Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 26, 2020 | Nov. 05, 2020 | |
Cover [Abstract] | ||
Entity Registrant Name | ENGLOBAL CORP | |
Entity Central Index Key | 0000933738 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 26, 2020 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-26 | |
Entity's Reporting Status Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business Flag | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Interactive Data Current | Yes | |
Entity Incorporation, State or Country Code | NV | |
Entity File Number | 001-14217 | |
Entity Common Stock, Shares Outstanding | 27,560,686 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2020 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 26, 2020 | Sep. 28, 2019 | Sep. 26, 2020 | Sep. 28, 2019 | |
Income Statement [Abstract] | ||||
Operating revenues | $ 15,729 | $ 13,974 | $ 52,871 | $ 39,758 |
Operating costs | 14,585 | 12,299 | 46,014 | 34,803 |
Gross profit | 1,144 | 1,675 | 6,857 | 4,955 |
Selling, general and administrative expenses | 2,174 | 2,371 | 6,621 | 7,125 |
Operating profit (loss) | (1,030) | (696) | 236 | (2,170) |
Other income (expense): | ||||
Other income, net | 4 | 7 | 6 | 48 |
Interest expense, net | (62) | (5) | (103) | (12) |
Income (loss) from operations before income taxes | (1,088) | (694) | 139 | (2,134) |
Provision for federal and state income taxes | 22 | 22 | 80 | 73 |
Net income (loss) | $ (1,110) | $ (716) | $ 59 | $ (2,207) |
Basic and diluted income (loss) per common share | $ (0.04) | $ (0.03) | $ 0 | $ (0.08) |
Basic and diluted weighted average shares used in computing income (loss) per share (in thousands) | 27,507 | 27,410 | 27,529 | 27,417 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands | Sep. 26, 2020 | Dec. 28, 2019 |
Current Assets: | ||
Cash and cash equivalents | $ 12,699 | $ 8,307 |
Trade receivables, net of allowances of $270 and $236 | 12,703 | 11,435 |
Prepaid expenses and other current assets | 185 | 889 |
Contract assets | 3,055 | 3,862 |
Total current assets | 28,642 | 24,493 |
Property and equipment, net | 1,193 | 1,033 |
Goodwill | 720 | 720 |
Other Assets | ||
Right of use asset | 1,999 | 2,133 |
Deposits and other assets | 391 | 307 |
Total other assets | 2,390 | 2,440 |
Total assets | 32,945 | 28,686 |
Current Liabilities: | ||
Accounts payable | 3,084 | 3,261 |
Accrued compensation and benefits | 2,875 | 2,783 |
Current portion of leases | 1,613 | 1,041 |
Contract liabilities | 2,732 | 5,438 |
Current portion of note | 3,042 | 0 |
Other current liabilities | 244 | 681 |
Total current liabilities | 13,590 | 13,204 |
Deferred payroll tax | 791 | 0 |
Long-term debt | 3,371 | 0 |
Long-term leases | 932 | 1,458 |
Total liabilities | 18,684 | 14,662 |
Commitments and Contingencies (Note 8) | ||
Stockholders' Equity: | ||
Common stock - $0.001 par value; 75,000,000 shares authorized; 27,560,686 shares issued and outstanding at September 26, 2020 and 27,413,626 shares issued and outstanding at December 28, 2019 | 28 | 27 |
Additional paid-in capital | 37,111 | 36,934 |
Accumulated deficit | (22,878) | (22,937) |
Total stockholders' equity | 14,261 | 14,024 |
Total liabilities and stockholders' equity | $ 32,945 | $ 28,686 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands | Sep. 26, 2020 | Dec. 28, 2019 |
Statement of Financial Position [Abstract] | ||
Trade receivables, allowances | $ 270 | $ 236 |
Common stock, par value | $ .001 | $ 0.001 |
Common stock, shares authorized | 75,000,000 | 75,000,000 |
Common stock, shares issued | 27,560,686 | 27,413,626 |
Common stock, shares outstanding | 27,560,686 | 27,413,626 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 26, 2020 | Sep. 28, 2019 | |
Cash Flows from Operating Activities: | ||
Net income (loss) | $ 59 | $ (2,207) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 313 | 258 |
Share-based compensation expense | 177 | 45 |
Changes in current assets and liabilities: | ||
Trade accounts receivable | (1,268) | 2,748 |
Contract assets | 807 | (953) |
Prepaids and other current assets | 620 | 956 |
Accounts payable | (177) | (229) |
Accrued compensation and benefits | 883 | (126) |
Contract liabilities | (2,706) | 209 |
Income taxes payable | (76) | 16 |
Other current liabilities, net | (361) | (460) |
Net cash provided by (used in) operating activities | (1,729) | 257 |
Cash Flows from Investing Activities: | ||
Proceeds from notes receivable | 0 | 24 |
Property and equipment acquired | (228) | (191) |
Net cash used in investing activities | (228) | (167) |
Cash Flows from Financing Activities: | ||
Purchase of common stock | 0 | (61) |
Proceeds from PPP loan | 4,937 | 0 |
Proceeds from revolving credit facility | 1,476 | 0 |
