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.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

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.

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).

As of ~~November 8, 2022,~~May 16, 2023, the registrant had outstanding ~~35,800,617~~39,760,305 shares of common stock, par value $0.001 per share.

	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended
	September 24, 2022			September 25, 2021			September 24, 2022			September 25, 2021			April 1, 2023			March 26, 2022
Operating revenues	$	13,056		$	5,921		$	31,777		$	29,449		$	13,193		$	7,366
Operating costs		12,392			6,735			30,439			29,177			15,015			8,024
Gross profit (loss)		664			(814	)		1,338			272
Gross loss														(1,822	)		(658	)

Selling, general and administrative expenses		2,920			3,089			8,653			9,914			4,416			2,843
Operating loss		(2,256	)		(3,903	)		(7,315	)		(9,642	)		(6,238	)		(3,501	)

Other income (expense):
Other income, net		5			6,371			36			8,061			3			10
Interest expense, net		(63	)		(46	)		(166	)		(161	)		(72	)		(51	)
Income (loss) from operations before income taxes		(2,314	)		2,422			(7,445	)		(1,742	)
Loss from operations before income taxes														(6,307	)		(3,542	)

Provision for federal and state income taxes		21			21			43			67			22			78

Net income (loss)		(2,335	)		2,401			(7,488	)		(1,809	)
Net loss														(6,329	)		(3,620	)

Basic and diluted income (loss) per common share:	$	(0.07	)	$	0.07		$	(0.21	)	$	(0.06	)
Basic and diluted loss per common share:													$	(0.17	)	$	(0.10	)

Basic and diluted weighted average shares used in computing income (loss) per share:		35,802			35,139			35,492			30,776
Basic and diluted weighted average shares used in computing loss per share:														38,181			35,231

See accompanying notes to unaudited interim condensed consolidated financial statements.

	September 24, 2022			December 25, 2021				April 1, 2023			December 31, 2022
ASSETS							ASSETS
Current Assets:
Cash	$	9,664		$	19,202			$	2,362		$	3,464
Trade receivables, net of allowances of $273 and $1,673		10,067			7,692
Trade receivables, net of allowances of $3,227 and $2,129									7,435			7,644
Prepaid expenses and other current assets		659			958				706			1,580
Payroll taxes receivable		1,988			3,065				1,547			1,547
Contract assets		5,820			4,177				5,812			4,934
Total Current Assets		28,198			35,094				17,862			19,169
Property and equipment, net		1,532			1,698				2,023			1,757
Goodwill		720			720				720			720
Intangible assets, net of accumulated amortization		2,674			—
Other assets
Right of use asset		8,138			4,251
Right-of-use asset									7,640			8,072
Deposits and other assets		313			306				291			305
Total Other Assets		8,451			4,557				7,931			8,377
Total Assets	$	41,575		$	42,069			$	28,536		$	30,023

LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	3,565		$	2,001			$	6,312		$	4,454
Accrued compensation and benefits		2,196			2,183				3,078			2,002
Current portion of leases		1,560			1,389				1,781			1,849
Contract liabilities		1,220			2,054				903			956
Current portion of deferred payroll tax		537			537
Other current liabilities		723			667				1,031			1,134
Short-term contingent consideration		101			—
Short-term debt		1,572			—
Current portion of debt									892			1,661
Total Current Liabilities		11,474			8,831				13,997			12,056

Long-term contingent consideration		1,279			—
Long-term debt		—			1,035
Long-term unearned revenue									425			425
Long-term leases		7,525			4,012				7,094			7,217
Total Liabilities		20,278			13,878				21,516			19,698
Commitments and Contingencies (Note 8)
Stockholders’ Equity:
Common stock - $0.001 par value; 75,000,000 shares authorized; 35,800,617 shares issued and outstanding at September 24, 2022 and 35,230,675 shares issued and outstanding at December 25, 2021		36			35
Common stock - $0.001 par value; 75,000,000 shares authorized; 39,760,305 shares issued and outstanding at April 1, 2023 and 35,800,617 shares issued and outstanding at December 31, 2022									40			36
Additional paid-in capital		57,996			57,403				61,070			58,050
Accumulated deficit		(36,735	)		(29,247	)			(54,090	)		(47,761	)
Total Stockholders’ Equity		21,297			28,191				7,020			10,325
Total Liabilities and Stockholders’ Equity	$	41,575		$	42,069			$	28,536		$	30,023

See accompanying notes to unaudited interim condensed consolidated financial statements.

	For the Nine Months Ended						For the Three Months Ended
	September 24, 2022			September 25, 2021			April 1, 2023			March 26, 2022
Cash Flows from Operating Activities:
Net loss	$	(7,488	)	$	(1,809	)	$	(6,329	)	$	(3,620	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		691			355			153			201
Share-based compensation expense		165			166			50			56
Forgiveness of PPP Loan		—			(4,974	)
Changes in current assets and liabilities
Changes in current assets and liabilities:
Trade accounts receivable		(2,375	)		2,479			209			1,004
Contract assets		(1,643	)		435			(878	)		1,016
Other current assets		1,369			(2,415	)		888			1,415
Accounts payable		1,564			(699	)		1,858			(427	)
Accrued compensation and benefits		13			(1,085	)		1,076			(483	)
Contract liabilities		(834	)		(594	)		(53	)		(423	)
Income taxes payable		(8	)		(32	)		22			77
Other current liabilities, net		64			(458	)		(125	)		(211	)
Net cash used in operating activities	$	(8,482	)	$	(8,631	)	$	(3,129	)	$	(1,395	)

Cash Flows from Investing Activities:
Asset acquisition, net of cash acquired		(971	)		—
Property and equipment acquired		(291	)		(187	)		(108	)		(23	)
Net cash used in investing activities	$	(1,262	)	$	(187	)	$	(108	)	$	(23	)

Cash Flows from Financing Activities:
Issuance of common stock, net		—			19,993
Common stock and warrants issued, net								2,974			—
At-the-market offering costs		(97	)		—			—			(52	)
Payments on finance leases		(233	)		(94	)		(70	)		(134	)
Interest on PPP loan		—			25
Proceeds from revolving credit facility, net		536			(113	)
Net cash provided by financing activities	$	206		$	19,811
Proceeds (payments) from revolving credit facility, net								(769	)		100
Net cash provided by (used in) financing activities							$	2,135		$	(86	)
Net change in cash		(9,538	)		10,993			(1,102	)		(1,504	)
Cash at beginning of period		19,202			13,706			3,464			19,202
Cash at end of period	$	9,664		$	24,699		$	2,362		$	17,698

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	167		$	155		$	66		$	51
Fair value of warrants at issuance date							$	2,782		$	—
Right of use assets obtained in exchange for new operating lease liability	$	4,864		$	2,613		$	—		$	354
Cash paid during the period for income taxes (net of refunds)	$	51		$	151
Asset acquisition, common stock issued	$	525		$	—
Asset acquisition, contingent consideration	$	1,380		$	—
Non-cash transaction: PPP Loan forgiveness	$	—		$	4,974
Right of use assets obtained in exchange for new financing lease liability							$	289		$	—

See accompanying notes to unaudited interim condensed consolidated financial statements.

							For the Three Months Ended
	For the Nine Months Ended						April 1, 2023			March 26, 2022
	September 24, 2022			September 25, 2021
Common Stock
Balance at beginning of period	$	35		$	28		$	36		$	35
Common stock issued		1			7			4			—
Balance at the end of the period		36			35
Balance at end of period							$	40		$	35
Additional Paid-in Capital
Balance at beginning of period		57,403			37,157		$	58,050		$	57,403
Common stock issued		525			19,986
Proceeds from common stock issued, net								188			—
Fair value of warrants at issuance date								2,782			—
At-the-market offering costs		(97	)		—			—			(52	)
Share-based compensation - employees		165			166
Share-based compensation – employees								50			56
Balance at end of period		57,996			57,309		$	61,070		$	57,407

Accumulated Deficit
Balance at beginning of period		(29,247	)		(23,562	)	$	(47,761	)	$	(29,247	)
Net loss		(7,488	)		(1,809	)		(6,329	)		(3,620	)
Balance at end of period		(36,735	)		(25,371	)	$	(54,090	)	$	(32,867	)

Total Stockholders’ Equity	$	21,297		$	31,973		$	7,020		$	24,575

See accompanying notes to unaudited interim condensed consolidated financial statements.

