UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 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 Number)
600 Century Plaza Drive, Suite 140, Houston, Texas 77073-6033
-------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(281) 821-3200
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (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 shorter 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 [ X ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of business of August 6, 2004.
$0.001 Par Value Common Stock................................ 24,075,995 shares
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2004
TABLE OF CONTENTS
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of
Income for the Three Months Ended
and the Six Months Ended June 30, 2004
and June 30, 2003.........................................1
Condensed Consolidated Balance Sheets at
June 30, 2004 and December 31, 2003.......................2
Condensed Consolidated Statements of
Cash Flows for the Six Months
Ended June 30, 2004 and June 30, 2003.....................3
Notes to Condensed Consolidated Financial Statements......4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk........................................14
Item 4. Controls and Procedures..................................14
Part II. Other Information
Item 1. Legal Proceedings........................................15
Item 2. Changes in Securities and Use of Proceeds................15
Item 3. Defaults Upon Senior Securities..........................15
Item 4. Submission of Matters to a Vote of Security Holders......15
Item 5. Other Information........................................16
Item 6. Exhibits and Reports on Form 8-K.........................16
Signature...............................................17
i
Part I. Financial Information
Item 1. Financial Statements
ENGlobal Corporation
Condensed Consolidated Statements Of Income
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2004 2003 2004 2003
---- ---- ---- ----
OPERATING REVENUES $ 34,282,731 $ 29,271,639 $ 65,275,265 $ 52,278,038
OPERATING EXPENSES:
Direct costs 30,143,815 25,048,260 56,975,632 44,127,938
Selling, general and
administrative 3,093,814 2,952,777 6,142,909 5,620,558
Depreciation and amortization 277,157 164,045 536,829 377,958
------------ ------------ ------------ ------------
Total operating expenses 33,514,786 28,165,082 63,655,370 50,126,454
------------ ------------ ------------ ------------
Operating income 767,945 1,106,557 1,619,895 2,151,584
OTHER INCOME (EXPENSE):
Other income (expense) (4,718) (4,938) 28,068 (43,620)
Interest income (expense) (124,890) (208,977) (296,100) (406,919)
------------ ------------ ------------ ------------
Total other income (expense) (129,608) (213,915) (268,032) (450,539)
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME 638,337 892,642 1,351,863 1,701,045
TAXES
PROVISION FOR INCOME TAXES 217,034 329,337 459,633 624,208
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 421,303 563,305 892,230 1,076,837
LOSS FROM DISCONTINUED OPERATIONS,
Net of tax benefit ($16,827 and
$20,207 respectively) -- (29,278) -- (35,156)
------------ ------------ ------------ ------------
NET INCOME 421,303 534,027 892,230 1,041,681
PREFERRED STOCK DIVIDENDS -- 52,440 -- 104,200
------------ ------------ ------------ ------------
EARNINGS AVAILABLE TO COMMON $ 421,303 $ 481,587 $ 892,230 $ 937,481
STOCKHOLDERS
============ ============ ============ ============
EARNINGS PER COMMON SHARE (BASIC)
From continuing operations $ 0.02 $ 0.02 $ 0.04 $ 0.04
From discontinued operations -- -- -- --
------------ ------------ ------------ ------------
From net income $ 0.02 $ 0.02 $ 0.04 $ 0.04
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES 24,035,936 22,861,199 24,035,117 22,861,199
OUTSTANDING (BASIC)
EARNINGS PER COMMON SHARE (DILUTED)
From continuing operations $ 0.02 $ 0.02 $ 0.04 $ 0.04
From discontinued operations -- -- -- --
------------ ------------ ------------ ------------
From net income $ 0.02 $ 0.02 $ 0.04 $ 0.04
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES 24,347,589 23,350,602 24,346,990 23,237,385
OUTSTANDING (DILUTED)
See accompanying notes to interim condensed consolidated financial statements.
1
ENGlobal Corporation
Condensed Consolidated Balance Sheets
June 30, December 31,
2004 2003
---------- ------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash $ 10,099 $ 39,439
Accounts receivable - trade, less allowance for
doubtful accounts of approximately $507,000 for
2004 and $376,000 for 2003 17,995,773 20,244,172
Cost and estimated earnings in excess of
billings on uncompleted contracts 1,517,663 1,022,726
Prepaid and other 727,117 1,260,296
Inventory 127,827 118,340
Assets held for sale 678,106 --
Deferred tax asset 477,000 477,000
----------- -----------
Total current assets 21,533,585 23,161,973
NET ASSETS FROM DISCONTINUED OPERATIONS -- 860,728
PROPERTY AND EQUIPMENT, net 4,744,864 4,302,430
GOODWILL 13,807,016 13,752,564
OTHER ASSETS 370,669 452,695
----------- -----------
Total assets $40,456,134 $42,530,390
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable - trade $ 6,478,432 $ 9,821,030
Accrued salaries and benefits 4,386,791 4,302,137
Notes payable 119,936 771,225
Current portion - long term debt 507,288 623,230
Billings in excess of costs 173,254 374,339
Income taxes payable 108,242 103,609
Other liabilities 372,174 661,699
----------- -----------
Total current liabilities 12,146,117 16,657,269
Net liabilities from discontinued operations -- 24,164
Long term debt, net of current portion 9,070,470 7,506,062
Capital lease payable, net of current portion 3,964 12,042
Deferred tax liability 156,000 156,000
----------- -----------
Total liabilities 21,376,551 24,355,537
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; 75,000,000 shares authorized;
issued and outstanding at June 30, 2004 and
December 31, 2003 24,044 24,034
Additional paid-in capital 12,106,872 12,094,382
Retained earnings 6,948,667 6,056,437
----------- -----------
Total stockholders' equity 19,079,583 18,174,853
----------- -----------
Total liabilities and stockholders' equity $40,456,134 $42,530,390
=========== ===========
See accompanying notes to interim condensed consolidated financial statements.
