10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 25, 2022

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

Commission File No. 001-14217

ENGlobal Corporation

(Exact name of registrant as specified in its charter)

Nevada

(State or other jurisdiction of

incorporation or organization)

88-0322261

(I.R.S. Employer Identification No.)

11740 Katy Fwy – Energy Tower III, 11th floor Houston, TX	77079
(Address of principal executive offices)	(Zip code)

(281) 878-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	ENG	NASDAQ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shortened period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically 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).

Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐     No ☒

As of August 4, 2022, the registrant had outstanding 35,802,313 shares of common stock, par value $0.001 per share.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 25, 2022

TABLE OF CONTENTS

		Page Number
Part I.	Financial Information	3
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 25, 2022 and June 26, 2021	3
	Unaudited Condensed Consolidated Balance Sheets at June 25, 2022 and December 25, 2021	4
	Unaudited Condensed Consolidated Statements of Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 25, 2022 and June 26, 2021	5
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 25, 2022 and June 26, 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	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
Part II.	Other Information	29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
	Signatures	34

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENGlobal Corporation

Condensed Consolidated Statements of Operations

(Unaudited)

(amounts in thousands, except per share data)

	For the Three Months Ended						For the Six Months Ended
	June 25, 2022			June 26, 2021			June 25, 2022			June 26, 2021
Operating revenues	$	11,355		$	11,079		$	18,721		$	23,528
Operating costs		10,023			10,997			18,047			22,442
Gross profit		1,332			82			674			1,086
Selling, general and administrative expenses		2,890			4,264			5,733			6,825
Operating loss		(1,558	)		(4,182	)		(5,059	)		(5,739	)
Other income (expense):
Other income, net		21			6			31			1,690
Interest expense, net		(52	)		(57	)		(103	)		(115	)
Loss from operations before income taxes		(1,589	)		(4,233	)		(5,131	)		(4,164	)
Provision (benefit) for federal and state income taxes		(56	)		23			22			46
Net loss		(1,533	)		(4,256	)		(5,153	)		(4,210	)
Basic and diluted loss per common share:	$	(0.04	)	$	(0.14	)	$	(0.15	)	$	(0.15	)
Basic and diluted weighted average shares used in computing loss per share:		35,444			29,599			35,337			28,573

See accompanying notes to unaudited interim condensed consolidated financial statements.

3

ENGlobal Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

(amounts in thousands, except share and per share amounts)

	June 25, 2022			December 25, 2021
ASSETS
Current Assets:
Cash	$	14,139		$	19,202
Trade receivables, net of allowances of $273 and $1,673		7,310			7,692
Prepaid expenses and other current assets		436			958
Payroll taxes receivable		2,003			3,065
Contract assets		5,645			4,177
Total Current Assets		29,533			35,094
Property and equipment, net		1,500			1,698
Goodwill		720			720
Intangible assets, net of accumulated amortization		2,746			—
Other assets
Right of use asset		4,001			4,251
Deposits and other assets		282			306
Total Other Assets		4,283			4,557
Total Assets	$	38,782		$	42,069
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,298		$	2,001
Accrued compensation and benefits		2,252			2,183
Current portion of leases		1,293			1,389
Contract liabilities		2,332			2,054
Current portion of deferred payroll tax		537			537
Other current liabilities		207			667
Short-term contingent consideration		46			—
Short-term debt		1,218			—
Total Current Liabilities		10,183			8,831
Long-term contingent consideration		1,309			—
Long-term debt		—			1,035
Long-term leases		3,682			4,012
Total Liabilities		15,174			13,878
Commitments and Contingencies (Note 8)
Stockholders’ Equity:
Common stock - $0.001 par value; 75,000,000 shares authorized; 35,802,313 shares issued and outstanding at June 25, 2022 and 35,230,675 shares issued and outstanding at December 25, 2021		36			35
Additional paid-in capital		57,972			57,403
Accumulated deficit		(34,400	)		(29,247	)
Total Stockholders’ Equity		23,608			28,191
Total Liabilities and Stockholders’ Equity	$	38,782		$	42,069

See accompanying notes to unaudited interim condensed consolidated financial statements.

4

ENGlobal Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(amounts in thousands)

	For the Six Months Ended
	June 25, 2022			June 26, 2021
Cash Flows from Operating Activities:
Net loss	$	(5,153	)	$	(4,210	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		368			187
Share-based compensation expense		111			107
Changes in current assets and liabilities
Trade accounts receivable		382			1,217
Contract assets		(1,468	)		1,190
Other current assets		1,608			(1,234	)
Accounts payable		297			(164	)
Accrued compensation and benefits		69			(569	)
Contract liabilities		278			(698	)
Income taxes payable		(27	)		(54	)
Other current liabilities, net		(433	)		(347	)
Net cash used in operating activities	$	(3,968	)	$	(4,575	)
Cash Flows from Investing Activities:
Asset acquisition, net of cash acquired		(937	)		—
Property and equipment acquired		(92	)		(88	)
Net cash used in investing activities	$	(1,029	)	$	(88	)
Cash Flows from Financing Activities:
Issuance of common stock, net		—			20,052
At-the-market offering costs		(67	)		—
Payments on finance leases		(182	)		(55	)
Interest on PPP loan		—			25
Proceeds from revolving credit facility, net		183			110
Net cash provided by (used in) financing activities	$	(66	)	$	20,132
Net change in cash		(5,063	)		15,469
Cash at beginning of period		19,202			13,706
Cash at end of period	$	14,139		$	29,175
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	98		$	115
Right of use assets obtained in exchange for new operating lease liability	$	354		$	256
Cash paid during the period for income taxes (net of refunds)	$	48		$	151
Asset acquisition, common stock issued	$	525		$	—
Asset acquisition, contingent consideration	$	1,355		$	—

See accompanying notes to unaudited interim condensed consolidated financial statements.

5

ENGlobal Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(amounts in thousands)

	For the Three Months Ended
	June 25, 2022			June 26, 2021
Common Stock
Balance at beginning of period	$	35		$	28
Common stock issued		1			7
Balance at the end of the period		36			35
Additional Paid-in Capital
Balance at beginning of period		57,407			37,202
Common stock issued		525			20,045
At-the-market offering costs		(15	)		-
Share-based compensation - employees		55			62
Balance at end of period		57,972			57,309
Accumulated Deficit
Balance at beginning of period		(32,867	)		(23,516	)
Net loss		(1,533	)		(4,256	)
Balance at end of period		(34,400	)		(27,772	)
Total Stockholders’ Equity	$	23,608		$	29,572

	For the Six Months Ended
	June 25, 2022			June 26, 2021
Common Stock
Balance at beginning of period	$	35		$	28
Common stock issued		1			7
Balance at the end of the period		36			35
Additional Paid-in Capital
Balance at beginning of period		57,403			37,157
Common stock issued		525			20,045
At-the-market offering costs		(67	)		-
Share-based compensation - employees		111			107
Balance at end of period		57,972			57,309
Accumulated Deficit
Balance at beginning of period		(29,247	)		(23,562	)
Net loss		(5,153	)		(4,210	)
Balance at end of period		(34,400	)		(27,772	)
Total Stockholders’ Equity	$	23,608		$	29,572

See accompanying notes to unaudited interim condensed consolidated financial statements.

6

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of ENGlobal Corporation (which may be referred to as “ENGlobal,” the “Company,” “we,” “us,” or “our”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (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, included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC.

The condensed financial statements included herein are unaudited for the three and six month periods ended June 25, 2022 and June 26, 2021, and in the case of the condensed balance sheet as of December 25, 2021 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 quarters will be comprised of 13 weeks each, and our fourth quarter will be comprised of 14 weeks.

NOTE 2 – ACCOUNTING STANDARDS

Revenue Recognition – Our revenue is comprised of engineering, procurement and construction management services and sales of fabricated systems and integrated control systems that we design and assemble. The majority of our services are provided under time-and-material contracts. Some time-and-material contracts may have limits. Revenue is not recognized over these limits until authorization by the 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.

7

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.

8

NOTE 3 – REVENUE RECOGNITION

Our revenue by contract type was as follows (dollars in thousands):

	For the Three Months Ended				For the Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Fixed-price revenue	$	8,891	$	6,528	$	14,099	$	14,793
Time-and-material revenue		2,464		4,551		4,622		8,735
Total Revenue		11,355		11,079		18,721		23,528

NOTE 4 – CONTRACT ASSETS AND CONTRACT LIABILITIES

Our contract assets consist of unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Our contract liabilities consist of advance payments and billings in excess of costs incurred.

Costs, estimated earnings and billings on uncompleted contracts consisted of the following (dollars in thousands):

	June 25, 2022			December 25, 2021
Costs incurred on uncompleted contracts	$	47,537		$	36,429
Estimated earnings on uncompleted contracts		6,282			4,866
Earned revenues		53,819			41,295
Less: billings to date		50,506			39,172
Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts	$	3,313		$	2,123
Contract assets	$	5,645		$	4,177
Contract liabilities		(2,332	)		(2,054	)
Net contract assets	$	3,313		$	2,123

NOTE 5 – DEBT

The components of debt were as follows (dollars in thousands):

	June 25, 2022			December 25, 2021
Revolving Credit Facility (1)	$	1,218		$	1,035
Amount due within one year		(1,218	)		—
Total long-term debt	$	—		$	1,035

(1) 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”).

9

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

Credit Limit: The credit limit is an amount equal to the lesser of (a) the Maximum Credit Limit and (b) the sum of (i) 85% of the Borrowers’ Eligible Accounts (as defined in the Revolving Credit Facility), plus (ii) the lesser of (A) 75% of the Borrowers’ Eligible Unbilled Accounts (as defined in the Revolving Credit Facility), or (B) $3,000,000 plus (iii) the lesser of (A) 20% of Borrowers’ Eligible Fixed Price Accounts, or (B) $250,000. As of June 25, 2022, the credit limit under the Revolving Credit Facility was $1.8 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.

The future scheduled maturities of our debt are (in thousands):

	Revolving Credit Facility
2022	$	—
2023		1,218
2024 and thereafter		—
	$	1,218

10

NOTE 6 – SEGMENT INFORMATION

Our segments are strategic business units that offer our services and products to customers in their respective industry segments. The operating performance of our segments is regularly reviewed with operational leaders in charge 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.

