  Income tax expense was $35,000 for the firstquarter of 2003 compared to a benefit of $2.3 million in the first quarter of2002.  The 2003 expenses consist ofcertain state income taxes, which are expected to total approximately $140,000for the year.  The income tax benefitfrom net operating losses has net been recorded due to uncertaintiessurrounding the ability to generate future taxable income.

* *

*Cumulative effect on prior years ofchanging method of accounting for goodwill*.  As a result of the implementation of SFASNo. 142 in 2002, the Company recognized an impairment loss of $12.5 million ongoodwill effective January 1, 2002. There was no change in accounting principle in the current period.

* *

*Net Loss.*  Net loss decreased $5.5 million from a lossof $11.6 million for the first quarter of 2002 to a loss of $6.1 million forthe first quarter of 2003.  The net lossfor the first quarter of 2002 included the cumulative effect of changing themethod of accounting for goodwill.

 

**Liquidityand Capital Resources**

 

The Company’s cashand investments were $23.2 million as of March 31, 2003, of which  $12.9 million was restricted and designatedas collateral for borrowed amounts. Cash and investments were $24.3 million as of December 31, 2002, ofwhich $13.0 million was restricted and designated as collateral for borrowedamounts.  The Company’s working capitalwas $29.6 million as of March 31, 2003, compared to $34.7 million as ofDecember 31, 2002.  Additionally, as ofMarch 31, 2003, there was a $7.8 million tax receivable outstanding from theIRS and several local taxing authorities.

 

The Company’soperating activities used cash of approximately $3.7 million for the threemonths ended March 31, 2003, compared to using cash of $0.2 million for the2002 period.  The change in cash usedfor operating activities was primarily due to decreased earnings beforenon-cash items.  Non-cash itemsconsisted primarily of depreciation and amortization for the first quarter of2003 and the corresponding 2002 period and a goodwill impairment charge for thefirst quarter of 2002.

 

Investingactivities provided cash of approximately $0.1 million for the three monthsended March 31, 2003, compared to a use of cash of $0.4 million for the threemonths ended March 31, 2002. Cash provided by investing activities for thecurrent period consisted primarily of net sales of investments, almostcompletely offset by purchases of fixed assets and payments for softwaredevelopment.  For the 2002 period,investing activities consisted of purchases of fixed assets, payments forsoftware development, as well as the net purchase of investments as collateralfor loans obtained to fund a portion of the Company’s leased ATL facility.  This use of cash was nearly offset by thesale of investments.

 

11

----

 

Financingactivities provided cash of approximately $3.2 million for the three monthsended March 31, 2003, compared to providing $1.1 million for the threemonths ended March 31, 2002.  For thecurrent period, cash provided by financing activities consisted primarily ofdraws under the credit line.  Cashprovided for the 2002 period consisted of borrowings of long-term debt anddraws under the credit line.

 

The Company has arevolving line of credit agreement with a commercial bank intended for workingcapital purposes.  The credit line isfor $10.0 million with a sub-limit of up to $3.0 million for standby letters ofcredit, and expires on May 31, 2004. Interest is payable monthly in arrears at a rate equivalent to thebank’s 30-day LIBOR rate (1.31 percent on March 31, 2003) plus 90 basispoints.  The outstanding balance on thiscredit line was $3.1 million as of December 31, 2002 and $6.2 million as ofMarch 31, 2003.  The highest borrowinglevel was $6.5 million during the three months ended March 31, 2003 and $5.8million during the 2002 period.

 

The Company’smajority-owned subsidiary, SAP Learning Solutions Pte Ltd (“SAPLS”), has a 5.0million Singapore dollar (“SGD”) (approx. $2.9 million) revolving creditfacility with a major bank intended for working capital purposes.  The loan is secured by a SGD3.0 million(approx. $1.7 million) standby letter of credit provided by the Company and aSGD2.0 million (approx. $1.2 million) corporate guarantee by the Company’sjoint venture partner.  Interest ispayable monthly in arrears at a rate equivalent to the bank’s prime rate (5.5percent on March 31, 2003).  As ofDecember 31, 2002 and March 31, 2003, there was $1.6 million and $1.8 million,respectively, outstanding under this line of credit.

