Form 10-Q - Quarterly report [Sections 13 or 15(d)]

Share Name	Share Symbol	Market	Type
ENGlobal Corp	NASDAQ:ENG	NASDAQ	Common Stock

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.00	0.00%	1.36	1.25	1.33				0	09:09:43

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2023

☐	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, 11^th 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 November 13, 2023, the registrant had outstanding 40,998,947 shares of common stock, par value $0.001 per share.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2023

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 Nine Months Ended September 30, 2023 and September 24, 2022	3

	Unaudited Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and September 24, 2022	5

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and September 24, 2022	6

	Notes to Unaudited Interim Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

Part II.	Other Information	28

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6.	Exhibits	31

	Signatures	32

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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 Nine Months Ended
	September 30, 2023			September 24, 2022			September 30, 2023			September 24, 2022
Operating revenues	$	9,450		$	13,056		$	32,381		$	31,777
Operating costs		7,613			12,392			32,748			30,439
Gross profit (loss)		1,837			664			(367	)		1,338

Selling, general and administrative expenses		2,512			2,920			10,850			8,653
Operating loss		(675	)		(2,256	)		(11,217	)		(7,315	)

Other income (expense):
Other income, net		3			5			52			36
Interest expense, net		(27	)		(63	)		(158	)		(166	)
Loss from continuing operations before income taxes		(699	)		(2,314	)		(11,323	)		(7,445	)

Provision for federal and state income taxes		22			21			66			43

Net loss		(721	)		(2,335	)		(11,389	)		(7,488	)

Basic and diluted loss per common share:	$	(0.02	)	$	(0.07	)	$	(0.29	)	$	(0.21	)

Basic and diluted weighted average shares used in computing loss per share:		40,830			35,802			39,591			35,492

See accompanying notes to unaudited interim condensed consolidated financial statements.

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ENGlobal Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

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

	September 30, 2023			December 31, 2022
ASSETS
Current Assets:
Cash	$	1,488		$	3,464
Trade receivables, net of allowances of $4,336 and $2,129		7,504			7,644
Prepaid expenses and other current assets		247			1,580
Payroll taxes receivable		102			1,547
Contract assets		4,716			4,934
Total Current Assets		14,057			19,169
Property and equipment, net		1,634			1,757
Goodwill		720			720
Other assets
Right-of-use asset		7,022			8,072
Deposits and other assets		280			305
Total Other Assets		7,302			8,377
Total Assets	$	23,713		$	30,023

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	7,086		$	4,454
Accrued compensation and benefits		2,616			2,002
Current portion of leases		1,626			1,849
Contract liabilities		1,866			956
Other current liabilities		277			1,134
Credit Agreement		1,018			—
Revolving Credit Facility		—			1,661
Total Current Liabilities		14,489			12,056

Long-term unearned revenue		388			425
Long-term leases		6,731			7,217
Total Liabilities		21,608			19,698
Commitments and Contingencies (Note 8)
Stockholders’ Equity:
Common stock - $0.001 par value; 75,000,000 shares authorized; 40,998,947 shares issued and outstanding at September 30, 2023 and 35,800,617 shares issued and outstanding at December 31, 2022		41			36
Additional paid-in capital		61,214			58,050
Accumulated deficit		(59,150	)		(47,761	)
Total Stockholders’ Equity		2,105			10,325
Total Liabilities and Stockholders’ Equity	$	23,713		$	30,023

See accompanying notes to unaudited interim condensed consolidated financial statements.

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ENGlobal Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(amounts in thousands)

	For the Nine Months Ended
	September 30, 2023			September 24, 2022
Cash Flows from Operating Activities:
Net loss	$	(11,389	)	$	(7,488	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		450			691
Share-based compensation expense		202			165
Loss on disposal of fixed assets		287			—
Impairment of ROU asset		197			—
Changes in current assets and liabilities:
Trade accounts receivable		140			(2,375	)
Contract assets		218			(1,643	)
Other current assets		2,803			1,369
Accounts payable		2,632			1,564
Accrued compensation and benefits		614			13
Contract liabilities		910			(834	)
Income taxes payable		10			(8	)
Other current liabilities, net		(904	)		64
Net cash used in operating activities	$	(3,830	)	$	(8,482	)

Cash Flows from Investing Activities:
Asset acquisition, net of cash acquired		—			(971	)
Property and equipment acquired		(277	)		(291	)
Net cash used in investing activities	$	(277	)	$	(1,262	)

Cash Flows from Financing Activities:
Common stock and warrants issued, net		2,962			—
At-the-market offering costs		—			(97	)
Payments on finance leases		(188	)		(233	)
Proceeds from Credit Agreement		1,018			—
Payments on revolving credit facility, net		(1,661	)		536
Net cash provided by financing activities	$	2,131		$	206
Net change in cash		(1,976	)		(9,538	)
Cash at beginning of period		3,464			19,202
Cash at end of period	$	1,488		$	9,664

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	158		$	167
Fair value of warrants at issuance date	$	2,782		$	—
Right of use assets obtained in exchange for new operating lease liability	$	524		$	4,864
Right of use assets obtained in exchange for new financing lease liability	$	289		$	—
Cash paid during the period for income taxes (net of refunds)	$	55		$	51
Asset acquisition, common stock issued	$	—		$	525
Asset acquisition, contingent consideration	$	—		$	1,380

See accompanying notes to unaudited interim condensed consolidated financial statements.

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ENGlobal Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(amounts in thousands)

	For the Three Months Ended
	September 30, 2023			September 24, 2022
Common Stock
Balance at beginning of period	$	40		$	36
Common stock issued		1			—
Balance at the end of the period		41			36
Additional Paid-in Capital
Balance at beginning of period		61,101			57,972
At-the-market offering costs		—			(30	)
Share-based compensation - employees		113			54
Balance at end of period		61,214			57,996

Accumulated Deficit
Balance at beginning of period		(58,429	)		(34,400	)
Net loss		(721	)		(2,335	)
Balance at end of period		(59,150	)		(36,735	)

Total Stockholders’ Equity	$	2,105		$	21,297

	For the Nine Months Ended
	September 30, 2023			September 24, 2022
Common Stock
Balance at beginning of period	$	36		$	35
Common stock issued		5			1
Balance at the end of the period		41			36
Additional Paid-in Capital
Balance at beginning of period		58,050			57,403
Proceeds from common stock issued, net		180			525
Fair value of warrants at issuance date		2,782			—
At-the-market offering costs		—			(97	)
Share-based compensation - employees		202			165
Balance at end of period		61,214			57,996

Accumulated Deficit
Balance at beginning of period		(47,761	)		(29,247	)
Net loss		(11,389	)		(7,488	)
Balance at end of period		(59,150	)		(36,735	)

Total Stockholders’ Equity	$	2,105		$	21,297

See accompanying notes to unaudited interim condensed consolidated financial statements.

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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 31, 2022, included in the Company’s 2022 Annual Report on Form 10-K filed with the SEC.

The condensed financial statements included herein are unaudited for the three- and nine-month periods ended September 30, 2023 and September 24, 2022, and in the case of the condensed balance sheet as of December 31, 2022 have been derived from the audited financial statements of the Company. These financial statements reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary to fairly present the results for the periods presented.

The Company has assessed subsequent events through the date of filing of these condensed financial statements with the SEC and believes that the disclosures made herein are adequate to make the information presented herein not misleading.

We had no items of other comprehensive income in any period presented; therefore, no other components of comprehensive income are presented.

For our fiscal year 2023, all four quarters will be comprised of 13 weeks each.

NOTE 2 – ACCOUNTING STANDARDS

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

Revenue Recognition – Our revenue is comprised of engineering, procurement and construction management services and sales of fabricated systems and integrated control systems that we design and assemble. 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.

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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.

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NOTE 3 – REVENUE RECOGNITION

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

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Fixed-price revenue	$	7,079	$	10,037	$	23,596	$	24,136
Time-and-material revenue		2,371		3,019		8,785		7,641
Total Revenue		9,450		13,056		32,381		31,777

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):

	September 30, 2023			December 31, 2022
Costs incurred on uncompleted contracts	$	26,942		$	59,298
Estimated earnings on uncompleted contracts		4,211			4,464
Earned revenues		31,153			63,762
Less: billings to date		28,303			59,784
Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts	$	2,850		$	3,978

Contract assets	$	4,716		$	4,934
Contract liabilities		(1,866	)		(956	)
Net contract assets	$	2,850		$	3,978

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NOTE 5 – DEBT

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

	September 30, 2023		December 31, 2022
Revolving Credit Facility (1)	$	—	$	1,661
Credit Agreement (2)		1,018		—
Priority Agreement (3)		—		—
Amount due within one year		1,018		1,661
Total long-term debt	$	—	$	—

	(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, which amount was subsequently reduced to $1.0 million on March 27, 2023, to $750,000 on May 22, 2023, and then to $500,000 on June 16, 2023 (the “Maximum Credit Limit”).