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 (the “SEC”). 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 ~~25, 2021,~~31, 2022, included in the Company’s ~~2021~~2022 Annual Report on Form 10-K filed with the SEC.

The condensed financial statements included herein are unaudited for the three ~~and nine~~ month periods ended ~~September 24,~~April 1, 2023 and March 26, 2022, ~~and September 25, 2021,~~ and in the case of the condensed balance sheet as of December ~~25, 2021~~31, 2022 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 SEC 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 are presented.

For our fiscal year ~~2022, our first, second, and third~~2023, all four quarters will be comprised of 13 weeks ~~each, and our fourth quarter will be comprised of 14 weeks.~~each.

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) as of January 1, 2023. We adopted the standard using a modified retrospective approach which did not have a material impact on our financial position, results of operations, or cash flows.

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. ~~Our~~The majority of our services ~~may be~~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 client 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 the customer. Our customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment 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 the method to measure progress towards completion requires judgment and is based on the nature of the products or service to be provided, which measures the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. We generally use the cost-to-cost method on the labor portion of a project for revenue recognition to measure progress of our contracts because it best depicts the 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.

Under 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.

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 decision 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 entire contract is accounted for as one performance obligation. Less commonly, we may provide distinct goods or services within a contract in which 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 each performance obligation in an amount based 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 entitled. We include estimated amounts in the 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 changes 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 contract 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, monthly 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 complexity 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 timing 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 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 cost aspects of those performance obligations or realizing related opportunities. When estimates of total costs to be incurred exceed total estimates to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss 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 the related 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 performance obligations.

	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021		April 1, 2023		March 26, 2022
Fixed-price revenue	$	10,037	$	2,743	$	24,136	$	17,536	$	10,437	$	5,208
Time-and-material revenue		3,019		3,178		7,641		11,913		2,756		2,158
Total Revenue		13,056		5,921		31,777		29,449		13,193		7,366

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 (dollars in thousands):

	September 24, 2022			December 25, 2021			April 1, 2023			December 31, 2022
Costs incurred on uncompleted contracts	$	55,872		$	36,429		$	50,640		$	59,298
Estimated earnings on uncompleted contracts		7,411			4,866			940			4,464
Earned revenues		63,283			41,295			51,580			63,762
Less: billings to date		58,683			39,172			46,671			59,784
Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts	$	4,600		$	2,123		$	4,909		$	3,978

Contract assets	$	5,820		$	4,177		$	5,812		$	4,934
Contract liabilities		(1,220	)		(2,054	)		(903	)		(956	)
Net contract assets	$	4,600		$	2,123		$	4,909		$	3,978

	September 24, 2022			December 25, 2021		April 1, 2023		December 31, 2022
Revolving Credit Facility (1)	$	1,572		$	1,035	$	892	$	1,661
Amount due within one year		(1,572	)		—		892		1,661
Total long-term debt	$	—		$	1,035	$	—	$	—

~~Set forth below are certain of the material terms of the Revolving Credit Facility:~~

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 regularly reviewed with operational leaders in charge of these segments, the ~~chief~~ executive ~~officer~~chairman (“CEO”), the chief financial officer (“CFO”) and others. This group represents the chief operating decision maker (“CODM”) for ENGlobal.

We have 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) Energy & Renewables, (ii) Automation, (iii) Oil, Gas, and Petrochemicals, and (iv) Government Services.

Within the Energy & 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 provides the design and programming of automated control systems as well as designs, fabricates, integrates and commissions modular systems that include remote instrumentation control stations, 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, construction, ~~field services,~~ and automation services as well as fabricated products to downstream refineries and petrochemical facilities as well as midstream pipeline, storage and other transportation related companies. These services are often applied to small capital improvement and maintenance projects within refineries and petrochemical facilities. For our transportation clients, we work on facilities that include 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 clients who have operations in the U.S. oil and gas exploration and development markets. The operations are usually associated with the completion, purification, storage and transmission of the oil and gas from the well head to the terminal or pipeline destination.

Our Government Services group provides services related to the engineering, design, installation and maintenance of automated fuel handling and tank gauging systems for the U.S. military across the globe.

We have two reportable segments: Commercial and Government Services. Our Energy & Renewables, Automation, and 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.

Total Assets by Segment	As of September 24, 2022		As of December 25, 2021		As of April 1, 2023		As of December 31, 2022
	(dollars in thousands)				(dollars in thousands)
Commercial	$	24,344	$	12,535	$	18,626	$	19,526
Government Services		3,614		3,788		2,855		2,032
Corporate		13,617		25,746		7,055		8,465
Consolidated	$	41,575	$	42,069	$	28,536	$	30,023

The Company accounts for income taxes in accordance with FASB Accounting Standards Codification 740, “Income Taxes” (“ASC 740”). Under ASC 740-270 we estimate 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 apply 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.

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 are 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 ~~2017~~2018 and Texas margins tax returns prior to 2017 are closed. Generally, the applicable statues of limitations are three to four years from their filings.

The Company recorded income tax expense of ~~$21~~$22 thousand for the three months ended ~~September 24, 2022~~April 1, 2023 as compared to income tax expense of ~~$21~~$78 thousand for the three months ended ~~September 25, 2021.~~March 26, 2022. The effective income tax rate for the three months ended ~~September 24, 2022~~April 1, 2023 was ~~(0.9)%~~0.4% as compared to ~~0.9%~~(2.2)% for the three months ended September 25, 2021. The Company recorded income tax expense of $43 thousand for the nine months ended September 24, 2022 as compared to income tax expense of $67 thousand for the nine months ended September 25, 2021. The effective income tax rate for the nine months ended September 24, 2022 was (0.6)% as compared to (3.8)% for the nine months ended September 25, 2021.March 26, 2022. The effective tax rate differed from the federal statutory rate of 21% primarily due to the effect of the valuation allowances related to the expected unrealized deferred tax asset generated by the current year benefit.

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) 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.

The Company leases land, office and shop 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.

		Three Months Ended				Nine Months Ended					Three Months Ended
	Financial Statement Classification	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021		Financial Statement Classification	April 1, 2023		March 26, 2022
Finance leases:
Amortization expense	SG&A Expense	$	53	$	19	$	159	$	61	SG&A Expense	$	54	$	53
Interest expense	Interest expense, net		11		4		33		13	Interest expense, net		13		11
Total finance lease expense			64		23		192		74			67		64

Operating leases:
Operating costs	Operating costs		86		131		189		391	Operating costs		435		45
Selling, general and administrative expenses	SG&A Expense		543		462		1,420		1,327	SG&A Expense		590		411
Total operating lease expense			629		593		1,609		1,718			1,025		456
Total lease expense		$	693	$	616	$	1,801	$	1,792		$	1,092	$	520

Supplemental balance sheet information related to leases was as follows (dollars in thousands):

	Financial Statement Classification	September 24, 2022		December 25, 2021		Financial Statement Classification	April 1, 2023		December 31, 2022
ROU Assets:
Operating leases	Right of use asset	$	8,138	$	4,251	Right of use asset	$	7,640	$	8,072
Finance leases	Property and equipment, net		744		979	Property and equipment, net		997		761
Total ROU Assets:		$	8,882	$	5,230		$	8,637	$	8,833

Lease liabilities:
Current liabilities
Operating leases	Current portion of leases	$	1,360	$	1,153	Current portion of leases	$	1,508	$	1,638
Finance leases	Current portion of leases		200		236	Current portion of leases		273		211
Noncurrent Liabilities:
Operating leases	Long-term leases		6,978		3,269	Long-term leases		6,378		6,669
Finance leases	Long-term leases		547		743	Long-term leases		716		548
Total lease liabilities		$	9,085	$	5,401		$	8,875	$	9,066

The weighted average remaining lease term and weighted average discount rate were as follows:

Maturities of operating lease liabilities as of ~~September 24, 2022~~April 1, 2023 are as follows (dollars in thousands):

Years ending:	Operating leases			Finance leases			Total			Operating leases			Finance leases			Total
2022 (remaining months)		442			58			500
2023		1,464			228			1,692

2023 (remaining months)											1,373			241			1,614
2024		1,323			208			1,531			1,323			301			1,624
2025		1,140			173			1,313			1,140			264			1,404
2026		919			144			1,063			918			234			1,152
2027 and thereafter		4,114			—			4,114			4,104			67			4,171
Total lease payments		9,402			811			10,213			8,858			1,107			9,965
Less: imputed interest		(1,064	)		(64	)		(1,128	)		(972	)		(118	)		(1,090	)
Total lease liabilities	$	8,338		$	747		$	9,085			7,886		$	989		$	8,875

Pursuant 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 and $1.4 million employee retention credits in the first and third quarters of 2021, respectively, as other income on the ~~Statement~~statement of ~~Operations~~operations and as a receivable on the ~~Balance Sheet. During~~balance sheet. We have received funds for a portion of each quarter we requested the ~~first quarter of 2022, we received a partial refund for the 2021 first quarter~~ employee retention ~~credit~~credits for. As of April 1, 2023, the remaining unpaid employee retention credits of $1.5 million is accounted for ~~our ENGlobal U.S., Inc. subsidiary.~~as a receivable on the balance sheet.

