Attached files
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended December 26, 2020
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from __________ to __________
Commission
File No. 001-14217
ENGlobal Corporation
(Exact
name of registrant as specified in its charter)
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Nevada
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88-0322261
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S
Employer Identification No.)
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654 North Sam Houston Parkway East, Suite 400
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77060-5914
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(Address
of principal executive offices)
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(Zip
code)
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Registrant’s
telephone number, including area code: (281)
878-1000
Securities
registered pursuant to Section 12(b) of the Exchange
Act:
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Title
of each class
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Trading
Symbol
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Name of
each exchange on which registered
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Common Stock, $0.001 par value
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ENG
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NASDAQ
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Securities
registered pursuant to Section 12(g) of the Exchange
Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act: Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15 (d) of the Act:
Yes [ ] No [X]
Indicate
by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shortened period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit such
files). Yes [X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.:
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Large
Accelerated Filer
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[ ]
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Accelerated
Filer
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[ ]
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Non-Accelerated
Filer
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[X]
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Smaller
Reporting Company
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[X]
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Emerging
growth company
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[ ]
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
Yes [ ] No [ ]
Indicate
by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act) Yes [ ]
No [X]
The
aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant on June 26, 2020 (the last
business day of the registrant’s most recently completed
second fiscal quarter) was $12,341,255 (based upon the closing
price for shares of common stock as reported by the NASDAQ on June
26, 2020).
The
number of shares outstanding of the registrant’s $0.001 par
value common stock on March 8, 2021 is as follows: 27,526,176
shares.
Documents
incorporated by reference: None.
ENGLOBAL CORPORATION
2020 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
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ITEM
1.
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BUSINESS
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4
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ITEM
1A.
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RISK FACTORS
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9
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ITEM
2.
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PROPERTIES
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16
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ITEM
3.
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LEGAL PROCEEDINGS
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16
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ITEM
4.
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MINE SAFETY DISCLOSURES
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16
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PART II
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ITEM
5.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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17
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ITEM
7.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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18
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ITEM
8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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25
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ITEM
9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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50
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ITEM
9A.
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CONTROLS AND PROCEDURES
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50
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PART III
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ITEM
10.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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52
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ITEM
11.
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EXECUTIVE COMPENSATION
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56
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ITEM
12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDERS MATTERS
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60
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ITEM
13.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
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62
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ITEM
14.
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
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62
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PART IV
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ITEM
15.
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EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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64
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ITEM
16.
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FORM 10-K SUMMARY
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67
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SIGNATURES
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SIGNATURES
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68
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Report”),
including “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” as well as
oral statements made by the Company and its officers, directors or
employees, contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). Such forward-looking statements
are based on management’s beliefs, current expectations,
estimates and projections about the industries that the Company and
its subsidiaries’ serve, the economy and the Company in
general. The words “expect,” “anticipate,”
“intend,” “plan,” “believe,”
“seek,” “estimate” and similar expressions
are intended to identify such forward-looking statements; however,
this Report also contains other forward-looking statements in
addition to historical information. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, such forward-looking statements are not guarantees of
future performance and are subject to risks, uncertainties and
other factors that may cause the actual results, performance or
achievements of the Company to differ materially from historical
results or from any results expressed or implied by such
forward-looking statements. The Company cautions readers that the
following important factors and the risks described in Part I, Item
1A. Risk Factors of this Report, among others, could cause the
Company’s actual results to differ materially from the
forward-looking statements contained in this Report: (1) the impact
of the COVID-19 pandemic and of the actions taken by governmental
authorities, individuals and companies in response to the pandemic
on our business, financial condition, and results of operations,
including on our revenues and profitability; (2) our ability to
increase our backlog, revenue and profitability; (3) our ability to
realize revenue projected in our backlog and our ability to collect
accounts receivable and process accounts payable in a timely
manner;(4) the effect of economic downturns and the volatility and
level of oil and natural gas prices, including the severe
disruptions in the worldwide economy, including the global demand
for oil and natural gas, resulting from the COVID-19 pandemic; (5)
the uncertainties related to the U.S. Government’s budgetary
process and their effects on our long-term U.S. Government
contracts;(6) our ability to identify, evaluate, and complete any
transactions in connection with our review of strategic
transactions; (7) the impact of the announcement of our review of
strategic transactions on our business, including our financial and
operating results, or our employees, suppliers and customers;(8)
our ability to realize project awards or contracts on our pending
proposals, and the timing, scope and amount of any related awards
or contracts; (9) our ability to retain existing customers and
attract new customers; (10) our ability to accurately estimate the
overall risks, revenue or costs on a contract; (11) the risk of
providing services in excess of original project scope without
having an approved change order; (12) our ability to execute our
expansion into the modular solutions market and to execute our
updated business growth strategy to position the Company as a
leading provider of engineered modular solutions to its customer
base; (13) our ability to attract and retain key professional
personnel; (14) our ability to obtain additional financing when
needed; (15) our debt obligations may limit our financial
flexibility; (16) our PPP loan may not be forgiven in full;(17) our
dependence on one or a few customers; (18) the risks of internal
system failures of our information technology systems, whether
caused by us, third-party service providers, intruders or hackers,
computer viruses, malicious code, cyber-attacks, phishing and other
cyber security problems, natural disasters, power shortages or
terrorist attacks; (19) the risk of unexpected liability claims or
poor safety performance; (20) our ability to identify, consummate
and integrate potential acquisitions; (21) our reliance on
third-party subcontractors and equipment manufacturers; (22) our
ability to satisfy the continued listing standards of NASDAQ with
respect to our common stock or to cure any continued listing
standard deficiency with respect thereto; and (23) the effect of
changes in laws and regulations, including U.S. tax laws, with
which the Company must comply and the associated cost of compliance
with such laws and regulations. Actual results and the timing of
certain events could differ materially from those projected in or
contemplated by the forward-looking statements due to a number of
factors detailed from time to time in ENGlobal’s filings with
the Securities and Exchange Commission. In addition, reference is
hereby made to cautionary statements set forth in the
Company’s other SEC filings.
