Cover
Cover - shares | 6 Months Ended | |
Jul. 01, 2023 | Aug. 10, 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 | --12-31 | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Emerging Growth Company | false | |
Entity Current Reporting Status | Yes | |
Document Period End Date | Jul. 01, 2023 | |
Entity Filer Category | Non-accelerated Filer | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2023 | |
Entity Common Stock Shares Outstanding | 40,899,947 | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Entity File Number | 001-14217 | |
Entity Incorporation State Country Code | NV | |
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, $0.001 par value | |
Trading Symbol | ENG | |
Entity Tax Identification Number | 88-0322261 | |
Security Exchange Name | NASDAQ | |
Entity Interactive Data Current | Yes |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jul. 01, 2023 | Jun. 25, 2022 | Jul. 01, 2023 | Jun. 25, 2022 | |
Condensed Consolidated Statements of Operations (Unaudited) | ||||
Operating revenues | $ 9,738 | $ 11,355 | $ 22,931 | $ 18,721 |
Operating costs | 10,120 | 10,023 | 25,135 | 18,047 |
Gross profit (loss) | (382) | 1,332 | (2,204) | 674 |
Selling, general and administrative expenses | 3,922 | 2,890 | 8,338 | 5,733 |
Operating loss | (4,304) | (1,558) | (10,542) | (5,059) |
Other income (expense): | ||||
Other income, net | 46 | 21 | 49 | 31 |
Interest expense, net | (59) | (52) | (131) | (103) |
Loss from continuing operations before income taxes | (4,317) | (1,589) | (10,624) | (5,131) |
Provision (benefit) for federal and state income taxes | 22 | (56) | 44 | 22 |
Net loss | $ (4,339) | $ (1,533) | $ (10,668) | $ (5,153) |
Basic and diluted loss per common share: | $ (0.11) | $ (0.04) | $ (0.27) | $ (0.15) |
Basic and diluted weighted average shares used in computing loss per share: | 39,759 | 35,444 | 38,975 | 35,337 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Jul. 01, 2023 | Dec. 31, 2022 |
Current Assets: | ||
Cash | $ 764 | $ 3,464 |
Trade receivables, net of allowances of $4,336 and $2,129 | 8,787 | 7,644 |
Prepaid expenses and other current assets | 576 | 1,580 |
Payroll taxes receivable | 484 | 1,547 |
Contract assets | 3,748 | 4,934 |
Total Current Assets | 14,359 | 19,169 |
Property and equipment, net | 1,652 | 1,757 |
Goodwill | 720 | 720 |
Other assets | ||
Right-of-use asset | 7,205 | 8,072 |
Deposits and other assets | 280 | 305 |
Total Other Assets | 7,485 | 8,377 |
Total Assets | 24,216 | 30,023 |
Current Liabilities: | ||
Accounts payable | 6,727 | 4,454 |
Accrued compensation and benefits | 2,343 | 2,002 |
Current portion of leases | 1,596 | 1,849 |
Contract liabilities | 1,052 | 956 |
Other current liabilities | 698 | 1,134 |
Credit Agreement | 1,004 | 0 |
Priority Agreement | 864 | 0 |
Revolving Credit Facility | 0 | 1,661 |
Total Current Liabilities | 14,284 | 12,056 |
Long-term unearned revenue | 400 | 425 |
Long-term leases | 6,820 | 7,217 |
Total Liabilities | 21,504 | 19,698 |
Stockholders' Equity: | ||
Common stock - $0.001 par value; 75,000,000 shares authorized; 39,757,092 shares issued and outstanding at July 1, 2023 and 35,800,617 shares issued and outstanding at December 31, 2022 | 40 | 36 |
Additional paid-in capital | 61,101 | 58,050 |
Accumulated deficit | (58,429) | (47,761) |
Total Stockholders' Equity | 2,712 | 10,325 |
Total Liabilities and Stockholders' Equity | $ 24,216 | $ 30,023 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Jul. 01, 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 | 39,757,092 | 35,800,617 |
Common Stock, Shares Outstanding | 39,757,092 | 35,800,617 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) shares in Thousands, $ in Thousands | 6 Months Ended | |
Jul. 01, 2023 | Jun. 25, 2022 | |
Cash Flows from Operating Activities: | ||
Net loss | $ (10,668) | $ (5,153) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 330 | 368 |
Share-based compensation expense | 89 | 111 |
Loss on disposal of fixed assets | 287 | 0 |
Changes in current assets and liabilities: | ||
Trade accounts receivable | (1,143) | 382 |
Contract assets | 1,186 | (1,468) |
Other current assets | 2,092 | 1,608 |
Accounts payable | 2,273 | 297 |
Accrued compensation and benefits | 341 | 69 |
Contract liabilities | 96 | 278 |
Income taxes payable | 34 | (27) |
Other current liabilities, net | (495) | (433) |
Net cash used in operating activities | (5,578) | (3,968) |
Cash Flows from Investing Activities: | ||
Asset acquisition, net of cash acquired | 0 | (937) |
Property and equipment acquired | (154) | (92) |
Net cash used in investing activities | (154) | (1,029) |
Cash Flows from Financing Activities: | ||
Common stock and warrants issued, net | 2,962 | 0 |
At-the-market offering costs | 0 | (67) |
Payments on finance leases | (136) | (182) |
Proceeds from Priority Agreement | 864 | 0 |
Proceeds from Credit Agreement | 1,004 | 0 |
Payments on revolving credit facility, net | (1,662) | 183 |
Net cash provided by (used in) financing activities | 3,032 | (66) |
Net change in cash | (2,700) | (5,063) |
Cash at beginning of period | 3,464 | 19,202 |
Cash at end of period | 764 | 14,139 |
Supplemental disclosure of cash flow information: | ||
Cash paid during the period for interest | 131 | 98 |
Fair value of warrants at issuance date | 2,782 | 0 |
Right of use assets obtained in exchange for new operating lease liability | 0 | 354 |
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) | $ 0 | $ 48 |
Asset acquisition, common stock issued | 0 | 525 |