On January 29, 2021, the Company entered into an ~~at market issuance sales agreement~~Prior ATM Agreement (the ~~“At Market Issuance Sales~~“Prior ATM Agreement”) with B. Riley Securities, Inc. (“B. Riley”) pursuant to which the Company could 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 ~~At Market Issuance Sales~~Prior ATM Agreement, the Company paid B. Riley an aggregate commission of 3% of the gross sales price per share of common stock sold under the agreement. The Company was not obligated to make any sales under the ~~At Market Issuance Sales~~Prior ATM Agreement. In April 2021, 400,538 shares of the Company’s common stock were issued and sold pursuant to the ~~At Market Issuance Sales~~Prior ATM Agreement for net proceeds of approximately $1.4 million. On January 7, 2022, the ~~At Market Issuance Sales~~Prior ATM Agreement was terminated pursuant to its terms.

On June 1, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which the Company issued and sold 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.

On January 11, 2022, the Company entered into a sales agreement (the “ATM Agreement”) with Lake Street Capital Markets, LLC (“Lake Street”) pursuant to which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $30 million to or through Lake Street, as sales agent, from time to time, in an “at the market offering”. The Company is not obligated to make any sales under the 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. ~~Upon~~

On February 1, 2023, we entered into a securities purchase agreement (the “RDO Purchase Agreement”) providing for the ~~filing with~~sale and issuance by the ~~SEC on March 11, 2022~~Company to a single institutional investor of 3,971,000 shares (the “Shares”) of the Company’s ~~Annual Report on Form 10-K for the fiscal year ended December 25, 2021, the Company’s~~common stock at an offering price of $0.85 per Share in a registered direct offering pursuant to a registration statement on Form S-3 ~~(File No. 333-252572), including~~filed with the ~~accompanying prospectus~~SEC on January 29, 2021 (the “Registration Statement”). Concurrently with the sale of the Shares and ~~related prospectus supplements related~~pursuant to the ~~“at~~RDO Purchase Agreement, the ~~market offering”, became subject~~Company also sold and issued in a private placement, for no additional consideration to the provisions of General Instruction I.B.6 of Form S-3, which provides that the Company may not sell securities in a public primary offering with a value exceeding one-third of its public float in any twelve-month period unless its public float is at least $75 million. As of March 7, 2022, the Company’s public float (i.e., the aggregate market value of its outstanding equity securities held by non-affiliates) was approximately $56.1 million, based on the closing price per shareinvestor, warrants to purchase up to 3,971,000 shares of the Company’s common stock as reported on the Nasdaq Capital Market on March 7, 2022, as calculated in accordance with General Instruction I.B.6 of Form S-3. If the Company’s public float meets or exceeds $75 million at any time,(the “Warrants”). The net proceeds to the Company ~~will no longer be subject~~from the offerings were approximately $3.0 million after deducting the placement agent’s fees and related offering expenses, and excluding the proceeds, if any, from the exercise of the Warrants. The Company intends to use the net proceeds of the offering for working capital and general corporate purposes. The sale of the Shares pursuant to the ~~restrictions set forth~~RDO Purchase Agreement has reduced the amount of securities that we may sell in ~~General Instruction I.B.6 of Form S-3, at least until~~a primary offering pursuant to the ~~filing of its next Section 10(a)(3) update as required under the Securities Act. During the first three quarters of 2022, $0.1 million in direct costs related~~Registration Statement, including pursuant to the ATM ~~Agreement were~~Agreement. We recorded ~~as a reduction~~the fair value of ~~equity.~~the warrants issued within additional paid-in capital. The warrants may be exercised by physical settlement or net share settlement, determined by the holder.

We define liquidity as our ability to pay liabilities as they become due, fund business operations and meet monetary contractual obligations. Our primary sources of liquidity are cash on hand, internally generated funds, sales of common stock pursuant to the ATM Agreement, and borrowings under the Revolving Credit ~~Facility.~~Facility which matures on May 20, 2023.

As of ~~September 24, 2022,~~April 1, 2023, the credit limit and outstanding borrowings under the Revolving Credit Facility ~~was $2.0 million and outstanding borrowings~~ were ~~$1.6~~$0.9 million, which yields enough interest to cover our minimum monthly interest charge. As of ~~September 24, 2022,~~April 1, 2023, we were in compliance with all of the covenants under the Revolving Credit Facility. For additional information on the Revolving Credit Facility, see Part I, Item 1, Note 5 – Debt.

On March 27, 2023, the Company entered into an invoice factoring agreement with FundThrough USA, Inc. (the “Priority Agreement"). The agreement provides the flexibility to receive funds early for a subset of customers at a discount rate of 2.75% to 8.25% depending on the length of payment terms with the customer. As of April 1, 2023, we have not factored any receivables through the Priority Agreement.

On January 11, 2022, wethe Company entered into the ATM Agreement with Lake Street pursuant to which wethe Company may offer and sell shares of ~~our~~the Company’s common stock having an aggregate offering price of up to $30 million to or through Lake Street, as sales agent, from time to time, in an “at the market offering”. The Company is not obligated to make any sales under the 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. ~~For additional information~~The Registration Statement, including the accompanying prospectus and related prospectus supplements related to the “at the market offering,” is subject to the provisions of General Instruction I.B.6 of Form S-3, which provides that we may not sell securities in a public primary offering with a value exceeding one-third of our public float in any twelve-month period unless our public float is at least $75 million. As of March 17, 2023, the Company’s public float (i.e., the aggregate market value of its outstanding equity securities held by non-affiliates) was approximately $15.0 million, based on the ~~ATM Agreement, see Note 11 –~~ ~~Stockholders’ Equity~~.

~~We believe~~closing price per share of the Company’s common stock as reported on the Nasdaq Capital Market on March 17, 2023, as calculated in accordance with General Instruction I.B.6 of Form S-3. In addition, during the 12 calendar month period that ends on the date of the filing of this Report, we had offered and sold approximately $3.4 million of 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,~~Registration Statement. If our public float meets or exceeds $75 million at any time, we will no longer be ~~sufficient~~subject to ~~fund~~the restrictions set forth in General Instruction I.B.6 of Form S-3, at least until the filing of our ~~current operations and expected activity for~~next Section 10(a)(3) update as required under the ~~next twelve months.~~

On ~~May 18, 2022, ENG Calvert Holdings Ltd. (the “Purchaser”), a wholly owned subsidiary of~~February 1, 2023, we entered into the ~~Company, completed~~RDO Purchase Agreement providing for the ~~acquisition of Calvert Group Belgium NV (“Calvert”), a business that licenses small-scale gas to liquids (“GTL”) technology for flare gas~~sale and stranded gas applications for specific territories including the Middle East and North Africa. The Company expects to utilize Calvert’s basic designs incorporating the GTL technology into small scale GTL plants to be manufacturedissuance by the Company to a single institutional investor of the Shares of the Company’s common stock, at an offering price of $0.85 per Share in ~~the United States and subsequently shipped internationally.~~

~~Pursuant~~a registered direct offering pursuant to the ~~accounting guidance in ASC 805, we determined that~~Registration Statement. Concurrently with the ~~acquisition of Calvert did not meet the criteria necessary to constitute a business combination and was accounted for as an asset acquisition which occurs when substantially all~~sale of the ~~fair value of gross assets acquired is concentrated~~Shares and pursuant to the RDO Purchase Agreement, the Company also sold and issued in a ~~single identifiable asset or a group of similar identified assets. The determination was based on~~private placement, for no additional consideration to the ~~gross fair value~~investor, the Warrants to purchase up to 3,971,000 shares of the ~~acquisition being concentrated in~~Company’s common stock. The net proceeds to the ~~license agreement acquired.~~

Company from the offerings were approximately $3.0 million after deducting the placement agent’s fees and related offering expenses, and excluding the proceeds, if any, from the exercise of the Warrants. The ~~consideration transferred on~~Company intends to use the ~~acquisition date included $0.8 million cash,~~ net proceeds of ~~cash acquired,~~the offering for working capital and ~~$0.5 million in common stock issued. In addition,~~general corporate purposes. The sale of the Shares pursuant to the RDO Purchase Agreement has reduced the amount of securities that we may ~~pay up~~sell in a primary offering pursuant to ~~approximately $1.4 million in cash and issue approximately $0.6 million in common stock if certain benchmarks are achieved. The Company capitalized $0.2 million in costs associated with~~ the ~~transaction.~~Registration Statement, including pursuant to the ATM Agreement.

