UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017June 26, 2021
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 001-14217
ENGlobal Corporation |
(Exact name of registrant as specified in its charter) |
Nevada
(State or other jurisdiction of
incorporation or organization)
88-0322261
(I.R.S. Employer Identification No.)
654 N. Sam Houston Parkway E., Suite 400, Houston, TX | 77060-5914 | |
(Address of principal executive offices) | (Zip code) |
(281) 878-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.001 par value | ENG | NASDAQ |
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 shortened 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |
Non-Accelerated Filer | ☒ | Smaller Reporting Company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
IndicateAs of August 5, 2021, the number ofregistrant had outstanding 35,134,564 shares outstanding of each of the issuer’s classes of common stock, as of the close of business on November 1, 2017.par value $0.001 per share.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2017JUNE 26, 2021
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Notes to Unaudited Interim Condensed Consolidated Financial Statements | 7 | ||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||||
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2 |
PART I – FINANCIAL INFORMATION
ENGlobal Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
(amounts in thousands, except per share data)
For the Three Months Ended | For the Nine Months Ended |
| For the Three Months Ended |
| For the Six Months Ended |
| ||||||||||||||||||||||||||
September 30, 2017 | September 24, 2016 | September 30, 2017 | September 24, 2016 |
| June 26, 2021 |
|
| June 27, 2020 |
|
| June 26, 2021 |
|
| June 27, 2020 |
| |||||||||||||||||
Operating revenues | $ | 12,896 | $ | 15,968 | $ | 41,336 | $ | 44,622 |
| $ | 11,079 |
| $ | 17,882 |
| $ | 23,528 |
| $ | 37,142 |
| |||||||||||
Operating costs | 11,275 | 12,087 | 35,471 | 37,215 |
|
| 10,997 |
|
|
| 15,429 |
|
|
| 22,442 |
|
|
| 31,429 |
| ||||||||||||
Gross profit | 1,621 | 3,881 | 5,865 | 7,407 |
| 82 |
| 2,453 |
| 1,086 |
| 5,713 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Selling, general and administrative expenses | 3,041 | 3,511 | 9,503 | 10,214 |
|
| 4,264 |
|
|
| 2,314 |
|
|
| 6,825 |
|
|
| 4,447 |
| ||||||||||||
Operating income (loss) | (1,420 | ) | 370 | (3,638 | ) | (2,807 | ) | |||||||||||||||||||||||||
Operating profit (loss) |
| (4,182 | ) |
| 139 |
| (5,739 | ) |
| 1,266 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Other income, net | 2 | 10 | 57 | 17 |
| 6 |
| 1 |
| 1,690 |
| 2 |
| |||||||||||||||||||
Interest expense, net | (19 | ) | (44 | ) | (95 | ) | (129 | ) |
|
| (57 | ) |
|
| (36 | ) |
|
| (115 | ) |
|
| (41 | ) | ||||||||
Income (loss) from operations before income taxes | (1,437 | ) | 336 | (3,676 | ) | (2,919 | ) |
| (4,233 | ) |
| 104 |
| (4,164 | ) |
| 1,227 |
| ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Provision (benefit) for federal and state income taxes | 10,717 | (153 | ) | 10,250 | (1,056 | ) | ||||||||||||||||||||||||||
Provision for federal and state income taxes |
|
| 23 |
|
|
| 36 |
|
|
| 46 |
|
|
| 58 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net income (loss) | $ | (12,154 | ) | $ | 489 | $ | (13,926 | ) | $ | (1,863 | ) |
|
| (4,256 | ) |
|
| 68 |
|
|
| (4,210 | ) |
|
| 1,169 |
| |||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Basic and diluted income (loss) per common share: | $ | (0.44 | ) | $ | 0.02 | $ | (0.51 | ) | $ | (0.07 | ) |
| $ | (0.14 | ) |
| $ | 0.00 |
|
| $ | (0.15 | ) |
| $ | 0.04 |
| |||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Basic and diluted weighted average shares used in computing earnings (loss) per share: | 27,446 | 27,700 | 27,257 | 27,823 | ||||||||||||||||||||||||||||
Basic and diluted weighted average shares used in computing income (loss) per share: |
|
| 29,599 |
|
|
| 27,413 |
|
|
| 28,573 |
|
|
| 27,413 |
|
See accompanying notes to unaudited interim condensed consolidated financial statements.
3 |
ENGlobal Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
(amounts in thousands, except share and per share amounts)
September 30, 2017 | December 31, 2016 |
| June 26, 2021 |
|
| December 26, 2020 |
| |||||||||
ASSETS | ASSETS | |||||||||||||||
Current Assets: |
|
|
|
|
| |||||||||||
Cash, cash equivalents and restricted cash | $ | 10,898 | $ | 15,687 | ||||||||||||
Trade receivables, net of allowances of $302 and $422 | 10,579 | 10,455 | ||||||||||||||
Cash |
| $ | 29,175 |
| $ | 13,706 |
| |||||||||
Trade receivables, net of allowances of $1,636 and $386 |
| 6,572 |
| 7,789 |
| |||||||||||
Prepaid expenses and other current assets | 528 | 1,240 |
| 398 |
| 891 |
| |||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 4,099 | 2,434 | ||||||||||||||
Payroll taxes receivable |
| 1,676 |
| 0 |
| |||||||||||
Contract assets |
|
| 2,900 |
|
|
| 4,090 |
| ||||||||
Total Current Assets | 26,104 | 29,816 |
|
| 40,721 |
|
|
| 26,476 |
| ||||||
Property and equipment, net | 1,084 | 1,194 |
| 1,135 |
| 1,263 |
| |||||||||
Goodwill | 2,806 | 2,806 |
| 720 |
| 720 |
| |||||||||
Deferred tax asset | — | 10,208 | ||||||||||||||
Other assets | 251 | 412 |
|
|
|
|
| |||||||||
Right of use asset |
| 1,210 |
| 1,628 |
| |||||||||||
Deposits and other assets |
|
| 402 |
|
|
| 351 |
| ||||||||
Total Other Assets |
|
| 1,612 |
|
|
| 1,979 |
| ||||||||
Total Assets | $ | 30,245 | $ | 44,436 |
| $ | 44,188 |
|
| $ | 30,438 |
| ||||
|
|
|
|
| ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||
|
|
|
|
| ||||||||||||
Current Liabilities: |
|
|
|
|
| |||||||||||
Accounts payable | $ | 2,174 | $ | 2,876 |
| $ | 1,974 |
| $ | 2,138 |
| |||||
Accrued compensation and benefits | 1,711 | 2,099 |
| 2,479 |
| 3,048 |
| |||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 2,202 | 1,371 | ||||||||||||||
Current portion of leases |
| 1,180 |
| 1,541 |
| |||||||||||
Contract liabilities |
| 560 |
| 1,258 |
| |||||||||||
Current portion of note |
| 4,974 |
| 3,707 |
| |||||||||||
Current portion of deferred payroll tax |
| 519 |
| 0 |
| |||||||||||
Other current liabilities | 854 | 1,270 |
|
| 344 |
|
|
| 745 |
| ||||||
Total Current Liabilities | 6,941 | 7,616 |
| 12,030 |
| 12,437 |
| |||||||||
Long Term Leases | 2 | 14 | ||||||||||||||
|
|
|
|
|
| |||||||||||
Deferred payroll tax |
| 519 |
| 1,037 |
| |||||||||||
Long-term debt |
| 1,600 |
| 2,733 |
| |||||||||||
Long-term leases |
|
| 467 |
|
|
| 608 |
| ||||||||
Total Liabilities | 6,943 | 7,630 |
| 14,616 |
| 16,815 |
| |||||||||
Commitments and Contingencies (Note 8) |
|
|
|
|
| |||||||||||
Stockholders’ Equity: |
|
|
|
|
| |||||||||||
Common stock - $0.001 par value;75,000,000 shares authorized; 27,513,574 and 27,190,082 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 28 | 27 | ||||||||||||||
Common stock - $0.001 par value; 75,000,000 shares authorized; 35,134,564 shares issued and outstanding at June 26, 2021 and 27,560,686 shares issued and outstanding at December 26, 2020 |
| 35 |
| 28 |
| |||||||||||
Additional paid-in capital | 36,743 | 36,322 |
| 57,309 |
| 37,157 |
| |||||||||
Accumulated (deficit) earnings | (13,469 | ) | 457 | |||||||||||||
Accumulated deficit |
|
| (27,772 | ) |
|
| (23,562 | ) | ||||||||
Total Stockholders’ Equity | 23,302 | 36,806 |
|
| 29,572 |
|
|
| 13,623 |
| ||||||
Total Liabilities and Stockholders’ Equity | $ | 30,245 | $ | 44,436 |
| $ | 44,188 |
|
| $ | 30,438 |
|
See accompanying notes to unaudited interim condensed consolidated financial statements.
4 |
ENGlobal Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands)
For the Nine Months Ended | ||||||||
September 30, 2017 | September 24, 2016 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | (13,926 | ) | $ | (1,863 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 791 | 868 | ||||||
Share-based compensation expense | 288 | 367 | ||||||
Loss on disposal of fixed assets | — | 1 | ||||||
Stock issuance to vendor | 225 | — | ||||||
Deferred tax asset | 10,208 | (1,237 | ) | |||||
Changes in current assets and liabilities: | ||||||||
Trade accounts receivable | (124 | ) | 11,026 | |||||
Costs and estimated earnings in excess of billings on uncompleted contracts | (1,665 | ) | 1,910 | |||||
Other current assets | 636 | 832 | ||||||
Accounts payable | (702 | ) | 276 | |||||
Accrued compensation and benefits | (388 | ) | (442 | ) | ||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 831 | (1,776 | ) | |||||
Income taxes payable | 181 | (237 | ) | |||||
Other current liabilities, net | (351 | ) | 33 | |||||
Net cash provided by (used in) operating activities | $ | (3,996 | ) | $ | 9,758 | |||
Cash Flows from Investing Activities: | ||||||||
Proceeds from notes receivable | 45 | 30 | ||||||
Property and equipment acquired | (590 | ) | (84 | ) | ||||
Net cash used in investing activities | $ | (545 | ) | $ | (54 | ) | ||
Cash Flows from Financing Activities: | ||||||||
Purchase of treasury stock | (91 | ) | (1,100 | ) | ||||
Debt issuance cost | — | (20 | ) | |||||
Payments on capitalized leases | (157 | ) | (245 | ) | ||||
Net cash used in financing activities | $ | (248 | ) | $ | (1,365 | ) | ||
Net change in cash, cash equivalents and restricted cash | (4,789 | ) | 8,339 | |||||
Cash, cash equivalents and restricted cash, at beginning of period | 15,687 | 7,806 | ||||||
Cash, cash equivalents and restricted cash, at end of period | $ | 10,898 | $ | 16,145 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 100 | $ | 131 | ||||
Cash paid (received) during the period for income taxes (net of refunds) | $ | (148 | ) | $ | 428 |
|
| For the Six Months Ended |
| |||||
|
| June 26, 2021 |
|
| June 27, 2020 |
| ||
Cash Flows from Operating Activities: |
|
|
|
|
|
| ||
Net income (loss) |
| $ | (4,210 | ) |
| $ | 1,169 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 187 |
|
|
| 205 |
|
Share-based compensation expense |
|
| 107 |
|
|
| 132 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
| 1,217 |
|
|
| 1,569 |
|
Contract assets |
|
| 1,190 |
|
|
| (1,256 | ) |
Other current assets |
|
| (1,234 | ) |
|
| 344 |
|
Accounts payable |
|
| (164 | ) |
|
| (166 | ) |
Accrued compensation and benefits |
|
| (569 | ) |
|
| 977 |
|
Contract liabilities |
|
| (698 | ) |
|
| (3,109 | ) |
Income taxes payable |
|
| (54 | ) |
|
| 219 |
|
Other current liabilities, net |
|
| (347 | ) |
|
| (192 | ) |
Net cash used in operating activities |
| $ | (4,575 | ) |
| $ | (108 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Property and equipment acquired |
|
| (88 | ) |
|
| (126 | ) |
Net cash used in investing activities |
| $ | (88 | ) |
| $ | (126 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Issuance of common stock, net |
|
| 20,052 |
|
|
| 0 |
|
Payments on finance leases |
|
| (55 | ) |
|
| (42 | ) |
Proceeds from PPP loan |
|
| 0 |
|
|
| 4,925 |
|
Interest on PPP loan |
|
| 25 |
|
|
| 0 |
|
Proceeds from revolving credit facility |
|
| 110 |
|
|
| 1,445 |
|
Net cash provided by (used in) financing activities |
| $ | 20,132 |
|
| $ | 6,328 |
|
Net change in cash |
|
| 15,469 |
|
|
| 6,094 |
|
Cash at beginning of period |
|
| 13,706 |
|
|
| 8,307 |
|
Cash at end of period |
| $ | 29,175 |
|
| $ | 14,401 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ | 115 |
|
| $ | 12 |
|
Right of use assets obtained in exchange for new operating lease liability |
| $ | 256 |
|
| $ | 1,182 |
|
Cash paid during the period for income taxes (net of refunds) |
| $ | 151 |
|
| $ | 86 |
|
Debt issuance costs |
| $ | 0 |
|
| $ | 131 |
|
See accompanying notes to unaudited interim condensed consolidated financial statements.