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, 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.

11

Segment information is as follows (dollars in thousands):

	Commercial			Government Services			Corporate			Consolidated
For the three months ended June 25, 2022:
Revenue	$	9,203		$	2,152		$	—		$	11,355
Gross profit		701			631			—			1,332
Gross profit margin		7.6	%		29.3	%					11.7	%
SG&A		1,605			172			1,113			2,890
Operating income (loss)		(904	)		459			(1,113	)		(1,558	)
Other income, net											21
Interest expense, net											(52	)
Tax benefit											56
Net loss											(1,533	)

12

	Commercial			Government Services			Corporate			Consolidated
For the three months ended June 26, 2021:
Revenue	$	9,157		$	1,922		$	—		$	11,079
Gross profit (loss)		(201	)		283			—			82
Gross profit (loss) margin		(2.2	)%		14.7	%					0.7	%
SG&A		2,816			188			1,260			4,264
Operating income (loss)		(3,017	)		95			(1,260	)		(4,182	)
Other income, net											6
Interest expense, net											(57	)
Tax expense											(23	)
Net loss											(4,256	)

	Commercial			Government Services			Corporate			Consolidated
For the six months ended June 25, 2022:
Revenue	$	14,606		$	4,115		$	—		$	18,721
Gross profit (loss)		(223	)		897			—			674
Gross profit (loss) margin		(1.5	)%		21.8	%					3.6	%
SG&A		3,096			390			2,247			5,733
Operating income (loss)		(3,319	)		507			(2,247	)		(5,059	)
Other income, net											31
Interest expense, net											(103	)
Tax expense											(22	)
Net loss											(5,153	)
	Commercial			Government Services			Corporate			Consolidated
For the six months ended June 26, 2021:
Revenue	$	19,206		$	4,322		$	—		$	23,528
Gross profit		714			372			—			1,086
Gross profit margin		3.7	%		8.6	%					4.6	%
SG&A		4,109			397			2,319			6,825
Operating loss		(3,395	)		(25	)		(2,319	)		(5,739	)
Other income, net											1,690
Interest expense, net											(115	)
Tax expense											(46	)
Net loss											(4,210	)

13

Total assets by segment are as follows (dollars in thousands):

Total Assets by Segment	As of June 25, 2022		As of December 25, 2021
	(dollars in thousands)
Commercial	$	17,036	$	12,535
Government Services		2,881		3,788
Corporate		18,865		25,746
Consolidated	$	38,782	$	42,069

NOTE 7 – 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 2017 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 benefit of $56 thousand for the three months ended June 25, 2022 as compared to income tax expense of $23 thousand for the three months ended June 26, 2021. The effective income tax rate for the three months ended June 25, 2022 was 3.5% as compared to (0.5)% for the three months ended June 26, 2021. The Company recorded income tax expense of $22 thousand for the six months ended June 25, 2022 as compared to income tax expense of $46 thousand for the six months ended June 26, 2021. The effective income tax rate for the six months ended June 25, 2022 was (0.4)% as compared to (1.1)% for the six months ended June 26, 2021. 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.

14

NOTE 8 – COMMITMENTS AND CONTINGENCIES

From time to time, ENGlobal or one or more of its subsidiaries is involved in various legal proceedings or is subject to claims that arise in the ordinary course of business alleging, among other things, claims of breach of contract or negligence in connection with the performance or delivery of goods and/or services. The outcome of any such claims or proceedings cannot be predicted with certainty. Management is not aware of any pending or threatened lawsuits or proceedings that are expected to have a material effect on our financial position, results of operations or liquidity.

We carry a broad range of insurance coverage, including general and business automobile liability, commercial property, professional errors and omissions, workers’ compensation insurance, directors’ and officers’ liability insurance and a general umbrella policy, all with standard self-insured retentions/deductibles. We also provide health insurance to our employees (including vision and dental) which is partially self-funded for these claims. Provisions for expected future payments are accrued based on our experience, and specific stop loss levels provide protection for the Company. We believe we have adequate reserves for the self-funded portion of our insurance policies. We are not aware of any material litigation or claims that are not covered by these policies or which are likely to materially exceed the Company’s insurance limits.

NOTE 9 – LEASES

The Company leases land, office space and equipment. Arrangements are assessed at inception to determine if a lease exists and, with the adoption of ASC 842, “Leases,” right-of-use (“ROU”) assets and lease liabilities are recognized based on the present value of lease payments over the lease term. Because the Company’s leases do not provide an implicit rate of return, the Company uses its incremental borrowing rate at the inception of a lease to calculate the present value of lease payments. The Company has elected to apply the short-term lease exception for all asset classes, excluding lease liabilities from the balance sheet and recognizing the lease payments in the period they are incurred.

15

The components of lease expense were as follows (dollars in thousands):

	Financial Statement	Three Months Ended				Six Months Ended
	Classification	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Finance leases:
Amortization expense	SG&A Expense	$	53	$	22	$	106	$	41
Interest expense	Interest expense, net		11		5		22		9
Total finance lease expense			64		27		128		50
Operating leases:
Operating costs	Operating costs		58		107		103		259
Selling, general and administrative expenses	SG&A Expense		465		416		876		865
Total operating lease expense			523		523		979		1,124
Total lease expense		$	587	$	550	$	1,107	$	1,174

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

	Financial Statement Classification	June 25, 2022		December 25, 2021
ROU Assets:
Operating leases	Right of use asset	$	4,001	$	4,251
Finance leases	Property and equipment, net		796		979
Total ROU Assets:		$	4,797	$	5,230
Lease liabilities:
Current liabilities
Operating leases	Current portion of leases	$	1,093	$	1,153
Finance leases	Current portion of leases		200		236
Noncurrent Liabilities:
Operating leases	Long-term leases		3,086		3,269
Finance leases	Long-term leases		596		743
Total lease liabilities		$	4,975	$	5,401

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

	At June 25, 2022
Weighted average remaining lease term (years)
Operating leases		4.8
Finance leases		4.0
Weighted average discount rate
Operating leases		0.9	%
Finance leases		8.1	%

16

Maturities of operating lease liabilities as of June 25, 2022 are as follows (dollars in thousands):

Years ending:	Operating leases			Finance leases			Total
2022 (remaining months)		656			114			770
2023		923			228			1,151
2024		830			208			1,038
2025		620			173			793
2026		372			144			516
2027 and thereafter		817			—			817
Total lease payments		4,218			867			5,085
Less: imputed interest		(39	)		(71	)		(110	)
Total lease liabilities	$	4,179		$	796		$	4,975

NOTE 10 – EMPLOYEE RETENTION CREDIT

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 of Operations and as a receivable on the Balance Sheet. During the first quarter of 2022, we received a partial refund for the 2021 first quarter employee retention credit for our ENGlobal U.S., Inc. subsidiary.

NOTE 11 – STOCKHOLDERS’ EQUITY

On January 29, 2021, the Company entered into an at market issuance sales agreement (the “At Market Issuance Sales 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 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 Agreement. In April 2021, 400,538 shares of the Company’s common stock were issued and sold pursuant to the At Market Issuance Sales Agreement for net proceeds of approximately $1.4 million. On January 7, 2022, the At Market Issuance Sales 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.

17

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 the filing with the SEC on March 11, 2022 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021, the Company’s registration statement on Form S-3 (File No. 333-252572), including the accompanying prospectus and related prospectus supplements related to the “at the market offering”, became subject 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 share 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 Company 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 its next Section 10(a)(3) update as required under the Securities Act. During the first half of 2022, $0.1 million in direct costs related to the ATM Agreement were recorded as a reduction of equity.

NOTE 12 – LIQUIDITY

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.

As of June 25, 2022, the credit limit under the Revolving Credit Facility was $1.8 million and outstanding borrowings were $1.2 million, which yields enough interest to cover our minimum monthly interest charge. As of June 25, 2022, we were in compliance with all of the covenants under the Revolving Credit Facility. For additional information on the Revolving Credit Facility, see Note 5 – Debt.

On January 11, 2022, we entered into the ATM Agreement pursuant to which we may offer and sell shares of our 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 on the ATM Agreement, see Note 11 – Stockholders’ Equity.

We believe our cash on hand, internally generated funds, availability under the Revolving Credit Facility, and sales of common stock pursuant to the ATM Agreement, along with other working capital, will be sufficient to fund our current operations and expected activity for the next twelve months.

NOTE 13 – ACQUISTION

On May 18, 2022, ENG Calvert Holdings Ltd. (the “Purchaser”), a wholly owned subsidiary of the Company, completed the acquisition of Calvert Group Belgium NV (“Calvert”), a business that licenses small-scale gas to liquids (“GTL”) technology for flare gas 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 manufactured by the Company in the United States and subsequently shipped internationally.

Pursuant to the accounting guidance in ASC 805, we determined that 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 of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identified assets. The determination was based on the gross fair value of the acquisition being concentrated in the license agreement acquired.

The consideration transferred on the acquisition date included $0.8 million cash, net of cash acquired, and $0.5 million in common stock issued. In addition, we may pay up to approximately $1.4 million in cash and issue approximately $0.6 million in common stock if certain benchmarks are achieved. The Company capitalized $0.1 million in costs associated with the transaction.

NOTE 14 – INTANGIBLE ASSETS

                The Company has recognized a $2.8 million intangible asset for the license acquired.

18

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

	June 25, 2022			December 25, 2021
Licenses	$	2,816		$	—
Accumulated amortization		(70	)		—
Intangible assets, net of accumulated depreciation	$	2,746		$	—

                The components of amortization expense were as follows (in thousands):

	Financial Statement	Three Months Ended				Six Months Ended
	Classification	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
License leases:
Amortization expense	SG&A Expense		70		—		70		—
Total intangible asset amortization expense			70		—		70		—

                The weighted-average amortization period remaining is 5.17 years.