Our recurring losses, negative cash flows from operating activities, need for additional financing and the uncertainties surrounding our ability to obtain such financing, raise substantial doubt about our ability to continue as a going concern. We have limited cash on hand and will need additional working capital to fund our planned operations. We are subject to significant risks and uncertainties, including failing to secure additional capital to fund our planned operations or failing to profitably operate the business. We intend to raise funds through various potential sources, such as equity or debt financings; however, we can provide no assurance that such financing will be available on acceptable terms, or at all. If adequate financing is not available or we do not achieve profitability and positive cash flows from operating activities, we may be required to significantly curtail or cease our operations, and our business would be jeopardized.

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 or (5) we are unable to reverse our use of cash to fund losses.

Our Board of Directors continues to review strategic transactions, which could include strategic acquisitions, mergers, reverse mergers, the issuance or buyback of public shares, or the purchase or sale of specific assets, in addition to other potential actions aimed at increasing shareholder value. The Company does not intend to disclose or comment on developments related to its review unless and until the Board has approved a specific transaction or otherwise determined that further disclosure is appropriate. There can be no assurance that the Board’s strategic review will result in any transaction, or any assurance as to its outcome or timing.

ASC 820, Fair Value Measurements and Disclosures, establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

The Company ~~has recognized a $2.9 million intangible asset for~~measures the ~~license acquired.~~

~~Supplemental balance sheet information related to intangible assets is as follows (dollars in thousands):~~

~~The future scheduled amortization of our intangible asset is as follows (in thousands):~~

~~We may pay contingent consideration over the next five years based on the achievement of certain revenue benchmarks. The purchase price includes the original estimated~~ fair value of its warrants to purchase up to 3,971,000 shares of the ~~contingent consideration recorded at~~Company’s common stock issued in connection with the ~~present value~~RDO Purchase Agreement using a Black-Scholes model, which requires the use of ~~approximately $1.4 million.~~several inputs, including the underlying stock price, exercise price, risk free rate, expected volatility, and time to expiration. The ~~estimated~~inputs used in the Black-Scholes model are classified as Level 2 inputs in the fair value hierarchy.

The following table provides a summary of the ~~contingent consideration was determined using a probability-weighted discounted cash flow model. We determined~~assumptions used in the Black-Scholes model to estimate the fair value of the ~~contingent consideration obligations by calculating the probability-weighted contingent consideration payments based on our assessment~~warrants at issuance date of ~~the likelihood that the benchmarks will~~February 6, 2023:

The Company considers these assumptions to be ~~achieved. The probability-weighted contingent consideration payments were then discounted using a discount rate~~reasonable, based on the ~~risk free rate~~historical performance of ~~return (10 year treasury rate) plus a risk premium using~~ the ~~probability-weighted cash flows. The fair value measurement is a Level 3 measurement. The~~underlying stock and other market factors. However, actual results may differ from these estimates. We recorded the $2.8 million fair value of the ~~contingent consideration~~warrants in additional paid-in capital on the issuance date. As the warrants are classified in equity, remeasurement is ~~reviewed quarterly.~~not required unless reclassification from equity is required. The warrant contract is reassessed at each balance sheet date for the appropriate classification.

~~The following tables summarize the Company's assets and liabilities that are measured at fair value on a recurring basis (in thousands):~~

~~The following table provides a roll-forward of the fair value of the contingent consideration categorized as Level 3 for the periods ending September 24, 2022 and December 25, 2021 (in thousands):~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 (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 ~~25, 2021,~~31, 2022, and those described from time to time in our future reports filed with the 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 ~~25, 2021.~~31, 2022.

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 with our automation and systems integration expertise and fabrication capabilities. We believe our vertically-integrated strategy allows us to differentiate our company from most of our competitors as a full-service provider, thereby reducing our clients’ dependency on and coordination of multiple vendors and improving control over their project costs 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.

We focus on four strategic markets where we have a long history of delivering project solutions and can provide complete project execution and have focused our business development teams on communicating these offerings to their clients. These four targeted markets include: (i) ~~Energy &~~ Renewables, (ii) Automation, (iii) Oil, Gas, and Petrochemicals, and (iv) Government Services.

We continue to be mindful of our overhead structure. We have made significant investments in key business development and other essential personnel, product developments and new facilities and equipment, which have all negatively impacted our selling, general and administrative (“SG&A”) expense. WeWhile we believe the addition of these key personnel will allow the Company to expand its client base and acquire new ~~projects. We~~projects, we recognize that the level of our SG&A is greater than it could be for a company our ~~size; however,~~size and have started efforts to reduce headcount, reduce office and shop space, and implement other cost saving measures to address our lack of profitability. If anticipated revenue levels are not achieved to support the reduced level of our SG&A, we ~~have maintained our overhead structure in anticipation of higher revenue levels.~~will continue these efforts to reduce SG&A expense.

~~On March 11, 2020,~~Our recurring losses, negative cash flows from operating activities, need for additional financing and the ~~World Health Organization declared that the worldwide spread and severity of a new coronavirus, referred~~uncertainties surrounding our ability to ~~as COVID-19, was severe enough~~obtain such financing, raise substantial doubt about our ability to ~~be characterized~~continue as a ~~pandemic. The continued worldwide spread of COVID-19, in conjunction with related government~~going concern. We have limited cash on hand and ~~other preventative measures taken~~will need additional working capital to ~~mitigate~~fund our planned operations. We are subject to significant risks and uncertainties, including failing to secure additional capital to fund our planned operations or failing to profitably operate the ~~spread of COVID-19, have caused severe disruptions in the worldwide economy, including the global demand for oil~~business. We intend to raise funds through various potential sources, such as equity or debt financings; however, we can provide no assurance that such financing will be available on acceptable terms, or at all. If adequate financing is not available or we do not achieve profitability and ~~natural gas. In response, companies within the energy industry (including~~positive cash flows from operating activities, we may be required to significantly curtail or cease our customers) announced capital spending cuts which, in turn, resulted in a decrease in new project awards. As a result, we have not been successful in replacing our backlog as quickly as it has been converted to revenues,operations, and our ~~backlog has decreased by approximately $46.4 million from $59.2 million at December 28, 2019 to $12.8 million as of December 25, 2021.~~

During the fourth quarter of 2021 and into the first quarter of 2022, many of our clients returned to their offices and project development began to return. As a result, we began spending a significant amount of man hours bidding many of these new and resurrected projects for our clients. Our backlog has increased by approximately $2.9 million during 2022 to $15.7 million as of September 24, 2022. We believe we have many potential opportunities in our sales pipeline that could replace a significant portion of the backlog reduction since the end of 2019. We believe our backlog and our opportunity pipeline is sufficient to keep a significant portion of our workforce productive in the near term.

~~For additional information, see Part II. Item 1A “Risk Factors.”~~business would be jeopardized.

Our critical accounting policies are further disclosed in Note 2 to the consolidated financial statements included in our ~~2021~~2022 Annual Report on Form 10-K.