5 |
ENGlobal Corporation
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(amounts in thousands)
|
| For the Three Months Ended |
| |||||
|
| June 26, 2021 |
|
| June 27, 2020 |
| ||
|
|
|
|
|
|
| ||
Common Stock |
|
|
|
|
|
| ||
Balance at beginning of period |
| $ | 28 |
|
| $ | 27 |
|
Common stock issued |
|
| 7 |
|
|
| 0 |
|
Balance at end of the period |
|
| 35 |
|
|
| 27 |
|
Additional Paid-in Capital |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| 37,202 |
|
|
| 36,949 |
|
Common stock issued |
|
| 20,045 |
|
|
| 0 |
|
Share-based compensation - employee |
|
| 62 |
|
|
| 117 |
|
Balance at end of period |
|
| 57,309 |
|
|
| 37,066 |
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| (23,516 | ) |
|
| (21,836 | ) |
Net income (loss) |
|
| (4,256 | ) |
|
| 68 |
|
Balance at end of period |
|
| (27,772 | ) |
|
| (21,768 | ) |
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity |
| $ | 29,572 |
|
| $ | 15,325 |
|
|
| For the Six Months Ended |
| |||||
|
| June 26, 2021 |
|
| June 27, 2020 |
| ||
|
|
|
|
|
|
| ||
Common Stock |
|
|
|
|
|
| ||
Balance at beginning of period |
| $ | 28 |
|
| $ | 27 |
|
Common stock issued |
|
| 7 |
|
|
| 0 |
|
Balance at end of the period |
|
| 35 |
|
|
| 27 |
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| 37,157 |
|
|
| 36,934 |
|
Common stock issued |
|
| 20,045 |
|
|
| 0 |
|
Share-based compensation - employee |
|
| 107 |
|
|
| 132 |
|
Balance at end of period |
|
| 57,309 |
|
|
| 37,066 |
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit |
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| (23,562 | ) |
|
| (22,937 | ) |
Net income (loss) |
|
| (4,210 | ) |
|
| 1,169 |
|
Balance at end of period |
|
| (27,772 | ) |
|
| (21,768 | ) |
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity |
| $ | 29,572 |
|
| $ | 15,325 |
|
See accompanying notes to unaudited interim condensed consolidated financial statements.
6 |
Table of Contents |
ENGLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of ENGlobal Corporation (which may be referred to as “ENGlobal,” the “Company,” “we,” “us,” or “our”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, these condensed financial statements do not include all of the information or note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP. These condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2016,26, 2020, included in the Company’s 20162020 Annual Report on Form 10-K filed with the Securities and Exchange Commission.
The condensed financial statements included herein are unaudited for the three month and ninesix month periods ended September 30, 2017June 26, 2021 and September 24, 2016,June 27, 2020, and in the case of the condensed balance sheet as of December 31, 2016,26, 2020 have been derived from the audited financial statements of the Company. These financial statements reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary to fairly present the results for the periods presented.
The Company has assessed subsequent events through the date of filing of these condensed financial statements with the Securities and Exchange Commission and believes that the disclosures made herein are adequate to make the information presented herein not misleading.
We had no items of other comprehensive income in any period presented; therefore, no other components of comprehensive income or comprehensive income are presented.
Each of our quarters is comprised of 13 weeks.
Changes in AccountingNOTE 2 – ACCOUNTING STANDARDS
In March 2016,Revenue Recognition – Our revenue is comprised of engineering, procurement and construction management services and sales of fabricated systems and integrated control systems that we design and assemble. The majority of our services are provided under time-and-material contracts. Some time-and-material contracts may have limits. Revenue is not recognized over these limits until authorization by the Financial Statements Accounting Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09,Compensation – Stock Compensation (Topic 718): Improvementsclient has been received.
A majority of sales of fabrication and assembled systems are under fixed-price contracts. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
We generally recognize revenue over time as we perform because of continuous transfer of control to Employee Share-Based Payment Accounting,the customer. Our customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to change several aspectspayment for work performed to date plus a reasonable profit to deliver products or services that do not have an alternative use to the Company. The selection of accounting for share-based payment transactions, including a requirementthe method to recognize all excess tax benefitsmeasure progress towards completion requires judgment and tax deficiencies as income tax expense or benefit in the income statement, classification of awards as either equity or liabilities, and classificationis based on the statement of cash flows. This pronouncement is effective for interim and annual reporting periods beginning after December 31, 2016, with early adoption permitted. Varying transition methods (modified retrospective, retrospective or prospective) are applied to different provisionsnature of the standard. We adopted this pronouncement inproducts or service to be provided, which measures the first quarterratio of 2017 by electingcosts incurred to account for forfeitures in compensationdate to the total estimated costs as they occur and reflecting this change in accounting policy on a modified retrospective basis through a non-material, cumulative-effect adjustment reducing accumulated earnings asat completion of the beginningperformance obligation. We generally use the cost-to-cost method on the labor portion of 2017. We recognized a benefit in stock compensation relatedproject for revenue recognition to forfeituresmeasure progress of $.01 million inour contracts because it best depicts the nine months ended September 30, 2017.transfer of control to the customer which occurs as we consume the materials on the contracts. Therefore, revenues and estimated profits are recorded proportionally as labor costs are incurred.
In November 2016, the FASB Issued Update 2016-18,Statement of Cash flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). This update addresses the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2017, with early application permitted. We adopted this pronouncement in the first quarter of 2017 and have reported restricted cash as a component of ending cash, cash equivalents and restricted cash on the Statements of Cash Flows.
New Accounting Pronouncements Not Yet AdoptedUnder the typical payment terms of our fixed-price contracts, the customer pays us progress payments. These progress payments are based on quantifiable measures of performance or on the achievement of specified events or milestones. The customer may retain a small portion of the contract price until completion of the contract. Revenue recognized in excess of billings is recorded as a contract asset on the balance sheet. Amounts billed and due from our customers are classified as receivables on the balance sheet. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer should we fail to adequately complete some or all of our obligations under the contract. For some contracts we may receive advance payments from the customer. We record a liability for these advance payments in contract liabilities on the balance sheet. The advance payment typically is not considered a significant financing component because it is used to meet working capital demand that can be higher in the early stages of a contract and to protect us from the other party failing to adequately complete some or all of its obligations under the contract.
In May 2014,To determine proper revenue recognition for contracts, we evaluate whether two or more contracts should be combined and accounted for as one single performance obligation or whether a single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the FASB issued ASU No. 2014-09, Revenue From Contracts with Customers (Topic 606), that will supersededecision to combine a group of contracts or separate a single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most of our contracts, we provide a significant service of integrating a complex set of tasks and components into a single project. Hence, the existing revenue recognition requirementsentire contract is accounted for as one performance obligation. Less commonly, we may provide distinct goods or services within a contract in U.S. GAAP and will require entitieswhich case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to recognize revenue ateach performance obligation in an amount that reflectsbased on the estimated relative standalone selling price of the promised goods or services underlying each performance obligation and use the expected cost plus margin approach to estimate the standalone selling price of each performance obligation. Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion is complex, subject to variables and requires significant judgment. We estimate variable consideration at the most likely amount to which we expect to be entitledentitled. We include estimated amounts in exchangethe transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.
Contracts are often modified to account for transferringchanges in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a customer. This newcontract modification on the transaction price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or a reduction of revenue) on a cumulative catch-up basis.
We have a standard, also requires significantly expanded disclosuresmonthly process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include management’s judgment about the ability and cost to achieve the schedule, technical requirements, and other contractual requirements. Management must make assumptions and estimates regarding labor productivity and availability, the qualitativecomplexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation, execution by our subcontractors, the availability and quantitative informationtiming of funding from our customer and overhead cost rates, among other variables.
Based on this analysis, any adjustments to revenue, operating costs and the related impact to operating income are recognized as necessary in the period they become known. These adjustments may result from positive performance and may result in an entity’s nature, amount, timing,increase in operating income during the performance of individual performance obligations if we determine we will be successful in mitigating risks surrounding the technical, schedule and uncertainty of revenue and cash flows arising from contracts with customers. In May 2016, the FASB issued ASU No. 2016-12 to clarify certain narrowcost aspects of Topic 606 such as assessingthose performance obligations or realizing related opportunities. When estimates of total costs to be incurred exceed total estimates to be earned, a provision for the collectability criterion, presentation of sales taxes and other similar taxes collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition, and other technical corrections. This new accounting standard, as updated,entire loss on the performance obligation is effective for interim and annual reporting periods beginning after December 15, 2017. We have begun the process of evaluating the principlesrecognized in the new standard followingperiod the five step approachloss becomes known. Likewise, these adjustments may result in a decrease in operating income if we determine we will not be successful in mitigating these risks or realizing related opportunities. Changes in estimates of net revenue, operating costs and we are assessing its potential impact on our financial position, results of operations, cash flows andthe related disclosures. Through our initial evaluation, we believe the impact to operating income are recognized monthly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our financial statements will be immaterial and we do not believe the implementation will have a material impact on our business practices.performance obligations.
In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842), that will amend the accounting standards for leases. This new standard retains a distinction between finance leases and operating leases but the primary change is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases on the lessee’s balance sheet and certain aspects of lease accounting have been simplified. This new standard requires additional qualitative and quantitative disclosures along with specific quantitative disclosures required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2018, with early application permitted. We are currently evaluating the provisions of this pronouncement and are assessing its potential impact on our financial position, results of operations, cash flows and related disclosures. However we are currently unable to reasonably estimate the impact this pronouncement will have on our financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This amendment addresses how certain specified cash receipts and cash payments are presented in the statement of cash flows. This guidance becomes effective for interim and annual reporting periods beginning after December 15, 2017. We are currently evaluating the provisions of this pronouncement and are assessing its potential impact on our financial position, results of operations, cash flows and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04,Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This amendment removes the second step of the two-step goodwill impairment test. When adopted, an entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. This pronouncement is effective for the Company’s annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the provisions of this pronouncement and are assessing its potential impact on our financial position, results of operations, cash flows and related disclosures.
NOTE 2 – CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated financial statements:
September 30, 2017 | December 31, 2016 | |||||||
(dollars in thousands) | ||||||||
Cash and cash equivalents | $ | 10,238 | $ | 15,687 | ||||
Restricted cash | 660 | — | ||||||
Total cash, cash equivalents and restricted cash | $ | 10,898 | $ | 15,687 |
Amounts included in restricted cash represent those required to be set aside to collateralize a letter of credit required by a customer. This letter of credit will expire in December 2017.
NOTE 3 - CONTRACTS– REVENUE RECOGNITION
Our revenue by contract type was as follows (dollars in thousands):
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| June 26, 2021 |
|
| June 27, 2020 |
|
| June 26, 2021 |
|
| June 27, 2020 |
| ||||
Fixed-price revenue |
| $ | 6,528 |
|
| $ | 10,022 |
|
| $ | 14,793 |
|
| $ | 17,922 |
|
Time-and-material revenue |
|
| 4,551 |
|
|
| 7,860 |
|
|
| 8,735 |
|
|
| 19,220 |
|
Total Revenue |
|
| 11,079 |
|
|
| 17,882 |
|
|
| 23,528 |
|
|
| 37,142 |
|
NOTE 4 – CONTRACT ASSETS AND CONTRACT LIABILITIES
Our contract assets consist of unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Our contract liabilities consist of advance payments and billings in excess of costs incurred.
