UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934


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

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934


                        
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-14217
ENGLOBAL CORPORATION
             (Exact
(Exact name of registrant as specified in its charter)
Nevada
                        (State
(State or, other Jurisdictionjurisdiction of
corporation or organization)
88-0322261
                     (I.R.S.
(I.R.S. Employer Identification Number)


600 Century Plaza Drive,  Suite 140, Houston, Texas                  77073-6033
    (Address of Principal Executive Offices)                         (Zip Code)

                                 
600 Century Plaza Drive, Suite 140, Houston, Texas
77073-6033
(Address of Principal Executive Offices)
(Zip Code)
(281) 821-3200
              (Registrant's
(Registrant’s telephone number, including area code)

                       Industrial Data Systems Corporation
             (Former name, former address, and former fiscal year,
                         if changed since last report)

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

¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes¨             Nox
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock as of the close of business of JuneSeptember 30, 2002.

$0.001 Par Value Preferred Stock                                2,588,000 shares
$0.001 Par Value Common Stock                                  22,861,199 shares


$0.001 Par Value Common Stock
22, 861,199 shares
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNESEPTEMBER 30, 2002
TABLE OF CONTENTS
Page Number
                                                                                              ------
Part I.
Financial Information
Item 1.
Financial Statements
Condensed Consolidated Balance Sheets at JuneSeptember 30, 2002 and December 31, 2001
1
Condensed Consolidated Statements of Income for the Three Months ended JuneSeptember 30, 2002 and 2001 and for the SixNine Months ended JuneSeptember 30, 2002 and 2001
2
Condensed Consolidated Statements of Cash Flows for the SixNine Months ended JuneSeptember 30, 2002 and 2001
3
Notes to Condensed Consolidated Financial Statements
4
Item 2.           Management's
Management’s Discussion and Analysis of Financial Condition and Results of Operations
9
Item 3.
Quantitative and Qualitative Disclosures about Market Risk                    13

14
Item 4.
Controls and Procedures
14
Part II.
Other Information
Item 1.
Legal Proceedings
14
Item 2.
Changes in Securities and Use of Proceeds
14
Item 3.
Defaults Upon Senior Securities
14
Item 4.
Submission of Matters to a Vote of Security Holders                           14

15
Item 5.
Other Information
15
Item 6.
Exhibits and Reports on Form 8-K
15
Signatures
15
Certifications
16
i
Part I. Financial Information
Item 1.Financial Statements

                              ENGlobal Corporation
                      Condensed Consolidated Balance Sheets


                                                                                 June 30, 2002          December 31, 2001
                                                                                 -------------          -----------------
                                                                                  (unaudited)

                                        ASSETS
CURRENT ASSETS:

    Cash                                                                              $ 68,969          $ 1,244,907
    Accounts receivable - trade, less allowance for doubtful accounts of
        approximately $287,000 for 2002 and $271,000 for 2001                       14,307,117           14,908,069
    Inventory                                                                          565,299              730,507
    Cost and estimated earnings in excess of billings on uncompleted
        contracts                                                                    1,276,673              691,048
    Prepaid and other                                                                  329,518              740,670
                                                                                   -----------          -----------
         Total current assets                                                       16,547,576           18,315,201

PROPERTY AND EQUIPMENT, net                                                          5,135,955            5,123,115

OTHER ASSETS                                                                           329,099              333,567
GOODWILL                                                                            14,521,406           14,513,806
                                                                                   -----------          -----------

         Total assets                                                              $36,534,036          $38,285,689
                                                                                   ===========          ===========


                       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

    Accounts payable and accrued expenses                                           $8,963,645           $9,076,520
    Billings and estimated earnings in excess of cost on uncompleted
        contracts                                                                      713,807              777,712
    Current portion long-term debt                                                     904,156            1,357,228
    Current portion capital lease payable                                               52,000               48,058
    Notes payable                                                                        2,528              398,974
    Preferred dividends payable                                                         17,252                    -
    Income taxes payable                                                               467,030                    -
                                                                                   -----------          -----------
         Total current liabilities                                                  11,120,418           11,658,492

    Long-term debt, net of current portion                                          10,190,091           12,131,582
    Capital lease payable, net of current portion                                      129,854              149,665
                                                                                   -----------          -----------
         Total liabilities                                                          21,440,363           23,939,739

STOCKHOLDERS' EQUITY:

    Preferred stock, $0.001 par value, 5,000,000 shares authorized,
        2,588,000 issued and outstanding and 2,500,000 issued and outstanding
        in 2002 and 2001, respectively                                                   2,588                2,500
    Common stock, $.001 par value; 75,000,000 shares authorized;
        22,861,199 issued and outstanding                                               22,862               22,862
    Additional paid-in capital                                                      11,920,883           11,832,971
    Retained earnings                                                                3,147,340            2,487,617
                                                                                   -----------          -----------

         Total Stockholders' equity                                                 15,093,673           14,345,950
                                                                                   -----------          -----------

         Total liabilities and Stockholders' equity                               $ 36,534,036          $38,285,689
                                                                                  ============          ===========
ENGLOBAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
  
September 30, 2002
  
December 31, 2001
 
  
(unaudited)
  
 
ASSETS
CURRENT ASSETS:
  
 
 
  
 
 
Cash
  
$
89,967
  
$
1,244,907
Accounts receivable—trade, less allowance for doubtful accounts of approximately $150,000 for 2002 and $271,000 for 2001
  
 
14,242,578
  
 
14,908,069
Inventory
  
 
615,982
  
 
730,507
Cost and estimated earnings in excess of billings on uncompleted contracts
  
 
1,224,972
  
 
691,048
Prepaid and other
  
 
189,508
  
 
740,670
Deferred tax asset
  
 
634,371
  
 
—  
 
  
  
Total current assets
  
 
16,997,378
  
 
18,315,201
PROPERTY AND EQUIPMENT, net
  
 
5,369,035
  
 
5,123,115
OTHER ASSETS
  
 
324,370
  
 
333,567
NON CURRENT DEFERRED TAX ASSET
  
 
224,000
  
 
—  
GOODWILL
  
 
13,121,406
  
 
14,513,806
 
  
  
Total assets
  
$
36,036,189
  
$
38,285,689
 
  
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
  
 
 
  
 
 
Accounts payable and accrued expenses
  
$
8,638,176
  
$
9,076,520
Billings and estimated earnings in excess of cost on uncompleted contracts
  
 
402,131
  
 
777,712
Current portion long-term debt
  
 
728,680
  
 
1,357,228
Current portion capital lease payable
  
 
55,553
  
 
48,058
Notes payable
  
 
—  
  
 
398,974
Preferred dividends payable
  
 
69,013
  
 
—  
 
  
  
Total current liabilities
  
 
9,893,553
  
 
11,658,492
LONG-TERM LIABILITIES:
  
 
 
  
 
 
Long-term debt, net of current portion
  
 
10,524,868
  
 
12,131,582
Capital lease payable, net of current portion
  
 
114,132
  
 
149,665
 
  
  
Total liabilities
  
 
20,532,553
  
 
23,939,739
STOCKHOLDERS’ EQUITY:
  
 
 
  
 
 
Preferred stock, $0.001 par value, 5,000,000 shares authorized, 2,588,000 issued and outstanding and 2,500,000 issued and outstanding in 2002 and 2001, respectively
  
 
2,588
  
 
2,500
Common stock, $.001 par value; 75,000,000 shares authorized; 22,861,199 issued and outstanding
  
 
22,862
  
 
22,862
Additional paid-in capital
  
 
11,920,883
  
 
11,832,971
Retained earnings
  
 
3,557,303
  
 
2,487,617
 
  
  
Total stockholders’ equity
  
 
15,503,636
  
 
14,345,950
 
  
  
Total liabilities and stockholders’ equity
  
$
36,036,189
  
$
38,285,689
 
  
  
See accompanying notes to interim condensed consolidated financial statements.