 

During the threemonths ended March 31, 2003, the Company made $0.4 million in capitalexpenditures, compared to $1.1 million in capital expenditures for the 2002period.  Capital expenditures in thecurrent period consisted primarily of operating equipment for corporate supportand product support software for current and future clients.  These capital expenditures were primarilyfunded from borrowings from a commercial bank and available cash.

 

During the rest of2003, the Company anticipates the level of capital and product developmentexpenditures will decrease from 2002 levels. The Company expects to fund those expenditures from a combination ofavailable cash and alternative financing methods, such as equipment leases orasset-based borrowings.  The Companybelieves its existing cash balances, cash provided by future operations, andits line of credit will be sufficient to meet the Company’s working capital andother cash needs at least through 2004.

** **

**ContractualCash Obligations and Other Commercial Commitments (in thousands)**

 

The followingtables summarize of the Company’s contractual cash obligations and othercommercial commitments as of March 31, 2003:

 
| **Contractual Cash Obligations**    |   | **Total** |   | **Due in  less   than 1 year** |   | **Due in   1-3 years** |   | **Due in   4-5 years** |   | **Due after**

**5 years** |   |
|-------------------------------------|--------|-----------|--------|--------------------------------|--------|------------------------|--------|------------------------|--------|----------------------------|--------|
| **(dollars in thousands)**          |   |      |   |                           |   |                   |   |                   |   |                       |   |
| Long-term  debt(1)                  |   | $         | 3,115  |                           | $      | 563                    |   | $                      | 1,966  |                       | $      | 271 |   | $ | 315 |   |
| Capital lease  obligations          |   | 57        |   | 14                             |   | 43                     |   | —                 |   | —                     |   |
| Operating leases                    |   | 17,721    |   | 6,033                          |   | 5,848                  |   | 2,513                  |   | 3,327                      |   |
|                                |   |      |   |                           |   |                   |   |                   |   |                       |   |
| Total  Contractual Cash Obligations |   | $         | 20,893 |                           | $      | 6,610                  |   | $                      | 7,857  |                       | $      | 2,784 |   | $ | 3,642 |   |

 

12

----

 
| **Other Commercial Commitments** |   | **Total** |   | **Due in  less   than 1 year** |   | **Due in   1-3 years** |   | **Due in   4-5 years** |   | **Due after   5 years** |   |
|----------------------------------|--------|-----------|--------|--------------------------------|--------|------------------------|--------|------------------------|--------|-------------------------|--------|
| **(dollars in thousands)**       |   |      |   |                           |   |                   |   |                   |   |                    |   |
| Lines of  credit(1)(2)(3)        |   | $         | 8,058  |                           | $      | 8,058                  |   | $                      | — |                    | $      | — |   | $ | — |   |
| Standby letters  of credit(4)(5) |   | 2,831     |   | 2,831                          |   | —                 |   | —                 |   | —                  |   |
|                             |   |      |   |                           |   |                   |   |                   |   |                    |   |
| Total Commercial  Commitments    |   | $         | 10,889 |                           | $      | 10,889                 |   | $                      | — |                    | $      | — |   | $ | — |   |

 

----

(1)          Approximately$12.9 million of the Company’s cash and investments were pledged as collateralfor outstanding debts.

 

(2)          TheCompany’s majority-owned subsidiary, SAPLS, has a SGD5.0 million (approx. $2.9million) revolving credit facility with a major bank intended for generalworking capital requirements. As of March 31, 2003, $1.8 million wasoutstanding under this line of credit.

 

(3)          TheCompany has a secured revolving line of credit agreement with a commercial bankthat is intended for working capital purposes. The secured line is for $10.0million with a sub-limit of up to $3.0 million for the issuance of standbyletters of credit, and expires May 31, 2004. The outstanding balance on this credit line was $3.1 million and $6.2million as of December 31, 2002 and March 31, 2003, respectively.

 

(4)          TheSAPLS revolving credit facility is secured by a SGD3.0 million (approx. $1.7million) standby letter of credit provided by the Company and a SGD2.0 million(approx. $1.2 million) corporate guarantee by the Company’s joint venturepartner.