		On June 15, 2023, the Company repaid in full all indebtedness outstanding under the Revolving Credit Facility. The Revolving Credit Facility was closed on June 15, 2023.

	(2)	On June 15, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with Alliance 2000, Ltd., a Texas limited partnership (“Alliance”), pursuant to which Alliance has agreed, subject to certain terms and conditions, to extend up to two term loans in the aggregate principal amount of $1,250,000 to the Company (collectively, the “Term Loans”). In connection with entering into the Credit Agreement, (i) the Company and its subsidiaries, ENGlobal U.S., Inc., a Texas corporation, ENGlobal Government Services, Inc., a Texas corporation, and ENGlobal Technologies, LLC, a Texas limited liability company (collectively, the “Guarantors”), entered into a security agreement granting a security interest in favor of Alliance on substantially all of the Company’s and Guarantors’ assets to secure all of the indebtedness and other obligations owed to Alliance under the Credit Agreement and (ii) the Guarantors entered into a continuing guaranty pursuant to which the Guarantors guaranteed the payment of all indebtedness owed to Alliance.

		The Credit Agreement provides for an initial term loan of $1,000,000 and, under certain conditions, an additional term loan of $250,000. During the one-year term of the loan, the Company will make interest-only payments on a quarterly basis. The loan carries an annual interest rate of 8.5% and has an origination fee of 0.5%, payable upon maturity.

		The Credit Agreement matures on June 15, 2024.

	(3)	On March 27, 2023, the Company entered into an invoice factoring agreement with FundThrough USA, Inc. (the “Priority Agreement”). The agreement provides the flexibility to receive funds early for a subset of customers at a discount rate of 2.75% to 8.25% depending on the length of payment terms with the customer. As of September 30, 2023, the Company had factored $0.0 million outstanding receivables through the Priority Agreement.

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

	Credit Agreement

2023	$	—
2024		1,018
2025 and thereafter		—
	$	1,018

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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 management, 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.

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Segment information is as follows (dollars in thousands):

	Commercial			Government Services			Corporate			Consolidated
For the three months ended September 30, 2023:
Revenue	$	5,862			3,588			—			9,450
Gross profit		323			1,514			—			1,837
Gross profit margin		5.5	%		42.2	%					19.4	%
SG&A		1,203			161			1,148			2,512
Operating profit (loss)		(880	)		1,353			(1,148	)		(675	)
Other income, net											3
Interest expense, net											(27	)
Tax expense											(22	)
Net loss											(721	)

	Commercial			Government Services			Corporate			Consolidated
For the three months ended September 24, 2022:
Revenue	$	10,229			2,827			—			13,056
Gross profit (loss)		(368	)		1,032			—			664
Gross profit (loss) margin		(3.6	)%		36.5	%					5.1	%
SG&A		1,572			164			1,184			2,920
Operating profit (loss)		(1,940	)		868			(1,184	)		(2,256	)
Other income, net											5
Interest expense, net											(63	)
Tax expense											(21	)
Net loss											(2,335	)

	Commercial			Government Services			Corporate			Consolidated
For the nine months ended September 30, 2023:
Revenue	$	25,124			7,257			—			32,381
Gross profit (loss)		(2,479	)		2,112			—			(367	)
Gross profit (loss) margin		(9.9	)%		29.1	%					(1.1	)%
SG&A		6,448			438			3,964			10,850
Operating profit (loss)		(8,927	)		1,674			(3,964	)		(11,217	)
Other income, net											52
Interest expense, net											(158	)
Tax expense											(66	)
Net loss											(11,389	)

	Commercial			Government Services			Corporate			Consolidated
For the nine months ended September 24, 2022:
Revenue	$	24,835			6,942			—			31,777
Gross profit (loss)		(591	)		1,929			—			1,338
Gross profit (loss) margin		(2.4	)%		27.8	%					4.2	%
SG&A		4,668			554			3,431			8,653
Operating profit (loss)		(5,259	)		1,375			(3,431	)		(7,315	)
Other income, net											36
Interest expense, net											(166	)
Tax expense											(43	)
Net loss											(7,488	)

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

Total Assets by Segment	As of September 30, 2023		As of December 31, 2022
	(dollars in thousands)
Commercial	$	14,940	$	19,526
Government Services		4,940		2,032
Corporate		3,833		8,465
Consolidated	$	23,713	$	30,023

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

The Company recorded income tax expense of $22 thousand for the three months ended September 30, 2023 as compared to income tax expense of $21 thousand for the three months ended September 24, 2022. The effective income tax rate for the three months ended September 30, 2023 was (3.2)% as compared to (0.9)% for the three months ended September 24, 2022. The Company recorded income tax expense of $66 thousand for the nine months ended September 30, 2023 as compared to $43 thousand for the nine months ended September 24, 2022. The effective income tax rate for the nine months ended September 30, 2023 and September 24, 2022 was (0.6)%. 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.

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

At the beginning of the third quarter, the Company decided to stop self-performing certain low margin services as part of the restructuring of its overall business model. Accordingly, the Company evaluated the ongoing value of its shop leases that were used to support these services. Based on this evaluation, the Company determined that one of the right-of-use assets associated with these leases, with a carrying amount of $0.2 million, was no longer recoverable and was written down to $0.

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

		Three Months Ended				Nine Months Ended
	Financial Statement Classification	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Finance leases:
Amortization expense	SG&A Expense	$	61	$	53	$	176	$	159
Interest expense	Interest expense, net		13		11		39		33
Total finance lease expense			74		64		215		192

Operating leases:
Operating costs	Operating costs		23		86		710		189
Selling, general and administrative expenses	SG&A Expense		691		543		1,900		1,420
Total operating lease expense			714		629		2,610		1,609
Total lease expense		$	788	$	693	$	2,825	$	1,801

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

	Financial Statement Classification	September 30, 2023		December 31, 2022
ROU Assets:
Operating leases	Right of use asset	$	7,022	$	8,072
Finance leases	Property and equipment, net		863		761
Total ROU Assets:		$	7,885	$	8,833

Lease liabilities:
Current liabilities
Operating leases	Current portion of leases	$	1,353	$	1,638
Finance leases	Current portion of leases		273		211
Noncurrent Liabilities:
Operating leases	Long-term leases		6,141		6,669
Finance leases	Long-term leases		590		548
Total lease liabilities		$	8,357	$	9,066

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

	At September 30, 2023
Weighted average remaining lease term (years)
Operating leases		6.8
Finance leases		3.4
Weighted average discount rate
Operating leases		10.8	%
Finance leases		9.6	%

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Maturities of operating lease liabilities as of September 30, 2023 are as follows (dollars in thousands):

Years ending:	Operating leases			Finance leases			Total

2023 (remaining months)		291			82			373
2024		1,691			301			1,992
2025		1,395			264			1,659
2026		918			234			1,152
2027 and thereafter		4,108			74			4,182
Total lease payments		8,403			955			9,358
Less: imputed interest		(909	)		(92	)		(1,001	)
Total lease liabilities		7,494		$	863		$	8,357

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. As of September 30, 2023, we have received refunds for all of the employee retention credits.

NOTE 11 – STOCKHOLDERS’ EQUITY

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.

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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 Credit Agreement which matures on June 15, 2024.

As of September 30, 2023, the outstanding borrowings under the Credit Agreement were $1.0 million. As of September 30, 2023, we were in compliance with all of the covenants under the Credit Agreement. For additional information on the Credit Agreement, see Part I, Item 1, Note 5 – Debt.

On March 27, 2023, the Company entered into an invoice factoring agreement with FundThrough USA, Inc. (the “Priority Agreement”). The agreement provides the flexibility to receive funds early for a subset of customers at a discount rate of 2.75% to 8.25% depending on the length of payment terms with the customer. As of September 30, 2023, no receivables were factored through the Priority Agreement.

On January 11, 2022, the Company entered into the ATM Agreement with Lake Street pursuant to which the Company may offer and sell shares of the Company’s common stock having an aggregate offering price of up to $30 million to or through Lake Street, as sales agent, from time to time, in an “at the market offering”. The Company is not obligated to make any sales under the agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs. The Registration Statement, including the accompanying prospectus and related prospectus supplements related to the “at the market offering,” is subject to the provisions of General Instruction I.B.6 of Form S-3, which provides that we may not sell securities in a public primary offering with a value exceeding one-third of our public float in any twelve-month period unless our public float is at least $75 million. As of September 26, 2023, the Company’s public float (i.e., the aggregate market value of its outstanding equity securities held by non-affiliates) was approximately $10.8 million, based on the closing price per share of the Company’s common stock as reported on the Nasdaq Capital Market on September 26, 2023, as calculated in accordance with General Instruction I.B.6 of Form S-3. In addition, during the 12 calendar month period that ends on the date of the filing of this Report, we had offered and sold approximately $3.4 million of our common stock pursuant to the Registration Statement. If our public float meets or exceeds $75 million at any time, we will no longer be subject to the restrictions set forth in General Instruction I.B.6 of Form S-3, at least until the filing of our next Section 10(a)(3) update as required under the Securities Act.