The Company cautions that the foregoing list
of important factors is not exclusive. We are under no duty and
have no plans to update any of the forward-looking statements after
the date of this Report to conform such statements to actual
results.
3
ITEM 1. BUSINESS
ENGlobal
Corporation (which may be referred to as “ENGlobal,”
the “Company,” “we,” “us” or
“our”), incorporated in the State of Nevada in June
1994, is a leading provider of engineered modular solutions to the
energy industry. We deliver these solutions to our clients by
utilizing our vertically integrated project execution capabilities,
including, (i) professional engineering and project support
services, (ii) automation design, configuration and systems
integration expertise and (iii) mechanical and modular fabrication
capabilities. We believe our vertically integrated strategy allows
us to differentiate our company from most of our competitors as a
full service provider. As a result, our clients’ dependency
on and coordination of multiple vendors is reduced, improving
control over their projects’ costs and schedules. Our
strategy and positioning also allows the Company to pursue larger
scopes of work centered around many different types of modularized
engineered systems that can be both processing and automation
focused. All of the information contained in this Report relates to
the annual periods ended December 26, 2020 and December 28, 2019,
both of which contained 52 weeks.
We
derive revenues primarily from three sources: (i) business
development efforts, (ii) preferred provider or alliance agreements
with strategic end user clients, original equipment manufacturers, and technology
partners, and (iii) referrals from existing customers and
industry members. Our business
development professionals are focused on specific market segments
within the energy industry. The market segments that we are
targeting include Renewables, Automation, Refining and
Transportation, Upstream and Government Services. This market focus
allows us to develop centers of expertise for each of our targeted
markets.
We
generally enter into two principal types of contracts with our
clients: time-and-material contracts and fixed-price contracts. Our
clients typically determine the type of contract to be utilized for
a particular engagement, with the specific terms and conditions of
a contract being negotiated and typically contained in a multiyear
services agreement.
Our
business development professionals focus on building long-term
relationships with clients in order to provide solutions throughout
the life-cycle of their projects and facilities. Additionally, we
seek to capitalize on cross-selling opportunities between our
market segments and many of our projects will contain elements from
more than one market segment. Sales leads are often jointly
developed and pursued by our business development personnel from
multiple markets.
Products and
services are also promoted through trade advertising, participation
in industry conferences and on-line internet communication via our
corporate home page at www.englobal.com. The ENGlobal website
illustrates our company’s full range of services and
capabilities and is updated on a continuous basis. Through the
ENGlobal website, we seek to provide visitors and investors with a
single point of contact for obtaining information about our
company. Information on our website or any other website is not a
part of this Report.
Client
relationships are nurtured by our geographic advantage of having
office locations near our larger customers. By having clients in
close proximity, we are able to provide single, dedicated points of
contact. Our growth depends in large measure on our ability to
attract and retain qualified business development personnel with a
respected reputation in the energy industry. Management believes
that in-house marketing allows for more accountability and control,
thus increasing profitability. We develop preferred provider and
alliance agreements with clients in order to facilitate repeat
business. These preferred provider agreements, also known as master
services or umbrella agreements (“MSA”) typically have
a duration of three to five
years. This allows our clients to release work to us without
having to negotiate contract terms for each individual project.
With the primary terms of the contract agreed to, add-on projects
with these customers are easier to negotiate and can be accepted
quickly, without the necessity of a bidding process. Management
believes that these agreements can serve to stabilize
project-centered operations.
We have
identified modular project execution offerings as the opportunity
to which our capabilities are best applied, focused our business
development team on communicating these offerings to specific
clients and realigned our internal reporting structure to better
facilitate complete modular project execution. We have identified
five strategic market initiatives where we have a history of
delivering project solutions and can provide complete project
execution that includes engineering, design, fabrication and
integration of automated control systems as a complete packaged
solution for our clients, preferably in a modular form. This
“design it once – build it many times” concept
has many merits including a single vendor interface, better control
of costs, better control of schedule and lower safety risk. These
five targeted market initiatives include: (i) Renewables; (ii)
Automation; (iii) Refining and Transportation; (iv) Upstream and
(v) Government Services. We have identified specific individuals
within the Company to lead the efforts for each market initiative -
“a champion” - while coordinating with the other sales
leaders.