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

	Intagible Asset Amortization
2022 (remaining months)	$	265
2023		532
2024		532
2025		532
2026		532
2027		353
	$	2,746

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 the contingent consideration recorded at the present value of approximately $1.5 million. The estimated fair value of the contingent consideration was determined using a probability-weighted discounted cash flow model. We determined the fair value of the contingent consideration obligations by calculating the probability-weighted contingent consideration payments based on our assessment of the likelihood that the benchmarks will be achieved. The probability-weighted contingent consideration payments were then discounted using a discount rate based on the risk free rate 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 fair value of the contingent consideration is reviewed quarterly.

19

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

	Fair Value Measurement at June 25, 2022
	Level 1		Level 2		Level 3
Liabilities
Contingent consideration		—		—		1,355

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

	June 25, 2022		December 25, 2021
Opening balance	$	—	$	—
Contingent consideration in connection with acquisition		1,355		—
Ending balance	$	1,355	$	—

20

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

Forward-Looking Statements

Certain information contained in this Quarterly Report on Form 10-Q, as well as other written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission (the “SEC”), press releases, conferences or otherwise, may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (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, 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.

Overview

ENGlobal Corporation (which may be referred to as “ENGlobal,” the “Company,” “we,” “us” or “our”), incorporated in the State of Nevada in June 1994, is a leading provider of innovative, delivered project solutions primarily to the energy industry. We deliver these solutions to our clients by combining our vertically-integrated engineering and professional project execution services 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. We believe the addition of these key personnel will allow the Company to expand its client base and acquire new projects. We recognize that the level of our SG&A is greater than it could be for a company our size; however, we have maintained our overhead structure in anticipation of higher revenue levels.

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.

21

COVID-19 Update

On March 11, 2020, the World Health Organization declared that the worldwide spread and severity of a new coronavirus, referred to as COVID-19, was severe enough to be characterized as a pandemic. The continued worldwide spread of COVID-19, in conjunction with related government and other preventative measures taken to mitigate the spread of COVID-19, have caused severe disruptions in the worldwide economy, including the global demand for oil and natural gas. In response, companies within the energy industry (including our customers) 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, 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. Some of these projects have been awarded to us during the first half of 2022 increasing our backlog by approximately $6.2 million during the first half of 2022 to $19.0 million as of June 25, 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.”

Critical Accounting Policies Update

Our critical accounting policies are further disclosed in Note 2 to the consolidated financial statements included in our 2021 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 assumtions by management. 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 changes in the costs basis of the assets and liabilities recognized.

Employee retention credit - 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 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.

Results of Operations

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.

22

Comparison of the three months ended June 25, 2022 versus the three months ended June 26, 2021

The following table, for the three months ended June 25, 2022 versus the three months ended June 26, 2021, 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
For the three months ended June 25, 2022:
Revenue	$	9,203		$	2,152		$	—		$	11,355		100.0	%
Gross profit		701			631			—			1,332		11.7	%
SG&A		1,605			172			1,113			2,890		25.5	%
Operating income (loss)		(904	)		459			(1,113	)		(1,558	)	(13.7	)%
Other income, net											21
Interest expense, net											(52	)
Tax benefit											56
Net loss											(1,533	)	(13.5	)%
Basic and diluted loss per share										$	(0.04	)
	Commercial			Government Services			Corporate			Consolidated
For the three months ended June 26, 2021:
Revenue		9,157			1,922			—			11,079		100.0	%
Gross profit (loss)		(201	)		283			—			82		0.7	%
SG&A		2,816			188			1,260			4,264		38.5	%
Operating income (loss)		(3,017	)		95			(1,260	)		(4,182	)	(37.7	)%
Other income, net											6
Interest expense, net											(57	)
Tax expense											(23	)
Net loss											(4,256	)	(38.4	)%
Basic and diluted loss per share											(0.14	)
	Commercial			Government Services			Corporate			Consolidated
Year Over Year Increase (Decrease) in Operating Results:
Revenue	$	46		$	230		$	—		$	276		2.5	%
Gross profit		902			348			—			1,250
SG&A		(1,211	)		(16	)		(147	)		(1,374	)	(32.2	)%
Operating income (loss)		2,113			364			147			2,624		62.7	%
Other income, net											15
Interest expense, net											5
Tax expense											79
Net loss											2,723		(64.0	)%
Basic and diluted loss per share										$	0.10

23

Comparison of the six months ended June 25, 2022 versus the six months ended June 26, 2021

The following table, for the six months ended June 25, 2022 versus the six months ended June 26, 2021, 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
For the six months ended June 25, 2022:
Revenue	$	14,606		$	4,115		$	—		$	18,721		100.0	%
Gross profit (loss)		(223	)		897			—			674		3.6	%
SG&A		3,096			390			2,247			5,733		30.6	%
Operating income (loss)		(3,319	)		507			(2,247	)		(5,059	)	(27.0	)%
Other income, net											31
Interest expense, net											(103	)
Tax expense											(22	)
Net loss											(5,153	)	(27.5	)%
Basic and diluted loss per share										$	(0.15	)
	Commercial			Government Services			Corporate			Consolidated
For the six months ended June 26, 2021:
Revenue		19,206			4,322			—			23,528		100.0	%
Gross profit		714			372			—			1,086		4.6	%
SG&A		4,109			397			2,319			6,825		29.0	%
Operating loss		(3,395	)		(25	)		(2,319	)		(5,739	)	(24.4	)%
Other income, net											1,690
Interest expense, net											(115	)
Tax expense											(46	)
Net loss											(4,210	)	(17.9	)%
Basic and diluted loss per share											(0.15	)
	Commercial			Government Services			Corporate			Consolidated
Year Over Year Increase (Decrease) in Operating Results:
Revenue	$	(4,600	)	$	(207	)	$	—		$	(4,807	)	(20.4	)%
Gross profit (loss)		(937	)		525			—			(412	)
SG&A		(1,013	)		(7	)		72			(1,092	)	(16.0	)%
Operating income (loss)		76			532			(72	)		680		11.8	%
Other income, net											(1,659	)
Interest expense, net											12
Tax expense											24
Net loss											(943	)	22.4	%
Basic and diluted loss per share										$	0.01

24

Revenue – Revenue increased $0.3 million to $11.4 million from $11.1 million, or an increase of 2.5%, for the three months ended June 25, 2022 as compared to the three months ended June 26, 2021. The increase is primarily due to the progress of work on our Government Service contracts, the award of several projects within our Commercial segment, partially offset by the completion of several large projects within our Commercial segment and projects that were not renewed.

Revenue decreased $4.8 million to $18.7 million from $23.5 million, or a decrease of 20.4%, for the six months ended June 25, 2022 as compared to the six months ended June 26, 2021. The decrease is primarily due to the completion of several large projects within our Commercial segment and projects that were not renewed as our clients were not accessible during the pandemic due to COVID-19 related restrictions, which negatively impacted our ability to interact with our clients. We believe that personal interaction is essential in our industry to build and maintain customer relationships and to drive new business. The decrease was partially offset by revenue from project awards with new customers as we continue our business development efforts to increase our backlog.

Gross Profit – Gross profit margin increased 11.0% to 11.7% from 0.7% for the three months ended June 25, 2022 as compared to the three months ended June 26, 2021. The increase in gross profit margin is primarily attributable to increased utilitization of personnel on project awards within our Commercial segment.

Gross profit margin decreased 1.0% to 3.6% from 4.6% for the six months ended June 25, 2022 as compared to the six months ended June 26, 2021. The decrease in gross profit margin is primarily attributable to the decrease in project volume in addition to an increase in Commercial segment costs associated with maintaining essential staffing as projects were completed without subsequent renewals or replacements and increased proposal activity from our efforts to replenish our backlog, partially offset by revenue from projects awards in 2022.

Selling, General and Administrative Expense – SG&A expenses decreased by $1.4 million for the three months ended June 25, 2022 as compared to the three months ended June 26, 2021 due to the $1.4 million bad debt reserve recorded during the second quarter of 2021 with no comparable occurrence in 2022, and a decrease in salaries and burden expense of $0.1 million, partially offset by an increase in office and marketing expense of $0.1 million, and an increase in recruiting and travel expenses of $0.1 million as we increased our business development efforts.

SG&A expenses decreased by $1.1 million for the six months ended June 25, 2022 as compared to the six months ended June 26, 2021 due to the $1.4 million bad debt reserve recorded during the second quarter of 2021 with no comparable occurrence in 2022, partially offset by an increase in office and marketing expense of $0.1 million, an increase in legal expense of $0.1 million as we filed a bid protest to challenge an award of a federal contract, and an increase in recruiting and travel expenses of $0.1 million as we hired an operational leader and increased our business development efforts.

Other Income (Expense), Net – Other income, net of expense, increased $15 thousand for the three months ended June 25, 2022 as compared to the three months ended June 26, 2021.

Other income, net of expense, decreased $1.7 million for the six months ended June 25, 2022 as compared to the six months ended June 26, 2021 primarily due to the $1.7 million employee retention credit recorded in the first quarter of 2021 with no comparable occurrence in 2022.

Interest Expense, net – Interest expense is incurred primarily in connection with our Revolving Credit Facility (defined below) and our finance leases. Our interest expense decreased to $52 thousand for the three months ended June 25, 2022 from $57 thousand for the three months ended June 26, 2021.

Our interest expense decreased to $103 thousand for the six months ended June 25, 2022 from $115 thousand for the six months ended June 26, 2021.

Tax Expense – Tax expense is incurred primarily for our state franchise taxes. We recorded income tax benefit of $56 thousand for the three months ended June 25, 2022 due to a revised forecast for the year compared to income tax expense of $23 thousand for the three months ended June 26, 2021.

25

We recorded income tax expense of $22 thousand for the six months ended June 25, 2022 compared to income tax expense of $46 thousand for the six months ended June 26, 2021.

Net Income (Loss) – Net loss for the three months ended June 25, 2022 was $1.5 million, or a $2.8 million decrease from net loss of $4.3 million for the three months ended June 26, 2021, primarily as a result of an increase in revenue and gross profit and increased utilitization of personnel on project awards within our Commercial segment.