Goodwill- Goodwill represents the excess of the purchase price of acquisitions over the fair value of the net assets acquired and liabilities assumed. Goodwill is not amortized but rather is tested and assessed for impairment annually, or more frequently if certain events or changes in circumstance indicate the carrying amount may exceed fair value. The annual test for goodwill impairment is performed in the fourth quarter of each year.

The Company compares its fair value of a reporting unit and the carrying value of the reporting unit to measure goodwill impairment. Fair value was determined by applying a historical earnings multiple times the cash flow of the operating unit after allocation of certain corporate overhead. Estimating the cash flow of the operating unit requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates and future market conditions, among others. It is possible that changes in market conditions, economy, facts, circumstances, judgments and assumptions used in estimating the fair value could change, resulting in possible impairments of goodwill in the future.

~~Contingent consideration~~ – As part of the asset acquisition, the Company recognized the fair value of the contingent consideration based on estimates and assumptions by management. It is possible that changes in market conditions, economy, facts, circumstances, judgements and assumptions used in estimating the fair value could change, resulting in possible changes in the cost basis of the assets and liabilities recognized.

Employee retention credit - Since there is no U.S. 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 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.

In the course of providing our time-and-material services, we routinely provide materials and equipment and may provide 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 quarter to 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 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. 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 the Company’s activities.

Comparison of the three months ended ~~September 24, 2022~~April 1, 2023 versus the three months ended ~~September 25, 2021~~March 26, 2022

The following table, for the three months ended ~~September 24, 2022~~April 1, 2023 versus the three months ended ~~September 25, 2021,~~March 26, 2022, provides relevant financial data that is derived from our consolidated statements of operations (amounts in thousands except per share data).

	Commercial			Government Services			Corporate			Consolidated					Commercial			Government Services			Corporate			Consolidated
For the three months ended September 24, 2022:
For the three months ended April 1, 2023:
Revenue															$	11,835		$	1,358		$	—		$	13,193		100.0	%
Gross loss																(1,602	)		(220	)		—			(1,822	)	(13.8	)%
SG&A																2,746			136			1,534			4,416		33.5	%
Operating loss																(4,348	)		(356	)		(1,534	)		(6,238	)	(47.3	)%
Other income, net																									3
Interest expense, net																									(72	)
Tax expense																									(22	)
Net loss																								$	(6,329	)	(48.0	)%
Basic and diluted loss per share																								$	(0.17	)

															Commercial			Government Services			Corporate			Consolidated
For the three months ended March 26, 2022:
Revenue	$	10,229		$	2,827		$	—		$	13,056		100.0	%	$	5,403		$	1,963		$	—		$	7,366		100.0	%
Gross profit (loss)		(368	)		1,032			—			664		5.1	%		(924	)		266			—			(658	)	(8.9	)%
SG&A		1,572			164			1,184			2,920		22.4	%		1,491			218			1,134			2,843		38.6	%
Operating income (loss)		(1,940	)		868			(1,184	)		(2,256	)	(17.3	)%		(2,415	)		48			(1,134	)		(3,501	)	(47.5	)%
Other income, net											5														10
Interest expense, net											(63	)													(51	)
Tax expense											(21	)													(78	)
Net loss											(2,335	)	(17.9	)%										$	(3,620	)	(49.1	)%
Basic and diluted loss per share										$	(0.07	)												$	(0.10	)

	Commercial			Government Services			Corporate			Consolidated					Commercial			Government Services			Corporate			Consolidated
For the three months ended September 25, 2021:
Year Over Year Increase (Decrease) in Operating Results:
Revenue		3,935			1,986			—			5,921		100.0	%	$	6,432		$	(605	)	$	—		$	5,827		79.1	%
Gross profit (loss)		(1,089	)		275			—			(814	)	(13.7	)%
Gross loss																(678	)		(486	)		—			(1,164	)	176.9	%
SG&A		1,534			280			1,275			3,089		52.2	%		1,255			(82	)		400			1,573		55.3	%
Operating loss		(2,623	)		(5	)		(1,275	)		(3,903	)	(65.9	)%		(1,933	)		(404	)		(400	)		(2,737	)	78.2	%
Other income, net											6,371														(7	)
Interest expense, net											(46	)													(21	)
Tax expense											(21	)													56
Net income											2,401		40.6	%
Basic and diluted income per share											0.07

	Commercial			Government Services			Corporate			Consolidated
Year Over Year Increase (Decrease) in Operating Results:
Revenue	$	6,294		$	841		$	—		$	7,135		120.5	%
Gross profit		721			757			—			1,478
SG&A		38			(116	)		(91	)		(169	)	(5.5	)%
Operating income		683			873			91			1,647		(42.2	)%
Other income, net											(6,366	)
Interest expense, net											(17	)
Tax expense											—
Net loss											(4,736	)	(197.3	)%										$	(2,709	)	74.8	%
Basic and diluted loss per share										$	(0.14	)												$	(0.07	)

~~Comparison of the nine months ended September 24, 2022 versus the nine months ended September 25, 2021~~

The following table, for the nine months ended September 24, 2022 versus the nine months ended September 25, 2021, provides relevant financial data that is derived from our consolidated statements of operations (amounts in thousands except per share data).

Revenue – Revenue increased ~~$7.1~~$5.8 million to ~~$13.1~~$13.2 million from ~~$5.9~~$7.4 million, or an increase of ~~120.5%~~79.1%, for the three months ended ~~September 24, 2022~~April 1, 2023 as compared to the three months ended ~~September 25, 2021. The increase is~~March 26, 2022. Our 2023 revenue for the Commercial segment increased primarily due to the progress of work on our existing contracts and new awards within the Government Services segment, the award of several projects and progress of one large project within our Commercial segment, partially offset by the completion of several projects and projects that were not renewed within our Commercial segment.

Revenue increased $2.3 million to $31.8 million from $29.5 million, or an increase of 7.9%, for the nine months ended September 24, 2022 as compared to the nine months ended September 25, 2021. The increase is primarily due to the progress of work on our existing contracts and new awards within the Government Services segment, in addition to project awards with new customers ~~within our Commercial segment~~ as we continue our business development efforts to increase our ~~backlog. The increase was~~backlog, partially offset by ~~the completion of one large project and~~ projects that ended without subsequent ~~renewals within our Commercial segment.~~renewals. Our 2023 revenue for the Government Services segment decreased primarily due the ending of a contract partially offset by new projects awards.

Gross ~~Profit~~Loss – Gross ~~profit~~loss margin increased ~~18.8%~~4.9% to ~~5.1%~~13.8% from ~~(13.7)%~~8.9% for the three months ended ~~September 24, 2022~~April 1, 2023 as compared to the three months ended ~~September 25, 2021.~~March 26, 2022. The increase in gross ~~profit~~loss margin is primarily attributable to ~~increased utilization~~the inefficient use of personnel ~~on project awards within our Commercial segment in addition~~ to ~~an efficient transition out of one of our Government Services contracts.~~

Gross profit margin increased 3.3% to 4.2% from 0.9% for the nine months ended September 24, 2022 as compared to the nine months ended September 25, 2021. The increase in gross profit margin is primarily attributable to increased utilization of personnel.complete projects.

Selling, General and Administrative Expense – SG&A expenses ~~decreased by $0.2~~increased $1.6 million for the three months ended ~~September 24, 2022~~April 1, 2023 as compared to the three months ended ~~September 25, 2021 primarily~~March 26, 2022 due to a decrease in legal expense of $0.1 million recorded in 2021 with no comparable occurrence in 2022 as we filed a bid protest to challenge an award of a federal contract, and a decrease of $0.1 million in recruiting expense.

~~SG&A expenses decreased by $1.3 million for the nine months ended September 24, 2022 as compared to the nine months ended September 25, 2021 due to the $1.4~~$1.1 million bad debt reserve, ~~recorded during the second quarter of 2021 with no comparable occurrence~~$0.2 million increase in ~~2022~~facility expense as we moved our fabrication shop to a new location, a $0.2 million increase in software expense, and ~~a decrease in legal expense of~~ $0.1 million ~~recorded in 2021 with no comparable occurrence in 2022 as we filed a bid protest to challenge an award of a federal contract, partially offset by an~~ increase in ~~office and marketing expense of $0.1 million, and an increase in facilities expenses of $0.1 million as we added two new locations in Monahans, Texas and Brookshire, Texas.~~

~~Other Income (Expense), Net –~~ Other income, net of expense, decreased $6.4 million for the three months ended September 24, 2022 as compared to the three months ended September 25, 2021 primarily related to the $5.0 million forgiveness of the PPP Loan and $1.4 million employee retention credit recorded during the third quarter of 2021 with no comparable occurrence in 2022.