Costs, estimated earnings and billings on uncompleted contracts consisted of the following at September 30, 2017 and December 31, 2016:(dollars in thousands):
September 30, 2017 | December 31, 2016 | |||||||||||||||
(dollars in thousands) |
| June 26, 2021 |
|
| December 26, 2020 |
| ||||||||||
Costs incurred on uncompleted contracts | $ | 54,116 | $ | 58,933 |
| $ | 34,987 |
| $ | 39,154 |
| |||||
Estimated earnings on uncompleted contracts | 15,345 | 24,694 |
|
| 5,766 |
|
|
| 4,388 |
| ||||||
Earned revenues | 69,461 | 83,627 |
| 40,753 |
| 43,542 |
| |||||||||
Less: billings to date | 67,564 | 82,564 |
|
| 38,413 |
|
|
| 40,710 |
| ||||||
Net costs and estimated earnings in excess of billings on uncompleted contracts | $ | 1,897 | $ | 1,063 | ||||||||||||
Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts |
| $ | 2,340 |
|
| $ | 2,832 |
| ||||||||
|
|
|
|
| ||||||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 4,099 | $ | 2,434 | ||||||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | (2,202 | ) | (1,371 | ) | ||||||||||||
Net costs and estimated earnings in excess of billings on uncompleted contracts | $ | 1,897 | $ | 1,063 | ||||||||||||
Contract assets |
| $ | 2,900 |
| $ | 4,090 |
| |||||||||
Contract liabilities |
|
| (560 | ) |
|
| (1,258 | ) | ||||||||
Net contract assets |
| $ | 2,340 |
|
| $ | 2,832 |
|
Revenue on fixed-price contractsNOTE 5 – DEBT
The components of debt were as follows (dollars in thousands):
|
| June 26, 2021 |
|
| December 26, 2020 |
| ||
PPP Loan (1) |
| $ | 4,974 |
|
| $ | 4,949 |
|
Revolving Credit Facility (2) |
|
| 1,600 |
|
|
| 1,491 |
|
Total debt |
|
| 6,574 |
|
|
| 6,440 |
|
Amount due within one year |
|
| 4,974 |
|
|
| 3,707 |
|
Total long-term debt |
| $ | 1,600 |
|
| $ | 2,733 |
|
(1) | On April 13, 2020, the Company was granted an unsecured loan (the “PPP Loan”) from Origin Bank in the aggregate principal amount of $4,915,800 pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The PPP Loan is evidenced by a promissory note, dated as of April 13, 2020 (the “Note”), by ENGlobal in favor of Origin Bank, as lender. The PPP Loan balance has increased due to accrued interest. |
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Table of Contents |
Interest Rate: The interest rate on the PPP Loan is 1% per year. Potential PPP Loan Forgiveness: Under the PPP, ENGlobal may apply for forgiveness of the amount due on the PPP Loan in an amount equal to the sum of the following costs incurred during the covered period beginning on the date of the first disbursement of the PPP Loan: (a) payroll costs, (b) any payment of interest on a covered obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), (c) any payment on a covered rent obligation, and (d) any covered utility payment, calculated in accordance with the terms of the CARES Act. We have elected to utilize a 24-week covered period as allowed by the Paycheck Protection Program Flexibility Act (“PPPFA”) enacted on June 5, 2020. On November 30, 2020, our lender, Origin Bank, transmitted our PPP Loan forgiveness application to the U.S. Small Business Administration. On July 12, 2021, we received notification from Origin Bank that the PPP Loan was forgiven in full by the U.S. Small Business Administration. See Note 12 for more information on the PPP Loan forgiveness. | ||
(2) | On May 21, 2020 (the “Closing Date”), the Company and its wholly owned subsidiaries, ENGlobal U.S., Inc. and ENGlobal Government Services, Inc. (collectively, the “Borrowers”) entered into a Loan and Security Agreement (the “Revolving Credit Facility”) with Pacific Western Bank dba Pacific Western Business Finance, a California state-chartered bank (the “Lender”), pursuant to which the Lender agreed to extend credit to the Borrowers in the form of revolving loans (each a “Loan” and collectively, the “Loans”) in the aggregate amount of up to $6.0 million (the “Maximum Credit Limit”). | |
Set forth below are certain of the material terms of the Revolving Credit Facility: Credit Limit: The credit limit is an amount equal to the lesser of (a) the Maximum Credit Limit and (b) the sum of (i) 85% of the Borrowers’ Eligible Accounts (as defined in the Revolving Credit Facility), plus (ii) the lesser of (A) 75% of the Borrowers’ Eligible Unbilled Accounts (as defined in the Revolving Credit Facility), or (B) $3,000,000 plus (iii) the lesser of (A) 20% of Borrowers’ Eligible Fixed Price Accounts, or (B) $250,000. As of June 26, 2021, the credit limit under the Revolving Credit Facility was $3.1 million. Interest: Any Loans will bear interest at a rate per annum equal to the Prime rate (defined as the rate announced as the “prime rate” or “bank prime rate” in the Western Edition of the Wall Street Journal) plus 2.0%; provided that interest will not be less than $7,500 per month. Collateral: Lender receives a first priority lien on all assets of the Borrowers, including accounts receivable, inventory, equipment, deposit accounts, general intangibles and investment property. Maturity: The maturity date is May 20, 2023 and shall be automatically extended for additional periods of one-year each, if written notice of termination is not given by one party to the other at least thirty days prior to the maturity date. Loan Fee: The Borrowers will pay to Lender a loan fee of 1.00% of the Maximum Credit Limit at the time of funding and annually thereafter on the anniversary date of the initial funding. Termination Fee: In the event the Borrowers terminate the Revolving Credit Facility prior to the maturity date, the Borrowers will pay to Lender a termination fee of (i) 2.00% of the Maximum Credit Limit, if the termination occurs on or prior to the first anniversary of the Closing Date, (ii) 1.00% of the Maximum Credit Limit, if the termination occurs after the first anniversary of the Closing Date and on or prior to the second anniversary of the Closing Date and (iii) 0.05% of the Maximum Credit Limit, if the termination occurs after the second anniversary of the Closing Date. |
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Table of Contents |
Covenants: The Revolving Credit Facility requires the Borrowers to comply with certain customary affirmative covenants, and negative covenants that, among other things, restrict, subject to certain exceptions, the ability of the Borrowers to engage in mergers, acquisitions or other transactions outside of the ordinary course of business, make loans or investments, incur indebtedness, pay dividends or repurchase stock, or engage in affiliate transactions. The Revolving Credit Facility does not require the Borrowers to comply with any financial covenants. |
The future scheduled maturities of our debt are (in thousands):
|
| PPP Loan and Revolving Credit Facility (1) |
|
| Revolving Credit Facility (1) |
| ||
2021 |
| $ | 2,980 |
|
| $ | 0 |
|
2022 |
|
| 1,994 |
|
|
| 0 |
|
2023 |
|
| 1,600 |
|
|
| 1,600 |
|
Thereafter |
|
| 0 |
|
|
| 0 |
|
|
| $ | 6,574 |
|
| $ | 1,600 |
|
(1) | On July 12, 2021, we received notification that the PPP Loan was entirely forgiven and only the Revolving Credit Facility will remain as debt. |
NOTE 6 – SEGMENT INFORMATION
Our segments are strategic business units that offer our services and products to customers in their respective industry segments. The operating performance of our segments is recorded primarily usingregularly reviewed with operational leaders in charge of these segments, the percentage-of-completion (cost-to-cost) method. Revenuechief executive officer (“CEO”), the chief financial officer (“CFO”) and gross margin on fixed-price contracts are subject to revision throughoutothers. This group represents the lives of the contracts and any required adjustments are made in the period in which the revisions become known. To manage unknown risks, management may use contingency amounts to increase the estimated costs, therefore, lowering the earned revenues until the risks are better identified and quantified or have been mitigated. We currently have $1.1 million in contingency amounts as of September 30, 2017 compared to $0.9 million as of December 31, 2016. Losses on contracts are recorded in full as they are identified. Fixed price contracts generally include retainage provisions under which a percentage of the contract price is withheld until the project is complete and has been accepted by our customer. We currently have $0.3 million in retainage as of September 30, 2017 compared to $1.4 million as of December 31, 2016.chief operating decision maker (“CODM”) for ENGlobal.
We recognize service revenuehave identified four strategic markets where we have a long history of delivering project solutions and can provide complete project execution. These four targeted markets include: (i) Renewables, (ii) Automation, (iii) Oil, Gas, and Petrochemicals, and (iv) Government Services.
Within the Renewables group, our focus is to design and build production facilities for hydrogen and associated products, together with converting existing production facilities to produce products from renewable feedstock sources. These projects often utilize technologies that are more fuel efficient, and therefore reduce the associated carbon footprint of the facility. Our scope of work on these projects will typically include front-end development, engineering, procurement, mechanical fabrication, automation and commissioning services, and may be performed in conjunction with a construction partner.
Our Automation group designs, integrates and commissions modular systems that include electronic distributed control, on-line process analytical data, continuous emission monitoring, and electric power distribution. Often these packaged systems are housed in a fabricated metal enclosure, modular building or freestanding metal rack, which are commonly included in our scope of work. We provide automation engineering, procurement, fabrication, systems integration, programing and on-site commissioning services to our clients for both new and existing facilities.
Our Oil, Gas, and Petrochemicals group focuses on providing engineering, procurement and automation services as soonwell as thefabricated products to downstream refineries and petrochemical facilities as well as midstream pipeline, storage and other transportation related companies. These services are performed.often applied to small capital improvement and maintenance projects within refineries and petrochemical facilities. For our transportation clients, that we consider higher risk, due to past payment history or history of not providing written work authorizations, we have deferred revenue recognition until we receive either a written authorization or a payment. We currently have $0.5 million in deferred revenue recognition as of September 30, 2017 compared to $0.1 million as of December 31, 2016. This deferred revenue represents work on not–to-exceed contractsfacilities that has been performed but has not been billed or booked as revenue dueinclude pumping, compression, gas processing, metering, storage terminals, product loading and blending systems. In addition, this group designs, programs and maintains supervisory control and data acquisition (“SCADA”) systems for our transportation clients. This group also provides engineering, fabrication and automation services to our revenue recognition policies asclients who have operations in the work was performed outside the contracted amount without obtaining proper work order changes. It is uncertain as to whether these revenues will eventually be recognized by us or the proceeds collected.U.S. oil and gas exploration and development markets. The costsoperations are usually associated with these billings have been expensed as incurred.the completion, purification, storage and transmission of the oil and gas from the well head to the terminal or pipeline destination.
NOTE 4 – LINE OF CREDIT AND LETTER OF CREDIT FACILITIES
Line of Credit Facility
On March 31, 2017, the Company terminated its credit facility with Regions Bank. There were no loans outstanding under that facility on that date. See “Note 6 - Credit Facilities” to our financial statements included in our 2016 Annual Report on Form 10-K for a description of the material terms of the Regions Bank credit facility. The facility was terminated because the Company believes that its cash on hand, internally generated funds and other working capital are sufficient to fund its current operations and near term growth. In addition, the elimination of the facility, which was scheduled to expire in September 2017, will significantly reduce costs to the Company.
NOTE 5 – SEGMENT INFORMATION
The Engineering, Procurement and Construction Management (“EPCM”) segment provides services relating to the development, management and execution of projects requiring professional engineering and related project services primarily to the energy industry throughout the United States. The EPCM segment includes the government servicesOur Government Services group which provides engineering, design, installation and operation and maintenance of various government, public sector and international facilities and the fabrication operation. The Automation segment provides services related to the engineering, design, integrationinstallation and implementationmaintenance of advanced automation, information technology, process distributed controlautomated fuel handling and tank gauging systems analyzer systems,for the U.S. military across the globe.
We have two reportable segments: Commercial and electrical projects primarily to the upstreamGovernment Services. Our Renewables, Automation, and downstream sectors throughout the United States.Oil, Gas, and Petrochemical groups are aggregated into one reportable segment, Commercial.
Revenues, operating income, and identifiable assets for each segment are set forth in the following table. The amount identified as Corporate includes those activities that are not allocated to the operating segments and includes costs related to business development, executive functions, finance, accounting, safety, human resources and information technology that are not specifically identifiable with the segments.
Segment The segment information for the three months and six months ended September 30, 2017June 27, 2020 and September 24, 2016as of December 26, 2020 has been recast to align with our current reportable segments.
Segment information is as follows (dollars in thousands):
For the three months ended September 30, 2017: | EPCM | Automation | Corporate | Consolidated | ||||||||||||||||||||||||||||
| Commercial |
|
| Government Services |
|
| Corporate |
|
| Consolidated |
| |||||||||||||||||||||
For the three months ended June 26, 2021: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Revenue |
| $ | 9,157 |
|
| $ | 1,922 |
|
| $ | 0 |
|
| $ | 11,079 |
| ||||||||||||||||
Gross profit (loss) |
| (201 | ) |
| 283 |
| 0 |
| 82 |
| ||||||||||||||||||||||
Gross profit margin |
| (2.2 | )% |
| 14.7 | % |
|
|
| 0.7 | % | |||||||||||||||||||||
SG&A |
|
| 2,816 |
|
|
| 188 |
|
|
| 1,260 |
|
|
| 4,264 |
| ||||||||||||||||
Operating income (loss) |
| (3,017 | ) |
| 95 |
| (1,260 | ) |
| (4,182 | ) | |||||||||||||||||||||
Other income, net |
|
|
|
|
|
|
| 6 |
| |||||||||||||||||||||||
Interest expense, net |
|
|
|
|
|
|
| (57 | ) | |||||||||||||||||||||||
Tax expense |
|
|
|
|
|
|
|
| (23 | ) | ||||||||||||||||||||||
Net loss |
|
|
|
|
|
|
|
| (4,256 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
| Commercial |
|
| Government Services |
|
| Corporate |
|
| Consolidated |
| ||||||||||||||||||||
For the three months ended June 27, 2020: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Revenue | $ | 8,573 | $ | 4,323 | $ | — | $ | 12,896 |
| $ | 14,803 |
|
| $ | 3,079 |
|
| $ | 0 |
|
| $ | 17,882 |
| ||||||||
Gross profit | 899 | 722 | — | 1,621 |
| 1,910 |
| 543 |
| 0 |
| 2,453 |
| |||||||||||||||||||
Gross profit margin |
| 12.9 | % |
| 17.6 | % |
|
|
| 13.7 | % | |||||||||||||||||||||
SG&A | 873 | 531 | 1,637 | 3,041 |
|
| 831 |
|
|
| 150 |
|
|
| 1,333 |
|
|
| 2,314 |
| ||||||||||||
Operating income (loss) | 26 | 191 | (1,637 | ) | (1,420 | ) |
| 1,079 |
| 393 |
| (1,333 | ) |
| 139 |
| ||||||||||||||||
Other income | 2 | |||||||||||||||||||||||||||||||
Other income, net |
|
|
|
|
|
|
| 1 |
| |||||||||||||||||||||||
Interest expense, net | (19 | ) |
|
|
|
|
|
|
| (36 | ) | |||||||||||||||||||||
Tax (expense) | (10,717 | ) | ||||||||||||||||||||||||||||||
Net loss | $ | (12,154 | ) | |||||||||||||||||||||||||||||
Tax expense |
|
|
|
|
|
|
|
| (36 | ) | ||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
| 68 |
|
For the three months ended September 24, 2016: | EPCM | Automation | Corporate | Consolidated | ||||||||||||
Revenue | $ | 8,216 | $ | 7,752 | $ | — | $ | 15,968 | ||||||||
Gross profit | 1,454 | 2,427 | — | 3,881 | ||||||||||||
SG&A | 909 | 685 | 1,917 | 3,511 | ||||||||||||
Operating income (loss) | 545 | 1,742 | (1,917 | ) | 370 | |||||||||||
Other income | 10 | |||||||||||||||
Interest expense, net | (44 | ) | ||||||||||||||
Tax benefit | 153 | |||||||||||||||
Net income | $ | 489 |
|
| Commercial |
|
| Government Services |
|
| Corporate |
|
| Consolidated |
| ||||
For the six months ended June 26, 2021: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 19,206 |
|
| $ | 4,322 |
|
| $ | 0 |
|
| $ | 23,528 |
|
Gross profit |
|
| 714 |
|
|
| 372 |
|
|
| 0 |
|
|
| 1,086 |
|
Gross profit margin |
|
| 3.7 | % |
|
| 8.6 | % |
|
|
|
|
|
| 4.6 | % |
SG&A |
|
| 4,109 |
|
|
| 397 |
|
|
| 2,319 | �� |
|
| 6,825 |
|
Operating loss |
|
| (3,395 | ) |
|
| (25 | ) |
|
| (2,319 | ) |
|
| (5,739 | ) |
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,690 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (115 | ) |
Tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (46 | ) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,210 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial |
|
| Government Services |
|
| Corporate |
|
| Consolidated |
| ||||
For the six months ended June 27, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 31,313 |
|
| $ | 5,829 |
|
| $ | 0 |
|
| $ | 37,142 |
|
Gross profit |
|
| 4,755 |
|
|
| 958 |
|
|
| 0 |
|
|
| 5,713 |
|
Gross profit margin |
|
| 15.2 | % |
|
| 16.4 | % |
|
|
|
|
|
| 15.4 | % |
SG&A |
|
| 1,661 |
|
|
| 320 |
|
|
| 2,466 |
|
|
| 4,447 |
|
Operating income (loss) |
|
| 3,094 |
|
|
| 638 |
|
|
| (2,466 | ) |
|
| 1,266 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (41 | ) |
Tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (58 | ) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,169 |
|
Segment information for the nine months ended September 30, 2017 and September 24, 2016 isTotal assets by segment are as follows (dollars in thousands):
For the nine months ended September 30, 2017: | EPCM | Automation | Corporate | Consolidated | ||||||||||||
Revenue | $ | 26,833 | $ | 14,503 | $ | — | $ | 41,336 | ||||||||
Gross profit | 3,618 | 2,247 | — | 5,865 | ||||||||||||
SG&A | 2,667 | 1,670 | 5,166 | 9,503 | ||||||||||||
Operating income (loss) | 951 | 577 | (5,166 | ) | (3,638 | ) | ||||||||||
Other income | 57 | |||||||||||||||
Interest expense, net | (95 | ) | ||||||||||||||
Tax (expense) | (10,250 | ) | ||||||||||||||
Net loss | $ | (13,926 | ) |
For the nine months ended September 24, 2016: | EPCM | Automation | Corporate | Consolidated | ||||||||||||
Revenue | $ | 25,000 | $ | 19,622 | $ | — | $ | 44,622 | ||||||||
Gross profit | 2,877 | 4,530 | — | 7,407 | ||||||||||||
SG&A | 2,432 | 2,203 | 5,579 | 10,214 | ||||||||||||
Operating income (loss) | 445 | 2,327 | (5,579 | ) | (2,807 | ) | ||||||||||
Other income | 17 | |||||||||||||||
Interest expense, net | (129 | ) | ||||||||||||||
Tax benefit | 1,056 | |||||||||||||||
Net loss | $ | (1,863 | ) |
Total Assets by Segment | As of September 30, 2017 | As of December 31, 2016 |
| As of June 26, 2021 |
|
| As of December 26, 2020 |
| ||||||||
(dollars in thousands) |
| (dollars in thousands) |
| |||||||||||||
EPCM | $ | 8,316 | $ | 6,530 | ||||||||||||
Automation | 10,503 | 10,296 | ||||||||||||||
Commercial |
| $ | 7,633 |
| $ | 11,130 |
| |||||||||
Government Services |
| 2,606 |
| 3,151 |
| |||||||||||
Corporate | 11,426 | 27,610 |
|
| 33,949 |
|
|
| 16,157 |
| ||||||
Consolidated | $ | 30,245 | $ | 44,436 |
| $ | 44,188 |
|
| $ | 30,438 |
|
NOTE 67 – FEDERAL AND STATE INCOME TAXES
The Company accounts for income taxes in accordance with FASB Accounting Standards Codification 740, “Income Taxes” (“ASC 740”). Under ASC 740 for the three and nine months ended September 24, 2016,740-270 we estimatedestimate an annual effective tax rate based on year-to-date operating results and our projection of operating results for the remainder of the year. We appliedapply this annual effective tax rate to the year-to-date operating results. If our actual results differ from the estimated annual projection, our estimated annual effective tax rate can change affecting the tax expense for successive interim results as well as the estimated annual tax expense results. Certain states are not included in the calculation of the estimated annual effective tax rate because the underlying basis for the tax is related to revenues and not taxable income. Amounts for Texas margin taxes are reported as income tax expense.