On February 1, 2023, we entered into the RDO Purchase Agreement providing for the sale and issuance by the Company to a single institutional investor of the Shares of the Company’s common stock, at an offering price of $0.85 per Share in a registered direct offering pursuant to the Registration Statement. Concurrently with the sale of the Shares and pursuant to the RDO Purchase Agreement, the Company also sold and issued in a private placement, for no additional consideration to the investor, the Warrants to purchase up to 3,971,000 shares of the Company’s common stock. The net proceeds to the Company from the offerings were approximately $3.0 million after deducting the placement agent’s fees and related offering expenses, and excluding the proceeds, if any, from the exercise of the Warrants. The Company intends to use the net proceeds of the offering for working capital and general corporate purposes. The sale of the Shares pursuant to the RDO Purchase Agreement has reduced the amount of securities that we may sell in a primary offering pursuant to the Registration Statement, including pursuant to the ATM Agreement.

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

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.

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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.

NOTE 13 – FAIR VALUE MEASUREMENTS

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

	·	Level 1 - Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

	·	Level 2 - Observable inputs other than quoted prices in active markets that are either directly or indirectly observable.

	·	Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company measures the fair value of its warrants to purchase up to 3,971,000 shares of the Company’s common stock issued in connection with the RDO Purchase Agreement using a Black-Scholes model, which requires the use of several inputs, including the underlying stock price, exercise price, risk free rate, expected volatility, and time to expiration. The inputs used in the Black-Scholes model are classified as Level 2 inputs in the fair value hierarchy.

The following table provides a summary of the assumptions used in the Black-Scholes model to estimate the fair value of the warrants at issuance date of February 6, 2023:

Assumptions used:	Total

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

The Company considers these assumptions to be reasonable, based on the historical performance of the underlying stock and other market factors. However, actual results may differ from these estimates. We recorded the $2.8 million fair value of the warrants in additional paid-in capital on the issuance date. As the warrants are classified in equity, remeasurement is not required unless reclassification from equity is required. The warrant contract is reassessed at each balance sheet date for the appropriate classification.

NOTE 14 – RELATED PARTY TRANSACTIONS

On June 15, 2023, the Company entered into the Credit Agreement with Alliance, the family limited partnership of the Company’s Chairman and Chief Executive Officer, William A. Coskey, P.E. The Credit Agreement provides for an initial term loan of $1,000,000 and, under certain conditions, an additional term loan of $250,000. During the one-year term of the loan, the Company will make interest-only payments on a quarterly basis. The loan carries an annual interest rate of 8.5% and has an origination fee of 0.5%, payable upon maturity.

In connection with entering into the Credit Agreement, the Company and its subsidiaries, entered into a Security Agreement granting a security interest in favor of Alliance on substantially all of the Company’s and Guarantors’ assets to secure all of the indebtedness and other obligations owed to Alliance under the Credit Agreement and the Guarantors entered into a Continuing Guaranty pursuant to which the Guarantors guaranteed the payment of all indebtedness owed to Alliance.

Alliance is the beneficial owner of more than 22% of the Company’s issued and outstanding common stock and is controlled by William A. Coskey, P.E., the Company’s Chairman and Chief Executive Officer. In accordance with the charter of the Company’s Audit Committee and the Company’s policy on related party transactions, the loan documents and the resulting transactions were reviewed and approved by the Company’s Audit Committee and determined in good faith to be on terms no less favorable to the Company than could be obtained from unrelated third parties and fair to the Company from a financial point of view, and were approved by all of the disinterested members of the Company’s Board of Directors.

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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 31, 2022, and those described from time to time in our future reports filed with the SEC.

The following discussion is qualified in its entirety by, and should be read in conjunction with, the Company’s financial statements, including the notes thereto, included in this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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 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) Renewables, (ii) Automation, (iii) Oil, Gas, and Petrochemicals, and (iv) Government Services.

We have made significant reductions in our overhead structure as part of the internal business reorganization that we started in the first quarter of 2023. These cost reductions were primarily in headcount across all segments to better align the number of administrative staff needed to support our current volume of work and re-organize our corporate structure. We continue to evaluate our SG&A headcount and will reduce it as necessary to better align our costs with the volume of the business. We have also started and are continuing efforts to reduce our rent and insurance costs to bring our total SG&A costs in line with that of a company our size.

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Critical Accounting Policies Update

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

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.

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Comparison of the three months ended September 30, 2023 versus the three months ended September 24, 2022

The following table, for the three months ended September 30, 2023 versus the three months ended September 24, 2022, provides relevant financial data that is derived from our consolidated statements of operations (amounts in thousands except per share data).

	Commercial			Government Services			Corporate			Consolidated
For the three months ended September 30, 2023:
Revenue	$	5,862		$	3,588		$	—		$	9,450		100.0	%
Gross profit		323			1,514			—			1,837		19.4	%
SG&A		1,203			161			1,148			2,512		26.6	%
Operating income (loss)		(880	)		1,353			(1,148	)		(675	)	(7.1	)%
Other income, net											3
Interest expense, net											(27	)
Tax expense											(22	)
Net loss										$	(721	)	(7.6	)%
Basic and diluted loss per share										$	(0.02	)

	Commercial			Government Services			Corporate			Consolidated
For the three months ended September 24, 2022:
Revenue	$	10,229		$	2,827		$	—		$	13,056		100.0	%
Gross profit (loss)		(368	)		1,032			—			664		5.1	%
SG&A		1,572			164			1,184			2,920		22.4	%
Operating income (loss)		(1,940	)		868			(1,184	)		(2,256	)	(17.3	)%
Other income, net											5
Interest expense, net											(63	)
Tax expense											(21	)
Net loss										$	(2,335	)	(17.9	)%
Basic and diluted loss per share										$	(0.07	)

	Commercial			Government Services			Corporate			Consolidated
Year Over Year Increase (Decrease) in Operating Results:
Revenue	$	(4,367	)	$	761		$	—		$	(3,606	)	(27.6	)%
Gross profit (loss)		691			482			—			1,173		176.7	%
SG&A		(369	)		(3	)		(36	)		(408	)	(14.0	)%
Operating income (loss)		1,060			485			36			1,581		(70.1	)%
Other income, net											(2	)
Interest expense, net											36
Tax expense											(1	)
Net loss										$	1,614		(69.1	)%
Basic and diluted loss per share										$	0.05

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Comparison of the nine months ended September 30, 2023 versus the nine months ended September 24, 2022

The following table, for the nine months ended September 30, 2023 versus the nine months ended September 24, 2022, provides relevant financial data that is derived from our consolidated statements of operations (amounts in thousands except per share data).

	Commercial			Government Services			Corporate			Consolidated
For the nine months ended September 30, 2023:
Revenue	$	25,124		$	7,257		$	—		$	32,381		100.0	%
Gross profit (loss)		(2,479	)		2,112			—			(367	)	(1.1	)%
SG&A		6,448			438			3,964			10,850		33.5	%
Operating income (loss)		(8,927	)		1,674			(3,964	)		(11,217	)	(34.6	)%
Other income, net											52
Interest expense, net											(158	)
Tax expense											(66	)
Net loss										$	(11,389	)	(35.2	)%
Basic and diluted loss per share										$	(0.29	)

	Commercial			Government Services			Corporate			Consolidated
For the nine months ended September 24, 2022:
Revenue	$	24,835		$	6,942		$	—		$	31,777		100.0	%
Gross profit (loss)		(591	)		1,929			—			1,338		4.2	%
SG&A		4,668			554			3,431			8,653		27.2	%
Operating income (loss)		(5,259	)		1,375			(3,431	)		(7,315	)	(23.0	)%
Other income, net											36
Interest expense, net											(166	)
Tax expense											(43	)
Net loss										$	(7,488	)	(23.6	)%
Basic and diluted loss per share										$	(0.21	)

	Commercial			Government Services			Corporate			Consolidated
Year Over Year Increase (Decrease) in Operating Results:
Revenue	$	289		$	315		$	—		$	604		1.9	%
Gross loss		(1,888	)		183			—			(1,705	)	(127.4	)%
SG&A		1,780			(116	)		533			2,197		25.4	%
Operating loss		(3,668	)		299			(533	)		(3,902	)	53.3	%
Other income, net											16
Interest expense, net											8
Tax expense											(23	)
Net loss										$	(3,901	)	52.1	%
Basic and diluted loss per share										$	(0.08	)

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Revenue – Revenue decreased $3.6 million to $9.5 million from $13.1 million, or a decrease of 27.6%, for the three months ended September 30, 2023 as compared to the three months ended September 24, 2022. Our 2023 revenue for the Commercial segment decreased primarily due to a large project that ended in 2022 without subsequent renewal, partially offset by project awards with new customers for projects that were completed during the third quarter of 2023. Our 2023 revenue for the Government Services segment increased primarily due to new projects awards.