                                       1



                              ENGlobal Corporation
                   Condensed Consolidated Statements of Income
                                   
ENGLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


                                                            For The Three Months Ended       For The Six Months Ended
                                                                     June 30,                        June 30,
                                                               2002             2001           2002            2001
                                                           ------------      ----------     -----------     -----------


   OPERATING REVENUES                                       $22,814,394      $5,149,490     $43,517,120     $11,103,396

   OPERATING EXPENSES
        Direct costs                                         18,862,197       3,715,135      36,340,803       8,342,236
        Selling, general and administrative                   2,704,322         866,269       5,148,549       1,621,166
        Depreciation and amortization                           187,919          66,603         408,309          99,196
                                                            -----------     -----------     -----------     -----------
        Total operating expenses                             21,754,438       4,648,007      41,897,661      10,062,598
                                                            -----------     -----------     -----------     -----------
        Operating income                                      1,059,956         501,483       1,619,459       1,040,798

   OTHER INCOME (EXPENSE)
        Other income                                             20,789          18,123         137,862          32,754

        Interest income (expense)                              (201,264)        (21,823)       (434,605)        (39,050)
                                                            -----------     -----------     -----------     -----------
        Total other income (expense)                           (180,475)         (3,700)       (296,743)         (6,296)
                                                            -----------     -----------     -----------     -----------

   INCOME BEFORE PROVISION FOR INCOME TAXES                     879,481         497,783       1,322,716       1,034,502

   PROVISION FOR INCOME TAXES                                   380,228         205,000         557,522         403,500
                                                            -----------     -----------     -----------     -----------

   NET INCOME                                                   499,253         292,783         765,194         631,002

   PREFERRED STOCK DIVIDENDS                                     50,000               -         105,472               -
                                                            -----------     -----------     -----------     -----------

   EARNINGS AVAILABLE TO COMMON STOCKHOLDERS                $   449,253     $   292,783     $   659,722     $   631,002
                                                            ===========     ===========     ===========     ===========

   BASIC AND DILUTED EARNINGS PER COMMON SHARE              $      0.02     $      0.02     $      0.03     $      0.05
                                                            ===========     ===========     ===========     ===========

   WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                22,861,199      12,964,918      22,861,199      12,964,918
                                                            ===========     ===========     ===========     ===========
 
  
For The Three Months Ended September 30,
 
  
For The Nine Months Ended September 30,
 
 
  
2002
 
  
2001
 
  
2002
 
  
2001
 
OPERATING REVENUES
  
$
23,509,392
 
  
$
5,755,832
 
  
$
67,026,512
 
  
$
16,859,228
 
OPERATING EXPENSES
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Direct costs
  
 
19,961,220
 
  
 
4,159,823
 
  
 
56,302,023
 
  
 
12,460,937
 
Selling, general and administrative
  
 
2,430,050
 
  
 
1,039,688
 
  
 
7,578,599
 
  
 
2,700,749
 
Depreciation and amortization
  
 
191,544
 
  
 
69,295
 
  
 
599,853
 
  
 
168,492
 
 
  
  
  
  
Total operating expenses
  
 
22,582,814
 
  
 
5,268,806
 
  
 
64,480,475
 
  
 
10,062,598
 
 
  
  
  
  
Operating income
  
 
926,578
 
  
 
487,026
 
  
 
2,546,037
 
  
 
1,529,050
 
OTHER INCOME (EXPENSE)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Other income (expense)
  
 
(1,395
)
  
 
15,009
 
  
 
136,467
 
  
 
47,762
 
Interest income (expense)
  
 
(229,746
)
  
 
(18,198
)
  
 
(664,351
)
  
 
(58,473
)
 
  
  
  
  
Total other income (expense)
  
 
(231,141
)
  
 
(3,189
)
  
 
(527,884
)
  
 
(10,711
)
 
  
  
  
  
INCOME BEFORE PROVISION FOR INCOME TAXES
  
 
695,437
 
  
 
483,837
 
  
 
2,018,153
 
  
 
1,518,339
 
PROVISION FOR INCOME TAXES
  
 
233,714
 
  
 
177,000
 
  
 
791,236
 
  
 
580,500
 
 
  
  
  
  
NET INCOME
  
 
461,723
 
  
 
306,837
 
  
 
1,226,917
 
  
 
937,839
 
PREFERRED STOCK DIVIDENDS
  
 
51,760
 
  
 
—  
 
  
 
157,233
 
  
 
—  
 
 
  
  
  
  
EARNINGS AVAILABLE TO COMMON STOCKHOLDERS
  
$
409,963
 
  
$
306,837
 
  
$
1,069,685
 
  
$
937,839
 
 
  
  
  
  
BASIC AND DILUTED EARNINGS PER COMMON SHARE
  
$
0.02
 
  
$
0.02
 
  
$
0.05
 
  
$
0.07
 
 
  
  
  
  
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (BASIC AND DILUTED)
  
 
22,861,199
 
  
 
12,964,918
 
  
 
22,861,199
 
  
 
12,964,918
 
 
  
  
  
  
See accompanying notes to interim condensed consolidated financial statements.


                                       2



                              ENGlobal Corporation
                  Condensed Consoliated Statement of Cash Flows
                                   (Unaudited)


                                                           For the Six Months Ended June 30,
                                                               2002                  2001
                                                           --------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                            $   765,194            $ 631,002
     Adjustment for non-cash items                             391,057               70,655
     Changes in working capital, net                           775,873             (385,805)
                                                           -----------            ---------
             Net cash provided by operating activities       1,932,124              315,852

CASH FLOWS FROM INVESTING ACTIVITIES:
     Property and equipment acquired                          (193,858)            (202,263)
     Proceeds from sale of property                             42,523                    -
                                                           -----------            ---------
             Net cash used by investing activities            (151,335)            (202,263)
                                                           -----------            ---------
CASH FLOW FROM FINANCING ACTIVITIES:
     Line of credit borrowings (repayments)                 (1,599,651)                   -
     Short-term note (repayments)                             (396,445)             (15,238)
     Lease borrowings (repayments)                             (26,355)                   -
     Long-term borrowings (repayments)                        (934,276)             (18,038)
                                                           -----------            ---------
             Net cash (used) by financing activities        (2,956,727)             (33,276)
                                                           -----------            ---------

NET CHANGE IN CASH                                          (1,175,938)              80,313

CASH, at beginning of period                                 1,244,907              242,592
                                                           -----------            ---------

CASH, at end of period                                     $    68,969            $ 322,905
                                                           ===========            =========
SUPPLEMENTAL DISCLOSURES:
     Interest paid                                         $   264,627            $  21,823
     Income taxes paid                                         102,536              235,000

NON-CASH:
     Lease to finance equipment                                      -               43,700
     Accrual of preferred stock dividend                       105,472                    -

ENGLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
  
For the Nine Months Ended September 30,
 
 
  
2002
 
  
2001
 
CASH FLOWS FROM OPERATING ACTIVITIES:
  
 
 
 
  
 
 
 
Net income
  
$
1,226,917
 
  
$
937,839
 
Adjustment for non-cash items
  
 
1,026,507
 
  
 
168,492
 
Changes in working capital, net
  
 
212,152
 
  
 
(1,121,819
)
 
  
  
Net cash provided (used) by operating activities
  
 
2,465,576
 
  
 
(15,488
)
CASH FLOWS FROM INVESTING ACTIVITIES:
  
 
 
 
  
 
 
 
Property and equipment acquired
  
 
(280,437
)
  
 
(336,690
)
Software development costs
  
 
(532,408
)
  
 
—  
 
Proceeds from sale of property
  
 
42,523
 
  
 
—  
 
 
  
  
Net cash used by investing activities
  
 
(770,332
)
  
 
(336,690
)
 
  
  
CASH FLOW FROM FINANCING ACTIVITIES:
  
 
 
 
  
 
 
 
Line of credit borrowings (repayments), net
  
 
(1,108,530
)
  
 
—  
 
Short-term note (repayments)
  
 
(423,974
)
  
 
282,563
 
Lease borrowings (repayments)
  
 
(38,523
)
  
 
—  
 
Long-term borrowings (repayments)
  
 
(1,279,167
)
  
 
(36,129
)
 
  
  
Net cash provided (used) by financing activities
  
 
(2,850,194
)
  
 
246,434
 
 
  
  
NET CHANGE IN CASH
  
 
(1,154,940
)
  
 
(105,744
)
CASH, at beginning of period
  
 
1,244,907
 
  
 
242,592
 
 
  
  
CASH, at end of period
  
$
89,967
 
  
$
136,848
 
 
  
  
SUPPLEMENTAL DISCLOSURES:
  
 
 
 
  
 
 
 
Interest paid
  
$
581,064
 
  
$
58,854
 
State and federal income taxes paid
  
 
206,076
 
  
 
105,000
 
NON-CASH:
  
 
 
 
  
 
 
 
Lease to finance equipment
  
 
—  
 
  
 
67,791
 
Accrual of preferred stock dividend
  
 
157,233
 
  
 
—  
 
See accompanying notes to interim condensed consolidated financial statements.


                                       3

ENGLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




1.     BASIS OF PRESENTATION

       
1.
BASIS OF PRESENTATION
The condensed consolidated financial statements of ENGlobal Corporation, formerly known as Industrial Data Systems Corporation ("ENGlobal"(“ENGlobal” or the "Company"“Company”), included herein, are unaudited for the six-monthnine month periods ended JuneSeptember 30, 2002 and 2001. These financial statements reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary to fairly depict the results for the periods presented. Certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. It is suggested these condensed financial statements be read in conjunction with the Company'sCompany’s audited financial statements for the years ended December 31, 2001 and 2000, which are included in the Company'sCompany’s annual report on Form 10-K. The Company believes that the disclosures made herein are adequate to make the information presented not misleading.

2.     ACQUISITION

       
2.
ACQUISITION
The acquisition of Petrocon Engineering, Inc. (the "Merger"“Merger”) was consummated on December 21, 2001 with an effective date for accounting purposes of December 31, 2001. Through an indirect subsidiary, the Company acquired all the outstanding shares of stock of Petrocon Engineering, Inc. ("Petrocon"(“Petrocon”), an engineering services company with offices along the Texas and Louisiana gulf coast, in exchange for the issuance of 9,800,000 shares of common stock. None of Petrocon'sPetrocon’s earnings were included as part of operations for 2001. Footnote 2 of the Form 10-K describes all subsidiaries.

3.     NAME CHANGE

       
3.
NAME CHANGE
On June 6, 2002 the stockholders voted on a proposal to amend the Articles of Incorporation to change the name of the Company from Industrial Data Systems Corporation to ENGlobal Corporation. The Company believes the new name reflects its broader capabilities and vision for future growth, providing a common identity, which will build name recognition and credibility among existing and potential customers.

4.     LINE OF CREDIT AND DEBT

       
4.
LINE OF CREDIT AND DEBT
Effective December 31, 2001, as part of the Merger, ENGlobal entered into a financing arrangement with Fleet Capital Corporation (“Fleet”) whereby all of Petrocon'sPetrocon’s outstanding debt, (the "Credit Facility" comprisedthe “Credit Facility”, (comprised of a line of credit and a term loan), was refinanced. The new loan agreement positions the Fleet debt as senior to all other debt and includes a $15,000,000 line of credit, limited to
       $15,000,000, subject to borrowing base restrictions, and a $500,000 term loan in
       the amount of $500,000.loan. The Credit Facility is collateralized by substantially all the assets of the Company. At JuneSeptember 30, 2002, $7,295,000$7,786,000 was outstanding on the line of credit and $165,000 was outstanding on the term loan.loan was paid off in full. The interest rate on the line of credit is one-quarter of one percent plus prime (5.0 percent at JuneSeptember 30, 2002), and the commitment fee on the unused line of credit is 0.375 percent. The interest rate on the
       term loan is one-half of one percent plus prime (5.25 percent at June 30,
       2002). Monthly principal payments on the term loan plus interest commenced January 1, 2002 and continuecontinued until maturity. The remaining borrowings available under the line of credit as of JuneSeptember 30, 2002, were $1,123,000$2,788,000 after consideration of the borrowing base limitations. The Company'sCompany’s Credit Facility contains covenants which require the maintenance of certain ratios, including cumulative fixed charge coverage and debt coverages and specified levels of certain other items. This Credit Facility


                                       4

ENGLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
replaced a revolving credit note that was collateralized with accounts receivable and inventory of the Company.
An amendment to the Credit Facility was agreed upon between Fleet and the Company on July 31, 2002 whereby the maturity date of the line of credit and the term loan was extended to June 30, 2005. The amendment also includes more favorable advance rates on eligible accounts, increased sub-limits on fixed price contracts and foreign receivables and an interest rate reduction if certain fixed charge ratios are maintained.
       Had the amendment been in place at June 30, 2002, the remaining
       borrowings available under the line of credit would have increased by
       $1,676,000.

       
As part of the Merger consideration, Petrocon'sPetrocon’s pre-Merger debt with Equus was reorganized, restructured and reduced. Equus agreed to exchange notes worthwith a principal balance of $9,700,000, includingplus accrued interest, for $2,500,000 in preferred stock, a payment of $2,000,000, adebt forgiveness of $2,200,000, and a new note for $3,000,000. The new note has interest at 9.5 percent per annum with interest paid quarterly beginning February 15, 2002 and principal payments being repaidpaid quarterly beginning August 15, 2002. This note is subordinated to the Company'sCompany’s loan with Fleet.