 

(5)          TheCompany has outstanding approximately $1.1 million in standby letters of creditas security deposits for its leased ATL facility located on the campus of UMBC.

 

**Effectsof Inflation**

 

Inflation has nothad 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 itsfuture results of operations.

 

**BusinessRisks**

 

The following aresome of the factors that may cause the Company’s future results of operationsto differ materially from management’s expectations and historic trends.

 

•                  *GeneralEconomic Environment.* Over the past several years, demand for theCompany’s products and services, particularly those relating to the IT andautomotive industries, decreased as a result of the general slowdown in thebusiness environment. Sales cycles were lengthened, pricing pressuresincreased, and clients deferred and/or cancelled certain projects. Although theCompany has strengthened its business alliances, expanded its productofferings, and started diversification efforts into other industries, thefuture demand for RWD’s products and services remains difficult to forecast.

 

13

----

 

•                  *Operatingand Net Losses.*** **Inthe past two years and continuing into the first quarter of 2003, the Companyincurred operating and net losses largely as the result of declines in revenuedue to a decreased demand for RWD’s products and services in the currentstagnant economic environment.  TheCompany may continue to incur operating and net losses in all or a portion of2003.  The losses over the past twoyears have caused the Company’s cash, working capital, total assets, andstockholders’ equity to decline while its indebtedness has increased.  If the Company continues to incur lossesover a longer period of time, it may have insufficient liquidity and capitalresources to take advantage of opportunities that may arise or possibly tofinance its operations at current levels.

 

•                  *StrategicAlliances.* The Company’s relationships, formal and informal, withits strategic allies, particularly SAP, Siebel, and Documentum, have been, orare anticipated to be, important sources of revenue. The Company also facespotential competition from software companies, including its strategic allieswho, through their client services groups, may choose to compete with theCompany.  Many of these alliances areterminable by either party with minimal notice. The termination of, or anyadverse change in any of these alliances, particularly SAP, could adverselyaffect the Company’s ability to achieve its financial goals.

 

•                  *Customer andIndustry Concentration.* The Company continues to derive asubstantial amount of its revenue from a limited number of key clients. For thefirst quarter of 2003, the Company’s top five and ten clients represented 42.6percent and 52.9 percent of total revenue, respectively, with clients in theautomotive, railroad, and pharmaceutical industries generating 27.6 percent,11.1 percent, and 9.2 percent, respectively. As of March 31, 2003, the Company’s top five and ten revenue clientsrepresented 48.6 percent and 54.5 percent of net accounts receivableoutstanding, respectively.  Most of theCompany’s engagements have no minimum purchase requirements and may beterminated by the client with little or no notice to the Company. Many of theseclients, such as automotive, petroleum-chemical, pharmaceutical, and railroadoperate in cyclical industries which are subject to economic factors thataffect the clients’ revenue and profitability. Performance Solutions has successfully diversified operations into otherindustries and expects to continue diversification efforts.  If any of the Company’s other major clientsdiscontinue doing business with the Company or significantly reduce the amountof products and services they purchase from the Company, the Company’s abilityto achieve its financial goals are likely to be adversely affected.

 

•                  *SoftwareProduct Development.* The Company has invested in research andsoftware product development and believes that timely development of newsoftware products and enhancements to existing software products are necessaryto expand its competitive position in the marketplace. The Company anticipatescontinuing to invest in expanded functionality for some of its productofferings, including global product requirements and industry specificrequirements. There can be no assurance that such development efforts willresult in products, features, or functionality, or that the products, features,or functionality that are developed will be accepted by the market.

 

14

----

 

•                  *GeographicExpansion.* The Company continues to expand its operations andmarketing efforts in Europe, Canada, and Asia, including establishing officesand expatriating employees, thereby incurring significant operating costs.  If these efforts fail to produce revenue atexpected levels or within the timeframe predicted by management, operating marginswill be adversely affected. International operations present a number of risks,such as adverse currency exchange rate fluctuations, trade barriers, culturaldifferences, and possible changes in taxes, laws, and policies governing theoperations of foreign-based companies. The Company has no control over thesefactors, any of which could adversely affect the Company’s results ofoperations and demand for its services abroad.