Revenue increased $0.6 million to $32.4 million from $31.8 million, or an increase of 1.9%, for the nine months ended September 30, 2023 as compared to the nine months ended September 24, 2022. The increase is primarily due to the completion of several projects from new customers within our Commercial segment in the 2023 period.

Gross Profit (Loss) – Gross profit (loss) margin increased 14.3% to 19.4% from 5.1% for the three months ended September 30, 2023 as compared to the three months ended September 24, 2022. The increase in gross profit (loss) margin is primarily attributable to a change order awarded to our Government Services group to cover excess material purchases on a large project.

Gross profit (loss) margin decreased 5.3% to (1.1)% from 4.2% for the nine months ended September 30, 2023 as compared to the nine months ended September 24, 2022. The decrease in gross profit (loss) margin is primarily attributable to the inefficient use of personnel and equipment to complete projects where we were unable to secure additional change orders to cover costs, partially offset by a change order awarded to our Government Services group to cover excess material purchases on a large project.

Selling, General and Administrative Expense – SG&A expenses decreased $0.4 million for the three months ended September 30, 2023 as compared to the three months ended September 24, 2022 due to a $0.7 million decrease in salaries and burden expense and a $0.1 million decrease in travel expense, partially offset by a $0.2 million increase in legal fees and a $0.2 million impairment of an ROU asset related to one of our shop leases.

SG&A expenses increased by $2.2 million for the nine months ended September 30, 2023 as compared to the nine months ended September 24, 2022 due to a $2.2 million bad debt reserve recorded during the 2023 period with no comparable occurrence in 2022, a $0.3 million increase in facility expense as we moved our fabrication shop to a new location, a $0.2 million impairment of an ROU asset related to one of our shop leases, a $0.2 million increase in legal expense, a $0.1 million increase in computer software and hardware expense, a $0.1 million increase in accounting fees, and a $0.1 million increase in early payment fees, partially offset by a decrease in salary expense of $1.0 million and a decrease in travel expense of $0.1 million.

Other Income (Expense), Net – Other income, net of expense, decreased $2 thousand for the three months ended September 30, 2023 as compared to the three months ended September 24, 2022.

Other income, net of expense, increased $16 thousand for the nine months ended September 30, 2023 as compared to the nine months ended September 24, 2022.

Interest Expense, net – Interest expense is incurred primarily in connection with our Credit Agreement and our finance leases. Our interest expense decreased $36 thousand for the three months ended September 30, 2023 from $63 thousand for the three months ended September 24, 2022.

Our interest expense decreased to $158 thousand for the nine months ended September 30, 2023 from $166 thousand for the nine months ended September 24, 2022.

Tax Expense – Tax expense is incurred primarily for our state franchise taxes. We recorded income tax expense of $22 thousand for the three months ended September 30, 2023 compared to income tax expense of $21 thousand for the three months ended September 24, 2022.

We recorded income tax expense of $66 thousand for the nine months ended September 30, 2023 compared to $43 thousand for the nine months ended September 24, 2022.

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Net Income (Loss) – Net loss for the three months ended September 30, 2023 was $0.7 million, or a $1.6 million decrease from a net loss of $2.3 million for the three months ended September 24, 2022, primarily as a result of the change order awarded to our Government Services group to cover excess material purchases on a large project and the decreased selling, general, and administrative expense, partially offset by inefficient execution of projects which resulted in a decreased gross profit (loss) margin.

Net loss for the nine months ended September 30, 2023 was $11.4 million, or a $3.9 million increase from net loss of $7.5 million for the nine months ended September 24, 2022, primarily as a result of a $1.6 million loss in the construction and field services business, $0.7 million of underutilized personnel expense, a $2.2 million increase in bad debt reserve, and increased facility costs of $0.3 million primarily related to our Brookshire fabrication shop, partially offset by the change order awarded to our Government Services group to cover excess material purchases on a large project.

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 Credit Agreement which matures on June 15, 2024. We had cash of approximately $1.5 million at September 30, 2023 and $3.5 million at December 31, 2022. Our working capital as of September 30, 2023 was $(0.4) million versus $7.1 million as of December 31, 2022.

On January 11, 2022, we entered into a sales agreement (the “ATM Agreement”) with Lake Street Capital Markets, LLC (“Lake Street”) pursuant to which we may offer and sell shares of the Company’s common stock having an aggregate offering price of up to $30 million to or through Lake Street, as sales agent, from time to time, in an “at the market offering”. The Company is not obligated to make any sales under the agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs. The Company’s registration statement on Form S-3 (the “Registration Statement”) filed with the SEC on January 29, 2021, including the accompanying prospectus and related prospectus supplements related to the “at the market offering”, is subject to the provisions of General Instruction I.B.6 of Form S-3, which provides that we may not sell securities in a public primary offering with a value exceeding one-third of our public float in any twelve-month period unless our public float is at least $75 million. As of September 26, 2023, the Company’s public float (i.e., the aggregate market value of its outstanding equity securities held by non-affiliates) was approximately $10.8 million, based on the closing price per share of the Company’s common stock as reported on the Nasdaq Capital Market on September 26, 2023, as calculated in accordance with General Instruction I.B.6 of Form S-3. In addition, during the 12 calendar month period that ends on the date of the filing of this Report, we had offered and sold approximately $3.4 million of our common stock pursuant to the Registration Statement. If our public float meets or exceeds $75 million at any time, we will no longer be subject to the restrictions set forth in General Instruction I.B.6 of Form S-3, at least until the filing of our next Section 10(a)(3) update as required under the Securities Act.

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

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Cash Flows from Operating Activities

Operating activities used $3.8 million of cash for the nine months ended September 30, 2023. The primary drivers of our cash used in operations for the nine months ended September 30, 2023 were our operating loss of $11.4 million and a decrease of other current liabilities of $0.9 million, partially offset by cash provided by a decrease in other current assets of $2.8 million, an increase in trade payables of $2.6 million, a decrease in contract assets net of contract liabilities of $1.1 million, $1.2 million from other components of working capital, an increase in accrued compensation and benefits of $0.6 million, and a decrease in trade receivables of $0.1 million.

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

Cash Flows from Investing Activities

Investing activities used cash of $0.3 million for the nine months ended September 30, 2023 primarily for the purchase of personal property and equipment.

Investing activities used cash of $1.3 million for the nine months ended September 24, 2022 primarily related to the Calvert acquisition in addition to the purchase of personal property and equipment.

Cash Flows from Financing Activities

Financing activities provided $2.1 million of cash for the nine months ended September 30, 2023 primarily due to proceeds received from the issuance of common stock under the RDO Purchase Agreement, net of issuance costs, and the Credit Agreement entered into during the second quarter of 2023, partially offset by cash used for payments for our finance leases and payments under the Revolving Credit Facility. The Revolving Credit Facility was repaid during the second quarter of 2023.

Financing activities provided cash of $0.2 million of cash for the nine months ended September 24, 2022 primarily from the Revolving Credit Facility, partially offset by costs associated with the ATM Agreement and payments for our finance leases.

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Contractual Obligations

The Company is obligated to make future cash payments under the Credit Agreement, operating leases, finance leases, and other liabilities. Amounts below are undiscounted and may differ from balances reflected on the financial statements. The table below sets forth certain information about our contractual obligations as of September 30, 2023 (in thousands):

	Payment Due by Fiscal Period
	2023		2024		2025		2026		2027 and thereafter
Operating and finance leases	$	373	$	1,992	$	1,659	$	1,152	$	4,182
Credit Agreement		—		1,018		—		—		—
Total	$	373	$	3,010	$	1,659	$	1,152	$	4,182

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

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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 September 30, 2023, as required by Rule 13a-15 of the Exchange Act. Based on the evaluation described above, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2023, our disclosure controls and procedures were effective insofar as they are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting occurred during the three months ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 31, 2022, which outline factors that could materially affect our business, financial condition or future results, and the additional risk factors below. These risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditions or operating results.

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

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

We do not have material borrowing capacity under our Credit Agreement, which matures on June 15, 2024, which may limit our ability to finance operations or engage in other business activities, which could have a material impact on our financial condition. As of September 30, 2023, we have outstanding borrowings of $1.0 million under the Credit Agreement, which matures on June 15, 2024. The terms of the Credit Agreement allow for an additional term loan of $0.3 million at the lender’s discretion. The limited availability under the Credit Agreement may limit our ability to finance operations or engage in other business activities, which could have a material impact on our financial condition.