Net loss for the six months ended June 25, 2022 was $5.2 million, or a $0.9 million increase from net loss of $4.2 million for the six months ended June 26, 2021, primarily as a result of a decrease in revenue and gross profit, increased business development costs within our Commercial segment, in addition to the employee retention credit recorded in the first quarter of 2021 with no comparable occurrence in 2022.

Liquidity and Capital Resources Overview

The Company defines liquidity as its ability to pay its liabilities as they become due, fund business operations and meet monetary contractual obligations. Our primary sources of liquidity are cash on hand, internally generated funds, sales of common stock pursuant to the ATM Agreement (defined below), and borrowings under the Revolving Credit Facility. We had cash of approximately $14.1 million at June 25, 2022 and $19.2 million at December 25, 2021. Our working capital as of June 25, 2022 was $19.4 million versus $26.3 million as of December 25, 2021.

As of June 25, 2022, the credit limit under the Revolving Credit Facility was $1.8 million and outstanding borrowings were $1.2 million, which yields enough interest to cover our minimum monthly interest charge. As of June 25, 2022, 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 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 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 registration statement on Form S-3 (File No. 333-252572), including the accompanying prospectus and related prospectus supplements related to the “at the market offering”, became 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, 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 share of our 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 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.

We believe our cash on hand, internally generated funds, availability under the Revolving Credit Facility, and sales of common stock pursuant to the ATM Agreement, along with other working capital, will be sufficient to fund our current operations and expected activity for the next twelve months.

Cash and the availability of cash could be materially restricted if (1) outstanding invoices billed are not collected or are not collected in a timely manner, (2) circumstances prevent the timely internal processing of invoices, (3) we lose one or more of our major customers or our major customers significantly reduce the amount of work requested from us, (4) we are unable to win new projects that we can perform on a profitable basis or (5) we are unable to reverse our use of cash to fund losses. If any such event occurs, we would be forced to consider alternative financing options.

26

Cash Flows from Operating Activities

Operating activities used $4.0 million of cash for the six months ended June 25, 2022 and used $4.6 million of cash for the six months ended June 26, 2021. The primary drivers of our cash used in operations for the six months ended June 25, 2022 were our net loss of $5.2 million mainly as a result of a decrease in revenue and gross profit, along with increased business development costs within our Commercial segment, an increase in contract assets net of contract liabilities of $1.2 million, and a decrease of other current liabilities and income tax payable of $0.5 million, partially offset by cash provided from a decrease in accrued compensation and benefits of $0.1 million, a decrease of trade payables of $0.3 million, a decrease in trade receivables of $0.4 million, a decrease in other current assets of $1.6 million, and $0.5 million from other components of working capital.

Cash Flows from Investing Activities

Investing activities used cash of $1.0 million for the six months ended June 25, 2022 primarily related to the Calvert acquisition in addition to the purchase of personal property and equipment and $88 thousand for the six months ended June 26, 2021 for the purchase of personal property and equipment.

Cash Flows from Financing Activities

Financing activities used $0.1 million of cash for the six months ended June 25, 2022 primarily for costs associated with the ATM Agreement and payments for our finance leases, partially offset by proceeds received from the Revolving Credit Facility. Financing activities provided cash of $20.1 million for the six months ended June 26, 2021 primarily due to sales of common stock under the ATM Agreement and Purchase Agreement, interest on the PPP Loan (defined below), and proceeds received from the Revolving Credit Facility partially offset by the interest incurred on 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, and Economic Security Act, which was forgiven in full during 2021.

Contractual Obligations

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 June 25, 2022 (in thousands):

	Payment Due by Fiscal Period
	2022		2023		2024		2025		2026 and thereafter
Operating and finance leases	$	770	$	1,151	$	1,038	$	793	$	1,333
Revolving Credit Facility		—		1,218		—		—		—
Other liabilities(1)		124		—		—		—		—
Total	$	894	$	2,369	$	1,038	$	793	$	1,333

(1) Other liabilities includes short-term notes payable.

27

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures of a registrant designed to ensure that information required to be disclosed by the registrant in the reports that it files or submits under the Exchange Act is properly recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include processes to accumulate and evaluate relevant information and communicate such information to a registrant’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 25, 2022, as required by Rule 13a-15 of the Exchange Act. Based on the evaluation described above, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 25, 2022, our disclosure controls and procedures were effective insofar as they are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting occurred during the three months ended June 25, 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

28

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

ITEM 1A. RISK FACTORS

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, 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.

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 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 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.

29

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:

· 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

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.

30

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 half of 2022, however, our backlog increased by approximately $6.2 million to $19.0 million as of June 25, 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 June 25, 2022 we had one project that had $1.3 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.

31

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

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)
March 27, 2022 to April 23, 2022		—		—		—	$	—
April 24, 2022 to May 28, 2022		—		—		—	$	—
May 29, 2022 to June 25, 2022		—		—		—	$	—
Total		—		—		1,290,460	$	425,589

(1) On April 21, 2015, the Company announced that its Board of Directors had authorized the repurchase of up to $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 June 25, 2022, 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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

32

ITEM 6. EXHIBITS

		Incorporated by Reference to:
Exhibit No.	Description	Form or Schedule	Exhibit No.	Filing Date with SEC	SEC File Number
3.1	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
*31.1	Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934
*31.2	Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934
**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
*101.ins	Inline XBRL instance document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document
*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
*101.lab	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)

* Filed herewith

** Furnished herewith

33

SIGNATURE

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

Dated: August 4, 2022
	ENGlobal Corporation
	By:	/s/ Darren W. Spriggs
		Darren W. Spriggs
		Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

34

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Mark A. Hess, certify that:

1.	I have reviewed this report on Form 10-Q for the quarter ended June 25, 2022 of ENGlobal Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2022	/s/ Mark A. Hess
	Mark A. Hess
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Darren W. Spriggs, certify that:

1.	I have reviewed this report on Form 10-Q for the quarter ended June 25, 2022 of ENGlobal Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2022	By:	/s/ Darren W. Spriggs
		Darren W. Spriggs
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of ENGlobal Corporation (“ENGlobal”), that, to his knowledge, the Quarterly Report of ENGlobal on Form 10-Q for the period ended June 25, 2022 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of ENGlobal.

Date: August 4, 2022	By:	/s/ Mark A. Hess
		Mark A. Hess
		Chief Executive Officer

Date: August 4, 2022	By:	/s/ Darren W. Spriggs
		Darren W. Spriggs
		Chief Financial Officer

A signed original of this statement has been provided to ENGlobal and will be retained by ENGlobal and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Cover - shares	6 Months Ended
	Jun. 25, 2022	Aug. 04, 2022
Cover [Abstract]
Entity Registrant Name	ENGlobal Corporation
Entity Central Index Key	0000933738
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-28
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Jun. 25, 2022
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2022
Entity Common Stock Shares Outstanding		35,802,313
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	001-14217
Entity Incorporation State Country Code	NV
Entity Tax Identification Number	88-0322261
Entity Address Address Line 1	11740 Katy Fwy – Energy Tower III
Entity Address Address Line 2	11th floor
Entity Address City Or Town	Houston
Entity Address State Or Province	TX
Entity Address Postal Zip Code	77079
City Area Code	281
Local Phone Number	878-1000
Security 12b Title	Common Stock, $0.001 par value
Trading Symbol	ENG
Security Exchange Name	NASDAQ
Entity Interactive Data Current	Yes

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021	Jun. 25, 2022	Jun. 26, 2021
Condensed Consolidated Statements of Operations (Unaudited)
Operating revenues	$ 11,355	$ 11,079	$ 18,721	$ 23,528
Operating costs	10,023	10,997	18,047	22,442
Gross profit	1,332	82	674	1,086
Selling, general and administrative expenses	2,890	4,264	5,733	6,825
Operating loss	(1,558)	(4,182)	(5,059)	(5,739)
Other income (expense):
Other income, net	21	6	31	1,690
Interest expense, net	(52)	(57)	(103)	(115)
Loss from operations before income taxes	(1,589)	(4,233)	(5,131)	(4,164)
Loss from operations before income taxes	(1,589)	(4,233)	(5,131)	(4,164)
Provision (benefit) for federal and state income taxes	(56)	23	22	46
Net loss	$ (1,533)	$ (4,256)	$ (5,153)	$ (4,210)
Basic and diluted loss per common share:	$ (0.04)	$ (0.14)	$ (0.15)	$ (0.15)
Basic and diluted weighted average shares used in computing loss per share:	35,444	29,599	35,337	28,573

XML

Condensed Consolidated Balance Sheets - USD ($)	Jun. 25, 2022	Dec. 25, 2021
Current Assets:
Cash	$ 14,139,000	$ 19,202,000
Trade receivables, net of allowances of $273 and $1,673	7,310,000	7,692,000
Prepaid expenses and other current assets	436,000	958,000
Payroll taxes receivable	2,003,000	3,065,000
Contract assets	5,645,000	4,177,000
Total Current Assets	29,533,000	35,094,000
Property and equipment, net	1,500,000	1,698,000
Goodwill	720,000	720,000
Intangible assets, net of accumulated amortization	2,746,000	0
Other assets
Right of use asset	4,001,000	4,251,000
Deposits and other assets	282,000	306,000
Total Other Assets	4,283,000	4,557,000
Total Assets	38,782,000	42,069,000
Current Liabilities:
Accounts payable	2,298,000	2,001,000
Accrued compensation and benefits	2,252,000	2,183,000
Current portion of leases	1,293,000	1,389,000
Contract liabilities	2,332,000	2,054,000
Current portion of deferred payroll tax	537,000	537,000
Other current liabilities	207,000	667,000
Short-term contingent consideration	46,000	0
Short-term debt	1,218,000	0
Total Current Liabilities	10,183,000	8,831,000
Long-term contingent consideration	1,309,000	0
Long-term debt	0	1,035,000
Long-term leases	3,682,000	4,012,000
Total Liabilities	15,174,000	13,878,000
Stockholders' Equity:
Common stock - $0.001 par value; 75,000,000 shares authorized; 35,802,313 shares issued and outstanding at June 25, 2022 and 35,230,675 shares issued and outstanding at December 25, 2021	36,000	35,000
Additional paid-in capital	57,972,000	57,403,000
Accumulated deficit	(34,400,000)	(29,247,000)
Total Stockholders' Equity	23,608,000	28,191,000
Total Liabilities and Stockholders' Equity	$ 38,782,000	$ 42,069,000