Payments on finance leases | (64) | (1) |
Net cash provided by (used in) financing activities | 6,349 | (62) |
Net change in cash and cash equivalents | 4,392 | 28 |
Cash at beginning of period | 8,307 | 6,060 |
Cash at end of period | 12,699 | 6,088 |
Supplemental disclosure of cash flow information: | ||
Cash paid during the period for interest | 103 | 12 |
Right of use assets obtained in exchange for new operating lease liability | 963 | 2,377 |
Cash paid during the period for income taxes (net of refunds) | 16 | 0 |
Debt issuance costs | 140 | 0 |
Leased assets obtained in exchange for new finance lease liabilities | $ 219 | $ 236 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands | Common Stock | Additional Paid-in Capital | Accumulated Earnings (Deficit) | Total |
Balance, beginning at Dec. 29, 2018 | $ 27 | $ 36,934 | $ (21,471) | $ 15,490 |
Share-based compensation - employee | 45 | 45 | ||
Treasury stock retired | (61) | (61) | ||
Net income (loss) | (2,207) | (2,207) | ||
Balance, ending at Sep. 28, 2019 | 27 | 36,918 | (23,678) | 13,267 |
Balance, beginning at Jun. 29, 2019 | 27 | 36,906 | (22,962) | 13,971 |
Share-based compensation - employee | 12 | 12 | ||
Net income (loss) | (716) | (716) | ||
Balance, ending at Sep. 28, 2019 | 27 | 36,918 | (23,678) | 13,267 |
Balance, beginning at Dec. 28, 2019 | 27 | 36,934 | (22,937) | 14,024 |
Common stock issued | 1 | 1 | ||
Share-based compensation - employee | 177 | 177 | ||
Net income (loss) | 59 | 59 | ||
Balance, ending at Sep. 26, 2020 | 28 | 37,111 | (22,878) | 14,261 |
Balance, beginning at Jun. 27, 2020 | 27 | 37,066 | (21,768) | 15,325 |
Common stock issued | 1 | 1 | ||
Share-based compensation - employee | 45 | 45 | ||
Net income (loss) | (1,110) | (1,110) | ||
Balance, ending at Sep. 26, 2020 | $ 28 | $ 37,111 | $ (22,878) | $ 14,261 |
Basis of Presentation
Basis of Presentation | 9 Months Ended |
Sep. 26, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | The accompanying unaudited condensed consolidated financial statements of ENGlobal Corporation (which may be referred to as “ENGlobal,” the “Company,” “we,” “us,” or “our”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, these condensed financial statements do not include all of the information or note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP. These condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 28, 2019, included in the Company’s 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The condensed financial statements included herein are unaudited for the three month and nine month periods ended September 26, 2020 and September 28, 2019, and in the case of the condensed balance sheet as of December 28, 2019 have been derived from the audited financial statements of the Company. These financial statements reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary to fairly present the results for the periods presented. The Company has assessed subsequent events through the date of filing of these condensed financial statements with the Securities and Exchange Commission and believes that the disclosures made herein are adequate to make the information presented herein not misleading. We had no items of other comprehensive income in any period presented; therefore, no other components of comprehensive income are presented. Each of our quarters is comprised of 13 weeks. |
Accounting Standards
Accounting Standards | 9 Months Ended |
Sep. 26, 2020 | |
Accounting Policies [Abstract] | |
Accounting Standards | Revenue Recognition 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, therefore, 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 and cost (either as an increase or a reduction) 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 resulting in a loss on the performance obligation, a provision for the entire loss 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. |
Revenue Recognition
Revenue Recognition | 9 Months Ended |
Sep. 26, 2020 | |
Revenue from Contract with Customer [Abstract] | |
Revenue Recognition | Our revenue by contract type was as follows (dollars in thousands): For the Three Months Ended For the Nine Months Ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Fixed-price revenue $ 10,863 $ 5,334 $ 28,785 $ 14,418 Time-and-material revenue 4,866 8,640 24,086 25,340 Total Revenue 15,729 13,974 52,871 39,758 |
Contract Assets and Contract Li
Contract Assets and Contract Liabilities | 9 Months Ended |
Sep. 26, 2020 | |
Contract with Customer, Contract Asset, Contract Liability, and Receivable [Abstract] | |