                                                                                           (in thousands)
                                                                                   June 30,  December 31,
                                                                                     2002        2001
                                                                                   -------   ------------
        
         Fleet Credit Facility-
           Line of credit, interest at prime plus 0.25% (5.00% at
              June 30, 2002), maturing in 2005                                     $ 7,295       8,894
           Term loan, interest at prime plus 0.50% (5.25% at  June 30,
              2002), due in monthly installments of $60,000, maturing
              through 2005                                                             165         523
         Equus-
           Note payable, interest at 9.5%, principal due
              quarterly in installments of $110,000, maturing through
              2005                                                                   3,000       3,000
         Vendors-
           Notes payable, interest at 8%, due monthly in
              decreasing amounts starting at $115,000, maturing
              through 2004                                                             634       1,072
                                                                                   -------     -------

                                                                                    11,094      13,489

         Less- current maturities                                                     (904)     (1,357)
                                                                                   -------     -------
         Long-term debt, net of current portion                                    $10,190     $12,132
                                                                                   =======     =======


       Current notes payable include a note which finances
 
  
(in thousands)
 
 
  
September 30,
2002
 
  
December 31,
2001
 
Fleet Credit Facility—
  
 
 
 
  
 
 
 
Line of credit, interest at prime plus 0.25% (5.00% at September 30, 2002), maturing in 2005
  
$
7,786
 
  
$
8,894
 
Term loan, interest at prime plus 0.50% (5.25% at September 30, 2002), matured September 2002.
  
 
—  
 
  
 
523
 
Equus—
  
 
 
 
  
 
 
 
Note payable, interest at 9.5%, principal due quarterly in installments of $110,000, maturing through 2005
  
 
2,890
 
  
 
3,000
 
Vendors—
  
 
 
 
  
 
 
 
Notes payable, interest at 8%, due monthly in decreasing amounts starting at $115,000, maturing through 2004
  
 
578
 
  
 
1,072
 
 
  
  
 
  
 
11,254
 
  
 
13,489
 
Less—current maturities
  
 
(729
)
  
 
(1,357
)
 
  
  
Long-term debt, net of current portion
  
$
10,525
 
  
$
12,132
 
 
  
  
The Company carries commercial insurance on afinanced by short-term basis, with a balance of $3,000 and $399,000 as of Junenotes from October 1 to September 30, 2002 and2002. At December 31, 2001 respectively.


                                       5

the balance in notes payable for the insurance was $399,000. At September 30, 2002, the note had matured and the balance was $0.
ENGLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



5.     PREFERRED STOCK DIVIDENDS

       
5.
PREFERRED STOCK DIVIDENDS
The Company'sCompany’s Series A Preferred Stock, $0.001 par value per share, is held by one shareholder,stockholder, Equus II Incorporated. Dividends on outstanding shares of Series A Preferred Stock are payable annually on the last day of May beginning in 2002 at a rate of 8% of the liquidation amount which is $1.00 per share plus accrued and unpaid dividends. Dividends may be paid in cash, or at the option of the Company, in shares for each share of
       outstanding Series A Preferred Stock. On May 31, 2002, the Company issued 88,000 shares of Series A Preferred Stock as a stock dividend plusand paid $219 for fractional shares.

6.     ALLOCATION OF GOODWILL

       
6.
ALLOCATION OF GOODWILL
The Company'sCompany’s plan to pursue potential acquisitions of complementary businesses was realized on December 21, 2001 through its Merger with Petrocon. The Company entered into a letter of intent on April 3, 2001 to acquire, through Merger with a wholly owned subsidiary, Petrocon Engineering, Inc., an engineering support services company with offices along the Texas and Louisiana gulf coast, in exchange for 9,800,000 shares of the Company, valued at $0.71 per share. The purchase price totaled $23,806,000. The transaction was financed by issuance of common stock valued at $6,637,000, net of registration costs, issuance of preferred stock with a liquidation value of $2,500,000 and assumption of debt totaling $13,737,000. The purchase resulted in the recognition of an intangible, goodwill, of $14,521,000.

       $13,121,000 and deferred tax assets (see Note 8).
The business strategy of the combined company focuses on cross-marketing its engineering capabilities and, following a reduction in its debt burden, completing mergers and acquisitions in its engineering business. Since there is little overlap in the engineering customer bases of the two companies, there is considerable potential to enhance the internal growth of the combined company through cross-marketing. AnThe Company has commenced an intense marketing effort focused on those customers who are identified as most likely to buy the additional services offered through the combined company has commenced.

       company.
In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill“Goodwill and Other Intangible Assets,"” goodwill is no longer amortized over its estimated useful life, but rather will be subject to at least an annual assessment for impairment. The initial test for impairment, as of January 1, 2002, must be completed by the end of the second quarter of 2002. The Company has completed such valuation and no impairment has been incurred. Goodwill amortization for the Company for the sixnine months ended JuneSeptember 30, 2001 was $4,000.$6,000. Net income for the secondthird quarter of 2001 and the sixnine months ended JuneSeptember 30, 2001, adjusted to exclude goodwill amortization, would have changed to $295,000$309,000 and $635,000,$944,000, respectively ($0.02 per share and $0.05$0.07 per share, respectively, would have remained the same).
The unaudited proforma combined historical results, as if Petrocon had been acquired at the beginning of fiscal 2001, as compared to the results of operations for the three months and sixnine months ended JuneSeptember 30, 2002, are estimated to be:

                                                                 Three months ended June 30,      Six months ended June 30,
                (In thousands, except per share data)              2002              2001            2002            2001
                -----------------------------------------------  --------          --------       ---------        --------
                
                Net sales                                         $22,814           $21,704        $43,517         $ 45,421
                Net income from continuing operations                 499               405            765              742
                Net earnings per share from continuing
                    operations - basic and diluted                   0.02              0.02           0.03             0.03
                



                                       6

 
  
Three months ended
  
Nine months ended
 
  
2002
  
2001
  
2002
  
2001
 
  
(In thousands, except per share data)
Net sales
  
$
23,509
  
$
23,695
  
$
67,027
  
$
68,738
Operating income
  
 
927
  
 
614
  
 
2,546
  
 
2,255
Net earnings per share from continuing operations—basic and diluted
  
 
0.02
  
 
0.00
  
 
0.05
  
 
0.03
ENGLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The foregoing proforma results presented above do not include amortization of the goodwill, but do include the reduction of forgiven and restructured interest expense on debt. The proforma results do not purport to be indicative of what actually would have occurred if the acquisition had been completed as of the beginning of each fiscal period presented, nor are they necessarily indicative of future consolidated results.

7.     FIXED FEE CONTRACTS

       
7.
FIXED FEE CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts consisted of the following at JuneSeptember 30, 2002 and December 31, 2001 (in thousands):
 
  
September 30,
2002
 
  
December 31,
2001
 
Costs incurred on uncompleted contracts
  
$
11,918
 
  
$
7,293
 
Estimated earnings on uncompleted contracts
  
 
2,394
 
  
 
1,091
 
 
  
  
Earned revenues
  
 
14,986
 
  
 
8,384
 
Less billings to date
  
 
(14,163
)
  
 
(8,431
)
 
  
  
Net cost and estimated earnings in excess (under) billings uncompleted contracts
  
$
823
 
  
$
(47
)
 
  
  
Costs and estimated earnings in excess of billings on uncompleted contracts
  
$
1,225
 
  
$
731
 
Billings and estimated earnings in excess of costs on uncompleted contracts
  
 
(402
)
  
 
(778
)
 
  
  
Net cost and estimated earnings in excess (under) billings uncompleted contracts
  
$
823
 
  
$
(47
)
 
  
  

                                                            June 30,        December 31,
                                                              2002              2001
                                                           --------         -----------