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 25, 2022	Dec. 25, 2021
Condensed Consolidated Balance Sheets
Trade Receivables, Allowances	$ 273	$ 1,673
Common Stock, Par Value	$ 0.001	$ 0.001
Common Stock, Shares Authorized	75,000,000	75,000,000
Common Stock, Shares Issued	35,802,313	35,230,675
Common Stock, Shares Outstanding	35,802,313	35,230,675

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021
Cash Flows from Operating Activities:
Net loss	$ 5,153,000	$ 4,210,000
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	368,000	187,000
Share-based compensation expense	111,000	107,000
Changes in current assets and liabilities
Trade accounts receivable	382,000	1,217,000
Contract assets	(1,468,000)	1,190,000
Other current assets	1,608,000	(1,234,000)
Accounts payable	297,000	(164,000)
Accrued compensation and benefits	69,000	(569,000)
Contract liabilities	278,000	(698,000)
Income taxes payable	(27,000)	(54,000)
Other current liabilities, net	(433,000)	(347,000)
Net cash used in operating activities	(3,968,000)	(4,575,000)
Cash Flows from Investing Activities:
Asset acquisition, net of cash acquired	(937,000)	0
Property and equipment acquired	(92,000)	(88,000)
Net cash used in investing activities	(1,029,000)	(88,000)
Cash Flows from Financing Activities:
Issuance of common stock, net	0	20,052,000
At-the-market offering costs	(67,000)	0
Payments on finance leases	(182,000)	(55,000)
Interest on PPP loan	0	25,000
Proceeds from revolving credit facility, net	183,000	110,000
Net cash provided by (used in) financing activities	(66,000)	20,132,000
Net change in cash	(5,063,000)	15,469,000
Cash at beginning of period	19,202,000	13,706,000
Cash at end of period	14,139,000	29,175,000
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	98,000	115,000
Right of use assets obtained in exchange for new operating lease liability	354,000	256,000
Cash paid during the period for income taxes (net of refunds)	48,000	151,000
Asset acquisition, common stock issued	525,000	0
Asset acquisition, contingent consideration	$ 1,355	$ 0

XML

Condensed Consolidated Statements of Stockholders Equity (Unaudited) - USD ($)	Total	Common Stock	Additional Paid-In Capital	Retained Earnings (Accumulated Deficit)
Balance, amount at Dec. 26, 2020	$ 13,623,000	$ 28,000	$ 37,157,000	$ (23,562,000)
Balance, shares at Dec. 26, 2020		0
Common stock issued		$ 7,000	20,045,000
At-the-market offering costs			0
Share-based compensation - employees			107,000
Net Income (Loss)	(4,210,000)			(4,210,000)
Balance, shares at Jun. 26, 2021		0
Balance, amount at Jun. 26, 2021	29,572,000	$ 35,000	57,309,000	(27,772,000)
Balance, amount at Mar. 27, 2021	13,714,000	$ 28,000	37,202,000	(23,516,000)
Balance, shares at Mar. 27, 2021		0
Common stock issued		$ 7,000	20,045,000
At-the-market offering costs			0
Share-based compensation - employees			62,000
Net Income (Loss)	(4,256,000)			(4,256,000)
Balance, shares at Jun. 26, 2021		0
Balance, amount at Jun. 26, 2021	29,572,000	$ 35,000	57,309,000	(27,772,000)
Balance, amount at Dec. 25, 2021	28,191,000	$ 35,000	57,403,000	(29,247,000)
Balance, shares at Dec. 25, 2021		0
Common stock issued		$ 1,000	525,000
At-the-market offering costs			(67,000)
Share-based compensation - employees			111,000
Net Income (Loss)	(5,153,000)			(5,153,000)
Balance, shares at Jun. 25, 2022		0
Balance, amount at Jun. 25, 2022	23,608,000	$ 36,000	57,972,000	(34,400,000)
Balance, amount at Mar. 26, 2022	24,575,000	$ 35,000	57,407,000	(32,867,000)
Balance, shares at Mar. 26, 2022		0
Common stock issued		$ 1,000	525,000
At-the-market offering costs			(15,000)
Share-based compensation - employees			55,000
Net Income (Loss)	(1,533,000)			(1,533,000)
Balance, shares at Jun. 25, 2022		0
Balance, amount at Jun. 25, 2022	$ 23,608,000	$ 36,000	$ 57,972,000	$ (34,400,000)

XML

BASIS OF PRESENTATION

6 Months Ended

Jun. 25, 2022

BASIS OF PRESENTATION

NOTE 1 - BASIS OF PRESENTATION

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of ENGlobal Corporation (which may be referred to as “ENGlobal,” the “Company,” “we,” “us,” or “our”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (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, included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC.

The condensed financial statements included herein are unaudited for the three and six month periods ended June 25, 2022 and June 26, 2021, and in the case of the condensed balance sheet as of December 25, 2021 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 quarters will be comprised of 13 weeks each, and our fourth quarter will be comprised of 14 weeks.

XML

ACCOUNTING STANDARDS

6 Months Ended

Jun. 25, 2022

ACCOUNTING STANDARDS

NOTE 2 - ACCOUNTING STANDARDS

NOTE 2 – ACCOUNTING STANDARDS

Revenue Recognition – Our revenue is comprised of engineering, procurement and construction management services and sales of fabricated systems and integrated control systems that we design and assemble. The majority of our services are provided under time-and-material contracts. Some time-and-material contracts may have limits. Revenue is not recognized over these limits until authorization by the 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.

XML

REVENUE RECOGNITION

6 Months Ended

Jun. 25, 2022

REVENUE RECOGNITION

NOTE 3 - REVENUE RECOGNITION

NOTE 3 – REVENUE RECOGNITION

Our revenue by contract type was as follows (dollars in thousands):

	For the Three Months Ended				For the Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Fixed-price revenue	$	8,891	$	6,528	$	14,099	$	14,793
Time-and-material revenue		2,464		4,551		4,622		8,735
Total Revenue		11,355		11,079		18,721		23,528

XML

CONTRACT ASSETS AND CONTRACT LIABILITIES

6 Months Ended

Jun. 25, 2022

CONTRACT ASSETS AND CONTRACT LIABILITIES

NOTE 4 - CONTRACT ASSETS AND CONTRACT LIABILITIES

NOTE 4 – CONTRACT ASSETS AND CONTRACT LIABILITIES

Our contract assets consist of unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Our contract liabilities consist of advance payments and billings in excess of costs incurred.

Costs, estimated earnings and billings on uncompleted contracts consisted of the following (dollars in thousands):

	June 25, 2022			December 25, 2021
Costs incurred on uncompleted contracts	$	47,537		$	36,429
Estimated earnings on uncompleted contracts		6,282			4,866
Earned revenues		53,819			41,295
Less: billings to date		50,506			39,172
Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts	$	3,313		$	2,123
Contract assets	$	5,645		$	4,177
Contract liabilities		(2,332	)		(2,054	)
Net contract assets	$	3,313		$	2,123

XML

DEBT

6 Months Ended

Jun. 25, 2022

DEBT

NOTE 5 - DEBT

NOTE 5 – DEBT

The components of debt were as follows (dollars in thousands):

	June 25, 2022			December 25, 2021
Revolving Credit Facility (1)	$	1,218		$	1,035
Amount due within one year		(1,218	)		—
Total long-term debt	$	—		$	1,035

(1) On May 21, 2020 (the “Closing Date”), the Company and its wholly owned subsidiaries, ENGlobal U.S., Inc. and ENGlobal Government Services, Inc. (collectively, the “Borrowers”) entered into a Loan and Security Agreement (the “Revolving Credit Facility”) with Pacific Western Bank dba Pacific Western Business Finance, a California state-chartered bank (the “Lender”), pursuant to which the Lender agreed to extend credit to the Borrowers in the form of revolving loans (each a “Loan” and collectively, the “Loans”) in the aggregate amount of up to $6.0 million (the “Maximum Credit Limit”).

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

Credit Limit: The credit limit is an amount equal to the lesser of (a) the Maximum Credit Limit and (b) the sum of (i) 85% of the Borrowers’ Eligible Accounts (as defined in the Revolving Credit Facility), plus (ii) the lesser of (A) 75% of the Borrowers’ Eligible Unbilled Accounts (as defined in the Revolving Credit Facility), or (B) $3,000,000 plus (iii) the lesser of (A) 20% of Borrowers’ Eligible Fixed Price Accounts, or (B) $250,000. As of June 25, 2022, the credit limit under the Revolving Credit Facility was $1.8 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.

The future scheduled maturities of our debt are (in thousands):

	Revolving Credit Facility
2022	$	—
2023		1,218
2024 and thereafter		—
	$	1,218

XML

SEGMENT INFORMATION

6 Months Ended

Jun. 25, 2022

SEGMENT INFORMATION

NOTE 6 - SEGMENT INFORMATION

NOTE 6 – SEGMENT INFORMATION

Our segments are strategic business units that offer our services and products to customers in their respective industry segments. The operating performance of our segments is regularly reviewed with operational leaders in charge 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.

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, 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.