Asset acquisition, contingent consideration | $ 0 | $ 1,355 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Stockholders Equity - USD ($) | Total | Common Stock | Additional Paid-In Capital | Retained Earnings (Accumulated Deficit) |
Balance, shares at Dec. 25, 2021 | 0 | 0 | 0 | |
Balance, amount at Dec. 25, 2021 | $ 35,000 | $ 57,403,000 | $ (29,247,000) | |
Net Income (Loss) | $ (5,153,000) | $ (5,153,000) | ||
Common stock issued, amount | $ 1,000 | |||
Fair value of warrants at issuance date, amount | 0 | |||
Share-based compensation - employees, amount | 111,000 | |||
At-the-market offering costs, amount | (67,000) | |||
Proceeds from common stock issued, net amount | $ 525,000 | |||
Balance, shares at Jun. 25, 2022 | 0 | 0 | 0 | |
Balance, amount at Jun. 25, 2022 | 23,608,000 | $ 36,000 | $ 57,972,000 | $ (34,400,000) |
Balance, shares at Mar. 26, 2022 | 0 | 0 | 0 | |
Balance, amount at Mar. 26, 2022 | $ 35,000 | $ 57,407,000 | $ (32,867,000) | |
Net Income (Loss) | $ (1,533,000) | |||
Common stock issued, amount | $ 1,000 | |||
Share-based compensation - employees, amount | 55,000 | |||
At-the-market offering costs, amount | (15,000) | |||
Proceeds from common stock issued, net amount | $ 525,000 | |||
Balance, shares at Jun. 25, 2022 | 0 | 0 | 0 | |
Balance, amount at Jun. 25, 2022 | 23,608,000 | $ 36,000 | $ 57,972,000 | $ (34,400,000) |
Balance, shares at Dec. 31, 2022 | 0 | 0 | 0 | |
Balance, amount at Dec. 31, 2022 | 10,325,000 | $ 36,000 | $ 58,050,000 | $ (47,761,000) |
Net Income (Loss) | $ (10,668,000) | $ (10,668,000) | ||
Common stock issued, amount | $ 4,000 | |||
Fair value of warrants at issuance date, amount | 2,782,000 | |||
Share-based compensation - employees, amount | 89,000 | |||
At-the-market offering costs, amount | 0 | |||
Proceeds from common stock issued, net amount | $ 180,000 | |||
Balance, shares at Jul. 01, 2023 | 3,971,000 | 0 | 0 | 0 |
Balance, amount at Jul. 01, 2023 | $ 2,712,000 | $ 40,000 | $ 61,101,000 | $ (58,429,000) |
Balance, shares at Apr. 01, 2023 | 0 | 0 | 0 | |
Balance, amount at Apr. 01, 2023 | $ 40,000 | $ 61,070,000 | $ (54,090,000) | |
Net Income (Loss) | $ (4,339,000) | |||
Common stock issued, amount | $ 0 | |||
Share-based compensation - employees, amount | 39,000 | |||
At-the-market offering costs, amount | 0 | |||
Proceeds from common stock issued, net amount | $ (8,000) | |||
Balance, shares at Jul. 01, 2023 | 3,971,000 | 0 | 0 | 0 |
Balance, amount at Jul. 01, 2023 | $ 2,712,000 | $ 40,000 | $ 61,101,000 | $ (58,429,000) |
BASIS OF PRESENTATION
BASIS OF PRESENTATION | 6 Months Ended |
Jul. 01, 2023 | |
BASIS OF PRESENTATION | |
BASIS OF PRESENTATION | NOTE 1 – BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of ENGlobal Corporation (which may be referred to as “ENGlobal,” the “Company,” “we,” “us,” or “our”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these condensed financial statements do not include all of the information or note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP. These condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 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 six-month periods ended July 1, 2023 and June 25, 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. |
ACCOUNTING STANDARDS
ACCOUNTING STANDARDS | 6 Months Ended |
Jul. 01, 2023 | |
ACCOUNTING STANDARDS | |
ACCOUNTING STANDARDS | 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 A majority of sales of fabrication and assembled systems are under fixed-price contracts. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We generally recognize revenue over time as we perform because of continuous transfer of control to the customer. Our customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date plus a reasonable profit to deliver products or services that do not have an alternative use to the Company. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or service to be provided, which measures the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. We generally use the cost-to-cost method on the labor portion of a project for revenue recognition to measure progress of our contracts because it best depicts the transfer of control to the customer which occurs as we consume the materials on the contracts. Therefore, revenues and estimated profits are recorded proportionally as labor costs are incurred. Under the typical payment terms of our fixed-price contracts, the customer pays us progress payments. These progress payments are based on quantifiable measures of performance or on the achievement of specified events or milestones. The customer may retain a small portion of the contract price until completion of the contract. Revenue recognized in excess of billings is recorded as a contract asset on the balance sheet. Amounts billed and due from our customers are classified as receivables on the balance sheet. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer should we fail to adequately complete some or all of our obligations under the contract. For some contracts we may receive advance payments from the customer. We record a liability for these advance payments in contract liabilities on the balance sheet. The advance payment typically is not considered a significant financing component because it is used to meet working capital demand that can be higher in the early stages of a contract and to protect us from the other party failing to adequately complete some or all of its obligations under the contract. To determine proper revenue recognition for contracts, we evaluate whether two or more contracts should be combined and accounted for as one single performance obligation or whether a single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate a single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most of our contracts, we provide a significant service of integrating a complex set of tasks and components into a single project. Hence, the entire contract is accounted for as one performance obligation. Less commonly, we may provide distinct goods or services within a contract in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling price of the promised goods or services underlying each performance obligation and use the expected cost plus margin approach to estimate the standalone selling price of each performance obligation. Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion is complex, subject to variables and requires significant judgment. We estimate variable consideration at the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or a reduction of revenue) on a cumulative catch-up basis. We have a standard, monthly process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include management’s judgment about the ability and cost to achieve the schedule, technical requirements, and other contractual requirements. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation, execution by our subcontractors, the availability and timing of funding from our customer and overhead cost rates, among other variables. Based on this analysis, any adjustments to revenue, operating costs and the related impact to operating income are recognized as necessary in the period they become known. These adjustments may result from positive performance and may result in an increase in operating income during the performance of individual performance obligations if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations or realizing related opportunities. When estimates of total costs to be incurred exceed total estimates to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss becomes known. Likewise, these adjustments may result in a decrease in operating income if we determine we will not be successful in mitigating these risks or realizing related opportunities. Changes in estimates of net revenue, operating costs and the related impact to operating income are recognized monthly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. |
REVENUE RECOGNITION
REVENUE RECOGNITION | 6 Months Ended |
Jul. 01, 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 Six Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Fixed-price revenue $ 6,080 $ 8,891 $ 16,517 $ 14,099 Time-and-material revenue 3,658 2,464 6,414 4,622 Total Revenue 9,738 11,355 22,931 18,721 |
CONTRACT ASSETS AND CONTRACT LI
CONTRACT ASSETS AND CONTRACT LIABILITIES | 6 Months Ended |
Jul. 01, 2023 | |
CONTRACT ASSETS AND CONTRACT LIABILITIES | |
CONTRACT ASSETS AND CONTRACT LIABILITIES | NOTE 4 – CONTRACT ASSETS AND CONTRACT LIABILITIES Our contract assets consist of unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Our contract liabilities consist of advance payments and billings in excess of costs incurred. Costs, estimated earnings and billings on uncompleted contracts consisted of the following (dollars in thousands): July 1, 2023 December 31, 2022 Costs incurred on uncompleted contracts $ 53,994 $ 59,298 Estimated earnings on uncompleted contracts 2,519 4,464 Earned revenues 56,513 63,762 Less: billings to date 53,817 59,784 Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts $ 2,696 $ 3,978 Contract assets $ 3,748 $ 4,934 Contract liabilities (1,052 ) (956 ) Net contract assets $ 2,696 $ 3,978 |
DEBT
DEBT | 6 Months Ended |
Jul. 01, 2023 | |
DEBT | |
DEBT | NOTE 5 – DEBT The components of debt were as follows (dollars in thousands): July 1, 2023 December 31, 2022 Revolving Credit Facility (1) $ — $ 1,661 Credit Agreement (2) 1,004 — Priority Agreement (3) 864 — Amount due within one year 1,868 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 July 1, 2023, the company had factored $0.9 million of receivables through the Priority Agreement. The future scheduled maturities of our debt are (in thousands): Priority Agreement Credit Agreement $ $ 2023 864 — 2024 — 1,004 2025 and thereafter — — $ 864 $ 1,004 |
SEGMENT INFORMATION
SEGMENT INFORMATION | 6 Months Ended |
Jul. 01, 2023 | |
SEGMENT INFORMATION | |
SEGMENT INFORMATION | NOTE 6 – SEGMENT INFORMATION Our segments are strategic business units that offer our services and products to customers in their respective industry segments. The operating performance of our segments is regularly reviewed with operational leaders in charge of these segments, the Chief Executive Officer (“CEO”), the Chief Financial Officer (“CFO”) and others. This group represents the chief operating decision maker (“CODM”) for ENGlobal. We have identified four strategic markets where we have a long history of delivering project solutions and can provide complete project execution. These four targeted markets include: (i) Energy & Renewables, (ii) Automation, (iii) Oil, Gas, and Petrochemicals, and (iv) Government Services. Within the Energy & Renewables group, our focus is to design and build production facilities for hydrogen and associated products, together with converting existing production facilities to produce products from renewable feedstock sources. These projects often utilize technologies that are more fuel efficient, and therefore reduce the associated carbon footprint of the facility. Our scope of work on these projects will typically include front-end development, engineering, procurement, mechanical