Contract Assets and Contract Liabilities | Our contract assets consist of unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Our contract liabilities consist of advance payments and billings in excess of costs incurred. Costs, estimated earnings and billings on uncompleted contracts consisted of the following at September 26, 2020 and December 28, 2019: September 26, 2020 December 28, 2019 (dollars in thousands) Costs incurred on uncompleted contracts $ 33,565 $ 23,846 Estimated earnings on uncompleted contracts 3,467 5,188 Earned revenues 37,032 29,034 Less: billings to date 36,709 30,610 Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts $ 323 $ (1,576 ) Contract assets $ 3,055 $ 3,862 Contract liabilities (2,732 ) (5,438 ) Net contract assets $ 323 $ (1,576 ) |
Debt
Debt | 9 Months Ended |
Sep. 26, 2020 | |
Debt Disclosure [Abstract] | |
Debt | The components of debt were as follows (dollars in thousands): September 26, 2020 December 28, 2019 PPP Loan (1) $ 4,937 $ Revolving Credit Facility (2) 1,476 Total debt 6,413 Amount due within one year 3,042 Total long-term debt $ 3,371 $ (1) On April 13, 2020, the Company was granted an unsecured loan (the “PPP Loan”) from Origin Bank in the aggregate principal amount of $4,915,800 pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The PPP Loan is evidenced by a promissory note, dated as of April 13, 2020 (the “Note”), by ENGlobal in favor of Origin Bank, as lender. Interest Rate: Potential PPP Loan Forgiveness: We have elected to utilize a 24-week covered period as allowed by the Paycheck Protection Program Flexibility Act (“PPPFA”) enacted on June 5, 2020. When applying for PPP Loan forgiveness, we have the option to increase the repayment period for any unforgiven portion of the PPP Loan to five years as permitted under the PPPFA. We have calculated qualified forgivable expenses in excess of our PPP Loan amount. Although we expect the full PPP Loan amount to be forgiven, we cannot guarantee our forgiveness application will be accepted allowing for a fully forgiven loan. (2) On May 21, 2020 (the “Closing Date”), the Company and its wholly owned subsidiaries, ENGlobal U.S., Inc. and ENGlobal Government Services, Inc. (collectively, the “Borrowers”) entered into a Loan and Security Agreement (the “Revolving Credit Facility”) with Pacific Western Bank dba Pacific Western Business Finance, a California state-chartered bank (the “Lender”), pursuant to which the Lender agreed to extend credit to the Borrowers in the form of revolving loans (each a “Loan” and collectively, the “Loans”) in the aggregate amount of up to $6.0 million (the “Maximum Credit Limit”). Set forth below are certain of the material terms of the Revolving Credit Facility: Credit Limit Interest Collateral Maturity: Loan Fee Termination Fee Covenants The future scheduled maturities of our debt are (in thousands): PPP Loan and Revolving Credit Facility (1) Revolving Credit Facility (1) 2020 $ 553 $ 2021 3,318 2022 1,066 2023 1,476 1,476 Thereafter $ 6,413 $ 1,476 (1) If the PPP Loan is entirely forgiven, only the Revolving Credit Facility would remain as debt. |
Segment Information
Segment Information | 9 Months Ended |
Sep. 26, 2020 | |
Segment Reporting [Abstract] | |
Segment Information | Our segments are strategic business units that offer different services and products and therefore require different marketing and management strategies. The operating performance of our segments is regularly reviewed with operational leaders in charge of our engineering offices and automation offices of these segments, the chief executive officer (“CEO”), the chief financial officer (“CFO”) and others. This group represents the chief operating decision maker (“CODM”) for ENGlobal. The Engineering, Procurement and Construction Management (“EPCM”) segment provides services relating to the development, management and execution of projects requiring professional engineering and related project services primarily to the energy industry throughout the United States. The Automation segment provides services related to the design, integration and implementation of advanced automation, information technology, process distributed control systems, analyzer systems, and electrical projects primarily to the upstream and downstream sectors of the energy industry throughout the United States. The Automation segment includes the government services group, which provides engineering, design, installation and operation and maintenance of various government, public sector and international facilities and the fabrication operation. Revenues, operating income, and identifiable assets for each segment are set forth in the following table. The amount identified as Corporate includes those activities that are not allocated to the operating segments and includes costs related to business development, executive functions, finance, accounting, safety, human resources and information