 

•                  *RapidlyChanging Information Technology Sector.* The IT industry is subject tosignificant and rapid changes in technology and the demand for particularproducts and services. If the Company fails to identify shifting demand forparticular IT services or products or does not develop the expertise necessaryto provide services for which there is new demand, the Company’s revenue growthand profitability are likely to be adversely affected.

 

•                  *Competition.*The Company has experienced substantial competition, particularly in the ERP,eSolutions, and eLearning areas of its business.  Recent general economic conditions have created significantcompetitor-driven pricing pressures and other industry-related pressures.  If competition continues to intensify, theCompany may find it increasingly difficult to resume revenue growth at ratescomparable to its historic growth rates and to improve its profit margins oncegeneral economic conditions improve.

 

•                  *Attractingand Retaining Personnel.* As is the case with most technologycompanies, the Company experiences turnover in its technical and professionalstaff. The Company’s ability to expand its business will depend on its abilityto attract, develop, and retain a sufficient number of skilled professionalemployees.  Also, the Company will needto ensure that its technical personnel stay abreast of rapid changes intechnology. The Company’s operating costs may be higher than management expectsif competition for qualified people increases and the Company experienceshigher turnover levels.

 

15

----

 

**Item 3.****   Quantitative and Qualitative DisclosuresAbout Market Risk**

 

The Company doesnot have significant interest rate risk related to its line of credit, whichhas an interest rate equivalent to the 30-day LIBOR rate (1.31% on March 31,2003), plus 90 basis points.  TheCompany does not have significant foreign currency risk related to foreignsales because of the amount of funds maintained in foreign payroll andoperating accounts.  The Company doesnot have any derivative commodity instruments or other financial instrumentssuch as interest swaps, foreign currency forwards, futures and options, orforeign currency denominated debt, except for credit line debt of itsmajority-owned subsidiary, SAPLS, which is denominated in Singapore dollars.  The Company does not have commodity pricerisk or other relevant market risks.

** **

**Item 4****.   Controls and Procedures**

#  

(a) *Evaluationof disclosure controls and procedures*.  During the 90-day period prior to the filing date of this report,management, including the Company’s Chief Executive Officer and Chief FinancialOfficer, evaluated the effectiveness of the design and operation of theCompany’s disclosure controls and procedures. Based upon, and as of the date ofthat evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that the disclosure controls and procedures were effective, in allmaterial respects, to ensure that information required to be disclosed in thereports the Company files and submits under Rules 13 and 15d of the Securitiesand Exchange Act of 1934, as amended, is recorded, processed, summarized, andreported as and when required.

#  

(b) *Changes ininternal controls*.  Since theevaluation date, there were no significant changes in the Company’s internalcontrols or in other factors that could significantly affect those controlssubsequent to the evaluation date, and no corrective actions with regard tosignificant deficiencies and material weaknesses.

#  

16

----

 

**PARTII - OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

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

 

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

 

No matters weresubmitted to a vote of security holders during the first quarter of 2003.

 

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

 

(a)           Exhibits

 
| **Exhibit  No.** |   | **Description**                                                                                                                                                                        |
|------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.01             |   | Agreement and Plan of Merger by and between Research  Park Acquisition, Inc. and RWD Technologies, Inc., dated as of April 29, 2003                                                    |
| 3.01             |   | Amended and Restated Bylaws                                                                                                                                                            |
| 99.01            |   | Certification of the Chief Executive Officer, Robert  W. Deutsch, Ph.D., of RWD Technologies, Inc. pursuant to 18 U.S.C. Section  1350 (Section 906 of the Sarbanes-Oxley Act of 2002) |
| 99.02            |   | Certification of the Chief Financial Officer, Beth  Marie Buck, CPA, of RWD Technologies, Inc. pursuant to 18 U.S.C. Section 1350  (Section 906 of the Sarbanes-Oxley Act of 2002)     |

 

(b)           Current Reports on Form 8-K

 

On April 30, 2003, RWD Technologies, Inc. filed aCurrent Report on Form 8-K disclosing, under Item 5 – Other Events and RequiredFD Disclosure and Item 9 and 12 – Regulation FD Disclosure and Results ofOperations and Financial Condition, the first quarter Press Release dated April29, 2003.  In addition to disclosingearnings for the first quarter, the Press Release announced a merger agreementwith Research Park Acquistion, Inc. (“RPA”), an entity owned by Dr. Robert W.Deutsch, Chairman, CEO and President of the Company, and some of his familymembers.  As a result of the merger, theCompany will become a privately held company.

 

17

----

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this Report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                | **RWD TECHNOLOGIES, INC.** |
|---------------------|----------------------------|
|                |                       |
|                | By:                        | /s/ Robert W. Deutsch |   |
|                |                       | Robert W. Deutsch, Ph.D. |
|                |                       | Chairman of the Board, Chief Executive   Officer, President, and Director (Principal   Executive Officer) |
|                |                       |   |
|                | By:                        | /s/ Beth Marie Buck |   |
|                |                       | Beth Marie Buck, CPA |
|                |                       | Vice President and Chief Financial Officer (Principal Financial and Accounting   Officer) |
|                |                       |   |
| Dated: May 12, 2003 |                       |   |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this Report has beensigned below by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated.

 
| **Name** |                     | **Capacity** |                                   | **Date**                    |
|----------|--------------------------|--------------|----------------------------------------|-----------------------------|
|     |                     |         |                                   |                        |
|     | /s/ Robert W. Deutsch    |         |                                   | Chairman of the Board,      |   | May 12, 2003 |
|     | Robert W. Deutsch, Ph.D. |         | Chief Executive Officer, President and |                        |   |
|     |                     |         | Director                               |                        |   |
|     |                     |         |                                   |                        |
|     | /s/ Beth Marie Buck      |         |                                   | Chief Financial Officer and |   | May 12, 2003 |
|     | Beth Marie Buck, CPA     |         | Vice President                         |                        |   |

 

18

----

 

**CERTIFICATIONS**

 

Each of theundersigned, in his/her capacity as an officer of RWD Technologies, Inc.,provides the following certifications required by 18 U.S.C. Section 1350,as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, and17 C.F.R. §240.13a-14.

 

I, Robert W. Deutsch, certify that:

 
| 1.     | I have reviewed this quarterly report on Form 10-Q  of RWD Technologies, Inc;                                                                                                                                                                                                                                                      |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                               |   |
| 2.     | Based on my knowledge, this quarterly report does  not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the  circumstances under which such statements were made, not misleading with  respect to the period covered by this quarterly report; |
|   |                                                                                                                                                                                                                                                                                                                               |   |
| 3.     | Based on my knowledge, the financial statements, and  other financial information included in this quarterly report, fairly present  in all material respects the financial condition, results of operations and  cash flows of the registrant as of, and for, the periods presented in this  quarterly report;                    |
|   |                                                                                                                                                                                                                                                                                                                               |   |
| 4.     | The registrant’s other certifying officer and I are  responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant and we have:                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                               |   |
|   | a.                                                                                                                                                                                                                                                                                                                                 | Designed such disclosure controls and procedures to  ensure that material information relating to the registrant, including its  consolidated subsidiaries, is made known to us by others within those  entities, particularly during the period in which this quarterly report is being  prepared; |
|   |                                                                                                                                                                                                                                                                                                                               |   |
|   | b.                                                                                                                                                                                                                                                                                                                                 | Evaluated the effectiveness of the registrant’s  disclosure controls and procedures as of a date within 90 days prior to the  filing of this quarterly report (the “Evaluation Date”); and |
|   |                                                                                                                                                                                                                                                                                                                               |   |
|   | c.                                                                                                                                                                                                                                                                                                                                 | Presented in this quarterly report our conclusions  about the effectiveness of the disclosure controls and procedures based on  our evaluation as of the Evaluation Date; |
|   |                                                                                                                                                                                                                                                                                                                               |   |
| 5.     | The registrant’s other certifying officer and I have  disclosed, based on our most recent evaluation, to the registrant’s auditor  and the audit committee of registrant’s board of directors (or persons  performing the equivalent function):                                                                     |
|   |                                                                                                                                                                                                                                                                                                                               |   |
|   | a.                                                                                                                                                                                                                                                                                                                                 | All significant deficiencies in the design or  operation of internal controls which could adversely affect the registrant’s  ability to record, process, summarize and report financial data and have  identified for the registrant’s auditors any material weaknesses in internal  controls; and |
|   |                                                                                                                                                                                                                                                                                                                               |   |
|   | b.                                                                                                                                                                                                                                                                                                                                 | Any fraud, whether or not material, that involves  management or other employees who have a significant role in the registrant’s  internal controls; |

 

19

----

 
| 6.                         | The registrant’s other certifying officer and I have  indicated in this quarterly report whether or not there were significant  changes in internal controls or in other factors that could significantly  affect internal controls subsequent to the date of our most recent  evaluation, including any corrective actions with regard to significant  deficiencies and material weaknesses. |
|----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                       |                                                                                                                                                                                                                                                                                                                                                                                               |
| Dated:  May  12, 2003 |

 
|   |   |                                                                                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------|
|   | By:    | /s/ Robert W. Deutsch                                                                                  |   |
|   |   | Robert W. Deutsch, Ph.D.                                                                               |
|   |   | Chairman of the Board, Chief Executive Officer,  President, and Director (Principal Executive Officer) |

 

20

----

 

I, Beth Marie Buck, certify that:

 
| 1.     | I have reviewed this quarterly report on Form 10-Q  of RWD Technologies, Inc;                                                                                                                                                                                                                                                                                                                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 2.     | Based on my knowledge, this quarterly report does  not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the  circumstances under which such statements were made, not misleading with  respect to the period covered by this quarterly report;                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 3.     | Based on my knowledge, the financial statements, and  other financial information included in this quarterly report, fairly present  in all material respects the financial condition, results of operations and  cash flows of the registrant as of, and for, the periods presented in this  quarterly report;                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 4.     | The registrant’s other certifying officer and I are  responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant and we have:                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                 | Designed such disclosure controls and procedures to  ensure that material information relating to the registrant, including its  consolidated subsidiaries, is made known to us by others within those  entities, particularly during the period in which this quarterly report is  being prepared; |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | b.                                                                                                                                                                                                                                                                                                                                                                                                 | Evaluated the effectiveness of the registrant’s  disclosure controls and procedures as of a date within 90 days prior to the  filing of this quarterly report (the “Evaluation Date”); and |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | c.                                                                                                                                                                                                                                                                                                                                                                                                 | Presented in this quarterly report our conclusions  about the effectiveness of the disclosure controls and procedures based on  our evaluation as of the Evaluation Date; |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 5.     | The registrant’s other certifying officer and I have  disclosed, based on our most recent evaluation, to the registrant’s auditor  and the audit committee of registrant’s board of directors (or persons  performing the equivalent function):                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                 | All significant deficiencies in the design or  operation of internal controls which could adversely affect the registrant’s  ability to record, process, summarize and report financial data and have  identified for the registrant’s auditors any material weaknesses in internal  controls; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | b.                                                                                                                                                                                                                                                                                                                                                                                                 | Any fraud, whether or not material, that involves  management or other employees who have a significant role in the registrant’s  internal controls; |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 6.     | The registrant’s other certifying officer and I have  indicated in this quarterly report whether or not there were significant  changes in internal controls or in other factors that could significantly  affect internal controls subsequent to the date of our most recent  evaluation, including any corrective actions with regard to significant  deficiencies and material weaknesses. |

 

21

----

 
| Dated:  May  12, 2003 |
|----------------------------|

 
|   |   |                                                                                     |
|--------|--------|------------------------------------------------------------------------------------------|
|   | By:    | /s/ Beth Marie Buck                                                                      |   |
|   |   | Beth Marie Buck, CPA                                                                     |
|   |   | Vice President and Chief Financial Officer  (Principal Financial and Accounting Officer) |

 

22

----