During the quarter ended September 30, 2017, management recorded an $11.3 million valuation allowance against the deferred tax assets. ASC Topic 740 requires all available evidence, both positive and negative, be considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. During the quarter ended September 30, 2017, based upon the Company’s recent performance, management determined the realization of deferred tax assets is uncertain as tax planning strategies and projections of future taxable income in its evaluation of the realizability of its deferred tax assets as of September 30, 2017 did not outweigh recent loss history.
As a result of the valuation allowance recorded against our deferred tax assets as of September 30, 2017, the effective income tax rates for the three and nine month periods ended September 30, 2017 were not meaningful. The effective income tax rates for the three and nine month periods ended September 24, 2016 were 45.8% and 36.2%, respectively.
The Company applies a more likely than not recognition threshold for all tax uncertainties. The FASB guidance for uncertain tax positions only allows the recognition of those tax benefits, based on their technical merits that have aare greater than 50 percent likelihood of being sustained upon examination by the taxing authorities. Management has reviewed the Company’s tax positions and determined there are no uncertain tax positions requiring recognition in the financial statements. U.S. federal tax returns prior to 20132016 and Texas margins tax returns prior to 20132016 are closed. Generally, the applicable statues of limitations are three to four years from their filings.
NOTE 7 – STOCK REPURCHASE PROGRAM
On April 21, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $2 million of the Company’s common stock from time to time through open market or privately negotiated transactions, based on prevailing market conditions. The Company is not obligated to repurchase any dollar amount or specific numberrecorded income tax expense of shares of common stock under the repurchase program, which may be suspended or discontinued at any time. As of September 30, 2017, the Company had purchased and retired 1,191,050 shares$23 thousand for $1.5 million under this program with no shares purchased in the three months ended September 30, 2017.June 26, 2021 as compared to income tax expense of $36thousand for the three months ended June 27, 2020. The stock repurchase programeffective income tax rate for the three months ended June 26, 2021 was suspended on May 16, 2017.(0.5)% as compared to 34.6% for the three months ended June 27, 2020.
13 |
Table of Contents |
The Company recorded income tax expense of $46 thousand for the six months ended June 26, 2021 as compared to income tax expense of $58 thousand for the six months ended June 27, 2020. The effective income tax rate for the six months ended June 26, 2021 was (1.1)% as compared to 4.7% for the six months ended June 27, 2020.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
From time to time, ENGlobal or one or more of its subsidiaries is involved in various legal proceedings or is subject to claims that arise in the ordinary course of business alleging, among other things, claims of breach of contract or negligence in connection with the performance or delivery of goods and/or services. The outcome of any such claims or proceedings cannot be predicted with certainty. Management is not aware of any pending or threatened lawsuits or proceedings that are expected to have a material effect on our financial position, results of operations or liquidity.
We carry a broad range of insurance coverage, including general and business automobile liability, commercial property, professional errors and omissions, workers’ compensation insurance, directors’ and officers’ liability insurance and a general umbrella policy, all with standard self-insured retentions/deductibles. We also provide health insurance to our employees (including vision and dental), and are which is partially self-funded for these claims. Provisions for expected future payments are accrued based on our experience, and specific stop loss levels provide protection for the Company. We believe we have adequate reserves for the self-funded portion of our insurance policies. We are not aware of any material litigation or claims that are not covered by these policies or which are likely to materially exceed the Company’s insurance limits.
NOTE 9 – LEASES
The Company leases land, office space and equipment. Arrangements are assessed at inception to determine if a lease exists and, with the adoption of ASC 842, “Leases,” right-of-use (“ROU”) assets and lease liabilities are recognized based on the present value of lease payments over the lease term. Because the Company’s leases do not provide an implicit rate of return, the Company uses its incremental borrowing rate at the inception of a lease to calculate the present value of lease payments. The Company has elected to apply the short-term lease exception for all asset classes, excluding lease liabilities from the balance sheet and recognizing the lease payments in the period they are incurred.
14 |
Table of Contents |
The components of lease expense were as follows (dollars in thousands):
|
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| Financial Statement Classification |
| June 26, 2021 |
|
| June 27, 2020 |
|
| June 26, 2021 |
|
| June 27, 2020 |
| ||||
Finance leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization expense |
| SG&A Expense |
| $ | 22 |
|
| $ | 19 |
|
| $ | 41 |
|
| $ | 38 |
|
Interest expense |
| Interest expense, net |
|
| 5 |
|
|
| 5 |
|
|
| 9 |
|
|
| 10 |
|
Total finance lease expense |
|
|
|
| 27 |
|
|
| 24 |
|
|
| 50 |
|
|
| 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs |
| Operating costs |
|
| 107 |
|
|
| 152 |
|
|
| 259 |
|
|
| 371 |
|
Selling, general and administrative expenses |
| SG&A Expense |
|
| 416 |
|
|
| 467 |
|
|
| 865 |
|
|
| 905 |
|
Total operating lease expense |
|
|
|
| 523 |
|
|
| 619 |
|
|
| 1,124 |
|
|
| 1,276 |
|
Total lease expense |
|
|
| $ | 550 |
|
| $ | 643 |
|
| $ | 1,174 |
|
| $ | 1,324 |
|
Supplemental balance sheet information related to leases was as follows (dollars in thousands):
|
| Financial Statement Classification |
| June 26, 2021 |
|
| December 26, 2020 |
| ||
ROU Assets: |
|
|
|
|
|
|
|
| ||
Operating leases |
| Right of Use asset |
| $ | 1,210 |
|
| $ | 1,628 |
|
Finance leases |
| Property and equipment, net |
|
| 382 |
|
|
| 442 |
|
Total ROU Assets: |
|
|
| $ | 1,592 |
|
| $ | 2,070 |
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities: |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
Operating leases |
| Current portion of leases |
| $ | 1,058 |
|
| $ | 1,421 |
|
Finance leases |
| Current portion of leases |
|
| 122 |
|
|
| 120 |
|
Noncurrent Liabilities: |
|
|
|
|
|
|
|
|
|
|
Operating leases |
| Long Term Leases |
|
| 202 |
|
|
| 286 |
|
Finance leases |
| Long Term Leases |
|
| 265 |
|
|
| 322 |
|
Total lease liabilities |
|
|
| $ | 1,647 |
|
| $ | 2,149 |
|
The weighted average remaining lease term and weighted average discount rate were as follows:
At June 26, 2021 | ||||
Weighted average remaining lease term (years) | ||||
Operating leases | 1.2 | |||
Finance leases | 3.8 | |||
Weighted average discount rate | ||||
Operating leases | 0.9 | % | ||
Finance leases | 5.1 | % |
15 |
Table of Contents |
Maturities of operating lease liabilities as of June 26, 2021 are as follows (dollars in thousands):
Years ending: |
| Operating leases |
|
| Finance leases |
|
| Total |
| |||
2021 (remaining months) |
|
| 612 |
|
|
| 67 |
|
|
| 679 |
|
2022 |
|
| 658 |
|
|
| 114 |
|
|
| 772 |
|
2023 |
|
| 0 |
|
|
| 93 |
|
|
| 93 |
|
2024 |
|
| 0 |
|
|
| 73 |
|
|
| 73 |
|
2025 and thereafter |
|
|
|
|
| 62 |
|
|
| 62 |
| |
Total lease payments |
|
| 1,270 |
|
|
| 409 |
|
|
| 1,679 |
|
Less: imputed interest |
|
| (12 | ) |
|
| (20 | ) |
|
| (32 | ) |
Total lease liabilities |
| $ | 1,258 |
|
| $ | 389 |
|
| $ | 1,647 |
|
NOTE 10 – EMPLOYEE RETENTION CREDIT
ENGLOBAL CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSISPursuant to the CARES Act, the Company is eligible for an employee retention credit subject to certain criteria. Since there is no US GAAP guidance for for-profit business entities that receive government assistance that is not in the form of a loan, an income tax credit or revenue from a contract with a customer, we determined the appropriate accounting treatment by analogy to other guidance. We accounted for the employee retention credit by analogy to International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, of International Financial Reporting Standards (IFRS).
Under an IAS 20 analogy, a business entity would recognize the employee retention credit on a systematic basis over the periods in which the entity recognizes the payroll expenses for which the grant (i.e., tax credit) is intended to compensate when there is reasonable assurance (i.e., it is probable) that the entity will comply with any conditions attached to the grant and the grant (i.e., tax credit) will be received.
We have accounted for the $1.7 million employee retention credit as other income on the Statement of Operations and as a receivable on the Balance Sheet.
NOTE 11 – STOCKHOLDER’S EQUITY
On January 29, 2021, the Company entered into an at market issuance sales agreement (the “ATM Agreement”) with B. Riley Securities, Inc. pursuant to which the Company may offer and sell shares of the Company’s common stock having an aggregate offering price of up to $25 million to or through B. Riley, as sales agent, from time to time, in an “at the market offering”. Under the ATM Agreement, the Company will pay B. Riley an aggregate commission of 3% of the gross sales price per share of common stock sold under the ATM Agreement. The Company is not obligated to make any sales under the ATM Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs. In April 2021, 400,538 shares of common stock were issued pursuant to the ATM Agreement for net proceeds of approximately $1.4 million.
On June 1, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which the Company sold and issued an aggregate of 7,142,859 shares of the Company’s common stock to certain institutional investors at an offering price of $2.80 per share in a registered direct offering priced at-the-market under NASDAQ rules for net proceeds of approximately $18.7 million after deducting the fees of A.G.P./Alliance Global Partners, the placement agent, and related offering expenses of approximately $1.3 million.
NOTE 12 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date these financial statements were issued. The Company determined there were no events, other than as described below, that required disclosure or recognition in these financial statements.