4
Within
the 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 designs, integrates and commissions modular
systems that include electronic distributed control, 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
Refining and Transportation group focuses on providing engineering,
procurement 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.
The
Upstream group 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 in addition to cybersecurity assessment and SCADA systems
design and maintenance in the private sector.
We have
positioned ourselves as a full service, vertically integrated
supplier in order to better accommodate the requests of our clients
and capture opportunities of larger scope. A majority of these
opportunities are expected to be in all sectors of the energy
industry; however, some may be outside the energy sector. One
result of our sales efforts is that our proposal pipeline continues
to increase as we are now focused on selling complete packaged
solutions as opposed to our past focus of primarily selling
consultant man-hours. Many of these proposals have very long lead
times and have exceeded our expected award timing, which would
imply that many of our customers will release awards when they are
more confident that commodity prices have stabilized at a
sufficient level or foreseeable time period. Backlog represents an
estimate of gross revenues of all awarded contracts that have not
been completed and will be recognized as revenue over the life of
the project. Although backlog reflects business that we consider to
be firm, cancellations or scope adjustments may occur. Further,
most contracts with clients may be terminated by either party at
will, in which case the client would only be obligated to pay us
for services provided through the termination date. A significant
portion of our revenue is generated through MSAs with our clients.
Projects awarded under these MSAs tend to be smaller in nature, but
continuously awarded as each one is completed. In these instances,
only the current unfinished projects are included in our backlog.
Additionally, we have historically performed work under longer term
contracts with the U.S. Navy that were generally renewed, released
or awarded on an annual basis. Recently, the federal government has
begun changing the contracting agency for this work. This has
created some delays to the contracting sequence. At December 26,
2020, our backlog was $24.3 million. Of this amount, $3.1 million
was for our Automation segment and $21.2 million was for our
Engineering, Procurement and Construction Management
(“EPCM”) segment. This compares to a total backlog of
$59.2 million as of December 28, 2019 with $33.7 million for
Automation and $25.5 million for EPCM.
We
continue to be mindful of our overhead structure. While we have
made investments in key individuals, product developments and new
facilities and equipment, which all have negatively impacted our
selling, general and administrative (“SG&A”) costs,
we have been able to offset those increases with decreases in other
areas and, overall, our SG&A costs have continued to decrease.
We recognize that the level of our SG&A is greater than it
could be for a company our size; however, we have maintained our
overhead structure in anticipation of higher revenue
levels.
Available Information
You can
find financial and other information about ENGlobal at our website
at www.englobal.com. Copies of our
annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)
are provided free of charge through our website and are available
as soon as reasonably practicable after filing electronically or
otherwise furnishing reports to the Securities and Exchange
Commission (the “SEC”). Information relating to
corporate governance at ENGlobal, including: (i) our Code of
Business Conduct and Ethics for all of our employees, including our
Chief Executive Officer and our Chief Financial Officer; (ii) our
Code of Ethics for our Chief Executive Officer and our Senior
Financial Officers; (iii) information concerning our directors and
our Board of Directors Committees, including Committee charters;
and (iv) information concerning transactions in ENGlobal securities
by directors and executive officers, is available on our website
under the Investors link. Information on our website or any other
website is not a part of this Report. We will provide any of the
foregoing information, for a reasonable fee, upon written request
to Investor Relations, ENGlobal Corporation, 654 North Sam Houston
Parkway East, Suite 400, Houston, Texas 77060-5914.
5
Reporting Segments
Our
EPCM and Automation segments are strategic business units that
offer different services and products and therefore require
different marketing and management strategies. Separate operational
leaders are in charge of our engineering offices and our automation
offices, including the office that contracts with government
agencies. The operating performance of our segments is regularly
reviewed with the operational leaders of the two segments, the
chief executive officer (“CEO”), the chief financial
officer (“CFO”) and others. This group represents the
chief operating decision maker (“CODM”) for
ENGlobal.
Our
corporate and other expenses that do not individually meet the
criteria for segment reporting are reported separately as Corporate
expenses.
Products and Services
The
EPCM segment provides multi-disciplined engineering services and
fabrication relating to the development, management and execution
of projects requiring professional engineering and related project
management services primarily to the energy industry throughout the
United States. Our EPCM segment offers feasibility studies,
engineering, design, procurement, construction management and
fabrication. The EPCM segment currently operates through
ENGlobal’s wholly-owned subsidiary, ENGlobal U.S., Inc.
(“ENGlobal U.S.”). The EPCM segment offers a wide range
of services as a single source provider for project delivery and
can incorporate services provided by our Automation segment when
necessary. ENGlobal’s engineering staff has the capability of
developing a project from the initial planning stages through
detailed design and construction management. Our services include
conceptual studies, project definition, cost estimating,
engineering design, environmental compliance, material procurement,
project management, construction management and
fabrication.
The
EPCM segment derives revenue primarily on contracts from
time-and-material fees charged for professional and technical
services. Its operating income is derived primarily from services
it provides to the oil and gas industry. We also enter into
contracts providing for the execution of projects on a fixed-price
basis, whereby some, or all, of the project activities related to
engineering, material procurement, construction management and
fabrication are performed for a fixed amount.