2
ENGlobal Corporation
Condensed Consolidated Statements Of Cash Flows
(Unaudited)
For the Six Months Ended June 30,
-----------------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 892,230 $ 1,041,681
Adjustments for non-cash items 537,202 834,496
Changes in working capital (1,367,083) (587,387)
----------- -----------
Net cash provided by operating activities 62,349 1,288,790
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment acquired (593,597) (738,322)
Proceeds from sale of equipment 2,250 --
----------- -----------
Net cash used by investing activities (591,347) (738,322)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 1,624,408 237,098
Issuance of common stock upon exercise of options 12,500 --
Short-term note repayments (542,740) (417,961)
Capital lease repayments (5,087) (23,450)
Long-term debt repayments (589,423) (367,982)
----------- -----------
Net cash provided (used) by financing activities 499,658 (572,295)
----------- -----------
NET CHANGE IN CASH (29,340) (21,827)
CASH, at beginning of period 39,439 75,095
----------- -----------
CASH, at end of period $ 10,099 $ 53,268
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 255,912 $ 375,094
Income taxes paid $ 455,000 $ 357,000
Dividend payments -- $ 105,040
NON-CASH:
Accrual of preferred dividends -- $ 104,200
Issuance of preferred stock dividends -- $ 102,000
See accompanying notes to interim condensed consolidated financial statements.
3
ENGlobal Corporation
Notes To Condensed Consolidated Financial Statements
1. Basis of Presentation
---------------------
The condensed consolidated financial statements of ENGlobal Corporation
("ENGlobal" or the "Company") included herein, are unaudited for the three
and six-month periods ended June 30, 2004 and 2003. 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. Certain information and note
disclosures, normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America, have been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission. It is suggested
these condensed financial statements be read in conjunction with the
Company's audited financial statements for the years ended December 31,
2003 and 2002, which are included in the Company's annual report on Form
10-K. The Company believes that the disclosures made herein are adequate to
make the information presented not misleading.
2. Line of Credit and Debt
-----------------------
At the end of the reporting period, the Company had a Credit Facility (the
"Fleet Credit Facility") with Fleet Capital Corporation ("Fleet") that
consisted of a line of credit. The loan agreement positioned the Fleet debt
as senior to all other debt. The line of credit was limited to $15,000,000,
subject to borrowing base restrictions. The Fleet Credit Facility was
collateralized by substantially all the assets of the Company. The
outstanding balance on the line of credit as of June 30, 2004 was
$7,180,000. The Fleet Credit Facility was to mature on June 30, 2005. The
interest rate was lowered to prime on March 1, 2004 from prime plus .25% by
qualifying for the Rate Reduction Performance Factor after demonstrating
compliance with the fixed charge ratio covenant for 12 consecutive calendar
months. The commitment fee on the unused line of credit was 0.375%. The
remaining borrowings available under the line of credit as of June 30,
2004, were $2,948,000 after consideration of the borrowing base limitations
and cash timing differences. See Note 11 - Subsequent Events for details of
the Company's refinancing of its line of credit on July 27, 2004.
June 30, December 31,
2004 2003
-------------- ------------
(in thousands)
Fleet Credit Facility - Line of credit, prime (4.0% at June 30,
2004), maturing in 2005 $ 7,180 $ 5,556
Equus II - Note payable (unsecured), interest at 9.5%, principal
payments in installments of $110,000 plus interest due
quarterly maturing in December 2005 2,120 2,340
Petrocon Arabia Limited - Note payable (unsecured), interest at 8%,
principal due monthly in installments of $25,000, interest paid
annually, retired in June 2004 -- 151
Petro-Chem - Note payable (unsecured), payments of $25,000 due
annually, scheduled to mature January 2006 -- 75
Sterling Planet and EDGI - Notes payable (unsecured) interest at 5%,
principal payments in installments of $15,000 plus interest due
quarterly maturing in 2008 270 -
Miscellaneous 7 7
-------------- -----------
9,577 8,129
Less--current maturities (507) (623)
-------------- -----------
Long-term debt, net of current portion $ 9,070 $ 7,506
============== ===========
The Petro-Chem note was paid in full on a discounted basis in April 2004.
4
Current notes payable includes a note financing our commercial insurance on
a short-term basis, with balances of $70,000 and $721,000 as of June 30,
2004 and December 31, 2003, respectively. The note bears interest of 7.25%
and is payable in monthly installments of principal and interest of $70,000
through July 24, 2004. Also included in current notes payable are notes to
Mrs. Senftleber and the Senftleber Family Trust for the acquisition of
Senftleber & Associates, L.P. in October 2003. The notes had balances of
$50,000 at June 30, 2004 and December 31, 2003 and mature in October 2004.
3. Acquisitions
------------
The Company's acquisition strategy is focused on developing breadth and
depth of expertise within the organization by continuing to search for
candidates that fit into one of two profiles. First, the Company considers
acquisition candidates with revenues in the $10 million range that would
provide new service capabilities for its clients. Second, the Company
considers acquisition candidates of various sized operations that have
capabilities similar to those that the Company currently provides in order
to assist the Company in gaining a larger position in a given market
segment or geographic location.
The Company announced that one of its subsidiaries, ENGlobal Design Group
("EDG"), purchased certain assets of Tulsa-based Engineering Design Group,
Inc. ("EDGI") on January 23, 2004. Beginning February 2004, ENGlobal
included the EDG operating results in its financial statements. The Company
expects that the acquisition of these assets will enhance its capabilities
related to various government and public sector facilities. EDG's most
active sector is the Automated Fuel Handling Systems that serve the U.S.
military. In connection with the purchase, EDG issued two $150,000 notes
bearing interest at 5% maturing in 2008 and a $2.5 million five-year
contingent promissory note, with payments due annually, as part of an
earn-out structure based on revenues of the EDG operations over the next
five years. There was no cash or stock consideration paid as a result of
the transaction.