Other income, net of expense, decreased $8.0 million for the nine months ended September 24, 2022 as compared to the nine months ended September 25, 2021 primarily due to the $1.7 million and $1.4 million employee retention credits recorded in the first and third quarters of 2021, respectively, in addition to the $5.0 million forgiveness of the PPP Loan recorded during the third quarter of 2021 with no comparable occurrence in 2022.accounting fees.

Interest Expense, net – Interest expense is incurred primarily in connection with our Revolving Credit Facility (defined below) and our finance leases. Our interest expense increased ~~to $63~~$21 thousand for the three months ended ~~September 24, 2022~~April 1, 2023 from ~~$46~~$51 thousand for the three months ended ~~September 25, 2021.~~

~~Our interest expense increased to $166 thousand for the nine months ended September 24, 2022 from $161 thousand for the nine months ended September 25, 2021.~~March 26, 2022.

Tax Expense – Tax expense is incurred primarily for our state franchise taxes. We recorded income tax expense of ~~$21~~$22 thousand for the three months ended ~~September 24, 2022~~April 1, 2023 compared to income tax expense of ~~$21~~$78 thousand for the three months ended ~~September 25, 2021.~~

~~We recorded income tax expense of $43 thousand for the nine months ended September 24, 2022 compared to income tax expense of $67 thousand for the nine months ended September 25, 2021.~~March 26, 2022.

Net Income (Loss) – Net loss for the three months ended ~~September 24, 2022~~April 1, 2023 was ~~$2.3~~$6.3 million, or a ~~$4.7~~$2.7 million ~~decrease~~increase from a net ~~income~~loss of ~~$2.4~~$3.6 million for the three months ended ~~September 25, 2021,~~March 26, 2022, primarily as a result of ~~the employee retention credit and forgiveness~~inefficient execution of ~~the PPP Loan recorded during the third quarter of 2021, partially offset by~~projects which resulted in an ~~increase in revenue and~~increased gross ~~profit~~loss margin, and increased ~~utilization of personnel on project awards within our Commercial segment~~selling, general, and ~~on our Government Services contracts.~~

Net loss for the nine months ended September 24, 2022 was $7.5 million, or a $5.7 million increase from net loss of $1.8 million for the nine months ended September 25, 2021, primarily as a result of the employee retention credits recorded during the first and third quarters of 2021, the forgiveness of the PPP Loan recorded during the third quarter of 2021, the decrease in gross profit and the increase in business development costs within our Commercial segment, partially offset by increased utilization of personnel on our Government Services contracts.administrative expense.

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, internally generated funds, sales of common stock pursuant to the ATM Agreement (defined below), and borrowings under the Revolving Credit ~~Facility.~~Facility which matures on May 20, 2023. We had cash of approximately ~~$9.7~~$2.4 million at ~~September 24, 2022~~April 1, 2023 and ~~$19.2~~$3.5 million at December ~~25, 2021.~~31, 2022. Our working capital as of ~~September 24, 2022~~April 1, 2023 was ~~$16.7~~$3.9 million versus ~~$26.3~~$7.1 million as of December ~~25, 2021.~~31, 2022.

On January 11, 2022, we entered into a sales agreement (the “ATM Agreement”) with Lake Street Capital Markets, LLC (“Lake Street”) pursuant to which we may offer and sell shares of ~~our~~the Company’s common stock having an aggregate offering price of up to $30 million to or through Lake Street, as sales agent, from time to time, in an “at the market offering”. The Company is not obligated to make any sales under the 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. ~~Upon the filing with the SEC on March 11, 2022 of our Annual Report on Form 10-K for the fiscal year ended December 25, 2021, our~~The Company’s registration statement on Form S-3 ~~(File No. 333-252572),~~(the “Registration Statement”) filed with the SEC on January 29, 2021, including the accompanying prospectus and related prospectus supplements related to the “at the market offering”, ~~became~~is subject to the provisions of General Instruction I.B.6 of Form S-3, which provides that we may not sell securities in a public primary offering with a value exceeding one-third of our public float in any twelve-month period unless our public float is at least $75 million. As of March ~~7, 2022,~~17, 2023, the Company’s public float (i.e., the aggregate market value of its outstanding equity securities held by non-affiliates) was approximately ~~$56.1~~$15.0 million, based on the closing price per share of ~~our~~the Company’s common stock as reported on the Nasdaq Capital Market on March ~~7, 2022,~~17, 2023, as calculated in accordance with General Instruction I.B.6 of Form S-3. In addition, during the 12 calendar month period that ends on the date of the filing of this Report, we had offered and sold approximately $3.4 million of our common stock pursuant to the Registration Statement. If our public float meets or exceeds $75 million at any time, we will no longer be subject to the restrictions set forth in General Instruction I.B.6 of Form S-3, at least until the filing of our next Section 10(a)(3) update as required under the Securities Act.

On February 1, 2023, we entered into a securities purchase agreement (the “RDO Purchase Agreement”) providing for the sale and issuance by the Company to a single institutional investor of 3,971,000 shares (the “Shares”) of the Company’s common stock, at an offering price of $0.85 per Share in a registered direct offering pursuant to the Registration Statement. Concurrently with the sale of the Shares and pursuant to the RDO Purchase Agreement, the Company also sold and issued in a private placement, for no additional consideration to the investor, warrants to purchase up to 3,971,000 shares of the Company’s common stock (the “Warrants”). The gross proceeds to the Company from the offerings were approximately $3.4 million before deducting the placement agent’s fees and related offering expenses, and excluding the proceeds, if any, from the exercise of the Warrants. The Company intends to use the net proceeds of the offering for working capital and general corporate purposes. The sale of the Shares pursuant to the RDO Purchase Agreement has reduced the amount of securities that we may sell in a primary offering pursuant to the Registration Statement. Our recurring losses, negative cash flows from operating activities, need for additional financing and the uncertainties surrounding our ability to obtain such financing, raise substantial doubt about our ability to continue as a going concern, as discussed in Part II, Item 8, Note 1. We ~~believe our~~have limited 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~~will need additional working capital ~~will be sufficient~~ to fund our ~~current~~planned operations. We are subject to significant risks and uncertainties, including failing to secure additional capital to fund our planned operations or failing to profitably operate the business. We intend to raise funds through various potential sources, such as equity or debt financings; however, we can provide no assurance that such financing will be available on acceptable terms, or at all. If adequate financing is not available or we do not achieve profitability and positive cash flows from operating activities, we may be required to significantly curtail or cease our operations, and ~~expected activity for the next twelve months.~~our business would be jeopardized.

Operating activities used $3.1 million of cash for the three months ended April 1, 2023 and used $1.4 million of cash for the three months ended March 26, 2022. The primary drivers of our cash used in operations for the three months ended April 1, 2023 were our operating loss of $6.3 million primarily as a result of an increase in gross loss, an increase in contract assets net of contract liabilities of $0.9 million, and a decrease of other current liabilities of $0.1 million, partially offset by cash provided from an increase in trade payables of $1.9 million, an increase in accrued compensation and benefits of $1.1 million, a decrease in other current assets of $0.9 million, a decrease of trade receivables of $0.2 million, and $0.1 million from other components of working capital.

Operating activities used $1.4 million of cash for the three months ended March 26, 2022. The primary drivers of our cash used in operations for the three months ended March 26, 2022 were our operating loss of $3.6 million mainly as a result of a decrease in revenue and gross profit, along with increased business development costs within our Commercial segment, a decrease in accrued compensation and benefits of $0.4 million, a decrease of trade payables of $0.4 million, and a decrease of other current liabilities of $0.2 million, partially offset by cash provided from a decrease in trade receivables of $1.0 million, a decrease in contract assets net of contract liabilities of $0.6 million, a decrease in other current assets of $1.4 million, and $0.3 million from other components of working capital.