The
Automation segment provides services related to the design,
integration and implementation of process distributed control and
analyzer systems, advanced automated data gathering systems,
information technology and the maintenance of these systems
primarily to the energy industry throughout the United States and
to the U.S. Government globally. This segment also designs,
assembles, integrates and services control and instrumentation
systems for specific applications in the energy and processing
related industries. The Automation segment operates through
ENGlobal’s wholly-owned subsidiaries, ENGlobal U.S and
ENGlobal Government Services, Inc. (“EGS”). These
services are offered to clients in the petroleum refining,
petrochemical, pipeline, production, process and pulp and paper
industries and to the U.S. government.
EGS
primarily provides automated fuel handling systems and maintenance
services to branches of the U.S. military and public sector
entities. Other clients of this division are government agencies,
refineries, petrochemical and process industry customers worldwide.
EGS provides electrical and instrument installation, technical
services, and ongoing maintenance, calibration and repair
services.
Competition
Our
EPCM segment competes with a large number of public and private
firms of various sizes, ranging from the industry’s largest
firms, which operate on a worldwide basis to much smaller regional
and local firms. Many of our competitors are larger than we are and
have significantly greater financial and other resources available
to them than we do. However, the largest firms in our industry are
sometimes our clients, performing as program managers for very
large scale projects who subcontract a portion of their work to us.
We also have many competitors who are smaller than us and who, as a
result, may be able to offer services at more competitive
prices.
6
Competition is
centered on performance and the ability to provide the engineering,
planning and project delivery skills required for completing
projects in a timely, cost-efficient manner. The expertise of our
management and technical personnel and the timeliness and quality
of our support services are key competitive factors.
Our
Automation segment competes with a large number of public and
private firms of various sizes, ranging from the industry’s
largest firms, which operate on a worldwide basis to much smaller
regional and local firms. Many of our competitors are larger than
we are and have significantly greater financial and other resources
available to them than we do. We also have many competitors who are
smaller than us and who, as a result, may be able to offer services
at more competitive prices.
Competition is
centered on performance and the ability to provide the engineering,
assembly and integration required to complete projects in a timely
and cost-efficient manner. The technical expertise of our
management team and technical personnel and the timeliness and
quality of our support services are key competitive
factors.
Customers
Our
customer base consists primarily of Fortune 500 companies in the
energy industry and the U.S. government. While we do not have
continuing dependence on any single client or a limited group of
clients, one or a few clients may contribute a substantial portion
of our revenue in any given year or over a period of several
consecutive years due to the longevity of major projects, such as
facility upgrades or expansions. ENGlobal may work for many
different subsidiaries or divisions of a client. The loss of a
single large customer, including all of its subsidiaries or
divisions, or the reduction in demand for our services by several
customers in the same year could have a material impact on our
financial results. We continue to focus substantial attention on
improving customer services in order to enhance satisfaction and
increase customer retention. Revenue generated through sources such
as preferred provider relationships are longer-term in nature and
are not typically limited to one project.
A
significant long-term trend among our clients and their industry
counterparts has been outsourcing engineering services. This trend
has fostered the development of ongoing, longer-term client
arrangements. These arrangements vary in scope, duration and degree
of commitment. While there is typically no guarantee that work will
result from these agreements, often the arrangements form the basis
for a longer-term client relationship. Despite their variety, we
believe that these partnering relationships have a stabilizing
influence on our revenue.
Overall, our ten
largest customers, who vary from one period to the next, accounted
for 86.8% of our total revenues for 2020 and 76.6% of our total
revenues for 2019. Most of our projects are specific in nature and
we generally have multiple projects with the same clients. If we
were to lose one or more of our significant clients and were unable
to replace them with other customers or other projects, our
business could be materially adversely affected. Our top two
clients in 2020 were a contractor completing a renewable diesel
facility and an independent oil refinery. Even though we frequently
receive work from repeat clients, our client list may vary
significantly from year to year. Our potential revenue in all
segments is dependent on continuing relationships with our
customers. For the years ended December 26, 2020 and December 28,
2019, we had approximately 55 and 78 active customers,
respectively.
Suppliers
Our
ability to provide clients with services and systems in a timely
and competitive manner depends on the availability of products and
parts from our suppliers at competitive prices and on reasonable
terms. Our suppliers are not obligated to have products on hand for
timely delivery nor can they guarantee product availability in
sufficient quantities to meet our demands. There can be no
assurance that we will be able to obtain necessary supplies at
prices or on terms we find acceptable. However, in an effort to
maximize availability and maintain quality control, we generally
procure components from multiple distributors on our clients’
behalf and in some cases we can take advantage of national
agreements our clients may have entered into.
For
example, all of the product components used by our Automation
segment are assembled using components and materials that are
available from numerous domestic manufacturers and suppliers. There
are approximately five principal suppliers of distributed control
systems, each of which can be replaced by an equally viable
competitor, and our clients typically direct the selection of their
preferred supplier. Thus, in the vast majority of cases, we
anticipate little or no difficulty in obtaining components in
sufficient quantities and in a timely manner to support our
installation and assembly operations in the Automation segment.
