ENGLOBAL CORP - Quarter Report: 2016 March (Form 10-Q)

 

 

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

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

ENGlobal Corporation

(Exact name of registrant as specified in its charter)

Nevada

(State or other jurisdiction of

incorporation or organization)

88-0322261

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

	654 N. Sam Houston Parkway E., Suite 400, Houston, TX		77060-5914
	(Address of principal executive offices)		(Zip code)

Yes

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No

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Yes

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No

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	Large Accelerated Filer		o		Accelerated Filer		o
	Non-Accelerated Filer		o	(Do not check if a smaller reporting company)	Smaller Reporting Company		x

Yes

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No

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$0.001 Par Value Common Stock

27,833,427 shares

		Page Number
Part I.	Financial Information	3
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 26, 2016 and March 28, 2015	3
	Unaudited Condensed Consolidated Balance Sheets at March 26, 2016 and December 26, 2015	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 26, 2016 and March 28, 2015	5
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	15
Part II.	Other Information	16
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
	Signatures	19

		For the Three Months Ended
		March 26,  2016				March 28, 2015
Operating revenues		$	14,812			$	23,102
Operating costs			13,139				18,980
Gross profit			1,673				4,122
Selling, general and administrative expenses			3,390				4,004
Operating income (loss)			(1,717	)			118
Other income (expense):
Other income (expense), net			6				619
Interest expense, net			(36	)			(22	)
Income (loss) from operations before income taxes			(1,747	)			715
Provision (benefit) for federal and state income taxes			(998	)			92
Net (loss) income		$	(749	)		$	623
Basic and diluted (loss) income per common share:		$	(0.03	)		$	0.02
Basic and diluted weighted average shares used in computing earnings per share:			27,950				27,882

 

		March 26, 2016				December 26, 2015
ASSETS
Current Assets:
Cash and cash equivalents		$	11,785			$	7,806
Trade receivables, net of allowances of $377 and $1,150			19,326				24,097
Costs and estimated earnings in excess of billings on uncompleted contracts			3,520				4,062
Other current assets			1,099				1,459
Total Current Assets			35,730				37,424
Property and equipment, net			1,899				2,145
Goodwill			2,806				2,806
Deferred tax asset			10,181				9,137
Other assets			692				688
Total Assets		$	51,308			$	52,200
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable		$	2,946			$	3,182
Accrued compensation and benefits			3,421				3,086
Billings in excess of costs and estimated earnings on uncompleted contracts			3,948				3,912
Other current liabilities			1,545				1,690
Total Current Liabilities			11,860				11,870
Long Term Leases			316				318
Total Liabilities			12,176				12,188
Commitments and Contingencies (Note 7)
Stockholders' Equity:
Common stock - $0.001 par value; 75,000,000 shares authorized; 27,916,588 and 28,058,513 shares issued and outstanding at March 26, 2016 and December 26, 2015, respectively			28				28
Additional paid-in capital			37,054				37,185
Accumulated earnings			2,050				2,799
Total Stockholders' Equity			39,132				40,012
Total Liabilities and Stockholders' Equity		$	51,308			$	52,200

		For the Three Months Ended
		March 26, 2016				March 28, 2015
Cash Flows from Operating Activities:
Net income (loss)		$	(749	)		$	623
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			321				436
Share-based compensation expense			121				125
Loss on disposal of fixed assets			1				---
Non cash change in note receivable			---				(635	)
Deferred tax asset			(1,044	)			---
Changes in current assets and liabilities:
Trade accounts receivable			4,771				2,520
Costs and estimated earnings in excess of billings on uncompleted contracts			542				(260	)
Other current assets			326				164
Accounts payable			(236	)			(1,658	)
Accrued compensation and benefits			335				425
Billings in excess of costs and estimated earnings on uncompleted contracts			36				(1,506	)
Income taxes payable			25				(78	)
Other current liabilities, net			(77	)			(856	)
Net cash provided by (used in) operating activities		$	4,372			$	(700	)
Cash Flows from Investing Activities:
Proceeds from notes receivable			---				983
Property and equipment acquired			(45	)			(313	)
Net cash provided by (used in) investing activities		$	(45	)		$	670
Cash Flows from Financing Activities:
Debt issuance costs			---				(4)
Purchase of treasury stock			(253	)			----
Payments on capitalized leases			(95	)			(150	)
Net cash used in financing activities		$	(348	)		$	(154	)
Net change in cash			3,979				(184)
Cash and cash equivalents, at beginning of period			7,806				6,213
Cash and cash equivalents, at end of period		$	11,785			$	6,029
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	38			$	58
Cash paid during the period for income taxes (net of refunds)		$	20			$	170
Supplemental disclosure of noncash investing activities:
Property and equipment purchased through capital lease assignment		$	---			$	168

 

		March 26, 2016				December 26, 2015
		(dollars in thousands)
Costs incurred on uncompleted contracts		$	54,729			$	67,488
Estimated earnings (losses) on uncompleted contracts			22,237				27,492
Earned revenues			76,966				94,980
Less: billings to date			77,394				94,830
Net costs and estimated earnings in excess of billings on uncompleted contracts		$	(428	)		$	150
Costs and estimated earnings in excess of billings on uncompleted contracts		$	3,520			$	4,062
Billings in excess of costs and estimated earnings on uncompleted contracts			(3,948	)			(3,912	)
Net costs and estimated earnings in excess of billings on uncompleted contracts		$	(428	)		$	150

 

·	The Company will not be a party to mergers, acquisitions, consolidations, reorganizations or similar transactions.
·	The Company will not sell, lease, transfer or otherwise dispose of any of its properties or assets (subject to certain exceptions set forth in the Loan Agreement).
·	The Company will not declare, pay or make any dividend or distribution on any shares of common or preferred stock or make any cash payment to repurchase or otherwise retire any common or preferred stock, provided that the Company may repurchase up to $2 million of its common stock pursuant to its announced stock repurchase plan, subject to certain conditions.
·	The fixed charge coverage ratio must not be less than 1.10 to 1.00.
·	The Company will not permit capital expenditures during any fiscal year to exceed $3.5 million.