PPP Loan Forgiveness
On July 12, 2021, the Company received notification from its lender that the PPP Loan was forgiven in full by the U.S. Small Business Administration at which time the Company recognized the extinguishment of debt as Other Income.
Major Customer Bankruptcy
On July 12, 2021, one of the Company’s major customers filed bankruptcy. The customer had suspended operations during the second quarter of 2021, which led to the Company’s recording of a $1.4 million bad debt reserve and a $0.5 million reduction in backlog as of June 26, 2021. The reserve is recorded within the Commercial segment sales, general, and administrative expense in the second quarter of 2021.
16 |
Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain information contained in this Quarterly Report on Form 10-Q, 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 (the “SEC”), press releases, conferences or otherwise, may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.1934 (the “Exchange Act”). This information includes, without limitation, statements concerning the Company’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, customer retention, project reversals, commitments and contingent liabilities, 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. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Generally, the words “anticipate,” “believe,” “estimate,” “expect,” “may” and similar expressions, identify forward-looking statements, which generally are not historical in nature. Actual results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, the specific risk factors identified under Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,26, 2020, and those described from time to time in our future reports filed with the Securities and Exchange Commission.SEC.
The following discussion is qualified in its entirety by, and should be read in conjunction with, the Company’s financial statements, including the notes thereto, included in this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.26, 2020.
Overview
ENGlobal Corporation (which may be referred to as “ENGlobal,” the “Company,” “we,” “us” or “our”), incorporated in the State of Nevada in June 1994, is a leading provider of innovative, delivered project solutions primarily to the energy industry. We deliver these solutions to our clients by combining our vertically integrated engineering and professional project execution services principally to the energy industry through two segments: Engineering, Procurementwith our automation and Construction Management (“EPCM”), which includessystems integration expertise and fabrication and Automation engineering and integrated products (“Automation”).
capabilities. We recently expanded intobelieve our fabrication facility in Henderson, Texas positioning us in our market place as a vertically integrated service provider capable of engineering, mechanical fabrication, systems integration and automation. We believe this will allowstrategy allows us to differentiate our company from most of itsour competitors as a full service provider, thereby reducing our clients’ dependency on and coordination of multiple vendors which improvesand improving control ofover their project cost and schedules. Our strategy and positioning has also allowed the Company to pursue larger scopes of work centered around many different types of modularized engineered systems.
During the second quarterWe have identified four strategic markets where we have a long history of 2017, management worked closely with a strategy consultantdelivering project solutions and can provide complete project execution and have focused our business development teams on communicating these offerings to perform an assessment oftheir clients. These four targeted markets include: (i) Renewables, (ii) Automation, (iii) Oil, Gas, and Petrochemicals, and (iv) Government Services. We have identified specific individuals within the Company to lead the efforts for each market initiative - “a champion” - while coordinating with the other sales leaders.
We continue to be mindful of our overhead structure. We have made significant investments in key business development and both short termother essential personnel, product developments and long term market trends,new facilities and equipment, which have all negatively impacted our selling, general and administrative expense (“SG&A”). We recognize that the level of our SG&A is greater than it could be for a company our size; however, we have maintained our overhead structure in anticipation of higher revenue levels.
We continue to review strategic transactions, which could include strategic mergers, reverse mergers, the issuance of public shares, or the purchase or sale of specific assets, in addition to other potential actions aimed at increasing stockholder value. The Company does not intend to disclose or comment on developments related to its review unless and until its Board of Directors has approved a specific transaction or otherwise determined that further disclosure is appropriate. There can be no assurance that any transaction will occur or any assurance as to the outcome or timing.
17 |
Table of Contents |
COVID-19 Update
On March 11, 2020, the World Health Organization declared that the worldwide spread and severity of a new coronavirus, referred to as COVID-19, was severe enough to be characterized as a pandemic. The continued worldwide spread of COVID-19, in conjunction with related government and other preventative measures taken to mitigate the spread of COVID-19, have caused severe disruptions in the worldwide economy, including the global demand for oil and natural gas. In response, companies within the energy industry (including our customers) have announced capital spending cuts which, in turn, assisted managementmay result in updating its longa decrease in new project awards or adjustments, reductions, suspensions, cancellations or payment defaults with respect to existing project awards. However, we have not been successful in replacing our backlog as quickly as it has been converted to revenues. As a result, our backlog has decreased by approximately $47.6 million from $59.2 million at December 28, 2019 to $11.6 million as of June 26, 2021, and by approximately $12.7 million from $24.3 million as of December 26, 2020 to $11.6 million as of June 26, 2021. While we have many potential opportunities in our sales pipeline that could replace a significant portion of this backlog reduction, inefficiencies and complications resulting from many of our clients’ remote working conditions combined with the uncertainty of new project necessity and funding caused by COVID-19 related disruptions have largely contributed to delays in project awards and our inability to replace our backlog as quickly as it has been converted to revenue. While we believe our backlog is sufficient to keep a significant portion of our workforce productive in the near term, it may not be at our current operating levels. The extent to which the disruption of COVID-19 may impact our business, growth strategy. Thefinancial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted at this assessment concludedtime. The duration and intensity of these impacts and resulting disruption to our business, financial condition and results of operations is uncertain and we will continue to monitor the situation and assess the operational and financial impact on our business.
We are utilizing relief for employees impacted by COVID-19 under the Families First Coronavirus Response Act in order to minimize the impact to both our employees and our business. Further, we are utilizing some of the tax payment deferral opportunities and federal refund acceleration opportunities provided by the IRS and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). On April 13, 2020, we obtained a loan pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act (the “PPP Loan”) and in July 2021, we were notified by our lender that the Company’s market segmentsPPP Loan was forgiven in full by the U.S. Small Business Administration. The PPP Loan was necessary to support our ongoing operations as we navigate the economic uncertainty caused by the COVID-19 pandemic. Under the provisions of the CARES Act, the Company is eligible for an employee retention credit subject to certain criteria. Accordingly, the Company recorded a $1.7 million employee retention credit during the six months ended June 26, 2021. As we continue to monitor the situation and assess the operational and financial impact on our business, we may determine to take further actions in response.
Because of the severity, magnitude and duration of the COVID-19 pandemic and its uncertain and rapidly changing economic consequences, the impact on our business, financial condition and results of operations remains uncertain and difficult to predict. If COVID–19 continues to spread or if the response to contain the COVID-19 pandemic is unsuccessful, we could experience a material adverse effect on our business, financial condition, and results of operations. For additional information, see Part II. Item 1A “Risk Factors.”
Critical Accounting Policies Update
Our critical accounting policies are further disclosed in Note 2 to the consolidated financial statements included in our 2020 Annual Report on Form 10-K.
Since there is no US GAAP guidance for for-profit business entities that are expectedreceive government assistance that is not in the form of a loan, an income tax credit or revenue from a contract with a customer, we determined the appropriate accounting treatment by analogy to experienceother guidance. We accounted for the highest future growth rates are those relatingemployee retention credit by analogy to Industrial ControlsInternational Accounting Standards (IAS) 20, Accounting for Government Grants and Automation andDisclosure of Government Assistance, of International Financial Reporting Standards (IFRS).
18 |
Table of Contents |
Under an IAS 20 analogy, a business entity would recognize the Industrial Internet of Things (IIOT). These are both areascredit on a systematic basis over the periods in which the Company has extensive experience providing higher value productsentity recognizes the payroll expenses for which the grant (i.e., tax credit) is intended to compensate when there is reasonable assurance (i.e., it is probable) that the entity will comply with any conditions attached to the grant and services to its clients but have not been the Company’s primary focus in recent years.grant (i.e., tax credit) will be received.
As a resultResults of this strategic assessment, management has developed a multi-year plan to invest and position the Company as a leading provider of higher value industrial automation and IIOT to its extensive customer base – an area where the Company has historically experienced higher margins. Additionally, management believes that because of the vertical integration strategy, an increasing amount of engineering, mechanical fabrication and systems integration work will be awarded to the Company.Operations
ENGLOBAL CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management has taken several steps during this quarter to begin the implementation of the Company’s strategy. These steps include the reorganization and refocusing of our business development personnel, the development of relevant marketing materials and the successful implementation of a new customer relationship management system. In addition, we have completed the reorganization of our staff resulting in a senior VP responsible for the staffing, training, development and project execution of our automation business and a senior VP with the same responsibilities for our multidiscipline engineering and EPC projects business.
While our strategy work is in its beginning phases, we have seen encouraging early indicators that this approach is aligned with our customers’ strategic focus and will be well received by our clients. We have been developing our automation pipeline over the last few quarters resulting in a 20% increase of our automation backlog during the quarter just ended. In addition to our traditional sales efforts, the Company is currently working with several clients for the replacement and upgrade of their control systems. While this work has not been awarded, the scope of this work is much larger than our traditional automation scope of work and would represent a significant increase in our automation backlog.
Results of Operations
The majority of the Company’s EPCM services have historically been provided through time-and-material contracts and a majority of the Company’s engineered automation system revenues have been provided through fixed-price contracts. In the course of providing our time-and-material services, we routinely provide materials and equipment and may provide construction or construction management services on a subcontractor basis. Generally, these materials, equipment and subcontractor costs are passed through to our clients and reimbursed, along with small handling fees, which in general are at margins lower than those of our normal core business. In accordance with industry practice and generally accepted accounting principles, all such costs and fees are included in revenue. The material purchases and the use of subcontractor services can vary significantly from projectquarter to project;quarter; therefore, changes in revenue and gross profit, SG&A expense and operating income as a percentage of revenue may not be indicative of the Company’s core business trends.
Segment operating SG&A expense includes management business development and staff compensation, office costs such as rents and utilities, depreciation, amortization, travel, and other expenses generally unrelated to specific client contracts, but directly related to the support of a segment’s operations. Other Services includes revenue and expenses for activities that were not directly identifiable under one of our reporting segments. Corporate SG&A expenses include finance, accounting, human resources, business development, legal and information technology which are unrelated to specific projects but which are incurred to support corporatethe Company’s activities.
During the second quarter of 2021, we recorded a $1.4 million bad debt reserve as a result of a customer suspending operations and, subsequent to quarter end, filing bankruptcy. Further, our backlog was reduced by $0.5 million as of June 26, 2021.
ENGLOBAL CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
Comparison of the three and nine months ended September 30, 2017June 26, 2021 versus the three and nine months ended September 24, 2016June 27, 2020
The following table, for the three months ended September 30, 2017June 26, 2021 versus the three months ended September 24, 2016,June 27, 2020, provides relevant financial data that is derived from our consolidated statements of operations (amounts in thousands except per share data).