Costs incurred on uncompleted contracts                    $ 10,374           $  7,293
Estimated earnings on uncompleted contracts                   1,972              1,091
                                                           --------           --------
Earned revenues                                              12,346              8,384
Less billings to date                                       (11,784)            (8,431)
                                                           --------           --------
Net cost and estimated earnings in excess (under)
  billings uncompleted contracts                           $    562           $    (47)
                                                           ========           ========
Costs and estimated earnings in excess of billings on
  uncompleted contracts                                    $  1,276           $    731
Billings and estimated earnings in excess of costs on
  uncompleted contracts                                        (714)              (778)
                                                           --------           --------
Net cost and estimated earnings in excess (under)
  billings uncompleted contracts                           $    562           $    (47)
                                                           ========           ========

8.
TAXES



                                       7

At the time of the Merger, the Company benefited from Petrocon’s net operating loss carryforwards of approximately $1,000,000 in the calculation of current tax expense as of December 31, 2001. The Company had additional net operating loss carryforwards of approximately $3,530,000 subject to limitations on utilization due to prior ownership changes. The Company had established a valuation allowance on the entire net operating loss due to tax code ambiguity until further research was completed regarding the realization of this asset.
Based on the completion of the research and advice of tax counsel, the realization of this asset is available to the Company. The Company has net operating loss carryforwards of approximately $2,768,000 as of December 31, 2001 that is not limited. The valuation allowance has been reversed and a current deferred asset has been established for $1,176,000 and a non-current deferred tax asset has been established for $224,000 by reallocating the goodwill balance that was created at the time of the Merger. Previously recognized current year tax liability has been reclassified to offset the current deferred asset account reducing the balance to $634,000.
ENGLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



8.     SEGMENT INFORMATION

       
9.
SEGMENT INFORMATION
The Company operates in three business segments: (1) engineering consulting services primarily to major integrated oil and gas companies; (2) engineered systems, providing design and implementation of control systems for specific applications primarily in the energy and process industries, uninterruptible power systems and battery chargers; and (3) manufacturing of air handling equipment for commercial heating, ventilation and cooling systems. Sales and operating income set forth in the following table are the results of these segments. Segment operating profit (loss) is defined as profit (loss) before interest and income taxes. The amounts reported in the corporate segment include those activities that are allocated to the operating segments.
Segment information for the three months ended JuneSeptember 30, 2002 and 2001, respectively, is as follows (in thousands)

                                     Engineering      Engineered
                                       Services         Systems        Manufacturing    Corporate          Total
                                     -----------      ----------       -------------    ---------         -------

2002 Net sales to
  external customers                  $18,625           $3,440           $  749           $     -         $22,814
Operating profit (loss)                 1,772              323               23            (1,058)          1,060

2001 Net sales to
  external customers                  $ 3,332           $  812           $1,005           $     -         $ 5,149
Operating profit (loss)                   555               64              138              (256)            501
 
  
Engineering Services
  
Engineered Systems
 
    
Manufacturing
 
  
Corporate
 
  
Total
2002 Net sales to external customers
  
$
19,743
  
$
3,130
 
    
$
636
 
  
$
—  
 
  
$
23,509
Operating profit (loss)
  
 
1,979
  
 
(13
)
    
 
(35
)
  
 
(1,005
)
  
 
926
2001 Net sales to external customers
  
$
3,848
  
$
743
 
    
$
1,165
 
  
$
—  
 
  
$
5,756
Operating profit (loss)
  
 
433
  
 
(166
)
    
 
212
 
  
 
8
 
  
 
487
Segment information for the sixnine months ended JuneSeptember 30, 2002 and 2001, respectively, is as follows (in thousands):
 
  
Engineering Services
  
Engineered Systems
 
    
Manufacturing
 
  
Corporate
 
  
Total
2002 Net sales to external customers
  
$
56,243
  
$
8,858
 
    
$
1,926
 
  
$
—  
 
  
$
67,027
Operating profit (loss)
  
 
5,211
  
 
485
 
    
 
(65
)
  
 
(3,085
)
  
 
2,546
2001 Net sales to external customers
  
$
11,127
  
$
2,600
 
    
$
3,132
 
  
$
—  
 
  
$
16,859
Operating profit (loss)
  
 
1,427
  
 
(137
)
    
 
307
 
  
 
(68
)
  
 
1,529

                                     Engineering      Engineered
                                       Services         Systems        Manufacturing    Corporate          Total
                                     -----------      ----------       -------------    ---------         -------

2002 Net sales to
  external customers                  $36,499           $5,728           $1,290           $     -         $43,517
Operating profit (loss)                 3,233              497              (30)           (2,081)          1,619

2001 Net sales to
  external customers                  $ 7,279           $1,858           $1,966           $     -         $11,103
Operating profit (loss)                 1,122              251              215              (547)          1,041
Item
2.    Management’s Discussion And Analysis And Results Of Operations



                                       8



Item 2.   Management's Discussion And Analysis And Results Of Operations

Forward-Looking Statements
Certain information contained in this Quarterly Report on Form 10-Q, Quarterly Report, the Company'sCompany’s Annual Report to Stockholders, as well as other written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences, or otherwise, may be deemed to be forward-looking statements with the meaning of Section 21E of the Securities Exchange Act of 1934. This information includes, with limitation, statements concerning the Company'sCompany’s future financial position, and results of operations; planned capital expenditures; business strategy and other plans for future operations; the future mix of revenues and business; commitments and contingent liabilities; and future demand and industry conditions. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. When used in this report, the words "anticipate," "believe,"
"estimate," "expect," "may,"“anticipate,” “believe,” “estimate,” “expect,” “may,” and similar expressions, as they relate to the Company and its management, identify forward-looking statements. Actual results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth with this Quarterly Report on Form 10-Q.
The following discussion is qualified in its entirety by, and should be read in conjunction with, the Company'sCompany’s Consolidated Financial Statements including the notes thereto, included in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2001.
Overview
On April 3, 2001, the Company entered into a non-binding letter of intent relating to a proposed Merger between a newly created subsidiary of the Company and Petrocon Engineering, Inc. The Merger was consummated on December 21, 2001 with an effective date for accounting purposes of December 31, 2001. The newAs a result of the Merger, the Company provides a broader range of services over a larger geographic area. The Merger has resulted in some immediate expenses relating to consolidation of the operations of the two companies; however, the Company believes that the long-term impact of the Merger will be beneficial to the Company. The Company filed current reports of Unscheduled Material Events on Form 8-K on January 7, 2002 and Form 8-K/A on March 5, 2002 describing the Merger. The resultresults of operations in 2002 includesinclude the newlyoperations of the merged entity.
On June 6, 2002, in a vote at the Annual Meeting, the stockholders
overwhelmingly approved a proposal to amend the Articles of Incorporation to change the name of the Company from Industrial Data Systems Corporation to ENGlobal Corporation. The Company believes the new name reflects its broader capabilities and vision for future growth, providing a common identity, which will build name recognition and credibility among ourits existing and potential customers. 9

Effective June 16, 2002, the Company’s trading symbol for its common stock, traded on the American Stock Exchange, changed from IDS to ENG.
Results of Operations
The Company operates in three segments, the engineering services segment, the engineered systems segment, and the manufacturing segment. The following table sets forth, for the periods indicated, the appropriate percentages of sales generated by each of the operating segments.