Units produced through the Automation segment are not produced for
inventory and component parts; rather, they are typically purchased
on an as-needed basis. By being vendor neutral, ENGlobal is able to
provide quality technology and platforms for the design of plant
systems such as 3D modeling, process simulation and other technical
applications.
7
Despite
the foregoing, our Automation segment relies on certain suppliers
for necessary components and there can be no assurance that these
components will continue to be available on acceptable terms. If a
vendor does not continue to contract with us, it may be difficult
to obtain alternative sources of supply without a material
disruption in our ability to provide products and services to our
customers. While we do not believe that such a disruption is
likely, if it did occur, it could have a material adverse effect on
our financial condition and results of operations.
Patents, Trademarks, Licenses
Our
success depends in part upon our ability to protect our proprietary
technology, which we do primarily through protection of our trade
secrets and confidentiality agreements. In addition, the U.S.
Patent and Trademark Office issued our “Integrated
Rack” patent No. 7,419,061 B1 in 2008, our “Universal
Master Control Station System” patent No. 8,601,491 B1 in
2013, our “Modular HVAC System for Providing Positive
Pressure to an Interior of a Positive Pressure Facility”
patent No. 8,670,870 in 2014, our “Method of Controlling a
Plurality of Master Control Stations” patent No. 8,959,447 B1
and our “Client Configuration Tool” patent No.
8,983,636 B1 in 2015.
Our
trade names are protected by registration as well as by common law
trademark rights. Our trademark for the use of
“ENGlobal” ® - “Engineered for Growth”
®, and “viMAC” ® in connection with our
products are registered with the U.S. Patent and Trademark Office
and we claim common law trademark rights for “ENGlobal”
TM in connection with our services. We also claim common law
trademark rights for “Global Thinking…Global
Solutions” TM, “CARES - Communicating Appropriate
Responses in Emergency Situations” TM, “riFAT”
TM, “ACE” TM, and “ENGlobal Power Islands”
TM.
There
can be no assurance that the protective measures we currently
employ will be adequate to prevent the unauthorized use or
disclosure of our technology, or the independent third party
development of the same or similar technology. Although our
competitive position to some extent depends on our ability to
protect our proprietary and trade secret information, we believe
that other factors, such as the technical expertise and knowledge
base of our management and technical personnel, as well as the
timeliness and quality of the support services we provide, will
also help us to maintain our competitive position.
Employees
As of
December 26, 2020, we employed approximately 241 individuals on a
full-time equivalent basis compared to approximately 251
individuals on a full-time equivalent basis as of December 28,
2019. The 4.0% decrease in personnel in 2020 was attributable to
the volume of new projects started during the year. We believe that
our ability to recruit and retain highly skilled and experienced
professional and technical personnel has been and will continue to
be critical to our ability to execute our business plan. We
continue to strategically hire experienced individuals with
significant relationships with our current and new customers to
expand our product offerings to our existing customers. None of our
employees are represented by a labor union or is subject to a
collective bargaining agreement. We believe that relations with our
employees are good.
Government Regulations
ENGlobal and
certain of its subsidiaries are subject to various foreign,
federal, state, and local laws and regulations relating to our
business and operations, and various health and safety regulations
established by the Occupational Safety and Health Administration
(OSHA). We are subject to a variety of state, local and foreign
licensing, registration and other regulatory requirements governing
the practice of engineering and other professional disciplines. For
example, OSHA requires Process Safety Management to prevent the
release of hazardous chemicals, the Department of Transportation
(DOT) requires that pipeline operators are in full compliance with
pipeline safety regulations, and the Environmental and Protection
Agency (EPA) provides incentives to reduce chemical emissions.
Currently, we are not aware of any situation or condition relating
to the regulation of the Company, its subsidiaries, or personnel
that we believe is likely to have a material adverse effect on our
results of operations or financial condition.
Benefit Plans
ENGlobal sponsors a
401(k) retirement plan for its employees. The Company, at the
direction of the Board of Directors, may make discretionary
contributions. The Company does not currently match
employees’ deferrals. The match was suspended beginning
December 30, 2018 and no contributions have been made since that
date.
8
ITEM 1A. RISK FACTORS
Set
forth below and elsewhere in this Report and in other documents
that we file with the SEC are risks and uncertainties that could
cause actual results to differ materially from the results
contemplated by the forward-looking statements contained in this
Report. You should be aware that the occurrence of any of the
events described in these risk factors and elsewhere in this Report
could have a material adverse effect on our business, financial
condition and results of operations and that upon the occurrence of
any of these events, the trading price of our common stock could
decline.