 

Segment information for the three months ended March 26, 2016 and March 28, 2015 is as follows (dollars in thousands):

Total Assets by Segment		As of March 26, 2016				As of December 26, 2015
		(dollars in thousands)
EPCM		$	8,931			$	13,009
Automation			18,167				19,570
Corporate			24,210				19,621
Consolidated		$	51,308			$	52,200

 

 

 

 

 

Operations Data		EPCM				Automation				Corporate				Consolidated
Three months ended March 26, 2016:
Revenue		$	8,527			$	6,285			$	—			$	14,812				100.0	%
Gross profit			634				1,039				—				1,673				11.3	%
SG&A			769				743				1,878				3,390				22.9	%
Operating income (loss)			(135	)			296				(1,878	)			(1,717	)			(11.6	)%
Other income															6
Interest expense, net															(36	)
Tax benefit															998
Net loss														$	(749	)			(5.1	)%
Diluted income (loss) per share														$	(0.03	)
Three months ended March 28, 2015:
Revenue		$	13,298			$	9,804			$	—			$	23,102				100.0	%
Gross profit			2,058				2,064				—				4,122				17.8	%
SG&A			724				706				2,574				4,004				17.3	%
Operating income (loss)			1,334				1,358				(2,574	)			118				0.5	%
Other income															619
Interest expense, net															(22	)
Tax expense															(92	)
Net income														$	623				2.7	%
Diluted income (loss) per share														$	0.02
Increase (Decrease) in Operating Results:
Revenue		$	(4,771	)		$	(3,519	)		$	—			$	(8,290	)			(35.9	)%
Gross profit (loss)			(1,424	)			(1,025	)			—				(2,449	)			(59.4	)%
SG&A			45				37				(696	)			(614	)			(15.4	)%
Operating income (loss)			(1,469	)			(1,062	)			696				(1,835	)			(1555.1	)%
Other income (expense)															(613	)
Interest expense, net															(14	)
Tax expense															1,090
Net loss														$	(1,372	)			(120.2	)%
Diluted income (loss) per share														$	(0.08	)

 

 

 

 

·  The Company will not be a party to mergers, acquisitions, consolidations, reorganizations or similar transactions.

·  The Company will not sell, lease, transfer or otherwise dispose of any of its properties or assets (subject to certain exceptions set forth in the Loan Agreement).

·  The Company will not declare, pay or make any dividend or distribution on any shares of common or preferred stock or make any cash payment to repurchase or otherwise retire any common or preferred stock, provided that the Company may repurchase up to $2 million of its common stock pursuant to its announced stock repurchase plan, subject to certain conditions.

·  The fixed charge coverage ratio must not be less than 1.10 to 1.00.

·  The Company will not permit capital expenditures during any fiscal year to exceed $3.5 million.

	· Difficulties in managing the staffing of our international operations, including hiring and retaining qualified employees · and transportation of employees to and from the region;
	· Difficulties and increased expense introducing corporate policies and controls in our international operations;
	· Increased expense to comply with foreign laws and legal standards, including laws that regulate pricing and promotion · activities and the import and export of information technology, which can be difficult to monitor and are often subject · to change;
	· Increased expense to comply with U.S. laws that apply to foreign operations, including the Foreign Corrupt Practices Act · and Office of Foreign Assets Control regulations;

	· Longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
	· Political, social and economic instability; and
	· Expropriation of assets by foreign governments.

 

 

Period		Total Number Of Shares Purchased				Average Price Paid per Share				Total number of shares purchased as part of publicly announced plans or programs (1)				Maximum Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (1)
August 25, 2015 to December 31, 2015			53,744			$	1.00				53,744			$	1,946,318
January 1, 2016 to January 31, 2016			123,388				0.89				177,132				1,836,324
February 1, 2016 to February 29, 2016			82,552				0.93				259,684				1,759,894
March 1, 2016 to March 26, 2016			58,671				1.11				318,355				1,694,816
Total			318,355			$	0.96				318,355			$	1,694,816

(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 or discontinued at any time. As of March 26, 2016, the Company had purchased 318,355 shares for an aggregate amount of $305 thousand under the repurchase program.

 

				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 August 8, 2002	10-Q	3.1	11/14/2002	001-14217
3.2			Amendment to the Restated Articles of Incorporation of the Registrant, filed with the Nevada Secretary of State on June 2, 2006	8-A12B	3.1	12/17/2007	001-14217
3.3			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 for the First Quarter 2015
*31.2			Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934 for the First Quarter 2015
*32.0			Certification Pursuant to Rule 13a – 14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the First Quarter 2015
*101.ins			XBRL instance document
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*101.def			XBRL taxonomy extension definition linkbase document
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Dated:	May 10, 2016
			ENGlobal Corporation
	By:		/s/ Mark A. Hess
			Mark A. Hess
			Chief Financial Officer