The consideration given for the purchase of certain EDGI assets
approximated the fair value; therefore no goodwill arose from the
transaction. Principal payments on the $2.5 million five-year contingent
promissory note will be charged to goodwill.
The unaudited proforma combined historical results, as if the acquisition
had taken place at the beginning of 2003 and 2004, respectively are as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
2004 2003 2004 2003
-------- -------- -------- --------
(in thousands) (in thousands)
Revenue as reported $ 34,283 $ 29,272 $ 65,275 $ 52,278
Proforma revenues of EDGI -- 4,669 486 8,632
-------- -------- -------- --------
Proforma revenues $ 34,283 $ 33,941 $ 64,789 $ 60,910
======== ======== ======== ========
Net income as reported $ 421 $ 482 $ 892 $ 1,042
Proforma income (loss) of EDGI -- (2) (128) 126
-------- -------- -------- --------
Proforma net income $ 421 $ 480 $ 764 $ 1,168
======== ======== ======== ========
Basic per share data as reported $ 0.02 $ 0.02 $ 0.04 $ 0.05
Proforma basic per share data $ 0.02 $ 0.02 $ 0.04 $ 0.05
Diluted per share data as reported $ 0.02 $ 0.02 $ 0.04 $ 0.05
Proforma diluted per share data $ 0.02 $ 0.02 $ 0.04 $ 0.05
5
4. Goodwill
--------
In accordance with Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, goodwill is no longer amortized over
its estimated useful life, but rather will be subject to at least an annual
assessment for impairment. Goodwill has been allocated to the Company's two
business segments, engineering and systems. The test for impairment is made
on each of these reporting segments. No impairment of goodwill has been
incurred to date. However, the recent performance of the systems segment
may give rise to an impairment during 2004. The Company cannot predict at
this time the amount of any such impairment.
5. Fixed Fee Contracts
-------------------
Costs, estimated earnings and billings on uncompleted contracts consisted
of the following at June 30, 2004 and December 31, 2003:
June 30, December 31,
2004 2003
--------- --------
(in thousands)
Costs incurred on uncompleted contracts $ 8,782 $ 14,333
Estimated earnings on uncompleted contracts 1,574 1,862
-------- --------
Earned revenues 10,356 16,195
Less billings to date (9,012) (15,546)
-------- --------
Net cost and estimated earnings in excess of billings on
uncompleted contracts $ 1,345 $ 649
======== ========
Cost and estimated earnings in excess of billings on uncompleted
contracts $ 1,518 $ 1,023
Less billings and estimated earnings in excess of cost on uncompleted
contracts (173) (374)
-------- --------
Net cost and estimated earnings in excess of billings on
uncompleted contracts $ 1,345 $ 649
======== ========
The trend of increasing "Net Cost of Estimated Earnings in Excess of
Billings" has a negative impact on the Company's cash flows. The Company is
taking steps to bring billings on fixed fee contracts current to contract
terms.
6. Preferred Stock Dividends
-------------------------
ENGlobal has a class of preferred stock with 5,000,000 shares originally
authorized for issuance. The Company issued to Equus II Incorporated
("Equus II") 2,500,000 shares of preferred stock and stock dividends
totaling 234,833 shares. Par value for the preferred stock was $0.001 with
a fair value of $1.00 per preferred share. All of the preferred shares
outstanding were converted into 1,149,089 shares of common stock in August
2003. Following the conversion, the Company reduced the authorized shares
of preferred stock to 2,265,167. There are currently no shares of preferred
stock issued and outstanding.
7. Discontinued Operations and Assets Held for Sale
------------------------------------------------
In our ongoing strategic efforts to increase the Company's focus on core
engineering consulting services, the Thermaire manufacturing operations and
a significant portion of its assets were sold on December 15, 2003.
Thermaire manufactured air-handling equipment for commercial heating,
ventilation and cooling systems. The operating results of the business are
included in "Discontinued operations" and the assets and liabilities are
separately identified on the Balance Sheet for 2003. In 2004, all
liabilities relating to the Thermaire operations have been extinguished and
the remaining assets, the land and building, have been prepared for sale
and listed with an agent. The assets are identified under current assets as
"Assets held for sale".
8. Employee Stock Purchase Plan
----------------------------
On June 17, 2004, ENGlobal shareholders ratified the Company's adoption of
the 2004 Employee Stock Purchase Plan ("Plan"). Beginning April 1, 2004,
the Company provided eligible employees with the opportunity and a
6
convenient means to purchase shares of the Company's Common Stock as an
incentive to exert maximum efforts for the success of the Company. ENGlobal
intends that options to purchase stock granted under the Plan qualify as
options granted under an "employee stock purchase plan" as defined in
Section 423(b) of the Code. The Plan will be construed so as to be
consistent with Section 423 of the Code, including the Section 423(b)(5)
which requires that all participants have the same rights and privileges
with respect to options granted under the Plan. Participants in the initial
quarterly offering period contributed $33,000 toward the purchase of 21,700
shares of the Company's Common Stock. The cash contributed by the
participants during this initial offering period was applied to the
reduction of the Company's long-term debt.
9. Stock Option Plan
-----------------
The Company accounts for its nonqualified incentive stock option plan under
the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations. Accordingly, no stock-based compensation cost is reflected
in net income, as all options granted under the Company's plan were equal
to or greater than the market value of the Company's stock on the date of
grant. The following table illustrates the effect on net income and
earnings per share for the three months ended and six months ended June 30,
2004 and 2003, respectively, as if the Company had applied the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS 148, Accounting for Stock-Based
Compensation Transition and Disclosure, issued in December 2002.