fabrication, automation and commissioning services, and may be performed in conjunction with a construction partner. Our Automation group provides the design and programming of automated control systems as well as designs, fabricates, integrates and commissions modular systems that include remote instrumentation control stations, on-line process analytical data, continuous emission monitoring, and electric power distribution. Often these packaged systems are housed in a fabricated metal enclosure, modular building or freestanding metal rack, which are commonly included in our scope of work. We provide automation engineering, procurement, fabrication, systems integration, programing and on-site commissioning services to our clients for both new and existing facilities. Our Oil, Gas, and Petrochemicals group focuses on providing engineering, procurement, construction 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. Segment information is as follows (dollars in thousands): Commercial Government Services Corporate Consolidated For the three months ended July 1, 2023: Revenue $ 7,427 2,311 — 9,738 Gross profit (loss) (1,200 ) 818 — (382 ) Gross profit (loss) margin (16.2 )% 35.4 % (3.9 )% SG&A 2,499 141 1,282 3,922 Operating profit (loss) (3,699 ) 677 (1,282 ) (4,304 ) Other income, net 46 Interest expense, net (59 ) Tax expense (22 ) Net loss (4,339 ) Commercial Government Services Corporate Consolidated For the three months ended June 25, 2022: Revenue $ 9,203 2,152 — 11,355 Gross profit 701 631 — 1,332 Gross profit margin 7.6 % 29.3 % 11.7 % SG&A 1,605 172 1,113 2,890 Operating profit (loss) (904 ) 459 (1,113 ) (1,558 ) Other income, net 21 Interest expense, net (52 ) Tax benefit 56 Net loss (1,533 ) Commercial Government Services Corporate Consolidated For the six months ended July 1, 2023: Revenue $ 19,262 3,669 — 22,931 Gross profit (loss) (2,802 ) 598 — (2,204 ) Gross profit (loss) margin (14.5 )% 16.3 % (9.6 )% SG&A 5,245 277 2,816 8,338 Operating profit (loss) (8,047 ) 321 (2,816 ) (10,542 ) Other income, net 49 Interest expense, net (131 ) Tax expense (44 ) Net loss (10,668 ) Commercial Government Services Corporate Consolidated For the six months ended June 25, 2022: Revenue $ 14,606 4,115 — 18,721 Gross profit (loss) (223 ) 897 — 674 Gross profit (loss) margin (1.5 )% 21.8 % 3.6 % SG&A 3,096 390 2,247 5,733 Operating profit (loss) (3,319 ) 507 (2,247 ) (5,059 ) Other income, net 31 Interest expense, net (103 ) Tax expense (22 ) Net loss (5,153 ) Total assets by segment are as follows (dollars in thousands): Total Assets by Segment As of July 1, 2023 As of December 31, 2022 (dollars in thousands) Commercial $ 15,280 $ 19,526 Government Services 5,016 2,032 Corporate 3,920 8,465 Consolidated $ 24,216 $ 30,023 |
FEDERAL AND STATE INCOME TAXES
FEDERAL AND STATE INCOME TAXES | 6 Months Ended |
Jul. 01, 2023 | |
FEDERAL AND STATE INCOME TAXES | |
FEDERAL AND STATE INCOME TAXES | NOTE 7 – FEDERAL AND STATE INCOME TAXES The Company accounts for income taxes in accordance with FASB Accounting Standards Codification 740, “Income Taxes” (“ASC 740”). Under ASC 740-270 we estimate an annual effective tax rate based on year-to-date operating results and our projection of operating results for the remainder of the year. We apply this annual effective tax rate to the year-to-date operating results. If our actual results differ from the estimated annual projection, our estimated annual effective tax rate can change affecting the tax expense for successive interim results as well as the estimated annual tax expense results. Certain states are not included in the calculation of the estimated annual effective tax rate because the underlying basis for the tax is related to revenues and not taxable income. Amounts for Texas margin taxes are reported as income tax expense. The Company applies a more likely than not recognition threshold for all tax uncertainties. The FASB guidance for uncertain tax positions only allows the recognition of those tax benefits, based on their technical merits that are greater than 50 percent likelihood of being sustained upon examination by the taxing authorities. Management has reviewed the Company’s tax positions and determined there are no uncertain tax positions requiring recognition in the financial statements. U.S. federal tax returns prior to 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 July 1, 2023 as compared to income tax benefit of $56 thousand for the three months ended June 25, 2022. The effective income tax rate for the three months ended July 1, 2023 was (0.5)% as compared to 3.5% for the three months ended June 25, 2022. The Company recorded income tax expense of $44 thousand for the six months ended July 1, 2023 as compared to $22 thousand for the six months ended June 25, 2022. The effective income tax rate for the six months ended July 1, 2023 and June 25, 2022 was (0.4)%. 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. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jul. 01, 2023 | |
Commitments and Contingencies (Note 8) | |