technology that are not specifically identifiable with the segments. Segment information for the three months ended September 26, 2020 and September 28, 2019 is as follows (dollars in thousands): For the three months ended September 26, 2020: EPCM Automation Corporate Consolidated Revenue $ 8,016 $ 7,713 $ $ 15,729 Gross profit 754 390 1,144 Gross Profit Margin 9.4 % 5.1 % 7.3 % SG&A 574 417 1,183 2,174 Operating income (loss) 180 (27 ) (1,183 ) (1,030 ) Other income, net 4 Interest expense, net (62 ) Tax expense (22 ) Net loss $ (1,110 ) For the three months ended September 28, 2019: EPCM Automation Corporate Consolidated Revenue $ 4,256 $ 9,718 $ $ 13,974 Gross profit 75 1,600 1,675 Gross Profit Margin 1.8 % 16.5 % 12.0 % SG&A 651 427 1,293 2,371 Operating income (loss) (576 ) 1,173 (1,293 ) (696 ) Other income, net 7 Interest expense, net (5 ) Tax expense (22 ) Net loss $ (716 ) Segment information for the nine months ended September 26, 2020 and September 28, 2019 is as follows (dollars in thousands): For the nine months ended September 26, 2020: EPCM Automation Corporate Consolidated Revenue $ 19,771 $ 33,100 $ $ 52,871 Gross profit 1,677 5,180 6,857 Gross Profit Margin 8.5 % 15.6 % 13.0 % SG&A 1,852 1,121 3,648 6,621 Operating income (loss) (175 ) 4,059 (3,648 ) 236 Other income, net 6 Interest expense, net (103 ) Tax expense (80 ) Net income $ 59 For the nine months ended September 28, 2019: EPCM Automation Corporate Consolidated Revenue $ 15,548 $ 24,210 $ $ 39,758 Gross profit 1,574 3,381 4,955 Gross Profit Margin 10.1 % 14.0 % 12.5 % SG&A 1,826 1,246 4,053 7,125 Operating income (loss) (252 ) 2,135 (4,053 ) (2,170 ) Other income, net 48 Interest expense, net (12 ) Tax expense (73 ) Net loss $ (2,207 ) Total assets by segment for the three months ended September 26, 2020 and December 28, 2019 are as follows (dollars in thousands): Total Assets by Segment As of September 26, 2020 As of December 28, 2019 (dollars in thousands) EPCM $ 9,888 $ 6,253 Automation 10,350 13,603 Corporate 12,707 8,830 Consolidated $ 32,945 $ 28,686 |
Federal and State Income Taxes
Federal and State Income Taxes | 9 Months Ended |
Sep. 26, 2020 | |
Income Tax Disclosure [Abstract] | |
Federal and State Income Taxes | The Company accounts for income taxes in accordance with FASB Accounting Standards Codification 740, “Income Taxes” (“ASC 740”). Under ASC 740-270 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 2016 and Texas margins tax returns prior to 2016 are closed. Generally, the applicable statues of limitations are three to four years from their filings. On March 27, 2020, the CARES Act was enacted and signed into law and U.S. GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act includes changes to the tax provisions that benefit business entities and makes certain technical corrections to the Tax Cuts and Jobs Act enacted in 2017. The tax relief measures for businesses include a five-year net operating loss carryback, suspension of annual deduction limitation of 80% of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. The CARES Act also provides other non-tax benefits to assist those impacted by the pandemic. The Company evaluated the impact of the CARES Act and determined that there was no significant impact to the income tax provision for the quarter. The Company recorded income tax expense of $22 thousand and $80 thousand for the three and nine months ended September 26, 2020, respectively, as compared to income tax expense of $22 thousand and $73 thousand for the three and nine months ended September 28, 2019, respectively. The effective income tax rate for the three and nine months ended September 26, 2020 was (2.0)% and 57.6%, respectively, as compared to (3.2)% and (3.4)% for the three and nine months ended September 28, 2019, respectively. The effective tax rate differed from the federal statutory rate of 21% primarily due to the effect of the valuation allowances related to the unrealized deferred tax asset generated by the current year benefit. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 26, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | From time to time, ENGlobal or one or more of its subsidiaries is involved in various legal proceedings or is subject to claims that arise in the ordinary course of business alleging, among other things, claims of breach of contract or negligence in connection with the performance or delivery of goods and/or services. The outcome of any such claims or proceedings cannot be predicted with certainty. Management is not aware of any pending or threatened lawsuits or proceedings that are expected to have a material effect on our financial position, results of operations or liquidity. We carry a broad range of insurance coverage, including general and business automobile liability, commercial property, professional errors and omissions, workers’ compensation insurance, directors’ and officers’ liability insurance and a general umbrella policy, all with standard self-insured retentions/deductibles. We also provide health insurance to our employees (including vision and dental) 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. |