The COVID–19 pandemic has adversely affected and could continue to adversely affect our business, financial condition and results of operations. Our business is dependent upon the willingness and ability of our customers to conduct transactions with us. The COVID–19 pandemic has caused severe disruptions in the worldwide economy, including the global demand for oil and natural gas. 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 resurgence of COVID–19 in our market areas. The COVID–19 pandemic may also negatively impact the availability of our key personnel necessary to conduct our business as well as the business and operations of third-party service providers who perform critical services for our business. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the impact on our business, financial condition and results of operations remains uncertain and difficult to predict. If COVID–19 resurgences or if the response to contain the COVID-19 pandemic is unsuccessful, we could experience a material adverse effect on our business, financial condition, and results of operations.

If we are unable to collect our receivables, our results of operations and cash flows could be adversely affected. Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed and materials supplied. In the ordinary course of business, we extend unsecured credit to our customers. We may also agree to allow our customers to defer payment on projects until certain milestones have been met or until the projects are substantially completed, and customers typically withhold some portion of amounts due to us as retainage. As of September 30, 2023, we had projects that totaled less than $0.1 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.

Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future revenue or earnings. As of September 30, 2023, our backlog was approximately $15.5 million which was a decrease of $4.9 million from $20.4 million as of December 31, 2022. We expect a majority of this backlog to be completed within the next 12 months. We cannot assure investors that the revenue projected in our backlog will be realized or, if realized, will result in profits. Projects currently in our backlog may be canceled or may remain in our backlog for an extended period of time prior to project execution and, once project execution begins, it may occur unevenly over the current and multiple future periods. In addition, project terminations, suspensions or reductions in scope occur from time to time with respect to contracts reflected in our backlog, reducing the revenue and profit we actually receive from contracts reflected in our backlog. Future project cancellations and scope adjustments could further reduce the dollar amount of our backlog in addition to the revenue and profits that we actually earn. The potential for cancellations and adjustments to our backlog are exacerbated by economic conditions, particularly in our chosen area of concentration, the energy industry. The energy industry has experienced a sustained period of low crude oil and natural gas prices which has reduced our clients’ activities in the energy industry.

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

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 third quarter of 2023:

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)
July 2, 2023 to July 29, 2023		—		—		—	$	—
July 30, 2023 to September 2, 2023		—		—		—	$	—
September 3, 2023 to September 30, 2023		—		—		—	$	—
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 September 30, 2023, the Company had purchased and retired 1,290,460 shares at an aggregate cost of $1.6 million under this repurchase program. Management does not intend to repurchase any shares in the near future.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

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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

3.3	Amendment to Article Fourth of ENGlobal’s Restated Articles of Incorporation, filed on June 29, 2023	8-K	3.1	7/3/2023	001-14217

4.1	Form of Common Stock Purchase Warrant	8-K	4.1	2/3/2023	001-14217

*10.1	First Amendment to Sublease Agreement between FMC Technologies, Inc. and ENGlobal U.S., Inc. dated August 22, 2023

*10.2	Fourteenth Amendment to the Lease Agreement between Oral Roberts University and ENGlobal U.S., Inc. dated September 1, 2023

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

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

**32.1	Certification Pursuant to Rule 13a – 14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Third Quarter 2019

*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

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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: November 13, 2023
	ENGlobal Corporation

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

nullnullnullnullnull

Cover - shares	9 Months Ended
Cover - shares	Sep. 30, 2023	Nov. 09, 2023
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	Sep. 30, 2023
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2023
Entity Common Stock Shares Outstanding		40,998,947
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
Document Quarterly Report	true
Document Transition Report	false
Entity Interactive Data Current	Yes

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 24, 2022	Sep. 30, 2023	Sep. 24, 2022
Condensed Consolidated Statements of Operations (Unaudited)
Operating revenues	$ 9,450	$ 13,056	$ 32,381	$ 31,777
Operating costs	7,613	12,392	32,748	30,439
Gross profit (loss)	1,837	664	(367)	1,338
Selling, general and administrative expenses	2,512	2,920	10,850	8,653
Operating loss	(675)	(2,256)	(11,217)	(7,315)
Other income (expense):
Other income, net	3	5	52	36
Interest expense, net	(27)	(63)	(158)	(166)
Loss from continuing operations before income taxes	(699)	(2,314)	(11,323)	(7,445)
Provision for federal and state income taxes	22	21	66	43
Net loss	$ (721)	$ (2,335)	$ (11,389)	$ (7,488)
Basic and diluted loss per common share:	$ (0.02)	$ (0.07)	$ (0.29)	$ (0.21)
Basic and diluted weighted average shares used in computing loss per share:	40,830	35,802	39,591	35,492

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Current Assets:
Cash	$ 1,488	$ 3,464
Trade receivables, net of allowances of $4,336 and $2,129	7,504	7,644
Prepaid expenses and other current assets	247	1,580
Payroll taxes receivable	102	1,547
Contract assets	4,716	4,934
Total Current Assets	14,057	19,169
Property and equipment, net	1,634	1,757
Goodwill	720	720
Other assets
Right-of-use asset	7,022	8,072
Deposits and other assets	280	305
Total Other Assets	7,302	8,377
Total Assets	23,713	30,023
Current Liabilities:
Accounts payable	7,086	4,454
Accrued compensation and benefits	2,616	2,002
Current portion of leases	1,626	1,849
Contract liabilities	1,866	956
Other current liabilities	277	1,134
Credit Agreement	1,018	0
Revolving Credit Facility	0	1,661
Total Current Liabilities	14,489	12,056
Long-term unearned revenue	388	425
Long-term leases	6,731	7,217
Total Liabilities	21,608	19,698
Stockholders' Equity:
Common stock - $0.001 par value; 75,000,000 shares authorized; 40,998,947 shares issued and outstanding at September 30, 2023 and 35,800,617 shares issued and outstanding at December 31, 2022	41	36
Additional paid-in capital	61,214	58,050
Accumulated deficit	(59,150)	(47,761)
Total Stockholders' Equity	2,105	10,325
Total Liabilities and Stockholders' Equity	$ 23,713	$ 30,023

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Condensed Consolidated Balance Sheets
Trade Receivables, Allowances	$ 4,336	$ 2,129
Common Stock, Par Value	$ 0.001	$ 0.001
Common Stock, Shares Authorized	75,000,000	75,000,000
Common Stock, Shares Issued	40,998,947	35,800,617
Common Stock, Shares Outstanding	40,998,947	35,800,617

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) shares in Thousands, $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 24, 2022
Cash Flows from Operating Activities:
Net loss	$ (11,389)	$ (7,488)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	450	691
Share-based compensation expense	202	165
Loss on disposal of fixed assets	287	0
Impairment of ROU asset	197	0
Changes in current assets and liabilities:
Trade accounts receivable	140	(2,375)
Contract assets	218	(1,643)
Other current assets	2,803	1,369
Accounts payable	2,632	1,564
Accrued compensation and benefits	614	13
Contract liabilities	910	(834)
Income taxes payable	10	(8)
Other current liabilities, net	(904)	64
Net cash used in operating activities	(3,830)	(8,482)
Cash Flows from Investing Activities:
Asset acquisition, net of cash acquired	0	(971)
Property and equipment acquired	(277)	(291)
Net cash used in investing activities	(277)	(1,262)
Cash Flows from Financing Activities:
Common stock and warrants issued, net	2,962	0
At-the-market offering costs	0	(97)
Payments on finance leases	(188)	(233)
Proceeds from Credit Agreement	1,018	0
Payments on revolving credit facility, net	(1,661)	536
Net cash provided by financing activities	2,131	206
Net change in cash	(1,976)	(9,538)
Cash at beginning of period	3,464	19,202
Cash at end of period	1,488	9,664
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	158	167
Fair value of warrants at issuance date	2,782	0
Right of use assets obtained in exchange for new operating lease liability	524	4,864
Right of use assets obtained in exchange for new financing lease liability	289	0
Cash paid during the period for income taxes (net of refunds)	$ 55	$ 51
Asset acquisition, common stock issued	0	525
Asset acquisition, contingent consideration	$ 0	$ 1,380

Condensed Consolidated Statements of Stockholders Equity (Unaudited)) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Retained Earnings (Accumulated Deficit)
Balance, amount at Dec. 31, 2021		$ 35	$ 57,403	$ (29,247)
Common stock issued		1
Proceeds from common stock issued, net			525
Fair value of warrants at issuance date			0
Net Income (Loss)	$ (7,488)			(7,488)
At-the-market offering costs			(97)
Share-based compensation - employees			165
Balance, amount at Sep. 24, 2022	21,297	36	57,996	(36,735)
Balance, amount at Jun. 30, 2022			57,972	(34,400)
Net Income (Loss)	(2,335)			(2,335)
At-the-market offering costs			(30)
Share-based compensation - employees			54
Balance, amount at Sep. 24, 2022	21,297	36	57,996	(36,735)
Balance, amount at Dec. 31, 2022	10,325		58,050	(47,761)
Common stock issued		5
Proceeds from common stock issued, net			180
Fair value of warrants at issuance date			2,782
Net Income (Loss)	(11,389)			(11,389)
At-the-market offering costs			0
Share-based compensation - employees			202
Balance, amount at Sep. 30, 2023	2,105	41	61,214	(59,150)
Balance, amount at Jun. 30, 2023		40	61,101	(58,429)
Net Income (Loss)	(721)			(721)
At-the-market offering costs		0
Share-based compensation - employees			113
Balance, amount at Sep. 30, 2023	$ 2,105	$ 41	$ 61,214	$ (59,150)

BASIS OF PRESENTATION

3 Months Ended

Sep. 30, 2023

BASIS OF PRESENTATION

BASIS OF PRESENTATION

NOTE 1 – BASIS OF PRESENTATION

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 2023, all four quarters will be comprised of 13 weeks each.