COMMITMENTS AND CONTINGENCIES | NOTE 8 – COMMITMENTS AND CONTINGENCIES From time to time, ENGlobal or one or more of its subsidiaries is involved in various legal proceedings or is subject to claims that arise in the ordinary course of business alleging, among other things, claims of breach of contract or negligence in connection with the performance or delivery of goods and/or services. The outcome of any such claims or proceedings cannot be predicted with certainty. Management is not aware of any pending or threatened lawsuits or proceedings that are expected to have a material effect on our financial position, results of operations or liquidity. We carry a broad range of insurance coverage, including general and business automobile liability, commercial property, professional errors and omissions, workers’ compensation insurance, directors’ and officers’ liability insurance and a general umbrella policy, all with standard self-insured retentions/deductibles. We also provide health insurance to our employees (including vision and dental) which is partially self-funded for these claims. Provisions for expected future payments are accrued based on our experience, and specific stop loss levels provide protection for the Company. We believe we have adequate reserves for the self-funded portion of our insurance policies. We are not aware of any material litigation or claims that are not covered by these policies or which are likely to materially exceed the Company’s insurance limits. |
LEASES
LEASES | 6 Months Ended |
Jul. 01, 2023 | |
LEASES | |
LEASES | 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. The components of lease expense were as follows (dollars in thousands): Three Months Ended Six Months Ended Financial Statement Classification July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Finance leases: Amortization expense SG&A Expense $ 61 $ 53 $ 115 $ 106 Interest expense Interest expense, net 13 11 26 22 Total finance lease expense 74 64 141 128 Operating leases: Operating costs Operating costs 252 58 687 103 Selling, general and administrative expenses SG&A Expense 619 465 1,209 876 Total operating lease expense 871 523 1,896 979 Total lease expense $ 945 $ 587 $ 2,037 $ 1,107 Supplemental balance sheet information related to leases was as follows (dollars in thousands): Financial Statement Classification July 1, 2023 December 31, 2022 ROU Assets: Operating leases Right of use asset $ 7,205 $ 8,072 Finance leases Property and equipment, net 930 761 Total ROU Assets: $ 8,135 $ 8,833 Lease liabilities: Current liabilities Operating leases Current portion of leases $ 1,320 $ 1,638 Finance leases Current portion of leases 276 211 Noncurrent Liabilities: Operating leases Long-term leases 6,161 6,669 Finance leases Long-term leases 659 548 Total lease liabilities $ 8,416 $ 9,066 The weighted average remaining lease term and weighted average discount rate were as follows: At July 1, 2023 Weighted average remaining lease term (years) Operating leases 7.1 Finance leases 3.6 Weighted average discount rate Operating leases 10.9 % Finance leases 10.1 % Maturities of operating lease liabilities as of July 1, 2023 are as follows (dollars in thousands): Years ending: Operating leases Finance leases Total 2023 (remaining months) 908 161 1,069 2024 1,323 301 1,624 2025 1,140 264 1,404 2026 918 234 1,152 2027 and thereafter 4,112 80 4,192 Total lease payments 8,401 1,040 9,441 Less: imputed interest (920 ) (105 ) (1,025 ) Total lease liabilities 7,481 $ 935 $ 8,416 |
EMPLOYEE RETENTION CREDIT
EMPLOYEE RETENTION CREDIT | 6 Months Ended |
Jul. 01, 2023 | |
EMPLOYEE RETENTION CREDIT | |
EMPLOYEE RETENTION CREDIT | NOTE 10 – EMPLOYEE RETENTION CREDIT Pursuant to the CARES Act, the Company is eligible for an employee retention credit subject to certain criteria. Since there is no US GAAP guidance for for-profit business entities that receive government assistance that is not in the form of a loan, an income tax credit or revenue from a contract with a customer, we determined the appropriate accounting treatment by analogy to other guidance. We accounted for the employee retention credit by analogy to International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, of International Financial Reporting Standards (IFRS). Under an IAS 20 analogy, a business entity would recognize the employee retention credit on a systematic basis over the periods in which the entity recognizes the payroll expenses for which the grant (i.e., tax credit) is intended to compensate when there is reasonable assurance (i.e., it is probable) that the entity will comply with any conditions attached to the grant and the grant (i.e., tax credit) will be received. We have accounted for the $1.7 million and $1.4 million employee retention credits in the first and third quarters of 2021, respectively, as other income on the statement of operations and as a receivable on the balance sheet. As of July 1, 2023, we have received a full refund for the third quarter and a partial refund for the first quarter employee retention credits. The remaining unpaid employee retention credit of $0.5 million is accounted for as a receivable on the balance sheet. |
STOCKHOLDERS EQUITY
STOCKHOLDERS EQUITY | 6 Months Ended |
Jul. 01, 2023 | |
Stockholders' Equity: | |
STOCKHOLDERS EQUITY | 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. 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 a registration statement on Form S-3 filed with the SEC on January 29, 2021 (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 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. We recorded the fair value of the warrants issued within additional paid-in capital. The warrants may be exercised by physical settlement or net share settlement, determined by the holder. |
LIQUIDITY
LIQUIDITY | 6 Months Ended |
Jul. 01, 2023 | |
LIQUIDITY | |