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
2004 2003 2004 2003
------- ------- ------- ------
(in thousands) (in thousands)
Pro forma impact of fair value method (SFAS 148):
Net income attributable to common stockholders,
as reported $ 421 $ 482 $ 892 $ 937
Less compensation expense determined under fair value
method, net of tax (5) (47) (10) (48)
------- ------- ------- -------
Pro forma net income attributable to common
stockholders $ 416 $ 435 $ 882 $ 889
======= ======= ======= =======
Earnings per share (basic):
As reported $ 0.02 $ 0.02 $ 0.04 $ 0.04
Pro forma $ 0.02 $ 0.02 $ 0.04 $ 0.04
Earnings per share (diluted):
As reported $ 0.02 $ 0.02 $ 0.04 $ 0.04
Pro forma $ 0.02 $ 0.02 $ 0.04 $ 0.04
Weighted average Black-Scholes fair value assumptions:
Risk free interest rate 5% 5%
Expected life 3-10 years 3-10 years 3-10 years 3-10 years
Expected volatility 72% 83% - 93% 72% 83% - 93%
Expected dividend yield 0.0% 0.0% 0.0% 0.0%
10. Segment Information
-------------------
With the sale of the manufacturing segment in December 2003, the Company
now operates in two business segments: (1) engineering, providing services
primarily to major integrated oil and gas companies; and (2) systems,
providing design and implementation of control systems for specific
applications primarily in the energy and process industries,
uninterruptible power systems and battery chargers. Sales and operating
income for each segment are set forth in the following table.
7
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
-------- -------- -------- --------
(in thousands) (in thousands)
Net sales from external customers:
Engineering $ 30,404 $ 25,257 $ 58,004 $ 43,572
Systems 3,879 4,015 7,271 8,706
-------- -------- -------- --------
Total $ 34,283 $ 29,272 $ 65,275 $ 52,278
======== ======== ======== ========
Operating profit (loss):
Engineering $ 2,742 $ 2,769 $ 5,327 $ 5,005
Systems (335) (95) (548) 200
Corporate (1,639) (1,568) (3,159) (3,053)
-------- -------- -------- --------
Total $ 768 $ 1,106 $ 1,620 $ 2,152
======== ======== ======== ========
11. Subsequent Events
-----------------
Refinancing of the Line of Credit
On July 27, 2004, the Company entered into a new Credit Facility (the
"Comerica Credit Facility") with Comerica Bank ("Comerica"). The loan
agreement positions Comerica as senior to all other debt. The line of
credit is limited to $22,000,000, subject to loan covenant restrictions.
The Comerica Credit Facility is collateralized by substantially all the
assets of the Company. The initial funding on the line of credit totaled
$8,612,000. The Comerica Credit Facility matures July 27, 2007. At the
election of the Company, the interest rate will be the lesser of prime or a
three tiered Eurodollar rate, plus 150, 175, or 200 basis points, based on
the ratio of total funded debt to EBITDA for the trailing 12 months of less
than 2.00, between 2.00 and 2.50, and greater than 2.50, respectively. The
commitment fee on the unused line of credit is 0.250%. The remaining
borrowings available under the line of credit as of July 28, 2004 were
approximately $7,500,000.
The Fleet Credit Facility line of credit was paid off on July 28, 2004 as
part of the initial funding from Comerica. The Company was in compliance
with all covenants under the Fleet Credit Facility as of the last reporting
period on June 30, 2004.
The Comerica Credit Facility contains covenants requiring the Company, as
of the end of each calendar month then ended, to maintain certain ratios,
including total funded debt to EBITDA; total funded debt to total
liabilities, plus net worth; and total funded debt to accounts/unbilled
receivables. The Company is also required, as of the end of the most recent
quarters then ended, to maintain minimum levels of net worth, plus the
Company must comply with an annual limitation on capital expenditures. The
Company expects to realize savings in interest charges on the revolving
line-of-credit over the term of the Comerica Credit Facility. The Company
also gained additional availability under the Comerica Credit Facility
which allowed it to retire the Equus II term loan and to realize additional
interest savings. The additional availability will also be used to support
cash requirements of the Company's acquisition strategy.
Retirement of Equus II Term Loan
On July 28, 2004, the Company paid $2,156,000 in principal and interest to
Equus II for the balance of the $3 million term loan executed in December
2001. The loan carried interest at 9.5%, with principal and interest
payments due quarterly. The loan was scheduled to mature in December 2005.
The loan carried no prepayment penalty. Funding for the retirement was made
available through the refinancing of the Company's Credit Facility through
Comerica. The Company expects to realize savings in interest charges on the
term loan over the term of the new Credit Facility.
8
Item 2. Management's Discussion And Analysis And Results Of Operations
Forward-Looking Statements
Certain information contained in this Quarterly Report on Form 10-Q, the
Company's Annual Report to Stockholders, 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, press releases, conferences, or
otherwise, may be deemed to be forward-looking statements with the meaning
of Section 21E of the Securities Exchange Act of 1934. This information
includes, with 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; commitments and contingent
liabilities; and 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. When used in this report, the words
"anticipate," "believe," "estimate," "expect," "may," and similar
expressions, as they relate to the Company, its subsidiaries, and
management, identify forward-looking statements. Actual results could
differ materially from the results described in the forward-looking
statements due to the risks and uncertainties set forth with this Quarterly
Report on Form 10-Q and the specific risk factors identified in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
The following discussion is qualified in its entirety by, and should be
read in conjunction with, the Company's Consolidated Financial Statements
including the notes thereto, included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2003.
Results of Operations
The following is a discussion of the results of operations for the second
quarter and first six months of 2004 compared to the second quarter and
first six months of 2003 with a discussion of the changes in financial
condition during the first six months of 2004.
Three Months Ended June 30, 2004 Compared to Three Months Ended June 30,
2003
Total Revenue. Total revenue increased by $5,011,000, or 17%, for the three
months ended June 30, 2004 compared to the three months ended June 30,
2003. The engineering segment reported a significant increase in sales
during the period, while the systems segment reported a decrease.