Operating activities used $8.5 million of cash for the nine months ended September 24, 2022 and used $8.6 million of cash for the nine months ended September 25, 2021. The primary drivers of our cash used in operations for the nine months ended September 24, 2022 were our net loss of $7.5 million, an increase in contract assets net of contract liabilities of $2.5 million, and an increase in trade receivables of $2.4 million, partially offset by cash provided from a decrease in trade payables of $1.6 million, a decrease in other current assets of $1.4 million, and $0.9 million from other components of working capital.

Investing activities used cash of ~~$1.3~~$0.1 million for the ~~nine~~three months ended ~~September 24, 2022 primarily related to the Calvert acquisition in addition to the purchase of personal property~~April 1, 2023 and ~~equipment and $0.2 million~~$23 thousand for the ~~nine~~three months ended ~~September 25, 2021~~March 26, 2022 for the purchase of personal property and equipment.

Financing activities provided ~~cash of $0.2~~$2.4 million of cash for the ~~nine~~three months ended September 24, 2022 primarily from the Revolving Credit Facility, partially offset by costs associated with the ATM Agreement and payments for our finance leases. Financing activities provided cash of $19.8 million for the nine months ended September 25, 2021April 1, 2023 primarily due to ~~sales~~proceeds provided by the issuance of common stock under the ~~ATM Agreement and~~RDO Purchase Agreement, ~~interest on~~net of issuance costs, partially offset by cash used for payments for our finance leases and payments under the ~~PPP Loan (defined below), and~~Revolving Credit Facility due to the reduced credit limit effective in the first quarter of 2023. Financing activities used cash of $0.1 million for the three months ended March 26, 2022 primarily due to proceeds received from the Revolving Credit Facility partially offset by the ~~interest incurred on~~payments for our finance ~~leases. On April 13, 2020, we obtained a $4.9 million loan (the “PPP Loan”) pursuant to the Paycheck Protection Program under Division A, Title I of the Coronavirus Aid, Relief,~~leases, and ~~Economic Security Act, which was forgiven in full during 2021.~~at-the-market offering costs.

The Company is obligated to make future cash payments under the Revolving Credit Facility, operating leases, finance leases, and other liabilities. Amounts below are undiscounted and may differ from balances reflected on the financial statements. The table below sets forth certain information about our contractual obligations as of ~~September 24, 2022~~April 1, 2023 (in thousands):

	Payment Due by Fiscal Period										Payment Due by Fiscal Period
	2022		2023		2024		2025		2026 and thereafter		2023		2024		2025		2026		2027 and thereafter
Operating and finance leases	$	500	$	1,692	$	1,531	$	1,313	$	5,177	$	1,614	$	1,625	$	1,407	$	1,155	$	4,177
Revolving Credit Facility		—		1,572		—		—		—		892		—		—		—		—
Other liabilities⁽¹⁾												323		—		—		—		—
Total	$	500	$	3,264	$	1,531	$	1,313	$	5,177	$	2,829	$	1,625	$	1,407	$	1,155	$	4,177

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 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~~Chairman and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

The Company’s management, including its ~~Chief~~ Executive ~~Officer~~Chairman and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~September 24, 2022,~~April 1, 2023, as required by Rule 13a-15 of the Exchange Act. Based on the evaluation described above, our ~~Chief~~ Executive ~~Officer~~Chairman and Chief Financial Officer have concluded that, as of ~~September 24, 2022,~~April 1, 2023, 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~~Chairman and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

No changes in our internal control over financial reporting occurred during the three months ended ~~September 24, 2022,~~April 1, 2023, 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 may be involved in various legal proceedings or may 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. As of the date of this filing, management is not aware of any such claims against the Company or 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 ~~25, 2021,~~31, 2022, which outline factors that could materially affect our business, financial condition or future results, and the additional risk factors below. These risks 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.

Substantial doubt about our ability to continue as a going concern exists. Our audited financial statements for the period ended December 31, 2022 were prepared on the assumption that we would continue as a going concern. Those financial statements and the accompanying opinion of our auditor expressed a substantial doubt about our ability to continue as a going concern. Those audited financial statements did not include any adjustments that might result from the outcome of this uncertainty. Our recurring losses, negative cash flows from operating activities, need for additional financing and the uncertainties surrounding our ability to obtain such financing, raise substantial doubt about our ability to continue as a going concern. We have limited cash on hand and will need additional working capital to fund our planned operations. We are subject to significant risks and uncertainties, including failing to secure additional capital to fund our planned operations or failing to profitably operate the business. We intend to raise funds through various potential sources, such as equity or debt financings; however, we can provide no assurance that such financing will be available on acceptable terms, or at all. If adequate financing is not available or we do not achieve profitability and positive cash flows from operating activities, we may be required to significantly curtail or cease our operations, and our business would be jeopardized.

Our ability to continue as a going concern is also subject to, among other factors, our ability to collect receivables from our clients when due and invoice our customers in a timely manner. If we are not able collect our receivables when due from our clients, our cash flow will be negatively impacted which could lead to us not being able to meet our current obligations.

We do not have material borrowing capacity under our revolving credit facility, which matures on May 20, 2023, which may limit our ability to finance operations or engage in other business activities, which could have a material impact on our financial condition.As of April 1, 2023, the credit limit under the Revolving Credit Facility, which matures on May 20, 2023, was $0.9 million and outstanding borrowings were $0.9 million. The limited availability under the Revolving Credit Facility may limit our ability to finance operations or engage in other business activities, which could have a material impact on our financial condition.

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 our customers) announced capital spending cuts which, in turn, resulted in a decrease in new project awards and/or adjustments, reductions, suspensions, cancellations or payment defaults with respect to existing project awards. The prolonged nature of the COVID–19 pandemic has resulted, and may continue to result, in a significant decrease in business and/or has caused, and may in the future cause, our customers to be unable to meet existing payment or other obligations to us, particularly in the event of a ~~spread~~resurgence 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. 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~~resurgences 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.

~~Economic downturns and the volatility and level of oil and natural gas prices could have a negative impact on our businesses.~~ Demand for the services offered by us has been and is expected to continue to be, subject to significant fluctuations due to a variety of factors beyond our control, including demand for engineering services in the petroleum refining, petroleum chemical and pipeline industries and in other industries that we provide services to. During economic downturns in these industries, our customers’ need to engage us may decline significantly and projects may be delayed or cancelled. We cannot predict how long the current economic downturn will last or how long the price of oil will remain relatively low. However, these factors can cause our profitability to decline significantly. Our clients’ willingness to undertake these activities depends largely on the following factors:

Anticipated future prices for oil and natural gas are a primary factor affecting spending by our clients. Historically, the markets for oil and natural gas have been volatile and lower prices or volatility in prices for oil and natural gas typically decreases spending by our clients, which can cause rapid and material declines in demand for our services and in the prices we are able to charge for our services. Further, a sustained period of lower prices or volatility in prices for oil and natural gas can exacerbate the potential for cancellations and adjustments to our backlog from our clients in the oil and natural gas industry. The February 2022 invasion of Ukraine by Russia is an ongoing conflict. As a result of the invasion, certain events are beginning to effect the global and United States economy, including increased inflation, substantial increases in the prices of oil and gas, large Western companies ceasing to do business in Russia and uncertain capital markets with declines in the leading market indexes. The duration of this war and its impact on our business are uncertain, but it is likely to continue causing disruption and instability which may lead to additional volatility in prices for oil and natural gas.

Our backlog has declined significantly 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. Our backlog has declined significantly due to the COVID-19 pandemic because 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 $46.4 million from $59.2 million at December 28, 2019 to $12.8 million as of December 25, 2021. During the first three quarters of 2022, however, our backlog increased by approximately $2.9 million to $15.7 million as of September 24, 2022 as a result of our clients returning to their offices and project investment decisions being made again. We expect the majority of our backlog to be completed within 12 months. 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. 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 profits 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 the energy industry which is experiencing volatility in oil prices since the beginning of 2020 due to concerns about the COVID–19 pandemic and its impact on the worldwide economy and global demand for oil and more recently as a result of the Russia-Ukraine conflict. We are unable to predict when market conditions may improve and worsening overall market conditions could result in further declines in our 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. As of ~~September 24, 2022~~April 1, 2023, we had ~~one project~~projects that had ~~$1.3~~$0.3 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 during the year ended December 25, 2021.

Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future revenue or earnings. As of April 1, 2023, our backlog was approximately $17.5 million which was a decrease of $2.9 million from $20.4 million as of December 31, 2022. We expect a majority of this backlog to be completed in 2023. 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 cancellations 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 period of low crude oil and natural gas prices which has reduced our clients’ activities in the energy industry.

Our cash balance at financial institutions may exceed Federal Deposit Insurance Corporation (“FDIC”) insured amounts. Our cash balances, including funds on deposit with financial institutions, are subject to certain limitations imposed by the FDIC. The FDIC provides deposit insurance coverage up to the maximum limit for each depositor, per insured bank. The standard deposit insurance amount is $250,000 per depositor, per FDIC-insured bank, for each ownership category. Due to the FDIC deposit insurance limits, we may be exposed to the risk of loss on any excess cash balances that exceed the deposit insurance amount. This risk arises from the possibility of financial institutions with whom we have deposits becoming insolvent or unable to honor withdrawal requests, resulting in potential losses on uninsured portions of our cash holdings.

The following table sets forth certain information with respect to repurchases of our common stock for the ~~third~~first quarter of ~~2022:~~2023:

(1) On April 21, 2015, the Company announced that its Board of Directors had authorized the repurchase of up to $2.0 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 shares of common stock under the repurchase program, which may be suspended, discontinued or reinstated at any time. The stock repurchase program was suspended on May 16, 2017 and was reinstated on December 19, 2018. As of September 24, 2022,

(1)

On April 21, 2015, the Company announced that its Board of Directors had authorized the repurchase of up to $2.0 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 shares of common stock under the repurchase program, which may be suspended, discontinued or reinstated at any time. The stock repurchase program was suspended on May 16, 2017 and was reinstated on December 19, 2018. As of April 1, 2023, the Company had purchased and retired 1,290,460 shares at an aggregate cost of $1.6 million under this repurchase program. Management does not intend to repurchase any shares in the near future.

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Incorporated by Reference to:

Exhibit

No.

Description

Form or

Schedule

Exhibit

No.

Filing

Date with

SEC

File

Number

Description

Form or

Schedule

Exhibit

No.

Filing

Date with

SEC

File

Number

3.1

Restated Articles of Incorporation of Registrant dated January 29, 2021

8-K

3.1

1/29/2021

001-14217

Restated Articles of Incorporation of Registrant dated January 29, 2021

8-K

3.1

1/29/2021

001-14217

3.2

Second Amended and Restated Bylaws of Registrant dated April 14, 2016

8-K

3.1

4/15/2016

001-14217

Second Amended and Restated Bylaws of Registrant dated April 14, 2016

8-K

3.1

4/15/2016

001-14217

4.1

Form of Common Stock Purchase Warrant

8-K

4.1

2/3/2023

001-14217

10.1

Securities Purchase Agreement dated February 1, 2023, between ENGlobal Corporation and the purchaser identified on the signature page thereto

8-K

10.1

2/3/2023

001-14217

10.2

Invoice Factoring Agreement between ENGlobal Corporation, ENGlobal U.S., Inc., and ENGlobal Government Services, Inc. and FundThrough USA, Inc.

10-K

10.43

3/31/2023

001-14217

10.3

Modified Loan and Security Agreement by and among ENGlobal Corporation, ENGlobal U.S., Inc., ENGlobal Government Services, Inc., and Pacific Western Bank, a California bank, as lender

10-K

10.44

3/31/2023

001-14217

*31.1

Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934

Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934 for the Third Quarter 2019

*31.2

Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934

Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934 for the Third Quarter 2019

**32.1

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

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 2019

*101.ins

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*101.sch

Inline XBRL taxonomy extension schema document

*101.cal

Inline XBRL taxonomy extension calculation linkbase document

*101.def

Inline XBRL taxonomy extension definition linkbase document

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Inline XBRL taxonomy extension label linkbase document

*101.pre

Inline XBRL taxonomy extension presentation linkbase document

*104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller Reporting Company	☒
Emerging growth company	☐

			Page Number

Part I.	Financial Information		3

Item 1.	Financial Statements		3

	Unaudited Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 24,~~April 1, 2023 and March 26, 2022 ~~and September 25, 2021~~		3

	Unaudited Condensed Consolidated Balance Sheets at ~~September 24, 2022~~April 1, 2023 and December ~~25, 2021~~31, 2022		4

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 24,~~April 1, 2023 and March 26, 2022 ~~and September 25, 2021~~		5

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~September 24,~~April 1, 2023 and March 26, 2022 ~~and September 25, 2021~~		6

	Notes to Unaudited Interim Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25	23

Item 4.	Controls and Procedures	25	23

Part II.	Other Information	26	24

Item 1.	Legal Proceedings	26	24

Item 1A.	Risk Factors	26	24

Item 2.2.	Unregistered Sales of Equity Securities and Use of Proceeds		26

Item 3.	Defaults Upon Senior Securities	28	26

Item 4.	Mine Safety Disclosures	28	26

Item 5.	Other Information	28	26

Item 6.	Exhibits	29	27

	Signatures	30	28

~~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 September 24, 2022, the credit limit under the Revolving Credit Facility was $2.0 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, contract assets, 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. ~~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.		Set forth below are certain of the material terms of the Revolving Credit Facility:

		Credit Limit: The credit limit will not exceed the lesser of $1,000,000 at any time outstanding (the “Maximum Credit Limit”) minus any reserves, or the sum of (a) 85% of the Borrowers’ Eligible Accounts (as defined in the Revolving Credit Facility) and (b) the lesser of $500,000 or 75% of the Borrowers’ Eligible Unbilled Accounts (as defined in the Revolving Credit Facility).

		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, contract assets, inventory, equipment, deposit accounts, general intangibles and investment property, except for the Borrowers’ present and after-acquired Accounts Receivable defined in the Priority Agreement (as defined below).

		Maturity: The maturity date is May 20, 2023.

		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.

		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.

	At ~~September 24, 2022~~April 1, 2023
Weighted average remaining lease term (years)
Operating leases		~~7.7~~7.2
Finance leases		3.8
Weighted average discount rate
Operating leases		~~11.3~~10.9	%
Finance leases		~~7.7~~10.6	%

	·	Level 1 - Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
	·	Level 2 - Observable inputs other than quoted prices in active markets that are either directly or indirectly observable.
	·	Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

	Revolving Credit Facility
2022	$	—
2023		1,572
2024 and thereafter		—
	$	1,572

	September 24, 2022			December 25, 2021
Licenses	$	2,875		$	—
Accumulated amortization		(201	)		—
Intangible assets, net of accumulated depreciation	$	2,674		$	—

	Intangible Asset Amortization
2022 (remaining months)	$	136
2023		543
2024		543
2025		543
2026		543
2027		366
	$	2,674

Assumptions used:	Total

Stock price	$	0.87
Exercise price	$	0.95
Risk free rate		3.65	%
Annualized volatility		107.89	%
Time to expiration		5.50

	Nine Months Ended September 24, 2022		Year Ended December 25, 2021
Opening balance	$	—	$	—
Contingent consideration in connection with acquisition		1,380		—
Ending balance	$	1,380	$	—

	·	~~Prices and expectations about future prices of oil and natural gas;~~

	·	~~Domestic and foreign supply of and demand for oil and natural gas;~~

	·	~~The cost of exploring for, developing, producing and delivering oil and natural gas;~~

	·	~~Weather conditions, such as hurricanes, which may affect our clients’ ability to produce oil and natural gas;~~

	·	~~Available pipeline, storage and other transportation capacity;~~

	·	~~Federal, state and local regulation of oilfield activities;~~

	·	~~Environmental concerns regarding the methods our customers use to produce oil and natural gas;~~

	·	~~The availability of water resources and the cost of disposal and recycling services; and~~

	·	~~Seasonal limitations on access to work locations~~

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 Number (or Approximate Dollar Value) of Shares That May Yet be Purchased Under Plans or Programs (1)
June 26, 2022 to July 23, 2022		—		—		—	$	—
July 24, 2022 to August 27, 2022		—		—		—	$	—
August 28, 2022 to September 24, 2022		—		—		—	$	—
Total		—		—		1,290,460	$	425,589

Dated: ~~November 8, 2022~~May 16, 2023
	ENGlobal Corporation

	By:	/s/ Darren W. Spriggs
		Darren W. Spriggs
		Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)