ACCOUNTING STANDARDS

9 Months Ended

Sep. 30, 2023

ACCOUNTING STANDARDS

ACCOUNTING STANDARDS

NOTE 2 – ACCOUNTING STANDARDS

REVENUE RECOGNITION

9 Months Ended

Sep. 30, 2023

REVENUE RECOGNITION

REVENUE RECOGNITION

NOTE 3 – REVENUE RECOGNITION

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

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Fixed-price revenue	$	7,079	$	10,037	$	23,596	$	24,136
Time-and-material revenue		2,371		3,019		8,785		7,641
Total Revenue		9,450		13,056		32,381		31,777

CONTRACT ASSETS AND CONTRACT LIABILITIES

9 Months Ended

Sep. 30, 2023

CONTRACT ASSETS AND CONTRACT LIABILITIES

CONTRACT ASSETS AND CONTRACT LIABILITIES

NOTE 4 – CONTRACT ASSETS AND CONTRACT LIABILITIES

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

	September 30, 2023			December 31, 2022
Costs incurred on uncompleted contracts	$	26,942		$	59,298
Estimated earnings on uncompleted contracts		4,211			4,464
Earned revenues		31,153			63,762
Less: billings to date		28,303			59,784
Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts	$	2,850		$	3,978

Contract assets	$	4,716		$	4,934
Contract liabilities		(1,866	)		(956	)
Net contract assets	$	2,850		$	3,978

DEBT

9 Months Ended

Sep. 30, 2023

DEBT

DEBT

NOTE 5 – DEBT

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

	September 30, 2023		December 31, 2022
Revolving Credit Facility (1)	$	—	$	1,661
Credit Agreement (2)		1,018		—
Priority Agreement (3)		—		—
Amount due within one year		1,018		1,661
Total long-term debt	$	—	$	—

	(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, which amount was subsequently reduced to $1.0 million on March 27, 2023, to $750,000 on May 22, 2023, and then to $500,000 on June 16, 2023 (the “Maximum Credit Limit”).

		On June 15, 2023, the Company repaid in full all indebtedness outstanding under the Revolving Credit Facility. The Revolving Credit Facility was closed on June 15, 2023.

	(2)	On June 15, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with Alliance 2000, Ltd., a Texas limited partnership (“Alliance”), pursuant to which Alliance has agreed, subject to certain terms and conditions, to extend up to two term loans in the aggregate principal amount of $1,250,000 to the Company (collectively, the “Term Loans”). In connection with entering into the Credit Agreement, (i) the Company and its subsidiaries, ENGlobal U.S., Inc., a Texas corporation, ENGlobal Government Services, Inc., a Texas corporation, and ENGlobal Technologies, LLC, a Texas limited liability company (collectively, the “Guarantors”), entered into a security agreement granting a security interest in favor of Alliance on substantially all of the Company’s and Guarantors’ assets to secure all of the indebtedness and other obligations owed to Alliance under the Credit Agreement and (ii) the Guarantors entered into a continuing guaranty pursuant to which the Guarantors guaranteed the payment of all indebtedness owed to Alliance.

		The Credit Agreement provides for an initial term loan of $1,000,000 and, under certain conditions, an additional term loan of $250,000. During the one-year term of the loan, the Company will make interest-only payments on a quarterly basis. The loan carries an annual interest rate of 8.5% and has an origination fee of 0.5%, payable upon maturity.

		The Credit Agreement matures on June 15, 2024.

	(3)	On March 27, 2023, the Company entered into an invoice factoring agreement with FundThrough USA, Inc. (the “Priority Agreement”). The agreement provides the flexibility to receive funds early for a subset of customers at a discount rate of 2.75% to 8.25% depending on the length of payment terms with the customer. As of September 30, 2023, the Company had factored $0.0 million outstanding receivables through the Priority Agreement.

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

	Credit Agreement

2023	$	—
2024		1,018
2025 and thereafter		—
	$	1,018

SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2023

SEGMENT INFORMATION

SEGMENT INFORMATION

NOTE 6 – SEGMENT INFORMATION

	Commercial			Government Services			Corporate			Consolidated
For the three months ended September 30, 2023:
Revenue	$	5,862			3,588			—			9,450
Gross profit		323			1,514			—			1,837
Gross profit margin		5.5	%		42.2	%					19.4	%
SG&A		1,203			161			1,148			2,512
Operating profit (loss)		(880	)		1,353			(1,148	)		(675	)
Other income, net											3
Interest expense, net											(27	)
Tax expense											(22	)
Net loss											(721	)

	Commercial			Government Services			Corporate			Consolidated
For the three months ended September 24, 2022:
Revenue	$	10,229			2,827			—			13,056
Gross profit (loss)		(368	)		1,032			—			664
Gross profit (loss) margin		(3.6	)%		36.5	%					5.1	%
SG&A		1,572			164			1,184			2,920
Operating profit (loss)		(1,940	)		868			(1,184	)		(2,256	)
Other income, net											5
Interest expense, net											(63	)
Tax expense											(21	)
Net loss											(2,335	)

	Commercial			Government Services			Corporate			Consolidated
For the nine months ended September 30, 2023:
Revenue	$	25,124			7,257			—			32,381
Gross profit (loss)		(2,479	)		2,112			—			(367	)
Gross profit (loss) margin		(9.9	)%		29.1	%					(1.1	)%
SG&A		6,448			438			3,964			10,850
Operating profit (loss)		(8,927	)		1,674			(3,964	)		(11,217	)
Other income, net											52
Interest expense, net											(158	)
Tax expense											(66	)
Net loss											(11,389	)

	Commercial			Government Services			Corporate			Consolidated
For the nine months ended September 24, 2022:
Revenue	$	24,835			6,942			—			31,777
Gross profit (loss)		(591	)		1,929			—			1,338
Gross profit (loss) margin		(2.4	)%		27.8	%					4.2	%
SG&A		4,668			554			3,431			8,653
Operating profit (loss)		(5,259	)		1,375			(3,431	)		(7,315	)
Other income, net											36
Interest expense, net											(166	)
Tax expense											(43	)
Net loss											(7,488	)

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

Total Assets by Segment	As of September 30, 2023		As of December 31, 2022
	(dollars in thousands)
Commercial	$	14,940	$	19,526
Government Services		4,940		2,032
Corporate		3,833		8,465
Consolidated	$	23,713	$	30,023

FEDERAL AND STATE INCOME TAXES

9 Months Ended

Sep. 30, 2023

FEDERAL AND STATE INCOME TAXES

FEDERAL AND STATE INCOME TAXES

NOTE 7 – FEDERAL AND STATE INCOME TAXES

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2023

Commitments and Contingencies (Note 8)

COMMITMENTS AND CONTINGENCIES

NOTE 8 – COMMITMENTS AND CONTINGENCIES

LEASES

9 Months Ended

Sep. 30, 2023

LEASES

LEASES

NOTE 9 – LEASES

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

		Three Months Ended				Nine Months Ended
	Financial Statement Classification	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Finance leases:
Amortization expense	SG&A Expense	$	61	$	53	$	176	$	159
Interest expense	Interest expense, net		13		11		39		33
Total finance lease expense			74		64		215		192

Operating leases:
Operating costs	Operating costs		23		86		710		189
Selling, general and administrative expenses	SG&A Expense		691		543		1,900		1,420
Total operating lease expense			714		629		2,610		1,609
Total lease expense		$	788	$	693	$	2,825	$	1,801

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

	Financial Statement Classification	September 30, 2023		December 31, 2022
ROU Assets:
Operating leases	Right of use asset	$	7,022	$	8,072
Finance leases	Property and equipment, net		863		761
Total ROU Assets:		$	7,885	$	8,833