Three Months Ended
June 30,
--------------------------
(in thousands) Changes from
2004 2003 prior year
---------- --------- -----------
Revenues:
Engineering - labor $ 19,110 $ 18,538 $ 572
Engineering - non-labor 11,294 6,719 4,575
---------- --------- ---------
Engineering 30,404 25,257 5,147
Systems 3,879 4,015 (136)
---------- --------- ---------
Total $ 34,283 $ 29,272 $ 5,011
=========== ========= =========
Revenues from the engineering segment, representing 88.7% of the Company's
total revenues, increased by $5,147,000, or 20.4%, from $25,257,000 for the
three months ended June 30, 2003 to $30,404,000 for the same period in
2004. The increase is primarily due to $3,644,000 in revenues recognized on
material procurement and subcontracting activities on a large co-generation
project that began in August 2003 and is scheduled for completion in
December 2005.
9
Revenues from the systems segment, representing 11.3% of the Company's
total revenues, decreased by $136,000, or 3.4%, from $4,015,000 for the
three months ended June 30, 2003 to $3,879,000 for the same period in 2004.
This decrease is attributable primarily to our subsidiary ENGlobal Systems,
Inc. ("ESI"), which experienced a reduction of over $1.5 million in
revenues in the second quarter of 2004 compared to the same period in 2003.
The revenue reduction resulted primarily from ESI's completion of two large
fixed price projects for instrumentation systems for a single client in
2003. ENGlobal Design Group, Inc. ("EDG"), the assets of which were
acquired from EDGI in January 2004 and Senftleber in October 2003,
contributed revenues of $429,000 and $1,065,000 , respectively, during the
three and six month periods to partially offset reduced revenues from the
ESI operation.
Gross Profit. Total gross profit decreased by $84,000 for the three months
ended June 30, 2004 as compared to the three months ended June 30, 2003.
The engineering segment's gross profit decreased $117,000 while the systems
segment's gross profit increased $33,000, when results for the three months
ended June 30, 2004 are compared to the results for the three months ended
June 30, 2003. Presented below is the gross profit for the three months
ended June 30, 2004, by segment, compared to the same period last year,
with gross profits also shown as a percentage of corresponding revenue.
Three Months Ended
June 30,
---------------------------------------------------
(in thousands) Changes from
2004 2003 prior year
---------------------- ---------------------- ----------------------
Gross Profit (Loss):
Engineering $3,665 12.1% $3,782 15.0% $ (117) (3.1)%
Systems 474 12.2% 441 11.0% 33 7.5 %
------ ------ ------
Total $4,139 12.1% $4,223 14.4% $ (84) (2.0)%
====== ====== ======
Gross profit as a percentage of revenues for the engineering segment
decreased from 15.0% for the quarter ended June 30, 2003 to 12.1% for the
quarter ended June 30, 2004 primarily due to an increase in material
procurement and subcontract activities that provide little or no profit,
combined with the loss of revenues providing higher profit contributions.
The gross profit for engineering services, after excluding procurement and
subcontract activities, increased to 17.8% from 17.3% for the three months
ended June 30, 2003.
The systems segment's gross profit as a percent of revenue increased from
11.0% for the quarter ended June 30, 2003 to 12.2% for the same period in
2004. This increase in gross profit as a percent of revenue was primarily
due to the Senftleber and EDG acquisitions, which contributed $339,000 in
gross profit to the systems segment in the quarter ended June 30, 2004.
The Company has a partially self-funded medical plan with both specific and
aggregate stop loss levels covered by re-insurance. Increased funding of
claims during the period have caused monthly operational costs to increase
approximately $110,000 per month. The Company is reviewing the current
claim trends, plan design and other options in an effort to recover the
increase in projected costs.
Selling, General, and Administrative. Expenses related to selling, general
and administrative, including depreciation and amortization, increased
$254,149, or 8.2%, for the three months ended June 30, 2004 as compared to
the same period in 2003. The increase was primarily from combined selling,
general, and administrative expenses for EDG, operational since January
2004; and Senftleber, acquired in October 2003, which totalled $393,000
during the three-month period ended June 30, 2004; plus depreciation and
amortization on capital projects and the Beaumont office leasehold
improvements completed in 2003. Corporate expenses exceeded budget for the
period by $257,000 primarily due to additional salary and legal expenses of
$211,000 and $29,000 respectively.
Operating Income. For the three months ended June 30, 2004, operating
income decreased to $768,000, as compared to operating income of $1,107,000
for the threemonth period ended June 30, 2003. The engineering segment's
contribution to operating income decreased $28,000 for the second quarter
of 2004 as compared to the same period in 2003. The decrease in the systems
segment's contribution to operating income was $239,000 for the second
quarter of 2004 as compared to the same period in 2003. Gross profit for
the systems segment was not sufficient to cover the fixed selling, general,
and administrative expenses for that segment.
10
Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003
Total Revenue. Total revenue increased by $12,997,000, or 24.9%, for the
six months ended June 30, 2004 compared to the six months ended June 30,
2003. The engineering segment reported an increase in sales during the
period, while the systems segment reported a decrease in sales.
Six Months Ended
June 30,
-------------------------------
(in thousands) Change from
2004 2003 prior year
-------- -------- --------
Revenues:
Engineering - labor $ 38,707 $ 34,501 $ 4,206
Engineering - non-labor 19,297 9,071 10,226
-------- -------- --------
Engineering 58,004 43,572 14,432
Systems 7,271 8,706 (1,435)
-------- -------- --------
Total $ 65,275 $ 52,278 $ 12,997
======== ======== ========
Total revenues in the engineering segment increased by $14,432,000, or
33.1%, to $58,004,000 during the six months ended June 30, 2004 compared to
the same period in 2003 due to new contracts and a large co-generation
project that began in August 2003 and is scheduled for completion in
December 2005. The co-generation project includes revenues resulting from
procurement and subcontractor activities in addition to engineering labor
revenues. Revenues from procurement and subcontractor activities on the
large co-generation project during the six months ended June 30, 2004 were
$9,314,000. During the period, our Beaumont office achieved an increase in
labor revenues of $3.8 million, or 19.0%, compared to the same period in
2003. Revenues for our Houston and Lake Charles locations decreased $3
million for the six months ended June 30, 2004 as compared to the same
period in 2003. However, this decrease was more than offset by a $4 million
increase in revenues attributable to our Tulsa, Baton Rouge and Freeport
locations.