Segment information is as follows (dollars in thousands):

	Commercial			Government Services			Corporate			Consolidated
For the three months ended June 25, 2022:
Revenue	$	9,203		$	2,152		$	—		$	11,355
Gross profit		701			631			—			1,332
Gross profit margin		7.6	%		29.3	%					11.7	%
SG&A		1,605			172			1,113			2,890
Operating income (loss)		(904	)		459			(1,113	)		(1,558	)
Other income, net											21
Interest expense, net											(52	)
Tax benefit											56
Net loss											(1,533	)

	Commercial			Government Services			Corporate			Consolidated
For the three months ended June 26, 2021:
Revenue	$	9,157		$	1,922		$	—		$	11,079
Gross profit (loss)		(201	)		283			—			82
Gross profit (loss) margin		(2.2	)%		14.7	%					0.7	%
SG&A		2,816			188			1,260			4,264
Operating income (loss)		(3,017	)		95			(1,260	)		(4,182	)
Other income, net											6
Interest expense, net											(57	)
Tax expense											(23	)
Net loss											(4,256	)

	Commercial			Government Services			Corporate			Consolidated
For the six months ended June 25, 2022:
Revenue	$	14,606		$	4,115		$	—		$	18,721
Gross profit (loss)		(223	)		897			—			674
Gross profit (loss) margin		(1.5	)%		21.8	%					3.6	%
SG&A		3,096			390			2,247			5,733
Operating income (loss)		(3,319	)		507			(2,247	)		(5,059	)
Other income, net											31
Interest expense, net											(103	)
Tax expense											(22	)
Net loss											(5,153	)
	Commercial			Government Services			Corporate			Consolidated
For the six months ended June 26, 2021:
Revenue	$	19,206		$	4,322		$	—		$	23,528
Gross profit		714			372			—			1,086
Gross profit margin		3.7	%		8.6	%					4.6	%
SG&A		4,109			397			2,319			6,825
Operating loss		(3,395	)		(25	)		(2,319	)		(5,739	)
Other income, net											1,690
Interest expense, net											(115	)
Tax expense											(46	)
Net loss											(4,210	)

Total Assets by Segment	As of June 25, 2022		As of December 25, 2021
	(dollars in thousands)
Commercial	$	17,036	$	12,535
Government Services		2,881		3,788
Corporate		18,865		25,746
Consolidated	$	38,782	$	42,069

XML

FEDERAL AND STATE INCOME TAXES

6 Months Ended

Jun. 25, 2022

FEDERAL AND STATE INCOME TAXES

NOTE 7 - FEDERAL AND STATE INCOME TAXES

NOTE 7 – 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 2017 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 benefit of $56 thousand for the three months ended June 25, 2022 as compared to income tax expense of $23 thousand for the three months ended June 26, 2021. The effective income tax rate for the three months ended June 25, 2022 was 3.5% as compared to (0.5)% for the three months ended June 26, 2021. The Company recorded income tax expense of $22 thousand for the six months ended June 25, 2022 as compared to income tax expense of $46 thousand for the six months ended June 26, 2021. The effective income tax rate for the six months ended June 25, 2022 was (0.4)% as compared to (1.1)% for the six months ended June 26, 2021. 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.

XML

COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 25, 2022

COMMITMENTS AND CONTINGENCIES

NOTE 8 - COMMITMENTS AND CONTINGENCIES

NOTE 8 – COMMITMENTS AND CONTINGENCIES

From time to time, ENGlobal or one or more of its subsidiaries is involved in various legal proceedings or is subject to claims that arise in the ordinary course of business alleging, among other things, claims of breach of contract or negligence in connection with the performance or delivery of goods and/or services. The outcome of any such claims or proceedings cannot be predicted with certainty. Management is not aware of any pending or threatened lawsuits or proceedings that are expected to have a material effect on our financial position, results of operations or liquidity.

We carry a broad range of insurance coverage, including general and business automobile liability, commercial property, professional errors and omissions, workers’ compensation insurance, directors’ and officers’ liability insurance and a general umbrella policy, all with standard self-insured retentions/deductibles. We also provide health insurance to our employees (including vision and dental) 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.

XML

LEASES

6 Months Ended

Jun. 25, 2022

LEASES

NOTE 9 - LEASES

NOTE 9 – LEASES

The Company leases land, office space and equipment. Arrangements are assessed at inception to determine if a lease exists and, with the adoption of ASC 842, “Leases,” right-of-use (“ROU”) assets and lease liabilities are recognized based on the present value of lease payments over the lease term. Because the Company’s leases do not provide an implicit rate of return, the Company uses its incremental borrowing rate at the inception of a lease to calculate the present value of lease payments. The Company has elected to apply the short-term lease exception for all asset classes, excluding lease liabilities from the balance sheet and recognizing the lease payments in the period they are incurred.

The components of lease expense were as follows (dollars in thousands):

	Financial Statement	Three Months Ended				Six Months Ended
	Classification	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Finance leases:
Amortization expense	SG&A Expense	$	53	$	22	$	106	$	41
Interest expense	Interest expense, net		11		5		22		9
Total finance lease expense			64		27		128		50
Operating leases:
Operating costs	Operating costs		58		107		103		259
Selling, general and administrative expenses	SG&A Expense		465		416		876		865
Total operating lease expense			523		523		979		1,124
Total lease expense		$	587	$	550	$	1,107	$	1,174

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

	Financial Statement Classification	June 25, 2022		December 25, 2021
ROU Assets:
Operating leases	Right of use asset	$	4,001	$	4,251
Finance leases	Property and equipment, net		796		979
Total ROU Assets:		$	4,797	$	5,230
Lease liabilities:
Current liabilities
Operating leases	Current portion of leases	$	1,093	$	1,153
Finance leases	Current portion of leases		200		236
Noncurrent Liabilities:
Operating leases	Long-term leases		3,086		3,269
Finance leases	Long-term leases		596		743
Total lease liabilities		$	4,975	$	5,401

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

	At June 25, 2022
Weighted average remaining lease term (years)
Operating leases		4.8
Finance leases		4.0
Weighted average discount rate
Operating leases		0.9	%
Finance leases		8.1	%

Maturities of operating lease liabilities as of June 25, 2022 are as follows (dollars in thousands):

Years ending:	Operating leases			Finance leases			Total
2022 (remaining months)		656			114			770
2023		923			228			1,151
2024		830			208			1,038
2025		620			173			793
2026		372			144			516
2027 and thereafter		817			—			817
Total lease payments		4,218			867			5,085
Less: imputed interest		(39	)		(71	)		(110	)
Total lease liabilities	$	4,179		$	796		$	4,975

XML

EMPLOYEE RETENTION CREDIT

6 Months Ended

Jun. 25, 2022

EMPLOYEE RETENTION CREDIT

NOTE 10 - EMPLOYEE RETENTION CREDIT

NOTE 10 – EMPLOYEE RETENTION CREDIT

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 of Operations and as a receivable on the Balance Sheet. During the first quarter of 2022, we received a partial refund for the 2021 first quarter employee retention credit for our ENGlobal U.S., Inc. subsidiary.

XML

STOCKHOLDERS EQUITY

6 Months Ended

Jun. 25, 2022

Stockholders' Equity:

NOTE 11 - STOCKHOLDERS' EQUITY

NOTE 11 – STOCKHOLDERS’ EQUITY

On January 29, 2021, the Company entered into an at market issuance sales agreement (the “At Market Issuance Sales 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 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 Agreement. In April 2021, 400,538 shares of the Company’s common stock were issued and sold pursuant to the At Market Issuance Sales Agreement for net proceeds of approximately $1.4 million. On January 7, 2022, the At Market Issuance Sales 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 the filing with the SEC on March 11, 2022 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021, the Company’s registration statement on Form S-3 (File No. 333-252572), including the accompanying prospectus and related prospectus supplements related to the “at the market offering”, became subject 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 share 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 Company 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 its next Section 10(a)(3) update as required under the Securities Act. During the first half of 2022, $0.1 million in direct costs related to the ATM Agreement were recorded as a reduction of equity.

XML

LIQUIDITY

6 Months Ended

Jun. 25, 2022

LIQUIDITY

NOTE 12 - LIQUIDITY

NOTE 12 – LIQUIDITY

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.

As of June 25, 2022, the credit limit under the Revolving Credit Facility was $1.8 million and outstanding borrowings were $1.2 million, which yields enough interest to cover our minimum monthly interest charge. As of June 25, 2022, we were in compliance with all of the covenants under the Revolving Credit Facility. For additional information on the Revolving Credit Facility, see Note 5 – Debt.

On January 11, 2022, we entered into the ATM Agreement pursuant to which we may offer and sell shares of our 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 on the ATM Agreement, see Note 11 – Stockholders’ Equity.

We believe our cash on hand, internally generated funds, availability under the Revolving Credit Facility, and sales of common stock pursuant to the ATM Agreement, along with other working capital, will be sufficient to fund our current operations and expected activity for the next twelve months.

XML

ACQUISTION

6 Months Ended

Jun. 25, 2022

ACQUISTION

NOTE 13 - ACQUISTION

NOTE 13 – ACQUISTION

On May 18, 2022, ENG Calvert Holdings Ltd. (the “Purchaser”), a wholly owned subsidiary of the Company, completed the acquisition of Calvert Group Belgium NV (“Calvert”), a business that licenses small-scale gas to liquids (“GTL”) technology for flare gas 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 manufactured by the Company in the United States and subsequently shipped internationally.

Pursuant to the accounting guidance in ASC 805, we determined that 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 of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identified assets. The determination was based on the gross fair value of the acquisition being concentrated in the license agreement acquired.

The consideration transferred on the acquisition date included $0.8 million cash, net of cash acquired, and $0.5 million in common stock issued. In addition, we may pay up to approximately $1.4 million in cash and issue approximately $0.6 million in common stock if certain benchmarks are achieved. The Company capitalized $0.1 million in costs associated with the transaction.

XML

INTANGIBLE ASSETS

6 Months Ended

Jun. 25, 2022

INTANGIBLE ASSETS

NOTE 14 - INTANGIBLE ASSETS

NOTE 14 – INTANGIBLE ASSETS

                The Company has recognized a $2.8 million intangible asset for the license acquired.

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

	June 25, 2022			December 25, 2021
Licenses	$	2,816		$	—
Accumulated amortization		(70	)		—
Intangible assets, net of accumulated depreciation	$	2,746		$	—

                The components of amortization expense were as follows (in thousands):

	Financial Statement	Three Months Ended				Six Months Ended
	Classification	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
License leases:
Amortization expense	SG&A Expense		70		—		70		—
Total intangible asset amortization expense			70		—		70		—

                The weighted-average amortization period remaining is 5.17 years.