Lease liabilities:
Current liabilities
Operating leases	Current portion of leases	$	1,353	$	1,638
Finance leases	Current portion of leases		273		211
Noncurrent Liabilities:
Operating leases	Long-term leases		6,141		6,669
Finance leases	Long-term leases		590		548
Total lease liabilities		$	8,357	$	9,066

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

	At September 30, 2023
Weighted average remaining lease term (years)
Operating leases		6.8
Finance leases		3.4
Weighted average discount rate
Operating leases		10.8	%
Finance leases		9.6	%

Maturities of operating lease liabilities as of September 30, 2023 are as follows (dollars in thousands):

Years ending:	Operating leases			Finance leases			Total

2023 (remaining months)		291			82			373
2024		1,691			301			1,992
2025		1,395			264			1,659
2026		918			234			1,152
2027 and thereafter		4,108			74			4,182
Total lease payments		8,403			955			9,358
Less: imputed interest		(909	)		(92	)		(1,001	)
Total lease liabilities		7,494		$	863		$	8,357

EMPLOYEE RETENTION CREDIT

9 Months Ended

Sep. 30, 2023

EMPLOYEE RETENTION CREDIT

EMPLOYEE RETENTION CREDIT

NOTE 10 – EMPLOYEE RETENTION CREDIT

STOCKHOLDERS EQUITY

9 Months Ended

Sep. 30, 2023

Stockholders' Equity:

STOCKHOLDERS EQUITY

NOTE 11 – STOCKHOLDERS’ EQUITY

LIQUIDITY

9 Months Ended

Sep. 30, 2023

LIQUIDITY

LIQUIDITY

NOTE 12 – LIQUIDITY

FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2023

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 13 – FAIR VALUE MEASUREMENTS

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

	·	Level 1 - Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

	·	Level 2 - Observable inputs other than quoted prices in active markets that are either directly or indirectly observable.

	·	Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table provides a summary of the assumptions used in the Black-Scholes model to estimate the fair value of the warrants at issuance date of February 6, 2023:

Assumptions used:	Total

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

RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2023

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

NOTE 14 – RELATED PARTY TRANSACTIONS

REVENUE RECOGNITION (Tables)

9 Months Ended

Sep. 30, 2023

REVENUE RECOGNITION

Revenue By Contract Type

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Fixed-price revenue	$	7,079	$	10,037	$	23,596	$	24,136
Time-and-material revenue		2,371		3,019		8,785		7,641
Total Revenue		9,450		13,056		32,381		31,777

CONTRACTS ASSETS AND CONTRACT LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2023

CONTRACTS ASSETS AND CONTRACT LIABILITIES (Tables)

Costs, Estimated Earnings And Billings On Uncompleted Contracts

	September 30, 2023			December 31, 2022
Costs incurred on uncompleted contracts	$	26,942		$	59,298
Estimated earnings on uncompleted contracts		4,211			4,464
Earned revenues		31,153			63,762
Less: billings to date		28,303			59,784
Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts	$	2,850		$	3,978

Contract assets	$	4,716		$	4,934
Contract liabilities		(1,866	)		(956	)
Net contract assets	$	2,850		$	3,978

DEBT (Tables)

9 Months Ended

Sep. 30, 2023

DEBT

Schedule of Debt

	September 30, 2023		December 31, 2022
Revolving Credit Facility (1)	$	—	$	1,661
Credit Agreement (2)		1,018		—
Priority Agreement (3)		—		—
Amount due within one year		1,018		1,661
Total long-term debt	$	—	$	—

Maturities Of Debt

	Credit Agreement

2023	$	—
2024		1,018
2025 and thereafter		—
	$	1,018

SEGMENT INFORMATION (Tables)

9 Months Ended

Sep. 30, 2023

SEGMENT INFORMATION

Schedule of total assets by segment

	Commercial			Government Services			Corporate			Consolidated
For the three months ended September 30, 2023:
Revenue	$	5,862			3,588			—			9,450
Gross profit		323			1,514			—			1,837
Gross profit margin		5.5	%		42.2	%					19.4	%
SG&A		1,203			161			1,148			2,512
Operating profit (loss)		(880	)		1,353			(1,148	)		(675	)
Other income, net											3
Interest expense, net											(27	)
Tax expense											(22	)
Net loss											(721	)

	Commercial			Government Services			Corporate			Consolidated
For the three months ended September 24, 2022:
Revenue	$	10,229			2,827			—			13,056
Gross profit (loss)		(368	)		1,032			—			664
Gross profit (loss) margin		(3.6	)%		36.5	%					5.1	%
SG&A		1,572			164			1,184			2,920
Operating profit (loss)		(1,940	)		868			(1,184	)		(2,256	)
Other income, net											5
Interest expense, net											(63	)
Tax expense											(21	)
Net loss											(2,335	)

	Commercial			Government Services			Corporate			Consolidated
For the nine months ended September 30, 2023:
Revenue	$	25,124			7,257			—			32,381
Gross profit (loss)		(2,479	)		2,112			—			(367	)
Gross profit (loss) margin		(9.9	)%		29.1	%					(1.1	)%
SG&A		6,448			438			3,964			10,850
Operating profit (loss)		(8,927	)		1,674			(3,964	)		(11,217	)
Other income, net											52
Interest expense, net											(158	)
Tax expense											(66	)
Net loss											(11,389	)

	Commercial			Government Services			Corporate			Consolidated
For the nine months ended September 24, 2022:
Revenue	$	24,835			6,942			—			31,777
Gross profit (loss)		(591	)		1,929			—			1,338
Gross profit (loss) margin		(2.4	)%		27.8	%					4.2	%
SG&A		4,668			554			3,431			8,653
Operating profit (loss)		(5,259	)		1,375			(3,431	)		(7,315	)
Other income, net											36
Interest expense, net											(166	)
Tax expense											(43	)
Net loss											(7,488	)

Segment Information

Total Assets by Segment	As of September 30, 2023		As of December 31, 2022
	(dollars in thousands)
Commercial	$	14,940	$	19,526
Government Services		4,940		2,032
Corporate		3,833		8,465
Consolidated	$	23,713	$	30,023

LEASES (Tables)

9 Months Ended

Sep. 30, 2023

LEASES

Lease Expense

		Three Months Ended				Nine Months Ended
	Financial Statement Classification	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Finance leases:
Amortization expense	SG&A Expense	$	61	$	53	$	176	$	159
Interest expense	Interest expense, net		13		11		39		33
Total finance lease expense			74		64		215		192

Operating leases:
Operating costs	Operating costs		23		86		710		189
Selling, general and administrative expenses	SG&A Expense		691		543		1,900		1,420
Total operating lease expense			714		629		2,610		1,609
Total lease expense		$	788	$	693	$	2,825	$	1,801

Supplemental Balance Sheet Information Related To Leases

	Financial Statement Classification	September 30, 2023		December 31, 2022
ROU Assets:
Operating leases	Right of use asset	$	7,022	$	8,072
Finance leases	Property and equipment, net		863		761
Total ROU Assets:		$	7,885	$	8,833

Lease liabilities:
Current liabilities
Operating leases	Current portion of leases	$	1,353	$	1,638
Finance leases	Current portion of leases		273		211
Noncurrent Liabilities:
Operating leases	Long-term leases		6,141		6,669
Finance leases	Long-term leases		590		548
Total lease liabilities		$	8,357	$	9,066

Weighted Average Remaining Lease Term And Weighted Average Discount Rate

	At September 30, 2023
Weighted average remaining lease term (years)
Operating leases		6.8
Finance leases		3.4
Weighted average discount rate
Operating leases		10.8	%
Finance leases		9.6	%

Maturities Of Operating Lease Liabilities

Years ending:	Operating leases			Finance leases			Total

2023 (remaining months)		291			82			373
2024		1,691			301			1,992
2025		1,395			264			1,659
2026		918			234			1,152
2027 and thereafter		4,108			74			4,182
Total lease payments		8,403			955			9,358
Less: imputed interest		(909	)		(92	)		(1,001	)
Total lease liabilities		7,494		$	863		$	8,357

FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2023

FAIR VALUE MEASUREMENTS

summary of the assumptions used in the Black-Scholes model

Assumptions used:	Total

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

REVENUE RECOGNITION (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
REVENUE RECOGNITION (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Sep. 24, 2022	Sep. 30, 2023	Sep. 24, 2022
Total revenue	$ 9,450	$ 13,056	$ 32,381	$ 31,777
Fixed-Price Revenue
Total revenue	7,079	10,037	23,596	24,136
Time-and-Material Revenue
Total revenue	$ 2,371	$ 3,019	$ 8,785	$ 7,641