Revenues in the systems segment, which represented 11.1% of total revenues,
decreased by 16.5%, or $1,435,000, from $8,706,000 for the six months ended
June 30, 2003 to $7,271,000 for the same period in 2004. The decrease in
revenues is due to the conclusion of two large fixed price projects for
instrumentation systems for a single client. The Senftleber acquisition in
the last quarter of 2003 provided $888,000 in revenues and the acquisition
of certain assets of EDGI in January 2004 provided $1,929,000 in revenues
for the period ended June 30, 2004.
Gross Profit. Gross profit increased $286,000, or 3.5%, for the six months
ended June 30, 2004 as compared to the six months ended June 30, 2003.
Gross profit and gross profit as a percentage of revenue for those periods
are reflected in the following table:
Six Months Ended
June 30,
--------------------------------------------------
(in thousands) Change from
2004 2003 prior year
---------------------- ---------------------- ---------------------
Gross Profit (loss):
Engineering $7,307 12.6% $6,905 15.8% $ 402 5.8 %
Systems 993 13.7% 1,245 14.3% (252) (20.2)%
------ ------ -----
Total $8,300 12.7% $8,150 15.9% $ 150 1.8 %
====== ====== =====
Gross profit in the engineering segment decreased from 15.8% for the six
months ended June 30, 2003, to 12.6% for the six months ended June 30,
2004. The decrease was primarily due to an increase in material procurement
and subcontract activities that provide little or no profit combined with
the loss of revenues providing higher profit contributions. The margin for
engineering services, after excluding procurement activities, was 17.4%,
unchanged from the six months ended June 30, 2003.
The systems segment's gross profit decreased $252,000, or 20.2%, from
$1,245,000 to $993,000 for the six months ended June 30, 2003 and 2004,
respectively. Gross profit as a percent of revenue declined from 14.3% for
11
the six months ended June 30, 2003 to 13.7% for the same period in 2004.
This decline in gross profit was due primarily to budget over-runs on
fixed-price projects and competitive market pressures on contract pricing.
The Senftleber and EDG operations contributed $615,000 in gross profit to
the systems segment for the period ended June 30, 2004.
Selling, General, and Administrative. Expenses related to selling, general
and administrative, including depreciation and amortization, increased
$681,000, or 11.4%, for the six months ended June 30, 2004 as compared to
the same period in 2003. The increase was primarily due to the combined
selling, general, and administrative expenses for EDG, operational since
January 2004; and Senftleber, acquired in October 2003, which totalled
$718,000 during the six months ended June 30, 2004; plus depreciation and
amortization on capital projects and the Beaumont office leasehold
improvements completed in 2003. Corporate expenses have exceeded budget for
the period by $406,000 primarily due to additional salary and legal
expenses of $335,000 and $55,000 respectively.
Operating Income. Operating income decreased by $532,000 to $1,620,000 for
the six months ended June 30, 2004, compared to $2,152,000 for the same
period in 2003. As a percentage of revenues, operating income decreased
from 2.4% in 2003 to 4.1% in 2004 for the same periods. The decrease is
attributable primarily to the systems segment, which contributed $453,030
less to operating income during the first six months of 2004 than during
the same period in 2003 before deducting corporate selling, general, and
administrative expenses.
Net Income. Net income after taxes decreased by $150,000, or 14.4%, from
$1,042,000 to $892,000 for the six months ended June 30, 2003 and 2004,
respectively. As a percentage of total revenue, the net income percentage
decreased from 2.0% to 1.4% for the same periods. Interest expense for the
six months ended June 30, 2004 was $124,900, or 30.1%, lower than interest
expense for the same period in 2003, due to lower interest on our senior
debt.
Liquidity and Capital Resources
Historically, cash requirements have been satisfied through operations and
borrowings under a revolving line of credit with Fleet. As of June 30,
2004, we had working capital of $9.4 million. Long-term debt on June 30,
2004 was $9.6 million, including $7.2 million outstanding under the Fleet
Credit Facility, and other long-term debt of $2.4 million.
The Fleet loan agreement was in effect on June 30, 2004, but was replaced
on July 28, 2004, as discussed below. The Fleet debt was senior to all
other debt with the Fleet Credit Facility being limited to $15,000,000,
subject to borrowing base restrictions. The Fleet Credit Facility was
collateralized by substantially all the assets of the Company. At June 30,
2004, $7,180,000 was outstanding on the Credit Facility. The interest rate
on the line of credit was lowered to prime on March 1, 2004 from prime plus
.25% by qualifying for the Rate Reduction Performance Factor after
demonstrating compliance with the fixed charge ratio covenant for twelve
consecutive calendar months. The commitment fee on the unused line of
credit was 0.375%.
As of June 30, 2004 we had three long-term notes payable that were
subordinate to the Fleet Credit Facility with remaining balances as
follows:
o $2.1 million to Equus II which bore interest at 9.5% and was
scheduled to mature in 2005. Principal amounts of $110,000 were
paid quarterly with accrued interest. This debt was retired on
July 28, 2004.
o $270,000 in two notes of $135,000 each to Sterling Planet and
EDGI, each bearing interest at 5% and maturing in 2008. Principal
amounts of $15,000 are payable quarterly with accrued interest.