LIQUIDITY | NOTE 12 – LIQUIDITY We define liquidity as our ability to pay liabilities as they become due, fund business operations and meet monetary contractual obligations. Our primary sources of liquidity are cash on hand, internally generated funds, sales of common stock pursuant to the ATM Agreement, and borrowings under the Credit Agreement which matures on June 15, 2024. As of July 1, 2023, the outstanding borrowings under the Credit Agreement were $1.0 million. As of July 1, 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 July 1, 2023, we had factored $0.9 million of receivables 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 June 12, 2023, the Company’s public float (i.e., the aggregate market value of its outstanding equity securities held by non-affiliates) was approximately $14.4 million, based on the closing price per share of the Company’s common stock as reported on the Nasdaq Capital Market on June 12, 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. 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. |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 6 Months Ended |
Jul. 01, 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 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. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 6 Months Ended |
Jul. 01, 2023 | |
RELATED PARTY TRANSACTIONS | |
RELATED PARTY TRANSACTIONS | 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. |
REVENUE RECOGNITION (Tables)
REVENUE RECOGNITION (Tables) | 6 Months Ended |
Jul. 01, 2023 | |
REVENUE RECOGNITION | |
Revenue By Contract Type | For the Three Months Ended For the Six Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Fixed-price revenue $ 6,080 $ 8,891 $ 16,517 $ 14,099 Time-and-material revenue 3,658 2,464 6,414 4,622 Total Revenue 9,738 11,355 22,931 18,721 |
CONTRACTS ASSETS AND CONTRACT L
CONTRACTS ASSETS AND CONTRACT LIABILITIES (Tables) | 6 Months Ended |
Jul. 01, 2023 | |
CONTRACTS ASSETS AND CONTRACT LIABILITIES (Tables) | |
Costs, Estimated Earnings And Billings On Uncompleted Contracts | July 1, 2023 December 31, 2022 Costs incurred on uncompleted contracts $ 53,994 $ 59,298 Estimated earnings on uncompleted contracts 2,519 4,464 Earned revenues 56,513 63,762 Less: billings to date 53,817 59,784 Net costs and estimated earnings in excess of billings (billings in excess of costs) on uncompleted contracts $ 2,696 $ 3,978 Contract assets $ 3,748 $ 4,934 Contract liabilities (1,052 ) (956 ) Net contract assets $ 2,696 $ 3,978 |
DEBT (Tables)
DEBT (Tables) | 6 Months Ended |
Jul. 01, 2023 | |
DEBT | |
Schedule of Debt | July 1, 2023 December 31, 2022 Revolving Credit Facility (1) $ — $ 1,661 Credit Agreement (2) 1,004 — Priority Agreement (3) 864 — Amount due within one year 1,868 1,661 Total long-term debt $ — $ — |
Maturities Of Debt | Priority Agreement Credit Agreement $ $ 2023 864 — 2024 — 1,004 2025 and thereafter — — $ 864 $ 1,004 |
SEGMENT INFORMATION (Tables)
SEGMENT INFORMATION (Tables) | 6 Months Ended |
Jul. 01, 2023 | |
SEGMENT INFORMATION | |
Schedule of total assets by segment | Total Assets by Segment As of July 1, 2023 As of December 31, 2022 (dollars in thousands) Commercial $ 15,280 $ 19,526 Government Services 5,016 2,032 Corporate 3,920 8,465 Consolidated $ 24,216 $ 30,023 |
Segment Information | Commercial Government Services Corporate Consolidated For the three months ended July 1, 2023: Revenue $ 7,427 2,311 — 9,738 Gross profit (loss) (1,200 ) 818 — (382 ) Gross profit (loss) margin (16.2 )% 35.4 % (3.9 )% SG&A 2,499 141 1,282 3,922 Operating profit (loss) (3,699 ) 677 (1,282 ) (4,304 ) Other income, net 46 Interest expense, net (59 ) Tax expense (22 ) Net loss (4,339 ) Commercial Government Services Corporate Consolidated For the three months ended June 25, 2022: Revenue $ 9,203 2,152 — 11,355 Gross profit 701 631 — 1,332 Gross profit margin 7.6 % 29.3 % 11.7 % SG&A 1,605 172 1,113 2,890 Operating profit (loss) (904 ) 459 (1,113 ) (1,558 ) Other income, net 21 Interest expense, net (52 ) Tax benefit 56 Net loss (1,533 ) Commercial Government Services Corporate Consolidated For the six months ended July 1, 2023: Revenue $ 19,262 3,669 — 22,931 Gross profit (loss) (2,802 ) 598 — (2,204 ) Gross profit (loss) margin (14.5 )% 16.3 % (9.6 )% SG&A 5,245 277 2,816 8,338 Operating profit (loss) (8,047 ) 321 (2,816 ) (10,542 ) Other income, net 49 Interest expense, net (131 ) Tax expense (44 ) Net loss (10,668 ) Commercial Government Services Corporate Consolidated For the six months ended June 25, 2022: Revenue $ 14,606 4,115 — 18,721 Gross profit (loss) (223 ) 897 — 674 Gross profit (loss) margin (1.5 )% 21.8 % 3.6 % SG&A 3,096 390 2,247 5,733 Operating profit (loss) (3,319 ) 507 (2,247 ) (5,059 ) Other income, net 31 Interest expense, net (103 ) Tax expense (22 ) Net loss (5,153 ) |
LEASES (Tables)
LEASES (Tables) | 6 Months Ended |
Jul. 01, 2023 | |
LEASES | |
Lease Expense | Three Months Ended Six Months Ended Financial Statement Classification July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Finance leases: Amortization expense SG&A Expense $ 61 $ 53 $ 115 $ 106 Interest expense Interest expense, net 13 11 26 22 Total finance lease expense 74 64 141 128 Operating leases: Operating costs Operating costs 252 58 687 103 Selling, general and administrative expenses SG&A Expense 619 465 1,209 876 Total operating lease expense 871 523 1,896 979 Total lease expense $ 945 $ 587 $ 2,037 $ 1,107 |
Supplemental Balance Sheet Information Related To Leases | Financial Statement Classification July 1, 2023 December 31, 2022 ROU Assets: Operating leases Right of use asset $ 7,205 $ 8,072 Finance leases Property and equipment, net 930 761 Total ROU Assets: $ 8,135 $ 8,833 Lease liabilities: Current liabilities Operating leases Current portion of leases $ 1,320 $ 1,638 Finance leases Current portion of leases 276 211 Noncurrent Liabilities: Operating leases Long-term leases 6,161 6,669 Finance leases Long-term leases 659 548 Total lease liabilities $ 8,416 $ 9,066 |