                                                     Percentage of Revenue
                                                     ---------------------
                              For the three months ended June 30,   For the six months ended June 30,
  Operating Segment                   2002      2001                       2002       2001
  -----------------                   ----      ----                       ----       ----

   Engineering services                81.6%    64.7%                       83.9%      65.6%
   Engineered systems                  15.1     15.8                        13.1       16.7
   Manufacturing                        3.3     19.5                         3.0       17.7
                                      -----    -----                       -----      -----
      Total revenue                   100.0%   100.0%                      100.0%     100.0%
 
  
Percentage of Revenue
 
 
  
Three months ended September 30,
 
  
Nine months ended September 30,
 
Operating Segment
  
2002
 
  
2001
 
  
2002
 
  
2001
 
Engineering services
  
84.0
%
  
66.9
%
  
83.9
%
  
66.0
%
Engineered systems
  
13.3
 
  
12.9
 
  
13.2
 
  
15.4
 
Manufacturing
  
2.7
 
  
20.2
 
  
2.9
 
  
18.6
 
 
  
  
  
  
Total revenue
  
100.0
%
  
100.0
%
  
100.0
%
  
100.0
%
Three Months Ended JuneSeptember 30, 2002 Compared to Three Months Ended JuneSeptember 30, 2001
Total Revenue.Revenue.    Total revenue increased by $17,665,000$17,754,000 or 343%308% from $5,149,000$5,755,000 for the three months ended JuneSeptember 30, 2001, compared to $22,814,000$23,509,000 in 2002. Revenue from the engineering services segment, which comprised 81.6%84.0% of total revenue for the three months ended JuneSeptember 30, 2002, increased by $15,293,000$15,895,000 or 458%413%. TheOf this increase, $16,850,000 or 106% was derived from Petrocon companies generated revenues of $14,399,000operations acquired in the engineering services segment duringMerger. Revenue of the three months ended June 30, 2002.

         pre-merger operations decreased from $3,517,000 to $2,943,000 or 16% resulting from the completion of a large lump-sum turnkey project in Houston and depressed economic conditions in Tulsa.
Revenue from the engineered systems segment was $3,441,000,$3,130,000, which comprised 15.1%13.3% of total revenue for the three months ended JuneSeptember 30, 2002, an increase of $2,629,000$2,388,000 or 324%322% over the same period in 2001. Of this increase, $2,403,000 resulted$2,703,000, or 86%, was derived from operations acquired in the Petrocon Merger.
Revenue generated by the manufacturing segment for the three months ended JuneSeptember 30, 2002 decreased by $257,000$529,000 or 26%45% from the same period in 2001. The Company believes that the decline in revenues in the manufacturing segment is a result of the economic slowdown that began in the fourth quarter of 2001 and is continuing throughout 2002. Due to the acquisition of Petrocon, the manufacturing segment has become a smaller portion of total revenues, declining from 19.5%20.2% of total revenues for the three months ended JuneSeptember 30, 2001 to 3.3%2.7% for the three months ended JuneSeptember 30, 2002. The Company believes that the decline in revenues in the manufacturing
segment is a result of the economic slowdown in the fourth quarter of 2001
continuing through the second quarter 2002.

         
Gross Profit.    Gross profit increased by $2,518,000$1,952,000 or 176%122% from $1,434,000$1,596,000 for the three months ended JuneSeptember 30, 2001 to $3,952,000$3,548,000 for the same period in 2002. The gross margin as a percentage of total revenues decreased from 27.9%27.7% for the period ended JuneSeptember 30, 2001 to 17.3%15.1% for the same period in 2002. The decrease in gross margin occurred in theall segments. The engineering services and
manufacturing segments, with the largest decrease in the engineering services
segment which had a gross margin of 16.6%15.6% for the three months ended JuneSeptember 30, 2002, down from a gross margin of 29.4%31.6% for the same period in 2001. This decrease in gross margins occurredwas primarily caused by the large number of on-site contracts for services within the Petrocon companies. Contracts of this type are bid with lower margins because they require less overhead expenses. In addition, the decrease in gross margins was due to the completion in the prior period of lucrative lump-sum turnkey projects in the Houston division and the impact of lower utilization rates in the Baton Rouge and Tulsa offices. The Company felt that in the Baton
Rouge area, short-term retention of core staff members was necessary to meet
longer-term objectives. Lower utilization rates, particularly in the Baton Rouge and Tulsa divisions,locations, impacted margins negatively. The Company instituted lay
offsa reduction in force in Tulsa and later in the second quarter of 2002Baton Rouge in an attempt to easedecrease the pressurenegative impact of these lower utilization rates. Depressed economic conditions in Baton Rouge and Tulsa affected these locations more than the Company’s other location.
The gross profit for the engineered systems segment increased from 18.3%a loss of 3.3% for the period ended JuneSeptember 30, 2001 to 19.0%a project of 10.5% for the same period in 2002. This increase occurred due to the additionmore profitable operations added as a result of a lucrative large lump sum project
in the systems segment.


                                       10

Merger.
The manufacturing segment'ssegment’s gross margin generated in the period ended JuneSeptember 30, 2002 as compared to the same period in 2001 was $210,000$148,000 or 28.0%23.3% as compared to $306,000$404,000 or 30.5%34.7%.
Other income and expenses.expenses.    During the secondthird quarter 2002, ENGlobal'sENGlobal’s interest expense increased by $197,000$211,000 from $4,000$18,000 due to the assumption of certain debt as a result of the Merger.
Net income.    Net income after taxes increased by $206,000$154,000 or 71%50% from $293,000$307,000 for the three months ended JuneSeptember 30, 2001 to $499,000$462,000 for the same period in 2002.

Six Months Ended June
Nine months ended September 30, 2002 Compared to Six Months Ended JuneNine months ended September 30, 2001
Total Revenue.Revenue.    Total revenue increased from $11,103,000$16,859,000 to $43,517,000$67,027,000 or 292%298% for the sixnine months ended JuneSeptember 30, 2001 as compared to the same period in 2002. The largest segment, engineering services, contributed $36,500,000$56,243,000 or 83.9% of total revenues. The Merger with the Petrocon companies contributed $30,186,000$46,986,000 in revenues or 83%84% of the engineering services revenues during the sixnine months ended JuneSeptember 30, 2002. The pre-merger operations had a decrease in revenues from $11,127,000 to $9,257,000 or 17% resulting from the completion of a large lump-sum turnkey project in Houston and the depressed economic conditions in Tulsa.
The engineered systems segment increased revenues from $1,858,000$2,600,000 for the sixnine months ended JuneSeptember 30, 2001 to $5,728,000$8,858,000 for the sixnine months ended JuneSeptember 30, 2002 or a 208%241% increase. The impact ofoperations acquired in the Merger contributed $3,904,000$6,607,000 or 75% in revenues for the six monthsnine month period ended JuneSeptember 30, 2002.
The manufacturing division had revenues of $1,290,000$1,925,000 for the sixnine months ended JuneSeptember 30, 2002 as compared to $1,967,000$3,132,000 for the same period last year. TheOf this decrease, of $677,000 or 34%$606,000 is the result of the economic downturn frombeginning in the fourth quarter of 2001 and continuing throughthroughout 2002. Contributing to the seconddecrease from last year was an unusually large revenue level in 2001. The 2001 revenue level was approximately $600,000 greater than normal primarily attributable to orders from municipal customers for the replacement of equipment damaged by Tropical Storm Alison earlier in the year. No similar situation occurred during 2002 and the anticipated third quarter of 2002.
Management feels that a slow2002 recovery began during the second quarter and is
improving.