Leases
Leases | 9 Months Ended |
Sep. 26, 2020 | |
Leases [Abstract] | |
Leases | The Company leases land, office space and equipment. Arrangements are assessed at inception to determine if a lease exists and, with the adoption of ASC 842, “Leases,” right-of-use (“ROU”) assets and lease liabilities are recognized based on the present value of lease payments over the lease term. Because the Company’s leases do not provide an implicit rate of return, the Company uses its incremental borrowing rate at the inception of a lease to calculate the present value of lease payments. The Company has elected to apply the short-term lease exception for all asset classes, excluding lease liabilities from the balance sheet and recognizing the lease payments in the period they are incurred. The components of lease expense were as follows (dollars in thousands): Three Months Ended Nine Months Ended Financial Statement Classification September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Finance leases: Amortization expense SG&A Expense $ 26 $ 4 $ 64 $ 4 Interest expense Interest expense, net 5 2 15 2 Total finance lease expense 31 6 79 6 Operating leases: Operating costs Operating costs 135 427 506 845 Selling, general and administrative expenses SG&A Expense 459 476 1,364 1,398 Total operating lease expense 594 903 1,870 2,243 Total lease expense $ 625 $ 909 $ 1,949 $ 2,249 Supplemental balance sheet information related to leases was as follows (dollars in thousands): Financial Statement Classification September 26, 2020 December 28, 2019 ROU Assets: Operating leases Right of Use asset $ 1,999 $ 2,133 Finance leases Property and equipment, net 471 318 Total ROU Assets: $ 2,470 $ 2,451 Lease liabilities: Current liabilities Operating leases Current portion of leases $ 1,494 $ 961 Finance leases Current portion of leases 119 80 Noncurrent Liabilities: Operating leases Long-term leases 579 1,220 Finance leases Long-term leases 353 238 Total lease liabilities $ 2,545 $ 2,499 The weighted average remaining lease term and weighted average discount rate were as follows: At September 26, 2020 Weighted average remaining lease term (years) Operating leases 1.4 Finance leases 4.4 Weighted average discount rate Operating leases 2.0 % Finance leases 6.2 % Maturities of lease liabilities as of September 26, 2020 are as follows (dollars in thousands): Years ending: Operating leases Finance leases Total 2020 (remaining months) 379 33 412 2021 1,448 133 1,581 2022 289 112 401 2023 92 92 2024 72 72 2025 37 37 2026 18 18 Total lease payments 2,116 497 2,613 Less: imputed interest (43 ) (25 ) (68 ) Total lease liabilities $ 2,073 $ 472 $ 2,545 |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 26, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events | On September 28, 2020, we received written notice from The NASDAQ Stock Market (“NASDAQ”) indicating that the Company is not in compliance with the $1.00 minimum bid price requirement for continued listing on NASDAQ, as set forth in Listing Rule 5550(a)(2). The notice has no immediate effect on the listing of the Company’s common stock, and its common stock will continue to trade on NASDAQ under the symbol “ENG” at this time. The Company may regain compliance with the minimum bid price requirement in accordance with Listing Rule 5810(c)(3)(A) during the 180 calendar day period from September 28, 2020 to March 29, 2021. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for at least ten consecutive business days before March 29, 2021. If the Company is not in compliance by March 29, 2021, the Company may be afforded a second 180 calendar day period to regain compliance. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for NASDAQ, except for the minimum bid price requirement. In addition, the Company would be required to notify NASDAQ of its intent to cure the minimum bid price deficiency, which may include implementing a reverse stock split. If the Company does not regain compliance within the allotted compliance period(s), including any extensions that may be granted by NASDAQ, NASDAQ will provide notice that the Company’s common stock will be subject to delisting. The Company would then be entitled to appeal the NASDAQ Staff’s determination to a NASDAQ Listing Qualifications Panel and request a hearing. The Company intends to monitor the closing bid price of the Company’s common stock and consider its available options to resolve the noncompliance with the minimum bid price requirement. No determination regarding the Company’s response has been made at this time. There can be no assurance that the Company will be able to regain compliance with the minimum bid price requirement or will otherwise be in compliance with other NASDAQ listing criteria. |