RISKS RELATED TO OUR BUSINESS, INDUSTRY AND STRATEGY
The
COVID–19 pandemic has adversely affected and could continue
to adversely affect our business, financial condition and results
of operations. Our
business is dependent upon the willingness and ability of our
customers to conduct transactions with us. The COVID–19
pandemic has caused severe disruptions in the worldwide economy,
including the global demand for oil and natural gas. In response,
companies within the energy industry (including many of our
customers) have announced capital spending cuts which, in turn, may
result in a decrease in new project awards or adjustments,
reductions, suspensions, cancellations or payment defaults with
respect to existing project awards. The prolonged nature of the
COVID–19 pandemic may result in a significant decrease in
business and/or cause our customers to be unable to meet existing
payment or other obligations to us, particularly in the event of a
spread of COVID–19 in our market areas. The COVID–19
pandemic may also negatively impact the availability of our key
personnel necessary to conduct our business as well as the business
and operations of third party service providers who perform
critical services for our business. For example, in June 2020 we
temporarily closed one of our operational facilities for one week
in response to a potential COVID-19 exposure. Because the severity,
magnitude and duration of the COVID-19 pandemic and its economic
consequences are uncertain, rapidly changing and difficult to
predict, the impact on our business, financial condition and
results of operations remains uncertain and difficult to predict.
If COVID–19 continues to spread or if the response to contain
the COVID-19 pandemic is unsuccessful, we could experience a
material adverse effect on our business, financial condition, and
results of operations.
Our backlog is declining due to the COVID-19 pandemic and is
subject to unexpected adjustments and cancellations and is,
therefore, an uncertain indicator of our future revenue or
earnings. While our backlog has not been materially impacted
by the COVID-19 pandemic in terms of project cancellations, we have
not been successful in replacing our backlog as quickly as it has
been converted to revenues due to inefficiencies and complications
resulting from many of our clients’ remote working conditions
combined with the uncertainty of new project necessity and funding
caused by COVID-19 related disruptions that have led to delays in
project awards. Further, the COVID-19 pandemic has affected our
ability to make business development contacts with customers. As a
result, our backlog has decreased by approximately $34.9 million
from $59.2 million as of December 28, 2019 to $24.3 million as of
December 26, 2020. We expect the majority of our backlog to be
completed within 12 months. While we believe our backlog is
sufficient to keep a significant portion of our workforce
productive in the near term, it may not be at our current operating
levels. We cannot assure investors that we will be successful in
replacing our backlog as quickly as it has been converted to
revenues, which will reduce future revenue and profits and impact
our financial performance. In addition, we cannot assure investors
that the revenue projected in our backlog will be realized or, if
realized, will result in profits. Projects currently in our backlog
may be canceled or may remain in our backlog for an extended period
of time prior to project execution and, once project execution
begins, it may occur unevenly over the current and multiple future
periods. In addition, project terminations, suspensions or
reductions in scope occur from time to time with respect to
contracts reflected in our backlog, reducing the revenue and profit
we actually receive from contracts reflected in our backlog. Future
project cancellations and scope adjustments could further reduce
the dollar amount of our backlog in addition to the revenue and
profits that we actually earn. The potential for project
cancellations, terminations, suspensions or reductions in scope and adjustments
to our backlog are exacerbated by economic conditions, particularly
in the energy industry which is experiencing volatility in oil
prices since the beginning of 2020 due to concerns about the
COVID–19 pandemic and its impact on the worldwide economy and
global demand for oil. We
are unable to predict when market conditions may improve and
worsening overall market conditions could result in further
declines in our backlog.
Economic downturns and the volatility and level of oil and natural
gas prices could have a negative impact on our businesses.
Demand for the services offered by us has been and is expected to
continue to be, subject to significant fluctuations due to a
variety of factors beyond our control, including demand for
engineering services in the petroleum refining, petroleum chemical
and pipeline industries and in other industries that we provide
services to. During economic downturns in these industries, our
customers’ need to engage us may decline significantly and
projects may be delayed or cancelled. We cannot predict how long
the current economic downturn will last or how long the price of
oil will remain relatively low. However, these factors can cause
our profitability to decline significantly. Our clients’
willingness to undertake these activities depends largely on the
following factors:
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Prices
and expectations about future prices of oil and natural
gas;
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Domestic
and foreign supply of and demand for oil and natural
gas;
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The
cost of exploring for, developing, producing and delivering oil and
natural gas;
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Weather
conditions, such as hurricanes, which may affect our clients’
ability to produce oil and natural gas;
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Available
pipeline, storage and other transportation capacity;
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Federal,
state and local regulation of oilfield activities;
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Environmental
concerns regarding the methods our customers use to produce oil and
natural gas;
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The
availability of water resources and the cost of disposal and
recycling services; and
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Seasonal
limitations on access to work locations.
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9
Anticipated future
prices for oil and natural gas are a primary factor affecting
spending by our clients. Historically, the markets for oil and
natural gas have been volatile and lower prices or volatility in
prices for oil and natural gas typically decreases spending by our
clients, which can cause rapid and material declines in demand for
our services and in the prices we are able to charge for our
services. Further, a sustained period of lower prices and
volatility in prices for oil and natural gas can exacerbate the
potential for cancellations and adjustments to our backlog from our
clients in the oil and natural gas industry. On March 9, 2020, as a result of multiple
significant factors impacting supply and demand in the global oil
and natural gas markets, including the announced price reductions
and possible production increases by members of Organization of the
Petroleum Exporting Countries (“OPEC”) and other oil
exporting nations, the price of oil declined sharply. Oil price
have partially recovered, but continue to remain depressed. Even
with OPEC’s commitment to adjust their oil production
downward until April 30, 2021, oil and natural gas commodity prices
may continue to be volatile. If the prices of oil and natural gas
declines or remains depressed for a lengthy period, our business
may be materially and adversely affected.