Weighted Average Remaining Lease Term And Weighted Average Discount Rate | At July 1, 2023 Weighted average remaining lease term (years) Operating leases 7.1 Finance leases 3.6 Weighted average discount rate Operating leases 10.9 % Finance leases 10.1 % |
Maturities Of Operating Lease Liabilities | Years ending: Operating leases Finance leases Total 2023 (remaining months) 908 161 1,069 2024 1,323 301 1,624 2025 1,140 264 1,404 2026 918 234 1,152 2027 and thereafter 4,112 80 4,192 Total lease payments 8,401 1,040 9,441 Less: imputed interest (920 ) (105 ) (1,025 ) Total lease liabilities 7,481 $ 935 $ 8,416 |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 6 Months Ended |
Jul. 01, 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)
REVENUE RECOGNITION (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jul. 01, 2023 | Jun. 25, 2022 | Jul. 01, 2023 | Jun. 25, 2022 | |
Total revenue | $ 9,738 | $ 11,355 | $ 22,931 | $ 18,721 |
Fixed-Price Revenue | ||||
Total revenue | 6,080 | 8,891 | 16,517 | 14,099 |
Time-and-Material Revenue | ||||
Total revenue | $ 3,658 | $ 2,464 | $ 6,414 | $ 4,622 |
CONTRACT ASSETS AND CONTRACT _2
CONTRACT ASSETS AND CONTRACT LIABILITIES (Details) - USD ($) $ in Thousands | Jul. 01, 2023 | Dec. 31, 2022 |
CONTRACT ASSETS AND CONTRACT LIABILITIES | ||
Costs incurred on uncompleted contracts | $ 53,994 | $ 59,298 |
Estimated earnings on uncompleted contracts | 2,519 | 4,464 |
Earned revenues | 56,513 | 63,762 |
Less: billings to date | 53,817 | 59,784 |
Net costs and estimated earnings in excess of billings | 2,696 | 3,978 |
Contract assets | 3,748 | 4,934 |
Contract liabilities | (1,052) | (956) |
Net contract assets | $ 2,696 | $ 3,978 |
DEBT (Details)
DEBT (Details) - USD ($) | Jul. 01, 2023 | Dec. 31, 2022 |
Line of credit facility | $ 0 | $ 1,661,000 |
Amount Due Within One Year | 1,868,000 | 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 | 1,004,000 | 0 |
Priority Agreement | ||
Line of credit facility | $ 864,000 | $ 0 |
DEBT (Details 1)
DEBT (Details 1) | Jul. 01, 2023 USD ($) |
Credit Agreement | |
2023 | $ 0 |
2024 | 1,004,000 |
2025 and thereafter | 0 |
Long-term debt | 1,004,000 |
Priority Agreement | |
2023 | 864,000 |
2024 | 0 |
2025 and thereafter | 0 |
Long-term debt | $ 864,000 |
DEBT (Details Narrative)
DEBT (Details Narrative) - USD ($) | 1 Months Ended | 6 Months Ended | ||||
Jun. 16, 2023 | Jun. 15, 2023 | May 22, 2023 | Mar. 27, 2023 | May 21, 2020 | Jul. 01, 2023 | |
Amount receivables | $ 900,000 | |||||
Revolving Credit Facility | ||||||
Aggregate amount | $ 500,000 | $ 750,000 | $ 1,000,000 | $ 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 | Maximum [Member] | ||||||
Discount rate | 8.25% | |||||
Priority Agreement | Minimum [Member] | ||||||
Discount rate | 2.75% |
SEGMENT INFORMATION (Details)
SEGMENT INFORMATION (Details) - USD ($) | 3 Months Ended | 6 Months Ended | |||||
Jul. 01, 2023 | Jun. 25, 2022 | Jun. 25, 2022 | Jul. 01, 2023 | Jun. 25, 2022 | Jun. 25, 2022 | Dec. 31, 2022 | |
Revenue | $ 9,738,000 | $ 11,355,000 | $ 22,931,000 | $ 18,721,000 | |||
Gross profit (loss) | $ (382,000) | $ 1,332,000 | $ 1,332,000 | $ (2,204,000) | $ 674,000 | $ 674,000 | |
Gross Profit (loss) Margin | (3.90%) | 11.70% | (9.60%) | 3.60% | |||
SG&A | $ 3,922,000 | 2,890,000 | $ 2,890,000 | $ 8,338,000 | $ 5,733,000 | 5,733,000 | |
Operating loss | (4,304,000) | (1,558,000) | (1,558,000) | (10,542,000) | (5,059,000) | (5,059,000) | |
Other Income, Net | 46,000 | 21,000 | 21,000 | 49,000 | 31,000 | 31,000 | |
Interest expense, net | (59,000) | (52,000) | (52,000) | (131,000) | (103,000) | (103,000) | |
Tax Expense | (22,000) | 56,000 | (44,000) | (22,000) | |||
Net Income (loss) | (4,339,000) | (1,533,000) | (1,533,000) | (10,668,000) | (5,153,000) | (5,153,000) | |
Total assets | 24,216,000 | 24,216,000 | $ 30,023,000 | ||||
Gross profit (loss) | (382,000) | 1,332,000 | 1,332,000 | (2,204,000) | 674,000 | 674,000 | |
Operating loss | (4,304,000) | $ (1,558,000) | (1,558,000) | (10,542,000) | (5,059,000) | $ (5,059,000) | |
Commercial | |||||||
Revenue | 7,427,000 | 9,203,000 | 19,262,000 | 14,606,000 | |||
Gross profit (loss) | $ (1,200,000) | $ 701,000 | $ (2,802,000) | $ (223,000) | |||
Gross Profit (loss) Margin | (16.20%) | 7.60% | (14.50%) | (1.50%) | |||
SG&A | $ 2,499,000 | $ 1,605,000 | $ 5,245,000 | $ 3,096,000 | |||
Operating loss | (3,699,000) | (904,000) | (8,047,000) | (3,319,000) | |||
Total assets | 15,280,000 | 15,280,000 | 19,526,000 | ||||
Gross profit (loss) | (1,200,000) | 701,000 | (2,802,000) | (223,000) | |||
Operating loss | (3,699,000) | (904,000) | (8,047,000) | (3,319,000) | |||
Government Services | |||||||
Revenue | 2,311,000 | 2,152,000 | 3,669,000 | 4,115,000 | |||
Gross profit (loss) | $ 818,000 | $ 631,000 | $ 598,000 | $ 897,000 | |||
Gross Profit (loss) Margin | 35.40% | 29.30% | 16.30% | 21.80% | |||
SG&A | $ 141,000 | $ 172,000 | $ 277,000 | $ 390,000 | |||
Operating loss | 677,000 | 459,000 | 321,000 | 507,000 | |||
Total assets | 5,016,000 | 5,016,000 | 2,032,000 | ||||
Gross profit (loss) | 818,000 | 631,000 | 598,000 | 897,000 | |||
Operating loss | 677,000 | 459,000 | 321,000 | 507,000 | |||
Corporate | |||||||
Revenue | 0 | 0 | 0 | 0 | |||
Gross profit (loss) | 0 | 0 | 0 | 0 | |||