Revenue Recognition (Tables)
Revenue Recognition (Tables) | 9 Months Ended |
Sep. 26, 2020 | |
Revenue from Contract with Customer [Abstract] | |
Revenue by contract type | For the Three Months Ended For the Nine Months Ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Fixed-price revenue $ 10,863 $ 5,334 $ 28,785 $ 14,418 Time-and-material revenue 4,866 8,640 24,086 25,340 Total Revenue 15,729 13,974 52,871 39,758 |
Contract Assets and Contract _2
Contract Assets and Contract Liabilities (Tables) | 9 Months Ended |
Sep. 26, 2020 | |
Contract with Customer, Contract Asset, Contract Liability, and Receivable [Abstract] | |
Costs, estimated earnings and billings on uncompleted contracts | September 26, 2020 December 28, 2019 (dollars in thousands) Costs incurred on uncompleted contracts $ 33,565 $ 23,846 Estimated earnings on uncompleted contracts 3,467 5,188 Earned revenues 37,032 29,034 Less: billings to date 36,709 30,610 Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts $ 323 $ (1,576 ) Contract assets $ 3,055 $ 3,862 Contract liabilities (2,732 ) (5,438 ) Net contract assets $ 323 $ (1,576 ) |
Debt (Tables)
Debt (Tables) | 9 Months Ended |
Sep. 26, 2020 | |
Debt Disclosure [Abstract] | |
Debt | September 26, 2020 December 28, 2019 PPP Loan (1) $ 4,937 $ — Revolving Credit Facility (2) 1,476 — Total debt 6,413 — Amount due within one year 3,042 — Total long-term debt $ 3,371 $ — (1) On April 13, 2020, the Company was granted an unsecured loan (the “PPP Loan”) from Origin Bank in the aggregate principal amount of $4,915,800 pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The PPP Loan is evidenced by a promissory note, dated as of April 13, 2020 (the “Note”), by ENGlobal in favor of Origin Bank, as lender. Interest Rate: Potential PPP Loan Forgiveness: We have elected to utilize a 24-week covered period as allowed by the Paycheck Protection Program Flexibility Act (“PPPFA”) enacted on June 5, 2020. When applying for PPP Loan forgiveness, we have the option to increase the repayment period for any unforgiven portion of the PPP Loan to five years as permitted under the PPPFA. We have calculated qualified forgivable expenses in excess of our PPP Loan amount. Although we expect the full PPP Loan amount to be forgiven, we cannot guarantee our forgiveness application will be accepted allowing for a fully forgiven loan. (2) On May 21, 2020 (the “Closing Date”), the Company and its wholly owned subsidiaries, ENGlobal U.S., Inc. and ENGlobal Government Services, Inc. (collectively, the “Borrowers”) entered into a Loan and Security Agreement (the “Revolving Credit Facility”) with Pacific Western Bank dba Pacific Western Business Finance, a California state-chartered bank (the “Lender”), pursuant to which the Lender agreed to extend credit to the Borrowers in the form of revolving loans (each a “Loan” and collectively, the “Loans”) in the aggregate amount of up to $6.0 million (the “Maximum Credit Limit”). Set forth below are certain of the material terms of the Revolving Credit Facility: Credit Limit Interest Collateral Maturity: Loan Fee Termination Fee Covenants |
Maturities of Debt | PPP Loan and Revolving Credit Facility (1) Revolving Credit Facility (1) 2020 $ 553 $ — 2021 3,318 — 2022 1,066 — 2023 1,476 1,476 Thereafter — — $ 6,413 $ 1,476 (1) If the PPP Loan is entirely forgiven, only the Revolving Credit Facility would remain as debt. |
Segment Information (Tables)
Segment Information (Tables) | 9 Months Ended |
Sep. 26, 2020 | |
Segment Reporting [Abstract] | |
Segment information | Segment information for the three months ended September 26, 2020 and September 28, 2019 is as follows (dollars in thousands): For the three months ended September 26, 2020: EPCM Automation Corporate Consolidated Revenue $ 8,016 $ 7,713 $ $ 15,729 Gross profit 754 390 1,144 Gross Profit Margin 9.4 % 5.1 % 7.3 % SG&A 574 417 1,183 2,174 Operating income (loss) 180 (27 ) (1,183 ) (1,030 ) Other income, net 4 Interest expense, net (62 ) Tax expense (22 ) Net loss $ (1,110 ) For the three months ended September 28, 2019: EPCM Automation Corporate Consolidated Revenue $ 4,256 $ 9,718 $ $ 13,974 Gross profit 75 1,600 1,675 Gross Profit Margin 1.8 % 16.5 % 12.0 % SG&A 651 427 1,293 2,371 Operating income (loss) (576 ) 1,173 (1,293 ) (696 ) Other income, net 7 Interest expense, net (5 ) Tax expense (22 ) Net loss $ (716 ) Segment information for the nine months ended September 26, 2020 and September 28, 2019 is as follows (dollars in thousands): For the nine months ended September 26, 2020: EPCM Automation Corporate Consolidated Revenue $ 19,771 $ 33,100 $ $ 52,871 Gross profit 1,677 5,180 6,857 Gross Profit Margin 8.5 % 15.6 % 13.0 % SG&A 1,852 1,121 3,648 6,621 Operating income (loss) (175 ) 4,059 (3,648 ) 236 Other income, net 6 Interest expense, net (103 ) Tax expense (80 ) Net income $ 59 For the nine months ended September 28, 2019: EPCM Automation Corporate Consolidated Revenue $ 15,548 $ 24,210 $ $ 39,758 Gross profit 1,574 3,381 4,955 Gross Profit Margin 10.1 % 14.0 % 12.5 % SG&A 1,826 1,246 4,053 7,125 Operating income (loss) (252 ) 2,135 (4,053 ) (2,170 ) Other income, net 48 Interest expense, net (12 ) Tax expense (73 ) Net loss $ (2,207 ) Total assets by segment for the three months ended September 26, 2020 and December 28, 2019 are as follows (dollars in thousands): Total Assets by Segment As of September 26, 2020 As of December 28, 2019 (dollars in thousands) EPCM $ 9,888 $ 6,253 Automation 10,350 13,603 Corporate 12,707 8,830 Consolidated $ 32,945 $ 28,686 |
Leases (Tables)
Leases (Tables) | 9 Months Ended |
Sep. 26, 2020 | |
Leases [Abstract] | |
Lease expense | Three Months Ended Nine Months Ended Financial Statement Classification September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Finance leases: Amortization expense SG&A Expense $ 26 $ 4 $ 64 $ 4 Interest expense Interest expense, net 5 2 15 2 Total finance lease expense 31 6 79 6 Operating leases: Operating costs Operating costs 135 427 506 845 Selling, general and administrative expenses SG&A Expense 459 476 1,364 1,398 Total operating lease expense 594 903 1,870 2,243 Total lease expense $ 625 $ 909 $ 1,949 $ 2,249 |
Supplemental balance sheet information related to leases | Financial Statement Classification September 26, 2020 December 28, 2019 ROU Assets: Operating leases Right of Use asset $ 1,999 $ 2,133 Finance leases Property and equipment, net 471 318 Total ROU Assets: $ 2,470 $ 2,451 Lease liabilities: Current liabilities Operating leases Current portion of leases $ 1,494 $ 961 Finance leases Current portion of leases 119 80 Noncurrent Liabilities: Operating leases Long-term leases 579 1,220 Finance leases Long-term leases 353 238 Total lease liabilities $ 2,545 $ 2,499 |
Weighted average remaining lease term and weighted average discount rate | At September 26, 2020 Weighted average remaining lease term (years) Operating leases 1.4 Finance leases 4.4 Weighted average discount rate Operating leases 2.0 % Finance leases 6.2 % |
Maturities of operating lease liabilities | Years ending: Operating leases Finance leases Total 2020 (remaining months) 379 33 412 2021 1,448 133 1,581 2022 289 112 401 2023 92 92 2024 72 72 2025 37 37 2026 18 18 Total lease payments 2,116 497 2,613 Less: imputed interest (43 ) (25 ) (68 ) Total lease liabilities $ 2,073 $ 472 $ 2,545 |
Revenue Recognition (Details)
Revenue Recognition (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 26, 2020 | Sep. 28, 2019 | Sep. 26, 2020 | Sep. 28, 2019 | |
Total revenue | $ 15,729 | $ 13,974 | $ 52,871 | $ 39,758 |
Fixed-Price Revenue | ||||
Total revenue | 10,863 | 5,334 | 28,785 | 14,418 |
Time-and-Material Revenue | ||||
Total revenue | $ 4,866 | $ 8,640 | $ 24,086 | $ 25,340 |
Contract Assets and Contract _3
Contract Assets and Contract Liabilities (Details) - USD ($) $ in Thousands | Sep. 26, 2020 | Dec. 28, 2019 |
Contract with Customer, Contract Asset, Contract Liability, and Receivable [Abstract] | ||
Costs incurred on uncompleted contracts | $ 33,565 | $ 23,846 |
Estimated earnings on uncompleted contracts | 3,467 | 5,188 |
Earned revenues | 37,032 | 29,034 |
Less: billings to date | 36,709 | 30,610 |
Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts | 323 | (1,576) |
Contract assets | 3,055 | 3,862 |
Contract liabilities | (2,732) | (5,438) |
Net contract assets | $ 323 | $ (1,576) |
Debt (Details)
Debt (Details) - USD ($) $ in Thousands | Sep. 26, 2020 | Dec. 28, 2019 |
Debt Disclosure [Abstract] | ||
PPP loan | $ 4,937 | $ 0 |
Revolving credit facility | 1,476 | 0 |
Total debt | 6,413 | 0 |
Amount due within one year | 3,042 | 0 |
Total long-term debt | $ 3,371 | $ 0 |
Debt (Details 1)
Debt (Details 1) - USD ($) $ in Thousands | Sep. 26, 2020 | Dec. 28, 2019 |
Long-term debt | $ 6,413 | $ 0 |
PPP Loan and Revolving Credit Facility | ||
2020 | 553 | |
2021 | 3,318 | |
2022 | 1,066 | |
2023 | 1,476 | |
Thereafter | 0 | |
Long-term debt | 6,413 | |
Revolving Credit Facility | ||
2020 | 0 | |
2021 | 0 | |
2022 | 0 | |