Our future revenue depends on our ability to consistently bid and
win new contracts, provide high quality, cost-effective services,
and to maintain and renew existing contracts. Our failure to
effectively obtain future contracts could adversely affect our
profitability. Our future
revenue and overall results of operations require us to
successfully bid on new contracts, provide high quality,
cost-effective services, and renew existing contracts. Contract
proposals and negotiations are complex and frequently involve a
lengthy bidding and selection process, which is affected by a
number of factors, such as market conditions, financing
arrangements and required governmental approvals. For example, a
client may require us to provide a bond or letter of credit to
protect the client should we fail to perform under the terms of the
contract. When negative market conditions arise, or if we fail to
secure adequate financial arrangements or required governmental
approvals, we may not be able to pursue particular projects, which
could adversely affect our profitability. These factors have
impacted our operations in the past several years and may continue
to do so.
We
derive a portion of our revenue from U.S. federal, state and local
government agencies, and as a result, any disruption in government
funding, any change in our ability to comply with various
procurement laws and regulations as a U.S. Government contractor,
or any exercise by the U.S. Government of certain rights to modify,
delay, curtail, renegotiate, or terminate existing contracts for
convenience could adversely affect our business. In 2020, we
generated approximately 14.6% of our revenue from contracts with
U.S. federal, state and local government agencies. A significant
amount of this revenue is derived under multi-year contracts, many
of which are appropriated on an annual basis. As a result, at the
beginning of a project, the related contract may be only partially
funded, and additional funding is normally committed only as
appropriations are made in each subsequent year. Our backlog
includes only the portion of the contract award for which funding
has been appropriated. Whether appropriations are made, and the
timing of payment of appropriated amounts, may be influenced by
numerous factors that could affect our U.S. Government contracting
business, including the following:
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The
failure of the U.S. Government to complete its budget and
appropriations process before its fiscal year-end, which may result
in U.S. Government agencies delaying the procurement of
services;
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Budget
constraints or policy changes resulting in delay or curtailment of
expenditures related to the services we provide;
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The
timing and amount of tax revenue received by federal, and state and
local governments, and the overall level of government
expenditures;
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Delays
associated with insufficient numbers of government staff to oversee
contracts;
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Competing
political priorities and changes in the political climate with
regard to the funding or operation of the services we
provide;
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Unsatisfactory
performance on government contracts by us or one of our
subcontractors, negative government audits or other events that may
impair our relationship with federal, state or local
governments;
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A
dispute with or improper activity by any of our subcontractors;
and
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General
economic or political conditions.
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In
addition, we must comply with and are affected by U.S. federal,
state, local, and foreign laws and regulations relating to the
formation, administration and performance of government contracts.
These laws and regulations affect how we do business with our
clients and, in some instances, impose additional costs on our
business operations. Although we take precautions to prevent and
deter fraud, misconduct, and non-compliance, we face the risk that
our employees or outside partners may engage in misconduct, fraud,
or other improper activities. U.S. government agencies, such as the
Defense Contract Audit Agency (“DCAA”), routinely audit
and investigate government contractors and evaluate compliance with
applicable laws, regulations, and standards. In addition, during
the course of its audits, the DCAA may question our incurred
project costs. If the DCAA believes we have accounted for such
costs in a manner inconsistent with the requirements of applicable
laws, regulations and standards, the DCAA auditor may recommend
that such costs be disallowed. Historically, we have not
experienced significant disallowed costs as a result of government
audits. However, we can provide no assurance that the DCAA or other
government audits will not result in material disallowances for
incurred costs in the future.
10
Also,
U.S. Government projects in which we participate as a contractor or
subcontractor may extend for several years. Generally, government
contracts include the right to modify, delay, curtail, renegotiate,
or terminate contracts and subcontracts at the government’s
convenience any time prior to their completion. Any decision by a
U.S. Government client to modify, delay, curtail, renegotiate, or
terminate our contracts at their convenience may result in a
decline in our profits and revenue.
We are reviewing strategic transactions and there can be no
assurance that we will be successful in identifying or completing
any strategic alternative, that any such strategic transactions
will result in additional value for our shareholders or that the
process will not have an adverse impact on our business. Our
Board of Directors continues to review strategic transactions.
These transactions could include, but are not limited to, strategic
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. There can
be no assurance that the review of strategic transactions will
result in the identification or consummation of any transaction.
Our Board of Directors may also determine that our most effective
strategy is to continue to effectuate our current business plan.
The process of reviewing strategic transactions may be time
consuming and disruptive to our business operations and, if we are
unable to effectively manage the process, our business, financial
condition and results of operations could be adversely affected. We
could incur substantial expenses associated with identifying and
evaluating potential strategic transactions. No decision has been
made with respect to any transaction and we cannot assure you that
we will be able to identify and undertake any transaction that
allows our shareholders to realize an increase in the value of
their common stock or provide any guidance on the timing of such
action, if any.