Operations Data | EPCM | Automation | Corporate | Consolidated | ||||||||||||||||||||||||||||||||||||
Three months ended September 30, 2017: | ||||||||||||||||||||||||||||||||||||||||
|
| Commercial |
|
| Government Services |
|
| Corporate |
|
| Consolidated |
|
|
|
| |||||||||||||||||||||||||
For the three months ended June 26, 2021: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Revenue |
| $ | 9,157 |
|
| $ | 1,922 |
|
| $ | — |
|
| $ | 11,079 |
|
| 100.0 | % | |||||||||||||||||||||
Gross profit (loss) |
| (201 | ) |
| 283 |
| — |
| 82 |
| 0.7 | % | ||||||||||||||||||||||||||||
SG&A |
|
| 2,816 |
|
|
| 188 |
|
|
| 1,260 |
|
|
| 4,264 |
|
| 38.5 | % | |||||||||||||||||||||
Operating income (loss) |
| (3,017 | ) |
| 95 |
| (1,260 | ) |
| (4,182 | ) |
| (37.7 | )% | ||||||||||||||||||||||||||
Other income, net |
|
|
|
|
|
|
| 6 |
|
|
| |||||||||||||||||||||||||||||
Interest expense, net |
|
|
|
|
|
|
| (57 | ) |
|
|
| ||||||||||||||||||||||||||||
Tax expense |
|
|
|
|
|
|
|
| (23 | ) |
|
|
| |||||||||||||||||||||||||||
Net loss |
|
|
|
|
|
|
|
| (4,256 | ) |
| (38.4 | )% | |||||||||||||||||||||||||||
Basic and diluted loss per share |
|
|
|
|
|
|
| $ | (0.14 | ) |
|
|
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
|
| Commercial |
|
| Government Services |
|
| Corporate |
|
| Consolidated |
|
|
|
| |||||||||||||||||||||||||
For the three months ended June 27, 2020: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Revenue | $ | 8,573 | $ | 4,323 | $ | — | $ | 12,896 | 100.0 | % |
|
| 14,803 |
|
|
| 3,079 |
|
|
| — |
|
|
| 17,882 |
|
| 100.0 | % | |||||||||||
Gross profit | 899 | 722 | — | 1,621 | 12.6 | % |
| 1,910 |
| 543 |
| — |
| 2,453 |
| 13.7 | % | |||||||||||||||||||||||
SG&A | 873 | 531 | 1,637 | 3,041 | 23.6 | % |
|
| 831 |
|
|
| 150 |
|
|
| 1,333 |
|
|
| 2,314 |
|
| 12.9 | % | |||||||||||||||
Operating income (loss) | 26 | 191 | (1,637 | ) | (1,420 | ) | (11.0 | )% |
| 1,079 |
| 393 |
| (1,333 | ) |
| 139 |
| 0.8 | % | ||||||||||||||||||||
Other income | 2 | |||||||||||||||||||||||||||||||||||||||
Other income, net |
|
|
|
|
|
|
| 1 |
|
|
| |||||||||||||||||||||||||||||
Interest expense, net | (19 | ) |
|
|
|
|
|
|
| (36 | ) |
|
|
| ||||||||||||||||||||||||||
Tax (expense) | (10,717 | ) | ||||||||||||||||||||||||||||||||||||||
Tax expense |
|
|
|
|
|
|
|
| (36 | ) |
|
|
| |||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
| 68 |
|
| 0.4 | % | |||||||||||||||||||||||||||
Basic and diluted income per share |
|
|
|
|
|
|
|
| 0.00 |
|
|
|
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
|
| Commercial |
|
| Government Services |
|
| Corporate |
|
| Consolidated |
|
|
|
| |||||||||||||||||||||||||
Year Over Year Increase (Decrease) in Operating Results: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Revenue |
| $ | (5,646 | ) |
| $ | (1,157 | ) |
| $ | — |
|
| $ | (6,803 | ) |
| (38.0 | )% | |||||||||||||||||||||
Gross profit (loss) |
| (2,111 | ) |
| (260 | ) |
| — |
| (2,371 | ) |
|
|
| ||||||||||||||||||||||||||
SG&A |
|
| 1,985 |
|
|
| 38 |
|
|
| (73 | ) |
|
| 1,950 |
|
| 84.3 | % | |||||||||||||||||||||
Operating income (loss) |
| (4,096 | ) |
| (298 | ) |
| 73 |
| (4,321 | ) |
| (3,108.6 | )% | ||||||||||||||||||||||||||
Other income, net |
|
|
|
|
|
|
| 5 |
|
|
| |||||||||||||||||||||||||||||
Interest expense, net |
|
|
|
|
|
|
| (21 | ) |
|
|
| ||||||||||||||||||||||||||||
Tax expense |
|
|
|
|
|
|
|
| 13 |
|
|
|
| |||||||||||||||||||||||||||
Net loss | $ | (12,154 | ) | (94.2 | )% |
|
|
| �� |
|
|
|
|
| (4,324 | ) |
| (6,358.8 | )% | |||||||||||||||||||||
Diluted loss per share | $ | (0.44 | ) | |||||||||||||||||||||||||||||||||||||
Basic and diluted loss per share |
|
|
|
|
|
|
| $ | (0.15 | ) |
|
|
|
Three months ended September 24, 2016: | ||||||||||||||||||||
Revenue | $ | 8,216 | $ | 7,752 | $ | — | $ | 15,968 | 100.0 | % | ||||||||||
Gross profit | 1,454 | 2,427 | — | 3,881 | 24.3 | % | ||||||||||||||
SG&A | 909 | 685 | 1,917 | 3,511 | 22.0 | % | ||||||||||||||
Operating income (loss) | 545 | 1,742 | (1,917 | ) | 370 | 2.3 | % | |||||||||||||
Other income | 10 | |||||||||||||||||||
Interest expense, net | (44 | ) | ||||||||||||||||||
Tax benefit | 153 | |||||||||||||||||||
Net income | $ | 489 | 3.1 | % | ||||||||||||||||
Diluted income per share | $ | 0.02 |
Increase (Decrease) in Operating Results: | ||||||||||||||||||||
Revenue | $ | 357 | $ | (3,429 | ) | $ | — | $ | (3,072 | ) | (19.2 | )% | ||||||||
Gross profit (loss) | (555 | ) | (1,705 | ) | — | (2,260 | ) | (58.2 | )% | |||||||||||
SG&A | (36 | ) | (154 | ) | (280 | ) | (470 | ) | (13.4 | )% | ||||||||||
Operating income (loss) | (519 | ) | (1,551 | ) | 280 | (1,790 | ) | (483.9 | )% | |||||||||||
Other income | (8 | ) | ||||||||||||||||||
Interest expense, net | 25 | |||||||||||||||||||
Tax benefit | (10,870 | ) | ||||||||||||||||||
Net loss | $ | (12,643 | ) | (2585.5 | )% | |||||||||||||||
Diluted loss per share | $ | (0.46 | ) |
ENGLOBAL CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSISComparison of the six months ended June 26, 2021 versus the six months ended June 27, 2020
The following table, for the ninesix months ended September 30, 2017June 26, 2021 versus the ninesix months ended September 24, 2016,June 27, 2020, provides relevant financial data that is derived from our consolidated statements of operations (amounts in thousands except per share data).
Operations Data | EPCM | Automation | Corporate | Consolidated | ||||||||||||||||||||||||||||||||||||
Nine months ended September 30, 2017: | ||||||||||||||||||||||||||||||||||||||||
|
| Commercial |
|
| Government Services |
|
| Corporate |
|
| Consolidated |
|
|
|
| |||||||||||||||||||||||||
For the six months ended June 26, 2021: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Revenue |
| $ | 19,206 |
|
| $ | 4,322 |
|
| $ | — |
|
| $ | 23,528 |
|
| 100.0 | % | |||||||||||||||||||||
Gross profit |
| 714 |
| 372 |
| — |
| 1,086 |
| 4.6 | % | |||||||||||||||||||||||||||||
SG&A |
|
| 4,109 |
|
|
| 397 |
|
|
| 2,319 |
|
|
| 6,825 |
|
| 29.0 | % | |||||||||||||||||||||
Operating loss |
| (3,395 | ) |
| (25 | ) |
| (2,319 | ) |
| (5,739 | ) |
| (24.4 | )% | |||||||||||||||||||||||||
Other income, net |
|
|
|
|
|
|
| 1,690 |
|
|
| |||||||||||||||||||||||||||||
Interest expense, net |
|
|
|
|
|
|
| (115 | ) |
|
|
| ||||||||||||||||||||||||||||
Tax expense |
|
|
|
|
|
|
|
| (46 | ) |
|
|
| |||||||||||||||||||||||||||
Net loss |
|
|
|
|
|
|
|
| (4,210 | ) |
| (17.9 | )% | |||||||||||||||||||||||||||
Basic and diluted loss per share |
|
|
|
|
|
|
| $ | (0.15 | ) |
|
|
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
|
| Commercial |
|
| Government Services |
|
| Corporate |
|
| Consolidated |
|
|
|
|
| ||||||||||||||||||||||||
For the six months ended June 27, 2020: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Revenue | $ | 26,833 | $ | 14,503 | $ | — | $ | 41,336 | 100.0 | % |
|
| 31,313 |
|
|
| 5,829 |
|
|
| — |
|
|
| 37,142 |
|
| 100.0 | % | |||||||||||
Gross profit | 3,618 | 2,247 | — | 5,865 | 14.2 | % |
| 4,755 |
| 958 |
| — |
| 5,713 |
| 15.4 | % | |||||||||||||||||||||||
SG&A | 2,667 | 1,670 | 5,166 | 9,503 | 23.00 | % |
|
| 1,661 |
|
|
| 320 |
|
|
| 2,466 |
|
|
| 4,447 |
|
| 12.0 | % | |||||||||||||||
Operating income (loss) | 951 | 577 | (5,166 | ) | (3,638 | ) | (8.8 | )% |
| 3,094 |
| 638 |
| (2,466 | ) |
| 1,266 |
| 3.4 | % | ||||||||||||||||||||
Other income | 57 | |||||||||||||||||||||||||||||||||||||||
Other income, net |
|
|
|
|
|
|
| 2 |
|
|
| |||||||||||||||||||||||||||||
Interest expense, net | (95 | ) |
|
|
|
|
|
|
| (41 | ) |
|
|
| ||||||||||||||||||||||||||
Tax (expense) | (10,250 | ) | ||||||||||||||||||||||||||||||||||||||
Net loss | $ | (13,926 | ) | (33.7 | )% | |||||||||||||||||||||||||||||||||||
Diluted loss per share | $ | (0.51 | ) | |||||||||||||||||||||||||||||||||||||
Tax expense |
|
|
|
|
|
|
|
| (58 | ) |
|
|
| |||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
| 1,169 |
|
| 3.1 | % | |||||||||||||||||||||||||||
Basic and diluted income per share |
|
|
|
|
|
|
|
| 0.04 |
|
|
|
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Nine months ended September 24, 2016: | ||||||||||||||||||||||||||||||||||||||||
Revenue | $ | 25,000 | $ | 19,622 | $ | — | $ | 44,622 | 100.0 | % | ||||||||||||||||||||||||||||||
Gross profit | 2,877 | 4,530 | — | 7,407 | 16.6 | % | ||||||||||||||||||||||||||||||||||
SG&A | 2,432 | 2,203 | 5,579 | 10,214 | 22.9 | % | ||||||||||||||||||||||||||||||||||
Operating income (loss) | 445 | 2,327 | (5,579 | ) | (2,807 | ) | (6.3 | )% | ||||||||||||||||||||||||||||||||
Other income | 17 | |||||||||||||||||||||||||||||||||||||||
Interest expense, net | (129 | ) | ||||||||||||||||||||||||||||||||||||||
Tax benefit | 1,056 | |||||||||||||||||||||||||||||||||||||||
Net loss | $ | (1,863 | ) | (4.2 | )% | |||||||||||||||||||||||||||||||||||
Diluted loss per share | $ | (0.07 | ) | |||||||||||||||||||||||||||||||||||||
| Commercial |
|
| Government Services |
|
| Corporate |
|
| Consolidated |
|
|
|
| ||||||||||||||||||||||||||
Increase (Decrease) in Operating Results: | ||||||||||||||||||||||||||||||||||||||||
Year Over Year Increase (Decrease) in Operating Results: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Revenue | $ | 1,833 | $ | (5,119 | ) | $ | — | $ | (3,286 | ) | (7.4 | )% |
| $ | (12,107 | ) |
| $ | (1,507 | ) |
| $ | — |
|
| $ | (13,614 | ) |
| (36.7 | )% | |||||||||
Gross profit (loss) | 741 | (2,283 | ) | — | (1,542 | ) | (20.8 | )% |
| (4,041 | ) |
| (586 | ) |
| — |
| (4,627 | ) |
|
|
| ||||||||||||||||||
SG&A | 235 | (533 | ) | (413 | ) | (711 | ) | (7.0 | )% |
|
| 2,448 |
|
|
| 77 |
|
|
| (147 | ) |
|
| 2,378 |
|
| 53.5 | % | ||||||||||||
Operating income (loss) | 506 | (1,750 | ) | 413 | (831 | ) | 29.6 | % |
| (6,489 | ) |
| (663 | ) |
| 147 |
| (7,005 | ) |
| (553.3 | )% | ||||||||||||||||||
Other income (expense) | 40 | |||||||||||||||||||||||||||||||||||||||
Other income, net |
|
|
|
|
|
|
| 1,688 |
|
|
| |||||||||||||||||||||||||||||
Interest expense, net | 34 |
|
|
|
|
|
|
| (74 | ) |
|
|
| |||||||||||||||||||||||||||
Tax (expense) | (11,306 | ) | ||||||||||||||||||||||||||||||||||||||
Tax expense |
|
|
|
|
|
|
|
| 12 |
|
|
|
| |||||||||||||||||||||||||||
Net loss | $ | (12,063 | ) | 647.5 | % |
|
|
|
|
|
|
|
| (5,379 | ) |
| (460.1 | )% | ||||||||||||||||||||||
Diluted loss per share | $ | (0.44 | ) | |||||||||||||||||||||||||||||||||||||
Basic and diluted loss per share |
|
|
|
|
|
|
| $ | (0.19 | ) |
|
|
|
21 |
Table of Contents |
Revenue –Revenue decreased $3.1$6.8 million to $12.9$11.1 million from $16.0$17.9 million, or a decrease of 19.2%38.0%, for the three months ended September 30, 2017,June 26, 2021 as compared to the three months ended September 24, 2016. June 27, 2020. The decrease is primarily due to the completion of several large projects in 2020 within our Commercial segment and projects that were not renewed as our clients decreased their activities in all sectors of the energy industry due to COVID-19, in addition to delays in Government Services projects due to base closures and travel restrictions due to COVID-19, partially offset by the progress of one of our large projects that has continued into the second quarter of 2021.
Revenue from the EPCM segment increased $0.4decreased $13.6 million to $8.6$23.5 million from $8.2$37.1 million, or an increasea decrease of 4.34%36.7%, for the six months ended June 26, 2021 as compared to the six months ended June 27, 2020. The decrease is primarily due to the completion of several large projects in 2020 within our Commercial segment and projects that were not renewed as our clients decreased their activities in all sectors of the energy industry due to COVID-19, in addition to delays in Government Services projects due to base closures and travel restrictions due to COVID-19, partially offset by the progress of one of our large projects that has continued into the second quarter of 2021.
Gross Profit – Gross profit margin decreased 13.0% to 0.7% from 13.7% for the three months ended September 30, 2017,June 26, 2021 as compared to the three months ended September 24, 2016. ThisJune 27, 2020. The decrease in gross profit margin is primarily attributable to an increase was drivenof $0.7 million in Commercial segment cost associated with maintaining essential staffing as projects were completed without subsequent renewals or replacements during the second quarter of 2021. Additionally, the decrease in gross profit margin is attributable to delays in Government Services projects due to base closures and travel restrictions imposed by the U.S. government as a result of COVID-19.
Gross profit margin decreased 10.8% to 4.6% from 15.4% for the six months ended June 26, 2021 as compared to the six months ended June 27, 2020. The decrease in gross profit margin is primarily attributable to an increase of $1.0 million in Commercial segment cost associated with maintaining essential staffing as projects were completed without subsequent renewals or replacements during the second quarter of 2021. Additionally, the decrease in gross profit margin is attributable to delays in Government Services projects due to base closures and travel restrictions imposed by the U.S. government as a result of COVID-19.
Selling, General and Administrative Expense – SG&A expenses increased awards to our government services group partially offset by a decline in our clients’ activities in our other offices. Revenue from the Automation segment decreased $3.5$2.0 million to $4.3 million from $7.8 million, or a decrease of 44.23%, for the three months ended September 30, 2017,June 26, 2021 as compared to three months ended June 27, 2020 primarily due to a bad debt reserve of $1.4 million recorded during the second quarter of 2021, an increase in salaries and burden expense by $0.5 million, and an increase in legal expense of $0.1 million.