         did not materialize.
Gross Profit.    Gross profit increased by $4,415,000$6,326,000 or 160%144% from $2,761,000$4,398,000 to $7,176,000$10,724,000 for the sixnine months ended JuneSeptember 30, 2002 as compared to the same period last year. The gross margin as a percentage of revenues decreased from 24.9%26.1% to 16.5%16.0% for these two periods. The decrease in the gross margin in the engineering services segment decreased from 24.8%27.2% for the sixnine months ended JuneSeptember 30, 2001 to 15.6% for the sixnine months ended JuneSeptember 30, 2002 is2002. This decrease was primarily caused by the large number of on-site contracts for services within the Petrocon companies. Contracts of this type are bid with lower margins because they require less overhead expenses. In addition, the decrease in gross margins was due to the completion in the prior period of lucrative lump sum turnkey projects in the Houston division and lower utilization rates in the Baton Rouge, Houston, and Tulsa offices. The Company has instituted layoffsreduction in force in Tulsa and Baton Rouge to easedecrease the pressurenegative impact of these lower utilization rates.
The gross profit for the engineered systems segment decreased modestlyincreased from 21%15% to 20%17% for the six-monthnine month period ending JuneSeptember 30, 2001 and 2002. The manufacturing segment'ssegment’s gross profit declined from $562,000$966,000 to $346,000$494,000 with margins declining from 28.6%30.9% to 26.8%25.7% for the sixnine months ended JuneSeptember 30, 2001 and 2002, respectively.
Other income and expenses.expenses.    During the sixnine months ended JuneSeptember 30, 2002, the Company received a $110,000 settlement on its previous claim against a software provider whose product did not meet the expectations of the Company.Company’s expectations. There were no similar settlements in 2001. ThisThe increase in income was offset by the increase in interest expense from $39,000$58,000 to $435,000$600,000 from the first sixnine months of 2001 as compared to the first six nine
months of 2002. This increase in interest expense occurred as a result of the Merger when certainassumption of debt was assumed byin connection with the Company.

         Merger.
Net income.    Net income after taxes increased from $631,000$938,000 for the sixnine months ended JuneSeptember 30, 2001 to $765,000$1,227,000 for the sixnine months ended JuneSeptember 30, 2002 or 21%31%.


                                       11

Liquidity and Capital Resources
Effective December 31, 2001 as part of the Merger, ENGlobal entered into a financing arrangement with Fleet whereby all of Petrocon'sPetrocon’s outstanding debt, (the "Credit Facility" comprisedthe “Credit Facility”, (comprised of a line of credit and a term loan), was refinanced. The new loan agreement positions the Fleet debt as senior to all other debt and includes a $15,000,000 line of credit, limited to $15,000,000, subject to borrowing base restrictions, and a $500,000 term loan in the amount of $500,000.loan. The Credit Facility is collateralized by substantially all the assets of the Company. At JuneSeptember 30, 2002, $7,295,000$7,786,000 was outstanding on the line of credit and $165,000 was outstanding on the term loan.loan was paid off in full. The interest rate on the line of credit is one-quarter of one percent plus prime, and the commitment fee on the unused line of credit is 0.375 percent. The interest rate on the term loan is
one-half of one percent plus prime. Monthly principal payments on the term loan plus interest commenced January 1, 2002 and continuecontinued until maturity. The remaining borrowings available under the line of credit as of JuneSeptember 30, 2002 were $1,123,000$2,788,000 after consideration of the borrowing base limitations.restrictions. The Company's Credit Facility contains covenants whichthat require the maintenance of certain ratios, including cumulative fixed charge coverage and debt coverages and specified levels of certain other items.

         An
Fleet and the Company agreed on an amendment to the Credit Facility was agreed upon between Fleet and
the Company on July 31, 2002 whereby the maturity date of the line of credit and the term loan was extended to June 30, 2005. The term loan was subsequently paid in full. The amendment also includes more favorable advance rates on eligible accounts, increased sub-limits on fixed price contracts and foreign receivables and an interest rate reduction if certain fixed charge ratios are maintained. Had
A subsequent amendment to the amendment been in place at
JuneCredit Facility effective September 30, 2002, increased the remaining borrowings available underlimits on annual capital expenditures and the lineratio of credit
would have increased by $1,676,000.senior debt to earnings before interest, taxes, depreciation, and amortization. The Company must meet all financial covenants through the maturity date of the Credit Facility. Management believes the Company will remain in compliance with all loan covenants, although no assurances can be given.
As of JuneSeptember 30, 2002, the Company'sCompany’s cash position was sufficient to meet its working capital requirements. EBITDA, earnings before interest, taxes, depreciation and amortization, for the sixnine months ended JuneSeptember 30, 2002 was $2,028,000.$3,146,000. Any future decrease in demand for the Company'sCompany’s services or products would reduce the availability of funds through operations.
The Company'sCompany’s working capital was $5,427,000$7,104,000 and $6,657,000 at JuneSeptember 30, 2002 and December 31, 2001, respectively. The increase in working capital result from a decrease in trade payables and notes payable and a reduction in current maturities of debt.
As noted above in the ResultResults of Operations, some of the Company’s locations have experienced lower utilization rates that have impacted margins negatively.negatively impacting the Company’s margins. In an attempt to ease the pressure caused by
lower utilization rates, the Company has
instituted layoffscompleted reductions in force in Tulsa and Baton Rouge during the second quarterand third quarters of 2002.
As of JuneSeptember 30, 2002, ENGlobal had long-term debt outstanding of $11,094,000.$10,525,000. This long-term debt includes the Credit Facility of $7,295,000$7,786,000 on the line of credit and $165,000 ongranted under the term loan, both ofCredit Facility, which maturematures on or before June 30, 2005.


                                       12

Cash Flow
Operating activities provided net cash totaling $1,932,000 and $316,000$2,466,000 for the sixnine months ended JuneSeptember 30, 2002 and 2001, respectively.operating activities used cash totaling $15,000 for the nine months ended September 30, 2001. Trade receivables decreased $601,000$665,000 since December 31, 2001.2001 due to improved timeliness of billings and shorter turn around in collection of receivables. Inventory decreased by $165,000$114,000 for the same period.

         period due to the utilization of work in process in the engineered systems segment.
Investing activities used cash totaling $151,000$770,000 for the sixnine months ended JuneSeptember 30, 2002 and $202,000$337,000 for the same period in 2001. The Company'sCompany’s primary investing activities that used cash during the period ended June 30, 2002 wereare for the purchase and modification of a significant software system. The purchase of property and equipment.