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

	Intagible Asset Amortization
2022 (remaining months)	$	265
2023		532
2024		532
2025		532
2026		532
2027		353
	$	2,746

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 the contingent consideration recorded at the present value of approximately $1.5 million. The estimated fair value of the contingent consideration was determined using a probability-weighted discounted cash flow model. We determined the fair value of the contingent consideration obligations by calculating the probability-weighted contingent consideration payments based on our assessment of the likelihood that the benchmarks will be achieved. The probability-weighted contingent consideration payments were then discounted using a discount rate based on the risk free rate 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 fair value of the contingent consideration is reviewed quarterly.

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

	Fair Value Measurement at June 25, 2022
	Level 1		Level 2		Level 3
Liabilities
Contingent consideration		—		—		1,355

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

	June 25, 2022		December 25, 2021
Opening balance	$	—	$	—
Contingent consideration in connection with acquisition		1,355		—
Ending balance	$	1,355	$	—

XML

REVENUE RECOGNITION (Tables)

6 Months Ended

Jun. 25, 2022

REVENUE RECOGNITION

Revenue By Contract Type

	For the Three Months Ended				For the Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Fixed-price revenue	$	8,891	$	6,528	$	14,099	$	14,793
Time-and-material revenue		2,464		4,551		4,622		8,735
Total Revenue		11,355		11,079		18,721		23,528

XML

CONTRACTS ASSETS AND CONTRACT LIABILITIES (Tables)

6 Months Ended

Jun. 25, 2022

CONTRACT ASSETS AND CONTRACT LIABILITIES

Costs, Estimated Earnings And Billings On Uncompleted Contracts

	June 25, 2022			December 25, 2021
Costs incurred on uncompleted contracts	$	47,537		$	36,429
Estimated earnings on uncompleted contracts		6,282			4,866
Earned revenues		53,819			41,295
Less: billings to date		50,506			39,172
Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts	$	3,313		$	2,123
Contract assets	$	5,645		$	4,177
Contract liabilities		(2,332	)		(2,054	)
Net contract assets	$	3,313		$	2,123

XML

DEBT (Tables)

6 Months Ended

Jun. 25, 2022

DEBT

Debt

	June 25, 2022			December 25, 2021
Revolving Credit Facility (1)	$	1,218		$	1,035
Amount due within one year		(1,218	)		—
Total long-term debt	$	—		$	1,035

Maturities Of Debt

	Revolving Credit Facility
2022	$	—
2023		1,218
2024 and thereafter		—
	$	1,218

XML

SEGMENT INFORMATION (Tables)

6 Months Ended

Jun. 25, 2022

SEGMENT INFORMATION

Segment Information

	Commercial			Government Services			Corporate			Consolidated
For the three months ended June 25, 2022:
Revenue	$	9,203		$	2,152		$	—		$	11,355
Gross profit		701			631			—			1,332
Gross profit margin		7.6	%		29.3	%					11.7	%
SG&A		1,605			172			1,113			2,890
Operating income (loss)		(904	)		459			(1,113	)		(1,558	)
Other income, net											21
Interest expense, net											(52	)
Tax benefit											56
Net loss											(1,533	)

	Commercial			Government Services			Corporate			Consolidated
For the three months ended June 26, 2021:
Revenue	$	9,157		$	1,922		$	—		$	11,079
Gross profit (loss)		(201	)		283			—			82
Gross profit (loss) margin		(2.2	)%		14.7	%					0.7	%
SG&A		2,816			188			1,260			4,264
Operating income (loss)		(3,017	)		95			(1,260	)		(4,182	)
Other income, net											6
Interest expense, net											(57	)
Tax expense											(23	)
Net loss											(4,256	)

	Commercial			Government Services			Corporate			Consolidated
For the six months ended June 25, 2022:
Revenue	$	14,606		$	4,115		$	—		$	18,721
Gross profit (loss)		(223	)		897			—			674
Gross profit (loss) margin		(1.5	)%		21.8	%					3.6	%
SG&A		3,096			390			2,247			5,733
Operating income (loss)		(3,319	)		507			(2,247	)		(5,059	)
Other income, net											31
Interest expense, net											(103	)
Tax expense											(22	)
Net loss											(5,153	)
	Commercial			Government Services			Corporate			Consolidated
For the six months ended June 26, 2021:
Revenue	$	19,206		$	4,322		$	—		$	23,528
Gross profit		714			372			—			1,086
Gross profit margin		3.7	%		8.6	%					4.6	%
SG&A		4,109			397			2,319			6,825
Operating loss		(3,395	)		(25	)		(2,319	)		(5,739	)
Other income, net											1,690
Interest expense, net											(115	)
Tax expense											(46	)
Net loss											(4,210	)

Schedule of total assets by segment

Total Assets by Segment	As of June 25, 2022		As of December 25, 2021
	(dollars in thousands)
Commercial	$	17,036	$	12,535
Government Services		2,881		3,788
Corporate		18,865		25,746
Consolidated	$	38,782	$	42,069

XML

LEASES (Tables)

6 Months Ended

Jun. 25, 2022

LEASES

Lease Expense

	Financial Statement	Three Months Ended				Six Months Ended
	Classification	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Finance leases:
Amortization expense	SG&A Expense	$	53	$	22	$	106	$	41
Interest expense	Interest expense, net		11		5		22		9
Total finance lease expense			64		27		128		50
Operating leases:
Operating costs	Operating costs		58		107		103		259
Selling, general and administrative expenses	SG&A Expense		465		416		876		865
Total operating lease expense			523		523		979		1,124
Total lease expense		$	587	$	550	$	1,107	$	1,174

Supplemental Balance Sheet Information Related To Leases

	Financial Statement Classification	June 25, 2022		December 25, 2021
ROU Assets:
Operating leases	Right of use asset	$	4,001	$	4,251
Finance leases	Property and equipment, net		796		979
Total ROU Assets:		$	4,797	$	5,230
Lease liabilities:
Current liabilities
Operating leases	Current portion of leases	$	1,093	$	1,153
Finance leases	Current portion of leases		200		236
Noncurrent Liabilities:
Operating leases	Long-term leases		3,086		3,269
Finance leases	Long-term leases		596		743
Total lease liabilities		$	4,975	$	5,401

Weighted Average Remaining Lease Term And Weighted Average Discount Rate

	At June 25, 2022
Weighted average remaining lease term (years)
Operating leases		4.8
Finance leases		4.0
Weighted average discount rate
Operating leases		0.9	%
Finance leases		8.1	%

Maturities Of Operating Lease Liabilities

Years ending:	Operating leases			Finance leases			Total
2022 (remaining months)		656			114			770
2023		923			228			1,151
2024		830			208			1,038
2025		620			173			793
2026		372			144			516
2027 and thereafter		817			—			817
Total lease payments		4,218			867			5,085
Less: imputed interest		(39	)		(71	)		(110	)
Total lease liabilities	$	4,179		$	796		$	4,975

XML

INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 25, 2022

INTANGIBLE ASSETS (Tables)

Schedule Of supplemental balance sheet information

	June 25, 2022			December 25, 2021
Licenses	$	2,816		$	—
Accumulated amortization		(70	)		—
Intangible assets, net of accumulated depreciation	$	2,746		$	—

Schedule Of component of amortization expense

	Financial Statement	Three Months Ended				Six Months Ended
	Classification	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
License leases:
Amortization expense	SG&A Expense		70		—		70		—
Total intangible asset amortization expense			70		—		70		—

Schedule Of amortization of our intangible asset

	Intagible Asset Amortization
2022 (remaining months)	$	265
2023		532
2024		532
2025		532
2026		532
2027		353
	$	2,746

Schedule of summary of company assets and liabilities

	Fair Value Measurement at June 25, 2022
	Level 1		Level 2		Level 3
Liabilities
Contingent consideration		—		—		1,355

Schedule of fair value of contingent consideration

	June 25, 2022		December 25, 2021
Opening balance	$	—	$	—
Contingent consideration in connection with acquisition		1,355		—
Ending balance	$	1,355	$	—

XML

REVENUE RECOGNITION (Details) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 25, 2022	Jun. 25, 2022	Jun. 26, 2021	Jun. 26, 2021	Jun. 25, 2022	Jun. 26, 2021	Jun. 26, 2021
Total Revenue	$ 11,355	$ 11,355	$ 11,079	$ 11,079	$ 18,721	$ 23,528	$ 23,528
Fixed-Price Revenue
Total Revenue	8,891			6,528	14,099	14,793
Time-and-Material Revenue
Total Revenue	$ 2,464			$ 4,551	$ 4,622	$ 8,735

XML

CONTRACT ASSETS AND CONTRACT LIABILITIES (Details) - USD ($) $ in Thousands	Jun. 25, 2022	Dec. 25, 2021
CONTRACT ASSETS AND CONTRACT LIABILITIES
Costs Incurred On Uncompleted Contracts	$ 47,537	$ 36,429
Estimated Earnings On Uncompleted Contracts	6,282	4,866
Earned Revenues	53,819	41,295
Less: Billings To Date	50,506	39,172
Net Costs And Estimated Earnings In Excess Of Billings (billings In Excess Of Costs) On Uncompleted Contracts	3,313	2,123
Contract Assets	5,645	4,177
Contract Liabilities	(2,332)	(2,054)
Net Contract Assets	$ 3,313	$ 2,123

XML

DEBT (Details) - USD ($) $ in Thousands	Jun. 25, 2022	Dec. 25, 2021
DEBT (Details)
Revolving Credit Facility	$ 1,218	$ 1,035
Amount Due Within One Year	1,218	0
Total Long-term Debt	$ 0	$ 1,035

XML

DEBT (Details 1) - Revolving Credit Facility $ in Thousands	Jun. 25, 2022 USD ($)
2022	$ 0
2023	1,218
2024 And Thereafter	0
Long term debt	$ 1,218

XML

DEBT (Details Narrative) - USD ($)	6 Months Ended
	Jun. 25, 2022	Dec. 25, 2021	May 21, 2020
Interest Rate Per Annum	2.00%
Interest Per Month	$ 7,500
Loan Fee Percentage	1.00%
Credit Limit Under Revolving Credit Facility	$ 1,218,000	$ 1,035,000
ENGlobal U S [Member]
Borrowers Of Revolving Loan			$ 6,000,000.0
Revolving Credit Facility
Credit Limit Under Revolving Credit Facility	$ 1,800,000
Borrowers Accounts Percentage			85.00%
Borrowering Unbilled Account Percentage			75.00%
Borrowers Unbilled Accounts			$ 3,000,000
Borrowers Fixed Price Accounts Percentages			20.00%
Borrowers Fixed Price Accounts Amount			$ 250,000
Maturity Date	May 20, 2023
Termination First Anniversary Rate	1.00%
Termination Fee Percentage	2.00%
Termination Second Anniversary Rate	0.05%