2023 | 1,476 | |
Thereafter | 0 | |
Long-term debt | $ 1,476 |
Segment Information (Details)
Segment Information (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 26, 2020 | Sep. 28, 2019 | Sep. 26, 2020 | Sep. 28, 2019 | Dec. 28, 2019 | |
Revenue | $ 15,729 | $ 13,974 | $ 52,871 | $ 39,758 | |
Gross profit | $ 1,144 | $ 1,675 | $ 6,857 | $ 4,955 | |
Gross profit margin | 7.30% | 12.00% | 13.00% | 12.50% | |
SG&A | $ 2,174 | $ 2,371 | $ 6,621 | $ 7,125 | |
Operating income (loss) | (1,030) | (696) | 236 | (2,170) | |
Other income, net | 4 | 7 | 6 | 48 | |
Interest expense, net | (62) | (5) | (103) | (12) | |
Tax expense | (22) | (22) | (80) | (73) | |
Net income (loss) | (1,110) | (716) | 59 | (2,207) | |
Total assets | 32,945 | 32,945 | $ 28,686 | ||
EPCM | |||||
Revenue | 8,016 | 4,256 | 19,771 | 15,548 | |
Gross profit | $ 754 | $ 75 | $ 1,677 | $ 1,574 | |
Gross profit margin | 9.40% | 1.80% | 8.50% | 10.10% | |
SG&A | $ 574 | $ 651 | $ 1,852 | $ 1,826 | |
Operating income (loss) | 180 | (576) | (175) | (252) | |
Total assets | 9,888 | 9,888 | 6,253 | ||
Automation | |||||
Revenue | 7,713 | 9,718 | 33,100 | 24,210 | |
Gross profit | $ 390 | $ 1,600 | $ 5,180 | $ 3,381 | |
Gross profit margin | 5.10% | 16.50% | 15.60% | 14.00% | |
SG&A | $ 417 | $ 427 | $ 1,121 | $ 1,246 | |
Operating income (loss) | (27) | 1,173 | 4,059 | 2,135 | |
Total assets | 10,350 | 10,350 | 13,603 | ||
Corporate | |||||
Revenue | 0 | 0 | 0 | 0 | |
Gross profit | $ 0 | $ 0 | $ 0 | $ 0 | |
Gross profit margin | 0.00% | 0.00% | 0.00% | 0.00% | |
SG&A | $ 1,183 | $ 1,293 | $ 3,648 | $ 4,053 | |
Operating income (loss) | (1,183) | $ (1,293) | (3,648) | $ (4,053) | |
Total assets | $ 12,707 | $ 12,707 | $ 8,830 |
Segment Information (Details Na
Segment Information (Details Narrative) | 9 Months Ended |
Sep. 26, 2020Segments | |
Segment Reporting [Abstract] | |
Number of reportable segments | 2 |
Federal and State Income Taxes
Federal and State Income Taxes (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 26, 2020 | Sep. 28, 2019 | Sep. 26, 2020 | Sep. 28, 2019 | |
Income Tax Disclosure [Abstract] | ||||
Income tax expense | $ 22 | $ 22 | $ 80 | $ 73 |
Effective income tax rate | (2.00%) | (3.20%) | 57.60% | (3.40%) |
Effective federal tax rate | 21.00% | 21.00% | 21.00% | 21.00% |
Leases (Details)
Leases (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 26, 2020 | Sep. 28, 2019 | Sep. 26, 2020 | Sep. 28, 2019 | |
Total finance lease expense | $ 31 | $ 6 | $ 79 | $ 6 |
Total operating lease expense | 594 | 903 | 1,870 | 2,243 |
Total lease expense | 625 | 909 | 1,949 | 2,249 |
Operating Costs | ||||
Total operating lease expense | 135 | 427 | 506 | 845 |
SG&A Expense | ||||
Total finance lease expense | 26 | 4 | 64 | 4 |
Total operating lease expense | 459 | 476 | 1,364 | 1,398 |
Interest Expense, Net | ||||
Total finance lease expense | $ 5 | $ 2 | $ 15 | $ 2 |
Leases (Details 1)
Leases (Details 1) - USD ($) $ in Thousands | Sep. 26, 2020 | Dec. 28, 2019 |
ROU assets - operating leases | $ 1,999 | $ 2,133 |
ROU assets - finance leases | 471 | 318 |
ROU assets | 2,470 | 2,451 |
Current lease liabilities - operating leases | 1,494 | 961 |
Current lease liabilities - finance leases | 119 | 80 |
Noncurrent lease liabilities - operating leases | 579 | 1,220 |
Noncurrent lease liabilities - finance leases | 353 | 238 |
Total lease liabilities | 2,545 | 2,499 |
Right of Use Asset | ||
ROU assets - operating leases | 1,999 | 2,133 |
Property and Equipment, Net | ||
ROU assets - finance leases | $ 471 | $ 318 |
Leases (Details 2)
Leases (Details 2) | Sep. 26, 2020 |
Leases [Abstract] | |
Weighted average remaining lease term (years) - operating leases | 1 year 4 months 24 days |
Weighted average remaining lease term (years) - finance leases | 4 years 4 months 24 days |
Weighted average discount rate - operating leases | 2.00% |
Weighted average discount rate - finance leases | 6.20% |
Leases (Details 3)
Leases (Details 3) - USD ($) $ in Thousands | Sep. 26, 2020 | Dec. 28, 2019 |
Operating Leases | ||
2020 (remaining months) | $ 379 | |
2021 | 1,448 | |
2022 | 289 | |
2023 | 0 | |
2024 | 0 | |
2025 | 0 | |
2026 | 0 | |
Total lease payments | 2,116 | |
Less: imputed interest | (43) | |
Total lease liabilities | 2,073 | |
Finance Leases | ||
2020 (remaining months) | 33 | |
2021 | 133 | |
2022 | 112 | |
2023 | 92 | |
2024 | 72 | |
2025 | 37 | |
2026 | 18 | |
Total lease payments | 497 | |
Less: imputed interest | (25) | |
Total lease liabilities | 472 | |
Total | ||
2020 (remaining months) | 412 | |
2021 | 1,581 | |
2022 | 401 | |
2023 | 92 | |
2024 | 72 | |
2025 | 37 | |
2026 | 18 | |
Total lease payments | 2,613 | |
Less: imputed interest | (68) | |
Total lease liabilities | $ 2,545 | $ 2,499 |