SG&A | 1,282,000 | 1,113,000 | 2,816,000 | 2,247,000 | |||
Operating loss | (1,282,000) | (1,113,000) | (2,816,000) | (2,247,000) | |||
Total assets | 3,920,000 | 3,920,000 | $ 8,465,000 | ||||
Gross profit (loss) | 0 | 0 | 0 | 0 | |||
Operating loss | $ (1,282,000) | $ (1,113,000) | $ (2,816,000) | $ (2,247,000) |
FEDERAL AND STATE INCOME TAXES
FEDERAL AND STATE INCOME TAXES (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||||
Jul. 01, 2023 | Jun. 25, 2022 | Jun. 25, 2022 | Jul. 01, 2023 | Jun. 25, 2022 | Jun. 25, 2022 | |
Effective Income Tax Rate | (0.50%) | 3.50% | (0.40%) | (0.40%) | ||
Income tax expense | $ 22 | $ (56) | $ 56 | $ 44 | $ 22 | $ 22 |
P P P Loan Forgiveness And Stock Compensation [Member] | ||||||
Effective Income Tax Rate | 21% |
LEASES (Details)
LEASES (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||||
Jul. 01, 2023 | Jun. 25, 2022 | Jun. 25, 2022 | Jul. 01, 2023 | Jun. 25, 2022 | Jun. 25, 2022 | |
Total finance lease expense | $ 74 | $ 64 | $ 141 | $ 128 | ||
Total operating lease expense | 871 | 523 | 1,896 | 979 | ||
Total lease expense | 945 | 587 | 2,037 | 1,107 | ||
Selling, general and administrative expenses | 3,922 | $ 2,890 | 2,890 | 8,338 | 5,733 | $ 5,733 |
SG&A Expense | ||||||
Amortization expense | 61 | 53 | 115 | 106 | ||
Selling, general and administrative expenses | 619 | 465 | 1,209 | 876 | ||
Interest Expense, Net | ||||||
Interest expense | 13 | 11 | 26 | 22 | ||
Operating Costs | ||||||
Operating costs | $ 252 | $ 58 | $ 687 | $ 103 |
LEASES (Details 1)
LEASES (Details 1) - USD ($) $ in Thousands | Jul. 01, 2023 | Dec. 31, 2022 |
Current lease liabilities - operating leases | $ 1,320 | $ 1,638 |
Current lease liabilities - finance leases | 276 | 211 |
Noncurrent lease liabilities - operating leases | 6,161 | 6,669 |
Noncurrent lease liabilities - finance leases | 659 | 548 |
Total lease liabilities | 8,416 | 9,066 |
ROU assets - operating leases | 7,205 | 8,072 |
Right of Use Asset | ||
ROU assets - operating leases | 7,205 | 8,072 |
ROU assets - finance leases | 930 | 761 |
ROU assets | $ 8,135 | $ 8,833 |
LEASES (Details 2)
LEASES (Details 2) | 6 Months Ended |
Jul. 01, 2023 | |
LEASES | |
Weighted average remaining lease term (years) - operating leases | 7 years 1 month 6 days |
Weighted average discount rate - operating leases | 10.90% |
Weighted average remaining lease term (years) - finance leases | 3 years 7 months 6 days |
Weighted average discount rate - finance leases | 10.10% |
LEASES (Details 3)
LEASES (Details 3) - USD ($) $ in Thousands | Jul. 01, 2023 | Dec. 31, 2022 |
Operating Leases | ||
2023 | $ 908 | |
2024 | 1,323 | |
2025 | 1,140 | |
2026 | 918 | |
2027 and thereafter | 4,112 | |
Total lease payments | 8,401 | |
Less: imputed interest | (920) | |
Total lease liabilities | 7,481 | |
Finance Leases | ||
2023 | 161 | |
2024 | 301 | |
2025 | 264 | |
2026 | 234 | |
2027 and thereafter | 80 | |
Total lease payments | 1,040 | |
Less: imputed interest | (105) | |
Total lease liabilities | 935 | |
Total | ||
2023 | 1,069 | |
2024 | 1,624 | |
2025 | 1,404 | |
2026 | 1,152 | |
2027 and thereafter | 4,192 | |
Total lease payments | 9,441 | |
Less: imputed interest | (1,025) | |
Total lease liabilities | $ 8,416 | $ 9,066 |
EMPLOYEE RETENTION CREDIT (Deta
EMPLOYEE RETENTION CREDIT (Details Narrative) - USD ($) $ in Millions | Jul. 01, 2023 | Dec. 31, 2022 |
EMPLOYEE RETENTION CREDIT | ||
Employee retention credit | $ 1.7 | $ 1.4 |
Unpaid employee retention credit16 | $ 0.5 |
STOCKHOLDERS EQUITY (Details Na
STOCKHOLDERS EQUITY (Details Narrative) - USD ($) $ / shares in Units, $ in Millions | 1 Months Ended | ||||
Feb. 01, 2023 | Jul. 01, 2023 | Jun. 12, 2023 | Apr. 01, 2023 | Jan. 11, 2022 | |
Maximum offering price of common stock | $ 75 | $ 30 | |||
Stock issued | 3,971,000 | ||||
ATM Agreement [Member] | B. Riley Securities [Member] | |||||
Maximum offering price of common stock | $ 30 | ||||
Purchase Agreement [Member] | |||||
Stock issued | 3,971,000 | 3,971,000 | |||
Proceeds from stock issued | $ 3 | ||||
Offering price | $ 0.85 |
LIQUIDITY (Details Narrative)
LIQUIDITY (Details Narrative) - USD ($) | 1 Months Ended | 6 Months Ended | ||||
Mar. 27, 2023 | Feb. 01, 2023 | Jul. 01, 2023 | Jun. 12, 2023 | Apr. 01, 2023 | Jan. 11, 2022 | |
Revolving credit facility amount | $ 900,000 | $ 1,000,000 | $ 3,400,000 | |||
Maximum offering price of common stock | 75,000,000 | $ 30,000,000 | ||||
Securities aggregate offering price | $ 14,400,000 | $ 75,000,000 | ||||
Stock issued | 3,971,000 | |||||
Minimum [Member] | ||||||
Discount rate | 2.75% | |||||
Maximum [Member] | ||||||
Discount rate | 8.25% | |||||
Purchase Agreement [Member] | ||||||
Proceeds from stock issued | $ 3,000,000 | |||||
Stock issued | 3,971,000 | 3,971,000 | ||||
Offering price | $ 0.85 | |||||
Purchase Agreement [Member] | February 1, 2023 [Member] | ||||||
Proceeds from stock issued | $ 3,000,000 | |||||
Stock issued | 3,971,000 | |||||
Offering price | $ 0.85 |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) | 6 Months Ended |
Jul. 01, 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 6 months |
FAIR VALUE MEASUREMENTS (Deta_2
FAIR VALUE MEASUREMENTS (Details Narrative) $ in Millions | Jul. 01, 2023 USD ($) shares |
FAIR VALUE MEASUREMENTS | |
Stock issued | shares | 3,971,000 |
Additional paid in capital | $ | $ 2.8 |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details Narrative) - William A. Coskey [Member] | 1 Months Ended |
Jun. 15, 2023 USD ($) | |
Initial term Loan | $ 1,000,000,000,000 |
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 |