CONTRACT ASSETS AND CONTRACT LIABILITIES (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
CONTRACT ASSETS AND CONTRACT LIABILITIES
Costs incurred on uncompleted contracts	$ 26,942	$ 59,298
Estimated earnings on uncompleted contracts	4,211	4,464
Earned revenues	31,153	63,762
Less: billings to date	28,303	59,784
Net costs and estimated earnings in excess of billings	2,850	3,978
Contract assets	4,716	4,934
Contract liabilities	1,866	956
Net contract assets	$ 2,850	$ 3,978

DEBT (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Line of credit facility	$ 0	$ 1,661,000
Amount Due Within One Year	1,018,000	1,661,000
Total Long-term Debt	0	0
Revolving Credit Facility
Line of credit facility	0	1,661,000
Credit Agreement
Line of credit facility	1,008,000	0
Priority Agreement
Line of credit facility	$ 0	$ 0

DEBT (Details 1) - Credit Agreement	Sep. 30, 2023 USD ($)
2023	$ 0
2024	1,018,000
2025 and thereafter	0
Long-term debt	$ 1,018,000

DEBT (Details Narrative) - USD ($)	1 Months Ended					9 Months Ended
DEBT (Details Narrative) - USD ($)	Jun. 16, 2023	Jun. 15, 2023	May 22, 2023	Mar. 27, 2023	May 21, 2020	Sep. 30, 2023
Amount receivables						$ 900,000
Revolving Credit Facility
Aggregate amount	$ 500,000		$ 750,000	$ 100,000	$ 6,000,000
Credit Agreement
Aggregate principal amount		$ 1,250,000
Initial term loan		1,000,000
Additional term loan		$ 250,000
Annual interest rate		8.50%
Origination fee		0.50%
Maturity date		Jun. 15, 2024
Priority Agreement \| Minimum [Member]
Discount rate			2.75%
Priority Agreement \| Maximum [Member]
Discount rate			8.25%

SEGMENT INFORMATION (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
SEGMENT INFORMATION (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Sep. 24, 2022	Sep. 30, 2023	Sep. 24, 2022	Dec. 31, 2022
Revenue	$ 9,450	$ 13,056	$ 32,381	$ 31,777
Gross profit (loss)	$ 1,837	$ 664	$ (367)	$ 1,338
Gross Profit (loss) Margin	19.40%	5.10%	(1.10%)	4.20%
SG&A	$ 2,512	$ 2,920	$ 10,850	$ 8,653
Operating loss	(675)	(2,256)	(11,217)	(7,315)
Other Income, Net	3	5	52	36
Interest expense, net	(27)	(63)	(158)	(166)
Tax Expense	(22)	(21)	(66)	(43)
Net Income (loss)	(721)	(2,335)	(11,389)	(7,488)
Total assets	23,713		23,713		$ 30,023
Commercial
Revenue	5,862	10,229	25,124	24,835
Gross profit (loss)	$ 323	$ (368)	$ (2,479)	$ (591)
Gross Profit (loss) Margin	5.50%	(3.60%)	(9.90%)	(2.40%)
SG&A	$ 1,203	$ 1,572	$ 6,448	$ 4,668
Operating loss	(880)	(1,940)	(8,927)	(5,259)
Total assets	14,940		14,940		19,526
Government Services
Revenue	3,588	2,827	7,257	6,942
Gross profit (loss)	$ 1,514	$ 1,032	$ 2,112	$ 1,929
Gross Profit (loss) Margin	42.20%	36.50%	29.10%	27.80%
SG&A	$ 161	$ 164	$ 438	$ 554
Operating loss	1,353	868	1,674	1,375
Total assets	4,940		4,940		2,032
Corporate
Revenue	0	0	0	0
Gross profit (loss)	0		0	0
Gross Profit (loss) Margin	0
SG&A	1,148	1,184	3,964	3,431
Operating loss	(1,148)	$ (1,184)	(3,964)	$ (3,431)
Total assets	$ 3,833		$ 3,833		$ 8,465

FEDERAL AND STATE INCOME TAXES (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 24, 2022	Sep. 30, 2023	Sep. 30, 2022	Sep. 24, 2022
Effective Income Tax Rate	(3.20%)	(0.90%)
Income tax expense	$ 22	$ 21	$ 66	$ 43	$ 43
P P P Loan Forgiveness And Stock Compensation [Member]
Effective Income Tax Rate			21.00%

EMPLOYEE RETENTION CREDIT (Details Narrative) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
EMPLOYEE RETENTION CREDIT
Employee retention credit	$ 1,700	$ 140

STOCKHOLDERS EQUITY (Details Narrative) - USD ($)	1 Months Ended	9 Months Ended
STOCKHOLDERS EQUITY (Details Narrative) - USD ($)	Feb. 01, 2023	Sep. 30, 2023
Stock issued		3,971,000
Purchase Agreement [Member]
Stock issued	3,971,000
Proceeds from stock issued	$ 300,000
Offering price	$ 0.85
Purchase Agreement [Member] \| February 1, 2023 [Member]
Stock issued		3,971,000
Proceeds from stock issued		$ 3,000,000
Offering price		$ 0.85

FAIR VALUE MEASUREMENTS (Details)	9 Months Ended
FAIR VALUE MEASUREMENTS (Details)	Sep. 30, 2023 $ / shares
FAIR VALUE MEASUREMENTS
Stock price	$ 0.87
Risk free rate	3.65%
Exercise price	$ 0.95
Annualized volatility	107.89%
Time to expiration	5 years 5 months 30 days

FAIR VALUE MEASUREMENTS (Details Narrative) $ in Millions	Sep. 30, 2023 USD ($) shares
FAIR VALUE MEASUREMENTS
Stock issued \| shares	3,971,000
Additional paid in capital \| $	$ 2.8

RELATED PARTY TRANSACTIONS (Details Narrative) - William A. Coskey [Member]	1 Months Ended
	Jun. 15, 2023 USD ($)
Initial term Loan	$ 1,000,000
Additional term loan	$ 250,000
Description of loan payable maturity	The loan carries an annual interest rate of 8.5% and has an origination fee of 0.5%, payable upon maturity

LIQUIDITY (Details Narrative) - USD ($)	1 Months Ended
LIQUIDITY (Details Narrative) - USD ($)	Mar. 27, 2023	Sep. 30, 2023	Jun. 12, 2023	Feb. 01, 2023	Jan. 11, 2022
Revolving credit facility amount			$ 3,400,000.0
Maximum offering price of common stock			$ 75,000,000		$ 30,000,000
Securities aggregate offering price					$ 75,000,000
Stock issued		3,971,000
Purchase Agreement [Member]
Discount	2.75%
Stock issued				3,971,000
Offering price				$ 0.85
Purchase Agreement [Member] \| February 1, 2023 [Member]
Discount	8.25%
Stock issued		3,971,000
Offering price		$ 0.85

LEASES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
LEASES (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Sep. 24, 2022	Sep. 30, 2023	Sep. 24, 2022
Total finance lease expense	$ 74	$ 629	$ 2,610	$ 1,609
Total operating lease expense	714	215	64	192
Total lease expense	788	693	2,825	1,801
Selling, general and administrative expenses	2,512	2,920	10,850	8,653
SG&A Expense
Amortization expense	61	53	176	159
Selling, general and administrative expenses	691	543	1,900	1,420
Interest Expense, Net
Interest expense	13	11	39	33
Operating Costs
Operating costs	$ 23	$ 86	$ 710	$ 189

LEASES (Details 1) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Current lease liabilities - operating leases	$ 1,353	$ 1,638
Current lease liabilities - finance leases	273	211
Noncurrent lease liabilities - operating leases	6,141	6,669
Noncurrent lease liabilities - finance leases	590	548
Total lease liabilities	8,357	9,066
ROU assets - operating leases	7,022	8,072
Right of Use Asset
ROU assets - finance leases	863	761
ROU assets	$ 7,885	$ 8,833

LEASES (Details 2)	9 Months Ended
LEASES (Details 2)	Sep. 30, 2023
LEASES
Weighted average remaining lease term (years) - operating leases	6 years 9 months 18 days
Weighted average discount rate - operating leases	10.80%
Weighted average remaining lease term (years) - finance leases	3 years 4 months 24 days
Weighted average discount rate - finance leases	9.60%

LEASES (Details 3) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Operating Leases
2023	$ 291
2024	1,691
2025	1,395
2026	918
2027 and thereafter	4,108
Total lease payments	8,403
Less: imputed interest	(909)
Total lease liabilities	7,494
Finance Leases
2023	82
2024	301
2025	264
2026	234
2027 and thereafter	74
Total lease payments	955
Less: imputed interest	(92)
Total lease liabilities	863
Total
2023	373
2024	1,992
2025	1,659
2026	1,152
2027 and thereafter	4,182
Total lease payments	9,358
Less: imputed interest	1,001
Total lease liabilities	$ 8,357	$ 9,066

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