SG&A expenses increased by $2.4 million for the six months ended June 26, 2021 as compared to six months ended June 27, 2020 primarily due to a bad debt reserve of $1.4 million recorded during the second quarter of 2021, an increase in salaries and burden expense by $0.9 million, and an increase in legal expense of $0.1 million.
Other Income (Expense), Net – Other income, net of expense, increased $5 thousand for the three months ended June 26, 2021 as compared to the three months ended September 24, 2016. This decrease was driven by the completion of projects within our Houston integration office and our Mobile, Alabama office that closed in 2016, and a $1.9 million decline in revenues from our CPC project, which is scheduled to be completed by the end of this year. The Company experienced lower productivity in the days following hurricane Harvey.June 27, 2020.
Revenue decreased $3.3Other income, net of expense, increased $1.7 million to $41.3 million from $44.6 million, or a decline of 7.4%, for the ninesix months ended September 30, 2017,June 26, 2021 as compared to the ninesix months ended September 24, 2016. Revenue fromJune 27, 2020 primarily due to a $1.7 million employee retention credit recorded in the EPCM segment increased $1.8 million to $26.8 million from $25.0 million, or an increasefirst quarter of 7.3%, for the nine months ended September 30, 2017, as compared to the nine months ended September 24, 2016. This increase was driven by increased awards to our government services group partially offset by a decline2021 with no comparable tax credit in our clients’ activities in our other offices. Revenue from the Automation segment decreased $5.1 million to $14.5 million from $19.6 million, or a decline of 26.1%, for the nine months ended September 30, 2017, as compared to the nine months ended September 24, 2016. This decline is due largely to the closure of our Mobile, Alabama office in 2016 and a $3.4 million decline in revenues from our CPC project that is scheduled to be completed by the end of this year.2020.
Gross ProfitInterest Expense, net – Gross profit margin decreased Interest expense is incurred primarily in connection with our insurance financing, Revolving Credit Facility (defined below) and our finance leases. Our interest expense increased to 12.6% from 24.3%$57 thousand for the three months ended September 30, 2017, as compared to the three months ended September 24, 2016. Gross profit for the EPCM segment decreased $0.6 million to $0.9 millionJune 26, 2021 from $1.5 million and its gross profit margin decreased to 10.5% from 17.7%$36 thousand for the three months ended September 30, 2017, as comparedJune 27, 2020. Our interest expense increased to $115 thousand for the threesix months ended September 24, 2016. The decrease in gross profit was driven by a project loss in our Houston office and an increase to variable costs associated with proposals and staff reductions. Gross profitJune 26, 2021 from $41 thousand for the Automation segment decreased $1.7 million to $0.7 million from $2.4 million and its gross profit margin declined to 16.7% from 31.3%six months ended June 27, 2020.
Tax Expense – Tax expense is incurred primarily for our state franchise taxes. We recorded income tax expense of $23 thousand for the three months ended September 30, 2017,June 26, 2021 as compared to income tax expense of $36 thousand for the three months ended September 24, 2016. This decline is largely due to the release of contingency on the CPC project in the 2016 period which resulted in higher gross profit during the 2016 period. The CPC project is scheduled to be completed by the end of 2017.
June 27, 2020.
ENGLOBAL CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
Gross profit margin decreased to 14.2% from 16.6%We recorded income tax expense of $46 thousand for the ninesix months ended September 30, 2017,June 26, 2021 as compared to income tax expense of $58 thousand for the ninesix months ended September 24, 2016. Gross profit for the EPCM segment increased $0.7 million to $3.6 million from $2.9 million and its gross profit margin increased to 13.5% from 11.5% for the nine months ended September 30, 2017, as compared to the nine months ended September 24, 2016. The increase in gross profit was driven largely by the increased awards to our government services group and project losses from 2016 that did not occur in 2017. Gross profit for the Automation segment decreased $2.3 million to $2.2 million from $4.5 million and its gross profit margin declined to 15.5% from 23.1% for the nine months ended September 30, 2017, as compared to the nine months ended September 24, 2016. The decline is largely due to release of contingency on the CPC project in the 2016 period which resulted in higher gross profit during the 2016 period. The CPC project is scheduled to be completed by the end of 2017.June 27, 2020.
Selling, General and AdministrativeNet Income (Loss) – Overall our SG&A expenses declined by $0.5 million and $0.7 million for the three and nine months ended September 30, 2017, respectively, as compared to the three and nine months ended September 24, 2016. We have funded the operations of our newly opened fabrication facility in the amount of $0.3 million for the nine months ended September 30, 2017 in addition to recent strategic hires in the key areas of business development and project management by reducing cost in other support functions.
Interest Expense, net - Interest expense was essentially unchanged and was less than $0.1 million for both the three and nine months ended September 30, 2017 and the three and nine months ended September 24, 2016. Our interest expense consists of interest on our capital leases, amortization of the cost of entering into the Loan Agreement with Regions Bank, and commitment and other fees associated with the Loan Agreement through March 31, 2017.
Tax Expense – During the quarter ended September 30, 2017, management recorded an $11.3 million valuation allowance against the deferred tax assets. ASC Topic 740 requires all available evidence, both positive and negative, be considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. During the quarter ended September 30, 2017, based upon the Company’s recent performance, management determined the realization of deferred tax assets is uncertain as the Company is unable to consider tax planning strategies and projections of future taxable income in its evaluation of the realizability of its deferred tax assets as of September 30, 2017 did not outweigh recent loss history. As a result of the valuation allowance recorded against our deferred tax assets as of September 30, 2017, the effective income tax rates for the three and nine month periods ended September 30, 2017 were not meaningful. The effective income tax rates for the three and nine month periods ended September 24, 2016 were 45.8% and 36.2%, respectively.
Net Loss – Net loss for the three months ended September 30, 2017June 26, 2021 was $12.1$4.3 million, or a $12.6$4.3 million decrease from a net income of $0.5 million$68 thousand for the three months ended September 24, 2016,June 27, 2020, primarily as a result of lowerdecreases in revenue and gross profit combined with an increasemargin, in addition to tax expense due to the establishment of a valuation allowance againstincreased business development costs and bad debt reserve, within our deferred tax assets.Commercial segment.
Net loss for the ninesix months ended September 30, 2017June 26, 2021 was $13.9$4.2 million, or a $12.0$5.4 million increasedecrease from a net lossincome of $1.9$1.2 million for the ninesix months ended September 24, 2016,June 27, 2020, primarily as a result of lowerdecreases in revenue and gross profit combined with an increasemargin, in addition to tax expense due toincreased business development costs and bad debt reserve, within our Commercial segment, partially offset by the establishment of a valuation allowance against our deferred tax assets.
employee retention credit.
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Liquidity and Capital Resources
Overview
The Company defines liquidity as its ability to pay its liabilities as they become due, fund business operations and meet monetary contractual obligations. Our primary sources of liquidity are cash on hand, and internally generated funds.funds, sales of common stock pursuant to the ATM Agreement (defined below), and the Revolving Credit Facility. We had cash and restricted cash of approximately $10.9$29.2 million at September 30, 2017June 26, 2021 and $15.7$13.7 million as ofat December 31, 2016.26, 2020. Our working capital as of September 30, 2017June 26, 2021 was $19.1$28.7 million versus $22.2$14.0 million as of December 31, 2016. 26, 2020.
On April 13, 2020, we obtained the $4.9 million PPP Loan. On May 21, 2020, we entered into a Loan and Security Agreement (the “Revolving Credit Facility”) pursuant to which the lender agreed to extend credit of up to $6.0 million, subject to a credit limit. As of June 26, 2021, the credit limit under the Revolving Credit Facility was $3.1 million and outstanding borrowings were $1.6 million, which yields enough interest to cover our minimum monthly interest charge. As of June 26, 2021, we were in compliance with all of the covenants under the PPP Loan and Revolving Credit Facility. On July 12, 2021, we received notification from our lender that the PPP Loan was forgiven in full by the U.S. Small Business Administration. For additional information on the PPP Loan and Revolving Credit Facility, see Part I, Item 1, Note 5 – Debt.
On January 29, 2021, we entered into an at market issuance sales agreement (the “ATM Agreement”) with B. Riley Securities, Inc. pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $25 million to or through B. Riley, as sales agent, from time to time, in an “at the market offering”. Under the ATM Agreement, the Company will pay B. Riley an aggregate commission of 3% of the gross sales price per share of common stock sold under the ATM Agreement. The Company is not obligated to make any sales under the ATM Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs. In April 2021, 400,538 shares of common stock were issued pursuant to the ATM Agreement for net proceeds of approximately $1.4 million.
On June 1, 2021, we entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which we sold and issued an aggregate of 7,142,859 shares of the Company’s common stock to certain institutional investors at an offering price of $2.80 per share in a registered direct offering priced at-the-market under NASDAQ rules for net proceeds of approximately $18.7 million after deducting the fees of A.G.P./Alliance Global Partners, the placement agent, and related offering expenses.
We believe our cash on hand, internally generated funds, availability under the Revolving Credit Facility, and sales of common stock pursuant to the ATM Agreement, along with other working capital, arewill be sufficient to fund our ongoingcurrent operations and provide us withexpected activity for the funds to grow.
ENGLOBAL CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSISnext twelve months.
Cash and the availability of cash could be materially restricted if (1) outstanding invoices billed are not collected or are not collected in a timely manner, (2) circumstances prevent the timely internal processing of invoices, (3) we lose one or more of our major customers or our major customers significantly reduce the amount of work requested from us, (4) we are unable to win new projects that we can perform on a profitable basis. Actions outsidebasis or (5) we are unable to reverse our use of our control may hinder or preclude the collection of these receivables.cash to fund losses. If any such event occurs, we would be forced to consider alternative financing options.
We continue to review strategic transactions, which could include strategic mergers, reverse mergers, the issuance of public shares, or the purchase or sale of specific assets, in addition to other potential actions aimed at increasing stockholder value. The Company does not intend to disclose or comment on developments related to its review unless and until its Board of Directors has approved a specific transaction or otherwise determined that further disclosure is appropriate. There can be no assurance that any transaction will occur or any assurance as to the outcome or timing.
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Cash Flows from Operating Activities
Operating activities used $4.0 million of cash versus providing $9.8$4.6 million of cash for the ninesix months ended September 30, 2017, as compared toJune 26, 2021 and used $0.1 million of cash for the ninesix months ended September 24, 2016.June 27, 2020. The primary drivers of our increase in cash used in operations for the ninesix months ended September 30, 2017June 26, 2021 were a netour operating loss of $13.9$4.2 million, an increase in other current assets of $1.2 million, a reduction to deferred tax assetsdecrease in accrued compensation and benefits of $10.2$0.6 million, and costs$0.5 million of cash used by an increase in excessother components of billingsworking capital, partially offset by a decrease in trade receivables of $1.2 million, a decrease in contract assets net of billings in excesscontract liabilities of costs$0.5 million, and an increase of $0.8trade payables of $0.2 million.
Cash Flows from Investing Activities
Investing activities used cash of $0.5 million$88 thousand for the ninesix months ended September 30, 2017 primarily due to expenditures for propertyJune 26, 2021 and equipment related to our new fabrication facility. Investing activities used cash of $0.1 million$126 thousand for the ninesix months ended September 24, 2016June 27, 2020 primarily due to expenditures for the purchase of property and equipment.
Cash Flows from Financing Activities
The useFinancing activities provided cash of cash during$20.1 million for the ninesix months ended September 30, 2017 and the nine months ended September 24, 2016 were for the repurchase of common stock pursuantJune 26, 2021 primarily due to the Company’s stock repurchase program which was suspended on May 16, 2017 in addition to the payment of obligations under capital leases.
Line of Credit Facility
On March 31, 2017, the Company terminated its credit facility with Regions Bank. There were no loans outstanding under that facility on that date. See “Note 6 - Credit Facilities” to our financial statements included in our 2016 Annual Report on Form 10-K for a description of the material terms of the Regions Bank credit facility. The facility was terminated because the Company believes that its cash on hand, internally generated funds and other working capital are sufficient to fund its current operations and near term growth. In addition, the elimination of the facility, which was scheduled to expire in September 2017, will significantly reduce costs to the Company.
Stock Repurchase Program
On April 21, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $2 million of the Company’s common stock from time to time through open market or privately negotiated transactions, based on prevailing market conditions. The Company is not obligated to repurchase any dollar amount or specific number of sharessales of common stock under the repurchase program, which may be suspended or discontinued at any time. AsATM Agreement and Purchase Agreement, interest on the PPP Loan, and proceeds received from the Revolving Credit Facility partially offset by the interest incurred on our finance leases. Financing activities provided cash of September 30, 2017,$6.3 million for the Company had purchased and retired 1,191,050 shares for $1.5 million under this program with no shares purchased in the threesix months ended September 30, 2017. The stock repurchase program was suspendedJune 27, 2020 primarily due to the proceeds from the PPP Loan and Revolving Credit Facility partially offset by the interest incurred on May 16, 2017.our finance leases.
Critical Accounting Policies
A summary of our critical accounting policies are described under the caption “Critical Accounting Policies” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2016 Annual Report on Form 10-K. Our critical accounting policies are further disclosed in Note 2 to the consolidated financial statements included in our 2016 Annual Report on Form 10-K.
ENGLOBAL CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
Changes in Accounting
In March 2016, the Financial Statements Accounting Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to change several aspects of accounting for share-based payment transactions, including a requirement to recognize all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This pronouncement is effective for interim and annual reporting periods beginning after December 31, 2016, with early adoption permitted. Varying transition methods (modified retrospective, retrospective or prospective) are applied to different provisions of the standard. We have adopted this pronouncement in the first quarter of 2017 by electing to account for forfeitures in compensation costs as they occur and reflecting this change in accounting policy on a modified retrospective basis through a non-material, cumulative-effect adjustment reducing accumulated earnings as of the beginning of 2017. We recognized a benefit of $.01 million in the nine months ended September 30, 2017.