XML

SEGMENT INFORMATION (Details) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 25, 2022	Jun. 25, 2022	Jun. 26, 2021	Jun. 26, 2021	Jun. 25, 2022	Jun. 26, 2021	Jun. 26, 2021	Dec. 25, 2021
Revenue	$ 11,355	$ 11,355	$ 11,079	$ 11,079	$ 18,721	$ 23,528	$ 23,528
Gross profit		$ 1,332	$ 82		$ 674		$ 1,086
Gross Profit Margin		11.70%	0.70%		3.60%		4.60%
SG&A		$ 2,890	$ 4,264		$ 5,733		$ 6,825
Operating loss		(1,558)	(4,182)		(5,059)		(5,739)
Other Income, Net		21	6		31		1,690
Interest expense, net		(52)	(57)		(103)		(115)
Tax Expense		56	(23)		(22)		(46)
Net Income (loss)		(1,533)	(4,256)		(5,153)		(4,210)
Total Assets	38,782	38,782	42,069	42,069	38,782	42,069	42,069	$ 42,069
Commercial
Revenue		9,203	9,157		14,606		19,206
Gross profit		$ 701	$ (201)		$ (223)		$ 714
Gross Profit Margin		7.60%	(2.20%)		(1.50%)		3.70%
SG&A		$ 1,605	$ 2,816		$ 3,096		$ 4,109
Operating loss		(904)	(3,017)		(3,319)		(3,395)
Total Assets	17,036	17,036	12,535	12,535	17,036	12,535	12,535
Government Services
Revenue		2,152	1,922		4,115		4,322
Gross profit		$ 631	$ 283		$ 897		$ 372
Gross Profit Margin		29.30%	14.70%		21.80%		8.60%
SG&A		$ 172	$ 188		$ 390		$ 397
Operating loss		459	95		507		(25)
Total Assets	2,881	2,881	3,788	3,788	2,881	3,788	3,788
Corporate
Revenue		0	0		0		0
Gross profit		0	0		0		0
SG&A		1,113	1,260		2,247		2,319
Operating loss		(1,113)	(1,260)		(2,247)		(2,319)
Total Assets	$ 18,865	$ 18,865	$ 25,746	$ 25,746	$ 18,865	$ 25,746	$ 25,746

XML

FEDERAL AND STATE INCOME TAXES (Details Narrative) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 26, 2022	Jun. 25, 2022	Jun. 26, 2021	Jun. 25, 2021	Jun. 25, 2022	Jun. 26, 2021	Jun. 25, 2021
Valuation allowance					$ 2,100
Effective Income Tax Rate	3.50%			0.50%
Income tax expense	$ 56	$ (56)	$ 23	$ 23	$ 22	$ 46
P P P Loan Forgiveness And Stock Compensation [Member]
Effective Income Tax Rate					0.40%		1.10%
Federal And State Income Taxes [Member]
Provision for federal and state income taxes					$ 46		$ 22

XML

LEASES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 25, 2022	Jun. 26, 2021	Jun. 25, 2022	Jun. 26, 2021
Total finance lease expense	$ 64	$ 27	$ 128	$ 50
Total operating lease expense	523	523	979	1,124
Total lease expense	587	550	1,107	1,174
SG&A Expense
Total finance lease expense	53	22	106	41
Total operating lease expense	465	416	876	865
Interest Expense, Net
Total finance lease expense	11	5	22	9
Operating Costs
Total operating lease expense	$ 58	$ 107	$ 103	$ 259

XML

LEASES (Details 1) - USD ($) $ in Thousands	Jun. 25, 2022	Dec. 25, 2021
Rou Assets	$ 4,797	$ 5,230
Current Lease Liabilities - Operating Leases	1,093	1,153
Current Lease Liabilities - Finance Leases	200	236
Noncurrent Lease Liabilities - Operating Leases	3,086	3,269
Noncurrent Lease Liabilities - Finance Leases	596	743
Total Lease Liabilities	4,975	5,401
Rou Assets - Operating Leases	4,001	4,251
Property and Equipment, Net
Rou Assets - Finance Leases	796	979
Right of Use Asset
Rou Assets - Operating Leases	$ 4,001	$ 4,251

XML

LEASES (Details 2)	6 Months Ended
	Jun. 25, 2022
LEASES
Weighted Average Remaining Lease Term (years) - Operating Leases	4 years 9 months 18 days
Weighted Average Discount Rate - Operating Leases	0.90%
Weighted Average Remaining Lease Term (years) - Finance Leases	4 years
Weighted Average Discount Rate - Finance Leases	8.10%

XML

LEASES (Details 3) - USD ($) $ in Thousands	Jun. 25, 2022	Dec. 25, 2021
Operating Leases
2022	$ 656
2023	923
2024	830
2025	620
2026	372
2027 And Thereafter	817
Total Lease Payments	4,218
Less: Imputed Interest	(39)
Total Lease Liabilities	4,179
Finance Leases
2022	114
2023	228
2024	208
2025	173
2026	144
2027 And Thereafter	0
Total Lease Payments	867
Less: Imputed Interest	(71)
Total Lease Liabilities	796
Total
2022	770
2023	1,151
2024	1,038
2025	793
2026	516
2027 And Thereafter	817
Total Lease Payments	5,085
Less: Imputed Interest	110
Total Lease Liabilities	$ 4,975	$ 5,401

XML

EMPLOYEE RETENTION CREDIT (Details Narrative) - USD ($) $ in Millions	Sep. 25, 2022	Jun. 25, 2021
EMPLOYEE RETENTION CREDIT (Details Narrative)
Employee retention credit	$ 1.7	$ 1.4

XML

STOCKHOLDERS EQUITY (Details Narrative) - USD ($)		3 Months Ended		6 Months Ended
	Jan. 11, 2022	Jun. 25, 2022	Jun. 26, 2021	Jun. 25, 2022	Jun. 26, 2021	Mar. 07, 2022	Jun. 01, 2021	Apr. 30, 2021	Jan. 29, 2021
Direct Costs		$ 10,023,000	$ 10,997,000	$ 18,047,000	$ 22,442,000
ATM Agreement [Member]
Stock issued								400,538
Proceeds from stock issued				1,400,000
ATM Agreement [Member] | Lake Street Capital Markets L L C [Member]
Proceeds from stock issued	$ 30,000,000
Direct Costs				$ 100,000
Public Primary Offering Term				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
Public Float						$ 56.1
ATM Agreement [Member] | B. Riley Securities [Member]
Maximum offering price of common stock									$ 25,000,000
Percentage of gross sale price commission									3.00%
Purchase Agreement [Member]
Stock issued							7,142,859
Proceeds from stock issued				$ 18,700,000
Offering price							$ 2.80
Proffessional fees				$ 1,300,000

XML

LIQUIDITY (Details Narrative) - USD ($) $ in Millions	Jun. 25, 2022	Jun. 11, 2022
LIQUIDITY (Details Narrative)
Revolving credit facility amount	$ 1.8
Outstanding borrowings amount	$ 1.2
Securities aggregate offering price		$ 30.0

XML

ACQUISTION (Details Narrative) - USD ($) $ in Thousands	Jun. 25, 2022	Dec. 25, 2021
Common stock issued	$ 36	$ 35
Cash acquired	14,139	19,202
Additional cash	57,972	$ 57,403
Calvert Group Belgium [Member]
Common stock issued	500
Cash acquired	800
Additional cash	1,400
Common stock	600
Capitalized amount	$ 100

XML

INTANGIBLE ASSETS (Details) - USD ($)	1 Months Ended	3 Months Ended			6 Months Ended
	Dec. 25, 2021	Jun. 25, 2022	Jun. 25, 2022	Jun. 26, 2021	Jun. 25, 2022	Jun. 26, 2021
INTANGIBLE ASSETS
Licenses	$ 0		$ 2,816
Accumulated amortization	0	$ 70	(70)	$ 0	$ 70	$ 0
Intangible assets, net of accumulated depreciation	$ 0		$ 2,746

XML

INTANGIBLE ASSETS (Details 1) - USD ($)	1 Months Ended	3 Months Ended			6 Months Ended
	Dec. 25, 2021	Jun. 25, 2022	Jun. 25, 2022	Jun. 26, 2021	Jun. 25, 2022	Jun. 26, 2021
Total intangible asset amortization expense	$ 0	$ 70	$ (70)	$ 0	$ 70	$ 0
SG&A Expense
Total intangible asset amortization expense		$ 70		$ 0	$ 70	$ 0

XML

INTANGIBLE ASSETS (Details 2)	Jun. 25, 2022 USD ($)
INTANGIBLE ASSETS
2022 (remaining months)	$ 265
2023	532
2024	532
2025	532
2026	532
2027	353
Total	$ 2,746

XML

INTANGIBLE ASSETS (Details 3)	Jun. 25, 2022 USD ($)
Level 1
Liabilities
Contingent consideration	$ 0
Level 2
Liabilities
Contingent consideration	0
Level 3
Liabilities
Contingent consideration	$ 1,355

XML

INTANGIBLE ASSETS (Details 4) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 25, 2022	Dec. 25, 2021
INTANGIBLE ASSETS
Opening balance	$ 0	$ 0
Contingent consideration in connection with acquisition	1,355	0
Ending balance	$ 1,355	$ 0

XML

INTANGIBLE ASSETS (Details Narrative) - USD ($) $ in Millions	6 Months Ended
	Jun. 25, 2022	Jun. 26, 2022
INTANGIBLE ASSETS
weighted-average amortization period	5 years 2 months 1 day
Intangible assets		$ 2.8
Estimated fair value contingent consideration	$ 1.5
Risk free rate of return	10 year treasury rate