         equipment occurred during both periods.
Financing activities used cash totaling $2,957,000$2,850,000 for the sixnine months ended JuneSeptember 30, 2002, including the repayment of the line of credit and long-term debt. Financing activities usedprovided cash totaling $33,000$246,000 for the same period in 2001.
The Company believes that it has available necessary cash for the next 12 months. Cash and the availability of cash, could be materially restricted if circumstances prevent the timely internal processing of invoices into receivable accounts, if such accounts are not collected within 90 days of the original invoice date, or if project mix shifts from cost reimbursable to fixed costs contracts during significant periods of growth. If any such events occur, the Company would be forced to consider alternative financing options.
If losses occur, ENGlobal may not be able to meet the monthly fixed charge ratio covenant of the Fleet Credit Facility. In that event, if ENGlobal is unable to obtain a waiver or amendment of the covenant, the Company may be unable to borrow under the Credit Facility and may have to repay all loans then outstanding under the Credit Facility. The Company believes it will be successful in obtaining a waiver or amendment of this covenant, but if unsuccessful, it will be forced to seek an alternative source of financing.
Asset Management
The Company'sCompany’s cash flow from operations has been affected primarily by the timing of its collection of trade accounts receivable. The Company typically sells its products and services on short-term credit terms and seeks to minimize its credit risk by performing credit checks and conducting its own collection efforts. The Company had net trade accounts receivable of $14,307,000$14,243,000 and $14,908,000 at JuneSeptember 30, 2002 and December 31, 2001, respectively. The number of days'days’ sales outstanding in trade accounts receivable was 6058 days and 79 days, respectively.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
As of JuneSeptember 30, 2002 and December 31, 2001, the Company did not participate in any derivative financial instruments or other financial and commodity instruments for which fair value disclosure would be required under SFAS No. 107 or SFAS No. 133. There are no investments at JuneSeptember 30, 2002 or December 31, 2001. Accordingly, the Company has no quantitative information concerning the market risk of participating in such investments.
The Company has no market risk exposure in the areas of interest rate risk because there is no investment portfolio as of JuneSeptember 30, 2001. Currently the Company does not engage in foreign currency hedging activities nor is the Company exposed to currency exchange rate fluctuation.


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Item 4.    Controls and Procedures
With the participation of management, the Company’s chief executive officer and chief financial officer reviewed and evaluated the Company’s disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended as of a date within 90 days prior to the filing of this report. Based on this evaluation, the chief executive officer and chief financial officer concluded that the disclosure controls and procedures are effective in bringing to their attention on a timely basis information relating to the Company and its consolidated subsidiaries in connection with the Company’s filing of its quarterly report of Form 10-Q for the quarterly period ended September 30, 2002. There have been no significant changes in the Company’s internal controls for financial reporting or in other factors that could significantly affect these controls, including any significant deficiencies or material weaknesses of internal controls that would require corrective action. In connection with the new rules, the Company is currently in the process of further reviewing and documenting the disclosure controls and procedures, including its internal accounting controls, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.
PART II.    Other Information
Item 1.    Legal Proceedings
From time to time, the Company is involved in various legal proceedings arising in the ordinary course of business. The Company is currently party to legal proceedings that have been reserved for, are covered by insurance, or that, if determined adversely to the Company, individually or in the aggregate, would not have a material affect on the Company'sCompany’s results of operations.
As reported in the Company’s Form 10-Q for the quarterly periodperiods ended March 31, 2002 a claimand June 30, 2002 claims were filed against the Company in the 60th District Court of Jefferson County, Texas in May, 1999 and a claim
filed in the 14th14th District Court of Parish of Calcasieu, Louisiana respectively, involvedin December, 1998. Both claims involve alleged failure of contractual performance purportedly caused by faulty design. If the Company is found to have any liability, it believes that such liability would be covered by its errors and omissions insurance, except for the deductible which was accrued in a prior period. Both of these cases remain in the discovery phase. The Company believes that these lawsuits are without merit and plans to vigorously defend itself in both lawsuits.
Item 2.    Changes in Securities and Use of Proceeds
None.
Item 3.    Defaults Upon Senior Securities
None.
Item 4.    Submission of Matters to a Vote of Security Holders

         The Annual Meeting of the Stockholders of the Company was held on June
6, 2002 at 10:00 a.m. at the corporate offices of the Company in Houston, Texas.
A total of 21,438,878 shares of common stock, which is 93.78% of the shares
outstanding on April 8, 2002 were represented at the meeting, either in person
or by proxy. The stockholders approved three proposals, solicited by proxy. The
vote tabulations follow:

1.   The following directors were elected to serve until the next Annual Meeting
     of Stockholders and until their successors have been elected and qualified.

           DIRECTORS                     FOR        AGAINST     ABSTAIN
           ---------                     ---        -------     -------
   Michael L. Burrow, P.E.            21,331,299       0        107,579
   William A. Coskey, P.E.            21,331,299       0        107,579
   Hulda L. Coskey                    21,331,299       0        107,579
   David W. Gent, P.E.                21,329,299       0        109,579
   Jimmie N. Carpenter, P.E.          20,822,248       0        616,630
   David C. Roussel                   21,329,099       0        109,779
   Randall B. Hale                    21,331,299       0        107,579


2.   Ratification of the appointment of Hein + Associates LLP as the Company's
     independent auditors.

                                         FOR        AGAINST     ABSTAIN
                                         ---        -------     -------
                                      21,431,234     4,060        3,584


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3.   Ratification of the Amendment to the Articles of Incorporation to change
     the name of Industrial Data Systems Corporation to ENGlobal Corporation.

                                         FOR        AGAINST     ABSTAIN
                                         ---        -------     -------
                                      21,385,286    48,655       4,937


     These were all the matters submitted to the Stockholders at the Annual
Meeting.

None.
Item 5.    Other Information

         During the second quarter 2002, the Company combined the business
development efforts of its various subsidiaries into a corporate level Business
Development department through an officer level position reporting directly to
the Chief Executive Officer. The new Senior Vice President will be responsible
for the coordination of the sales and marketing strategies among the Company's
various operations. In an effort to standardize and streamline the business
development and marketing efforts, a new marketing plan has already been
developed and implemented which will directly and closely monitor the results of
the business development team.

None.
Item 6.    Exhibits and Reports on Form 8-K
a.    Form 8-K
During the quarter ended JuneSeptember 30, 2002 the Company did not file a report on Form 8-K.
b.    Exhibits

     3.15   Amendment to Articles of Incorporation of Industrial Data Systems
            Corporation dated June 6, 2002 changing the name of the corporation
            to ENGlobal Corporation

     10.63  Second Amended and Restated Lease Agreement between Corporate
            Property Associates 4 and Petrocon Engineering, Inc. for Beaumont
            office space dated February 28, 2002

     10.64  Guaranty and Suretyship Agreement between Industrial Data Systems
            Corporation and Corporate Property Associates 4 dated April 26, 2002

     10.65  ENGlobal Corporation Incentive Bonus Plan dated June 12, 2002

     99.4   Charter of the Compensation Committee adopted June 6, 2002

     99.5   Audit Committee Charter adopted June 6, 2002

     99.6   Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
            2002 dated August 8, 2002




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3.16
Restated Articles of Incorporation of ENGlobal Corporation dated August 8, 2002
10.66
Lease Agreement between Petrocon Engineering, Inc. and Mickey Phelan B Land L. P. dated July 25, 2002
10.67
Second Amendment to Second Amended and Restated Loan and Security Agreement between IDS Engineering and Subsidiaries and Fleet Capital Corporation dated July 31, 2002
10.68
Amendment to Intercreditor Agreement between Fleet Capital Corporation, Equus II Corporation and ENGlobal Corporation dated July 31, 2002
10.69
Fifth Amendment of Lease Agreement between IDS and C.C. Business Park Ltd. dated May 23, 2002.
c.    Signature
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.

                                        ENGlobal
ENGLOBAL CORPORATION
Dated: August 8,November 14, 2002
By:    /s/     RobertROBERT W. Raiford
                                             -----------------------------------
                                        RAIFORD
Robert W. Raiford, Chief Financial Officer, Treasurer

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