The Sterling Planet and EDGI notes were issued as part of the
purchase of certain assets of EDGI.
As of June 30, 2004, management believes the Company's cash position is
sufficient to meet its working capital requirements. EBITDA, earnings
before interest, taxes, depreciation and amortization, for the three months
ended June 30, 2004 was $1,040,000. Any future decrease in demand for the
Company's services or products would reduce the availability of funds
through operations.
On July 27, 2004, the Company placed its Credit Facility with Comerica Bank
(the "Comerica Credit Facility"). The new loan agreement positions Comerica
as senior to all other debt. The line of credit is limited to $22,000,000,
subject to loan covenant restrictions. The Comerica Credit Facility is
collateralized by substantially all the assets of the Company. The initial
funding on the line of credit totaled $8,612,000. The Comerica Credit
Facility matures July 27, 2007. At the election of the Company, the
interest rate will be the lesser of prime or a three tiered Eurodollar
rate, plus 150, 175, or 200 basis points, respectively based on the ratio
of total Funded Debt to EBITDA for the trailing 12 months of less than
2.00, between 2.00 and 2.50, and greater than 2.50. The commitment fee on
12
the unsecured line of credit is 0.250%. The remaining borrowings available
under the line of credit as of July 28, 2004 were approximately $7,500,000.
The Comerica Credit Facility contains covenants requiring the Company, as
of the end of each calendar month then ended, to maintain certain ratios,
including total funded debt to EBITDA; total funded debt to total
liabilities, plus Net Worth; and total funded debt to Accounts/Unbilled
receivables. The Company is also required, as of the end of the most recent
quarters then ended, to maintain minimum levels of net worth, plus the
Company must comply with an annual limitation on capital expenditures. The
Company expects to realize savings in interest charges on the revolving
line-of-credit over the term of the Comerica Credit Facility.
On July 28, 2004, the Company paid $2,156,000 in principal and interest to
Equus II for the balance of the $3 million term loan executed in December
2001. The loan bore interest at 9.5%, with principal and interest payments
due quarterly. The loan was scheduled to mature in December 2005. The loan
carried no prepayment penalty. Funding for the retirement was made
available through the refinancing of the Company's credit facility through
Comerica. The Company expects to realize savings in interest charges on the
term loan over the term of the Comerica Credit Facility.
Cash Flow
Operating activities provided net cash totaling $62,000 and $1,289,000 for
the six months ended June 30, 2004 and 2003, respectively. The decrease in
cash provided by operating activities primarily reflects the timing of
payments of accounts payable for the six months ended June 30, 2004, as
compared to the same period in 2003. However, this decrease in cash was
offset to some extent by a reduction of our accounts receivable in 2004.
Investing activities used cash totaling $591,000 for the six months ended
June 30, 2004 and $738,000 for the same period in 2003. The Company's
investing activities during the period ended June 30, 2004 were for the
purchase of property and equipment. No cash or stock consideration was paid
as a result of the EDG purchase of certain assets of EDGI.
Financing activities provided net cash totaling $499,700 for the six months
ended June 30, 2004, as compared to a net use of cash of $572,000 for the
same period in 2003. Borrowings on the Fleet Credit Facility were $76
million and payments on the Fleet Credit Facility were $74 million.
Repayments of long-term and short-term debt were $1.1 million.
The Company believes that it has available the necessary cash required for
operations for the next 12 months. Cash and the availability of cash could
be materially restricted if circumstances prevent the timely internal
processing of invoices, if amounts billed are not collected within 90 days
of the original invoice date, if project mix shifts from cost reimbursable
to fixed costs contracts during significant periods of growth, or if the
Company is not able to meet the covenants of the Comerica Credit Facility.
If any such events occur, the Company would be forced to consider
alternative financing options.
Asset Management
The Company's cash flow from operations has been affected primarily by the
timing of its collection of trade accounts receivable. The Company
typically sells its products and services on short-term credit terms and
seeks to minimize its credit risk by performing credit checks and
conducting its own collection efforts. The Company had net trade accounts
receivable of $18.0 million and $20.2 million at June 30, 2004 and December
31, 2003, respectively. The number of days' sales outstanding in trade
accounts receivable was 53 days and 54 days at June 30, 2004 and December
31, 2003, respectively. Retention receivables increased to $832,000 at June
30, 2004 from $394,000 at December 31, 2003. The increase is primarily the
result of two significant cost-reimbursible projects on contracts requiring
retainage to be held until such projects are completed and accepted by the
owner.
13
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our financial instruments include cash and cash equivalents, accounts
receivable, accounts payable, notes and capital leases payable, and debt
obligations. The book value of cash and cash equivalents, accounts
receivable, accounts payable and short-term notes payable are considered to
be representative of fair value because of the short maturity of these
instruments.
We do not utilize financial instruments for trading purposes and we do not
hold any derivative financial instruments that could expose us to
significant market risk. Our exposure to market risk for changes in
interest rates relates primarily to our obligations under the Comerica
Credit Facility.
As of July 28, 2004, $8,612,000 was borrowed under the Comerica Credit
Facility. Accruing interest at the current Eurodollar rate of 4.25% plus
150 basis points per year, excluding amortization of prepaid financing
cost, a 10% increase in the short-term borrowing rates on the Comerica
Credit Facility outstanding as of July 28, 2004 would be 30.5 basis points.
Such an increase in borrowing rates would increase our annual interest
expense by approximately $26,000, assuming the amount of debt outstanding
remains constant.
This analysis does not consider the effects this movement may have on other
variables including changes in revenue volumes that could be indirectly
attributed to changes in interest rates. The actions that management would
take in response to such a change are also not considered. If it were
possible to quantify this impact, the results could well be different than
the sensitivity effects discussed above.