In November 2016, the FASB Issued Update 2016-18,Statement of Cash flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). This update addresses the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2017, with early application permitted. We adopted this pronouncement in the first quarter of 2017 and have reported restricted cash as a component of ending cash, cash equivalents and restricted cash on the Statements of Cash Flows.
New Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts with Customers (Topic 606), that will supersede most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which we expect to be entitled in exchange for transferring goods or services to a customer. This new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In May 2016, the FASB issued ASU No. 2016-12 to clarify certain narrow aspects of Topic 606 such as assessing the collectability criterion, presentation of sales taxes and other similar taxes collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition, and other technical corrections. This new accounting standard, as updated, is effective for interim and annual reporting periods beginning after December 15, 2017. We have begun the process of evaluating the principles in the new standard following the five step approach and we are assessing its potential impact on our financial position, results of operations, cash flows and related disclosures. Through our initial evaluation, we believe the impact to our financial statements will be immaterial and we do not believe the implementation will have a material impact on our business practices.
In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842), that will amend the accounting standards for leases. This new standard retains a distinction between finance leases and operating leases but the primary change is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases on the lessee’s balance sheet and certain aspects of lease accounting have been simplified. This new standard requires additional qualitative and quantitative disclosures along with specific quantitative disclosures required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2018, with early application permitted. We are currently evaluating the provisions of this pronouncement and are assessing its potential impact on our financial position, results of operations, cash flows and related disclosures. However we are currently unable to reasonably estimate the impact this pronouncement will have on our financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This amendment addresses how certain specified cash receipts and cash payments are presented in the statement of cash flows. This guidance becomes effective for interim and annual reporting periods beginning after December 15, 2017. We are currently evaluating the provisions of this pronouncement and are assessing its potential impact on our financial position, results of operations, cash flows and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04,Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This amendment removes the second step of the two-step goodwill impairment test. When adopted, an entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. This pronouncement is effective for the Company’s annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the provisions of this pronouncement and are assessing its potential impact on our financial position, results of operations, cash flows and related disclosures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, capital leases payable and debt obligations. The book value of cash and cash equivalents, accounts and notes receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments.Not applicable.
We do not utilize financial instruments for trading purposes and we do not hold any derivative financial instruments that could expose us to significant market risk. In the normal course of business, our results of operations are exposed to risks associated with fluctuations in interest rates and, to a minor extent, currency exchange rates.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures of a registrant designed to ensure that information required to be disclosed by the registrant in the reports that it files or submits under the Exchange Act is properly recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (“SEC”)SEC rules and forms. Disclosure controls and procedures include processes to accumulate and evaluate relevant information and communicate such information to a registrant’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017,June 26, 2021, as required by Rule 13a-15 of the Exchange Act. Based on the evaluation described above, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30,2017,June 26, 2021, our disclosure controls and procedures were effective insofar as they are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
No changes in our internal control over financial reporting occurred during the three months ended September 30, 2017,June 26, 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time, ENGlobal or one or more of its subsidiaries ismay be involved in various legal proceedings or ismay be subject to claims that arise in the ordinary course of business alleging, among other things, claims of breach of contract or negligence in connection with the performance or delivery of goods and/or services. The outcome of any such claims or proceedings cannot be predicted with certainty. We believe, asAs of the date of this filing, allmanagement is not aware of any such active proceedings and claims of substance that have been asserted against ENGlobal or one or more of its subsidiaries have been adequately allowed for, or are covered by insurance, such that, if determined adversely to the Company individually or in the aggregate, they would not have a material adverse effect on our results of operations or financial position.any subsidiary business entity.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,26, 2020, which outlinesoutline factors that could materially affect our business, financial condition or future results, and the additional risk factors below. TheThese risks described in our Annual Report on Form 10-K for the year ended December 31, 2016, are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditions or operating results.
The COVID–19 pandemic has adversely affected and could continue to adversely affect our business, financial condition and results of operations.Our business is dependent upon the willingness and ability of our customers to conduct transactions with us. The COVID–19 pandemic has caused severe disruptions in the worldwide economy, including the global demand for oil and natural gas. In response, companies within the energy industry (including many of our customers) have announced capital spending cuts which, in turn, may result in a decrease in new project awards or adjustments, reductions, suspensions, cancellations or payment defaults with respect to existing project awards. The prolonged nature of the COVID–19 pandemic may result in a significant decrease in business and/or cause our customers to be unable to meet existing payment or other obligations to us, particularly in the event of a spread of COVID–19 in our market areas. The COVID–19 pandemic may also negatively impact the availability of our key personnel necessary to conduct our business as well as the business and operations of third party service providers who perform critical services for our business. For example, in June 2020 we temporarily closed one of our operational facilities for one week in response to a potential COVID-19 exposure. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the impact on our business, financial condition and results of operations remains uncertain and difficult to predict. If COVID–19 continues to spread or if the response to contain the COVID-19 pandemic is unsuccessful, we could experience a material adverse effect on our business, financial condition, and results of operations.
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Our backlog is declining due to the COVID-19 pandemic and is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future revenue or earnings. As of September 30, 2017, While our backlog washas not been materially impacted by the COVID-19 pandemic in terms of project cancellations, we have not been successful in replacing our backlog as quickly as it has been converted to revenues due to inefficiencies and complications resulting from many of our clients’ remote working conditions combined with the uncertainty of new project necessity and funding caused by COVID-19 related disruptions that have led to delays in project awards. Further, the COVID-19 pandemic has affected our ability to make business development contacts with customers. As a result, our backlog has decreased by approximately $30$47.6 million including $2.3from $59.2 million for the CPC Project.at December 28, 2019 to $11.6 million as of June 26, 2021 and approximately $12.7 million from $24.3 million as of December 26, 2020 to $11.6 million as of June 26, 2021. We expect athe majority of thisour backlog to be completed within 12 months. While we believe our backlog is sufficient to keep a significant portion of our workforce productive in 2017the near term, it may not be at our current operating levels. We cannot assure investors that we will be successful in replacing our backlog as quickly as it has been converted to revenues, which will reduce future revenue and 2018. Weprofits and impact our financial performance. In addition, we cannot assure investors that the revenue projected in our backlog will be realized or, if realized, will result in profits. Projects currently in our backlog may be canceled or may remain in our backlog for an extended period of time prior to project execution and, once project execution begins, it may occur unevenly over the current and multiple future periods. In addition, project terminations, suspensions or reductions in scope occur from time to time with respect to contracts reflected in our backlog, reducing the revenue and profit we actually receive from contracts reflected in our backlog. Future project cancellations and scope adjustments could further reduce the dollar amount of our backlog in addition to the revenue and profits that we actually earn. The potential for project cancellations, terminations, suspensions or reductions in scope and adjustments to our backlog are exacerbated by economic conditions, particularly in our chosen area of concentration, the energy industry. The energy industry has experienced a sustained periodwhich is experiencing volatility in oil prices since the beginning of low crude oil2020 due to concerns about the COVID–19 pandemic and natural gas prices which has reducedits impact on the worldwide economy and global demand for oil. We are unable to predict when market conditions may improve and worsening overall market conditions could result in further declines in our clients’ activities in the energy industry.backlog.
If we are unable to collect our receivables, our results of operations and cash flows could be adversely affected. Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed and materials supplied. In the ordinary course of business, we extend unsecured credit to our customers. We may also agree to allow our customers to defer payment on projects until certain milestones have been met or until the projects are substantially completed, and customers typically withhold some portion of amounts due to us as retainage. For example, asAs of September 30, 2017, our customer for the CPC projectJune 26, 2021 we had $0.2two projects that had $2.6 million in retainage. We bear the risk that our clients will pay us late or not at all. Though we evaluate and attempt to monitor our clients’ financial condition, there is no guarantee that we will accurately assess their creditworthiness. To the extent the credit quality of our clients deteriorates or our clients seek bankruptcy protection, our ability to collect receivables and our results of operations could be adversely affected. Even if our clients are credit-worthy, they may delay payments in an effort to manage their cash flow. Financial difficulties or business failure experienced by one or more of our major customers has had and could, in the future, continue to have a material adverse effect on both our ability to collect receivables and our results of operations. For example, on July 12, 2021, one of our major customers filed bankruptcy after suspending operations during the second quarter of 2021, which led to our recording of a $1.4 million bad debt reserve and a $0.5 million reduction in backlog as of June 26, 2021.
Our expansion into the modular solutions market and our plan to position the Company as a leading provider of higher value industrial automation and Industrial Internet of Things products and services to its customer base could subject us to increased costs and related risks and may not achieve the intended results. Expanding our business activities into the modular solutions market and implementing our strategic plan to position the Company as a leading provider of higher value industrial automation and Industrial Internet of Things (IIOT) products and services could subject us to unexpected costs and risks. Such activities could subject us to increased operating costs, product liability, regulatory requirements and reputational risks. Our expansion into new and existing markets and implementation of our strategic plan may present competitive and distribution challenges that differ from current ones. We may be less familiar with the target customers and may face different or additional risks, as well as increased or unexpected costs, compared to existing operations. Growth into new markets or markets that historically have not been our focus may also bring us into direct competition with companies with whom we have little or no past experience as competitors. To the extent we are reliant upon expansion into new product markets and implementation of our strategic plan for growth and do not meet the new challenges posed by such expansion and implementation, our future sales growth could be negatively impacted, our operating costs could increase, and our business operations and financial results could be negatively affected. Expanding into the modular solutions market and implementing our strategic plan to position the Company as a higher value provider of industrial automation and IIOT have required, and are expected to require, additional investments by the Company and additional attention from management, and if not successful, we may not realize the return on our investments as anticipated or our operating results could be adversely affected by slower than expected sales growth or additional costs.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth certain information with respect to repurchases of our common stock duringfor the second quarter ended September 30, 2017:of 2021:
Period | Total Number Of Shares Purchased | Average Price Paid per Share | Total number of shares purchased as part of publicly announced plans or programs (1) | Maximum Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (1) | ||||||||||||
July 2, 2017 to July 29, 2017 | — | $ | — | 1,191,050 | $ | 501,591 | ||||||||||
July 30, 2017 to September 2, 2017 | — | $ | — | 1,191,050 | $ | 501,591 | ||||||||||
September 3, 2017 to September 30, 2017 | — | $ | — | 1,191,050 | $ | 501,591 | ||||||||||
Total | — | $ | — | 1,191,050 | $ | 501,591 |
Period |
| Total Number |
|
| Average |
|
| Total Number of Shares |
|
| Maximum Number (or |
| ||||
March 28, 2021 to April 24, 2021 |
|
| — |
|
|
| — |
|
|
| — |
|
| $ | — |
|
April 25, 2021 to May 29, 2021 |
|
| — |
|
|
| — |
|
|
| — |
|
| $ | — |
|
May 30, 2021 to June 26, 2021 |
|
| — |
|
|
| — |
|
|
| — |
|
| $ | — |
|
Total |
|
| — |
|
|
| — |
|
|
| 1,290,460 |
|
| $ | 425,589 |
|
(1) | On April 21, 2015, the Company announced that its Board of Directors had authorized the repurchase of up to |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None
None.
Incorporated by Reference to: |
| Incorporated by Reference to: | ||||||||||||||||||
Exhibit No. | Description | Form or Schedule | Exhibit No. | Filing Date with SEC | SEC File Number |
| Description |
| Form or |
| Exhibit |
| Filing |
| SEC | |||||
| ||||||||||||||||||||
3.1 | Restated Articles of Incorporation of Registrant dated August 8, 2002 | 10-Q | 3.1 | 11/14/2002 | 001-14217 |
| Restated Articles of Incorporation of Registrant dated January 29, 2021 |
| 8-K |
| 3.1 |
| 1/29/2021 |
| 001-14217 | |||||
| ||||||||||||||||||||
3.2 | Amendment to the Restated Articles of Incorporation of the Registrant, filed with the Nevada Secretary of State on June 2, 2006 | 8-A12B | 3.1 | 12/17/2007 | 001-14217 |
| Second Amended and Restated Bylaws of Registrant dated April 14, 2016 |
| 8-K |
| 3.1 |
| 4/15/2016 |
| 001-14217 | |||||
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3.3 | Second Amended and Restated Bylaws of Registrant dated April 14, 2016 | 8-K | 3.1 | 4/15/2016 | 001-14217 | |||||||||||||||
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| 8-K |
| 10.1 |
| 6/3/2021 |
| 001-14217 | ||||||||||||
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*31.1 | Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934 for the Third Quarter 2017 |
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*31.2 | Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934 for the Third Quarter 2017 |
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*32.0 | Certification Pursuant to Rule 13a – 14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Third Quarter 2017 | |||||||||||||||||||
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*101.ins | XBRL instance document |
| Inline XBRL instance document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document |
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*101.sch | XBRL taxonomy extension schema document |
| Inline XBRL taxonomy extension schema document |
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*101.cal | XBRL taxonomy extension calculation linkbase document |
| Inline XBRL taxonomy extension calculation linkbase document |
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*101.def | XBRL taxonomy extension definition linkbase document |
| Inline XBRL taxonomy extension definition linkbase document |
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*101.lab | XBRL taxonomy extension label linkbase document |
| Inline XBRL taxonomy extension label linkbase document |
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*101.pre | XBRL taxonomy extension presentation linkbase document |
| Inline XBRL taxonomy extension presentation linkbase document |
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*104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* Filed herewith
** Furnished herewith
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.
Dated: August 5, 2021 | |||
ENGlobal Corporation | |||
By: | /s/ Darren W. Spriggs | ||
Darren W. Spriggs | |||
Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |