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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

OR

Commission File Number: 0-22145

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

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

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

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

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

RWD TECHNOLOGIES, INC.
INDEX
FORM 10-Q

Forward-Looking Statements

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

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

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

See accompanying notes to consolidated financial statements.

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

See accompanying notes to consolidated financial statements.

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

See accompanying notes to consolidated financial statements.

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

1.    Summary of Significant Accounting Policies:

Organization and Business

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

Basis of Presentation

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

Principles of Consolidation

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

Reclassifications

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

2.    Basic and Diluted Net Loss per Share:

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

3.    Comprehensive Loss:

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

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

4.    Business Segments:

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

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

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

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

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

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

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

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

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

Goodwill

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

6.    Income Taxes:

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

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

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7.    Long-Term Debt (in thousands):

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

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

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

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

Overview

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

Critical Accounting Policies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Results of Operations

Quarter Ended June 30, 2002, Compared to Quarter Ended June 30, 2001

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

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Enterprise Systems. Revenue increased by $1.0 million, or 8.2%, from $12.7 million for the quarter ended June 30, 2001 to $13.7 million for the 2002 period, representing 41.7% of the Company's total revenue for the second quarter of 2001 and 45.7% of the Company's total revenue for the 2002 period. The increase in revenue was due to strong activity domestically, continued international growth, and continued growth in product sales.



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Performance Solutions. Revenue increased by $2.0 million, or 20.8%, from $9.5 million for the quarter ended June 30, 2001, to $11.5 million for the quarter ended June 30, 2002, representing 31.2% of the Company's total revenue for the second quarter of 2001 and 38.3% of the Company's total revenue for the 2002 period. The increase in revenue was attributable to the continued success of diversification efforts into the railroad industry and the ongoing work in the automotive industry.



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Latitude360. Revenue decreased by $3.4 million, or 42.0%, from $8.2 million for the quarter ended June 30, 2001, to $4.8 million for the quarter ended June 30, 2002, representing 27.1% of the Company's total revenue for the second quarter of 2001 and 16.0% of the Company's total revenue for the 2002 period. The decrease in revenue was due to delays and postponements of scheduled projects, longer sales cycles, and slow investment in eLearning by the business community.

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

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Enterprise Systems. Gross profit increased by $0.8 million, or 38.2%, from $2.3 million for the quarter ended June 30, 2001, to $3.1 million for the quarter ended June 30, 2002. Gross profit margin increased from 17.9% of the segment's revenue for the second quarter of 2001 to 22.8% for the second quarter of 2002. This increase in gross profit and gross profit margin was a result of higher revenues of $1.0 million and a decrease in operating costs as a percentage of revenue of 4.9% from 82.1% for the second quarter of 2001 to 77.2% for the second quarter of 2002.



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Performance Solutions. Gross profit increased by $1.5 million, or 117.4%, from $1.2 million for the quarter ended June 30, 2001, to $2.7 million for the quarter ended June 30, 2002. Gross profit margin increased from 12.9% of the segment's revenue for the second quarter of 2001 to 23.2% for the second quarter of 2002. This increase in gross profit margin resulted primarily from improvements in staff utilization attributable to a decrease in staff and related overhead costs.



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Latitude360. Gross profit decreased $3.1 million, from $0.8 million profit for the quarter ended June 30, 2001, to a loss of $2.3 million for the quarter ended June 30, 2002. Gross profit margin decreased from 9.4% of the segment's revenue for the second quarter of 2001 to a negative 47.4% for the second quarter of 2002. This decrease resulted from declining revenues and costs associated with product research and development, product support infrastructure, amortization of capitalized software costs, and decreased staff utilization.

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

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

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

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

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

Six Months Ended June 30, 2002, Compared to Six Months Ended June 30, 2001

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

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Enterprise Systems. Revenue increased by $3.0 million, or 12.9%, from $23.4 million for the six months ended June 30, 2001 to $26.4 million for the 2002 period, representing 38.8% of the Company's total revenue for the six months ended June 30, 2001 and 44.8% of the Company's total revenue for the 2002 period. The increase in revenue was due to an increase in product sales of $3.0 million and the continuing development of strategic relationships and alliances.



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Performance Solutions. Revenue increased by $1.2 million, or 5.8%, from $20.7 million for the six months ended June 30, 2001, to $21.9 million for the six months ended June 30, 2002, representing 34.2% of the Company's total revenue for the six months ended June 30, 2001 and 37.0% of the Company's total revenue for the 2002 period. The increase in revenue was due to the successful diversification into the railroad and aerospace industries as well as continued international growth.



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Latitude360. Revenue decreased by $5.6 million, or 33.9%, from $16.4 million for the six months ended June 30, 2001, to $10.8 million for the six months ended June 30, 2002, representing 27.0% of the Company's total revenue for the six months ended June 30, 2001 and 18.3% of the Company's total revenue for the 2002 period. The decrease in revenue was due to longer sales cycles, slow investment in eLearning by the business community, and generally stagnant economic conditions.

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

Contractual Cash Obligations and Other Commercial Commitments (in thousands)

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

(1)

Under the Company's bank facilities, the maturity date of the Company's outstanding debts could be accelerated if the Company does not maintain certain covenants.

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(2)

The Company's majority-owned subsidiary, SAPLS, has a SGD5.0 million (approximately $2.8 million) revolving credit facility with a major bank intended for general working capital requirements. As of June 30, 2002, $1.2 million was outstanding under this line of credit.

(3)

The SAPLS revolving credit facility is secured by a SGD3.0 million (approximately $1.7 million) standby letter of credit provided by the Company and a SGD2.0 million (approximately $1.1 million) corporate guarantee by the Company's joint venture partner.

(4)

The Company has issued approximately $1.2 million in standby letters of credit as security deposits for its new leased ATL facility located on the campus of UMBC.

(5)

The Company has a revolving line of credit agreement with a commercial bank that is intended for working capital purposes. The unsecured line is for $10.0 million with a sub-limit of up to $3.0 million for the issuance of standby letters of credit, and expires May 31, 2003. There was no outstanding balance on this credit line as of December 31, 2001 or June 30, 2002 and the Company was in compliance with all financial covenants under the loan agreement.

Effects of Inflation

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

Business Risks

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

•

Strategic Alliances. The Company's relationships with its strategic allies, SAP, Siebel, Documentum, and Saba, have been, or are anticipated to be, important sources of revenue. The Company also faces potential competition from software companies, including its strategic allies who, through their client services groups, may choose to compete with the Company. Many of these alliances are informal or terminable by either party with minimal notice. The termination of, or any adverse change in any of these alliances, particularly SAP, could adversely affect the Company's ability to achieve its 2002 revenue and profitability goals.



•

General Economic Environment. During 2001 and continuing in 2002, the Company's sales of products and services particularly relating to the IT industry and the automotive sector, experienced a decrease in demand as a result of the general slowdown in the business environment. Sales cycles were lengthened and clients deferred and cancelled certain projects. Although during 2001 and 2002, the Company strengthened its business alliances, expanded its product offerings, and started diversification efforts into other industries, the actual demand for products and services remains difficult to forecast.



•

Customer and Industry Revenue Concentration. The Company continues to derive a substantial amount of its revenue from a limited number of key clients. For the second quarter 2002, the Company's top five clients and ten clients represented 40.1% and 52.7% of total revenue, respectively. Clients in the automotive and petroleum-chemical industries generated 23.0% and 15.6% of total revenue, respectively. Most of the Company's engagements have no minimum purchase requirements and may be terminated by the client with little or no notice to the Company. Many of these clients operate in cyclical industries, such as automotive and petroleum-chemical, which are subject to economic factors that affect the clients' revenue and profitability. Automotive industry sales are expected to decline in 2002. While the Company anticipates less work in 2002 with its key automobile manufacturing clients, Performance Solutions has successfully obtained business in other industries and expects to continue diversification efforts, which may partially offset the decline in revenue from clients in the

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automotive manufacturing industry. If any of the Company's other major clients discontinue doing business with the Company or significantly reduce the amount of products and services they purchase from the Company, the Company's revenue growth and profitability are likely to be adversely affected.

•

Software Product Development. The Company has invested in research and software product development and believes that timely development of new software products and enhancements to existing software products will expand its competitive position in the marketplace. The Company anticipates continuing to invest in expanded functionality for some of its product offerings, including global product requirements and industry specific requirements. There can be no assurance that such development efforts will result in products, features, or functionality, or that the products, features, or functionality that are developed will be accepted by the market.



•

Geographic Expansion. The Company continues to expand its operations and marketing efforts in Europe, Canada, and Asia, including establishing offices and expatriating employees, thereby incurring significant operating costs. If these efforts fail to produce revenue at expected levels or within the timeframe predicted by management, operating margins in 2002 would be adversely affected. International operations present a number of risks, such as adverse currency exchange rate fluctuations, trade barriers, cultural differences, and possible changes in taxes, laws, and policies governing the operations of foreign-based companies. The Company has no control over these factors, any of which could adversely affect the Company's results of operations and demand for its services abroad.



•

Rapidly Changing Information Technology Sector. The IT industry is subject to significant and rapid changes in technology and the demand for particular products and services. If the Company fails to identify shifting demand for particular IT services or does not develop the expertise necessary to provide services for which there is new demand, the Company's revenue growth and profitability are likely to be adversely affected. The Company cannot be certain that it will experience continued growth in demand for these services.



•

Increasing Competition. In recent years, the Company has experienced competition, particularly in the ERP, eSolutions, and eLearning areas of its business. If competition continues to intensify, the Company may find it more difficult to resume revenue growth at rates comparable to its historic growth rates and to improve its profit margins over 2001 levels.



•

Attracting and Retaining Personnel. As is the case with most technology companies, the Company experiences turnover in its technical staff. The Company's growth will continue to depend on its ability to attract, develop, and retain a sufficient number of skilled professional employees, and there is intense competition for qualified people. Also, the Company will need to ensure that its technical personnel stay abreast of rapid changes in technology. The Company's operating costs may be higher than management expects if competition for qualified people increases and the Company experiences higher turnover levels.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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

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

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

1.

Elected the persons named below to the Board of Directors by the following vote:

2.

Ratified the adoption of an amendment to the Amended 1998 Omnibus Stock Incentive Plan which authorized the registration of an additional 2,000,000 shares of Common Stock for issuance under the Plan. The amendment was ratified by the following vote:

3.

Ratified the adoption of an amendment to the Amended and Restated Employee Stock Purchase Plan which authorized the registration of an additional 400,000 shares of Common Stock for issuance under the Plan. The amendment was ratified by the following vote:

Item 5. Other Information

Change in Independent Public Accountants

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

Sarbanes-Oxley Act of 2002

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

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

(a)

Exhibits

(b)

Current Reports on Form 8-K

On May 31, 2002, RWD Technologies, Inc. filed a Current Report on Form 8-K reporting, under Item 4—Changes in Registrant's Certifying Accountant, that the Board of Directors approved the dismissal of Arthur Andersen LLP as RWD's independent public accountants and engaged Ernst & Young LLP to serve as RWD's independent public accountants for 2002.

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SIGNATURES

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

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

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QuickLinks

Item 1. Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.