Item 4. Controls and Procedures
With the participation of management, the Company's chief executive officer
and chief financial officer reviewed and evaluated the Company's disclosure
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, for the period ended June 30, 2004 and
have concluded that they are effective as of June 30, 2004, in providing
reasonable assurance that such information is identified and communicated
on a timely basis. During the quarter ended June 30, 2004, there have been
no significant changes in the Company's internal controls for financial
reporting or in other factors that could significantly affect these
controls, including discovery of any significant deficiencies or material
weaknesses in the Company's internal controls that would require corrective
action. In connection with new federal and American Stock Exchange rules,
the Company is currently in the process of further reviewing and
documenting its disclosure controls and procedures, including its internal
accounting controls, and may from time to time make changes aimed at
enhancing their effectiveness and ensuring that the Company's systems
evolve with its business.
14
PART II. Other Information
Item 1. Legal Proceedings
From time to time, the Company and its subsidiaries become parties to
various legal proceedings arising in the ordinary course of normal business
activities. While we cannot predict the outcome of these proceedings, in
our opinion and based on reports of counsel any liability arising from such
matters, individually or in the aggregate, are not expected to have a
material affect upon the consolidated financial position or operations of
the Company, after giving effect of recorded reserves. The Company is
currently a party to the following legal proceedings.
Engineered Carbons, Inc. filed a claim in 2000 against the Company in the
60th District Court of Jefferson County, Texas, alleging failure of
contractual performance purportedly caused by faulty design. This claim has
been accepted, without reservation by the Company's errors and omissions
insurance carrier. The Company has reserved the amount of its deductible
under such insurance. Engineered Carbons, Inc. has offered to settle the
case for an amount within the Company's errors and omissions policy limits.
While denying any liability whatsoever, the Company has made demand on the
carrier to settle the case within the policy limits. Until the case is
settled, the Company is cooperating with the carrier to contest the case
vigorously.
During 2003, the Company, its subsidiaries, and more than 40 other parties
were named defendants in several petitions for damages filed in various
district courts in Louisiana (East Baton Rouge, Calcasieu, Iberville,
Ascension, and Orleans Parishes) on behalf of former employees of Barnard
and Burk, Inc. The plaintiffs, who allege exposure to asbestos during the
course of their employment, were employees of Barnard and Burk, Inc. during
a period covering the late 1950's through the early 1980's at facilities
located within the State of Louisiana. In 1994, AMEC Engineering, Inc.
assigned the trade name "Barnard and Burk" to RPM Engineering, Inc. along
with selected assets. No liabilities were acquired by RPM. The Company's
wholly-owned subsidiary, ENGlobal Engineering, Inc., formerly known as
Petrocon Engineering, Inc., acquired RPM (along with the "Barnard and Burk"
trade name) in 1996 pursuant to a stock purchase agreement. Because
Petrocon acquired only the "Barnard and Burk" trade name, and none of its
liabilities, the Company is seeking to be extricated from the suits via
summary judgment. The Company believes the lawsuits are without merit and
intends to defend them vigorously.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on June 17,
2004 at 10:00 a.m. at The Greenspoint Club in Houston, Texas. A total
of 20,303,459 shares of common stock, or 84.5% of the shares
outstanding on April 22, 2004, were represented at the meeting, either
in person or by proxy. The stockholders approved two proposals. The
vote tabulations follow:
1. The following directors were elected to serve until the next Annual
Meeting of Stockholders and until their successors have been elected
and qualified.
Directors For Withheld
--------- --- --------
Michael L. Burrow, P.E. 19,878,990 424,469
William A. Coskey, P.E. 20,173,978 129,481
David W. Gent, P.E. 20,173,978 129,481
David C. Roussel 20,173,078 130,381
Randall B. Hale 20,173,078 130,381
15
2. Approval and ratification of the adoption of the ENGlobal Corporation
2004 Employee Stock Purchase Plan under which employees may purchase
Common Stock from the Company at discount to market prices.
For Against Abstain Withheld
--- ------- ------- --------
16,216,259 200,016 15,449 3,871,735
These were all of the matters submitted to the Stockholders at the
Annual Meeting.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Credit Agreement by and between Comerica Bank and ENGlobal
Corporation and its subsidiaries dated July 27, 2004,
incorporated by reference to the Company's Form 8-K filed with
the Securities and Exchange Commission on August 9, 2004
10.2 Security Agreement by and between Comerica Bank and ENGlobal
Corporation and its subsidiaries dated July 27, 2004,
incorporated by reference to the Company's Form 8-K filed with
the Securities and Exchange Commission on August 9, 2004
10.3 Master Revolving Note by and between Comerica Bank and ENGlobal
Corporation and its subsidiaries dated July 27, 2004,
incorporated by reference to the Company's Form 8-K filed with
the Securities and Exchange Commission on August 9, 2004
10.4 Executive Level Incentive Plan
10.5 Employee Stock Purchase Plan, incorporated by reference to the
Company's Form S-8 Registration Statement filed with the
Securities and Exchange Commission on March 12, 2004.
31.1 Certifications Pursuant to Rule 13a - 14(a) of the Exchange Act
for 2002 for the Second Quarter 2004
31.2 Certifications Pursuant to Rule 13a - 14(a) of the Exchange Act
for 2002 for the Second Quarter2004
32.1 Certification Pursuant to Rule 13a - 14(b) of the Exchange Act
and 18u.s.c. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 for the Second Quarter 2004
b. Current Reports on Form 8-K
We filed two reports on Form 8-K under Item 9. Regulation FD Disclosure
during the quarter ended June 30, 2004. On May 7, 2004, we reported the
Company's earnings for the first quarter ended March 31, 2004. On June
30, 2004, we filed restated financial statements reflecting the
divestiture of the manufacturing segment.
16
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.
ENGlobal Corporation
Dated: August 10, 2004 By: /s/ Robert W. Raiford
-------------------------------------------
Robert W. Raiford, Chief Financial Officer
and Treasurer
17