We also
cannot assure you that any potential transaction or other strategic
alternative, if identified, evaluated and consummated, will provide
greater value to our shareholders than that reflected in the
current price of our common stock. Any potential transaction would
be dependent upon a number of factors that may be beyond our
control, including, but not limited to, market conditions, industry
trends, the interest of third parties in our business and the
availability of financing to potential buyers on reasonable terms.
We do not intend to comment regarding the evaluation of strategic
transactions until such time as our Board of Directors has
determined the outcome of the process or otherwise has deemed that
disclosure is appropriate or required by applicable law. As a
consequence, perceived uncertainties related to our future may
result in the loss of potential business opportunities and
volatility in the market price of our common stock and may make it
more difficult for us to attract and retain qualified personnel and
business partners.
We may consider growing through acquisitions and may not be
successful in doing so or in integrating effectively any business
or operations we may acquire. As part of our historic
business strategy, we have expanded our business through strategic
acquisitions. Appropriate acquisitions could allow us to expand
into new geographical locations, offer new services, add
complementary businesses to expand our portfolio of services,
enhance our capital strength or acquire additional talent.
Accordingly, our future performance will be impacted by our ability
to identify appropriate businesses to acquire, negotiate favorable
terms for such acquisitions and effectively and efficiently
integrate such acquisitions into our existing businesses. There is
no certainty that we will succeed in completing any future
acquisitions or whether we will be able to successfully integrate
any acquired businesses or to operate them profitably.
Acquisitions
involve numerous risks, any of which could harm our business,
including:
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Difficulties
in integrating the operations, technologies, products, existing
contracts, accounting and personnel of the target company and
realizing the anticipated synergies of the combined
businesses;
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Difficulties
in supporting and transitioning customers, if any, of the target
company;
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Diversion
of our financial and management resources from existing
operations;
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The
price we pay or other resources that we devote may exceed the value
we realize, or the value we could have realized if we had allocated
the purchase price or other resources to another
opportunity;
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Risks
of entering new markets in which we have limited or no
experience;
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Potential
loss of key employees, customers and strategic alliances from
either our current business or the target company’s
business;
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Assumption
of unanticipated problems or latent liabilities, such as problems
with the quality of the target company’s
services;
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Risks
associated with possible violations of the Foreign Corrupt
Practices Act and other anti-corruption laws as a result of any
acquisition or otherwise applicable to our business;
and
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Inability
to generate sufficient net income to justify the acquisition
costs.
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11
Acquisitions also
frequently result in the recording of goodwill and other intangible
assets which are subject to potential impairment in the future that
could harm our financial results. In addition, if we finance
acquisitions by issuing convertible debt or equity securities, our
existing stockholders may be diluted, which could lower the market
price of our common stock. As a result, if we fail to properly
evaluate acquisitions or investments, we may not achieve the
anticipated benefits of any such acquisitions, and we may incur
costs in excess of amounts that we anticipate.
Our business and operating results could be adversely affected by
our inability to accurately estimate the overall risks, revenue or
costs on a contract. Revenue recognition for a contract
requires judgment relative to assessing the contracts estimated
risks, revenue and costs and technical issues. Due to the size,
complexity and nature of many of our contracts, the estimation of
overall risk, revenue and cost at completion is complicated and
subject to many variables. Changes in underlying assumptions,
circumstances or estimates have in the past and may continue to
adversely affect future period financial performance.
We may incur significant costs in providing services in excess of
original project scope without having an approved change
order. After commencement of a contract, we may perform,
without the benefit of an approved change order from the customer,
additional services requested by the customer that were not
contemplated in our contract price due to customer changes or to
incomplete or inaccurate engineering, project specifications, and
other similar information provided to us by the customer. Our
construction contracts generally require the customer to compensate
us for additional work or expenses incurred under these
circumstances as long as we obtain prior written approval. A
failure to obtain adequate written approvals prior to performing
the work could require us to record an adjustment to revenue and
profit recognized in prior periods under the
percentage-of-completion accounting method. Any such adjustments,
if substantial, could have a material adverse effect on our results
of operations and financial condition, particularly for the period
in which such adjustments are made. There can be no assurance that
we will be successful in obtaining, through negotiation,
arbitration, litigation or otherwise, approved change orders in an
amount sufficient to compensate us for our additional, unapproved
work or expenses.
Our focus on five strategic market initiatives could subject us to
increased costs and related risks and may not achieve the intended
results. Focusing our business activities on five strategic
market initiatives could subject us to increased costs and related
risks and we may not achieve the intended results. These
initiatives may require additional investments by the Company and
additional attention from management, and if not successful, we may
not realize the return on our investments as anticipated or our
operating results could be adversely affected by slower than
expected sales growth or additional costs.
The failure to attract and retain key professional personnel could
materially adversely affect our business. Our success
depends on attracting and retaining qualified personnel even in an
environment where the contracting process is more difficult. We are
dependent upon our ability to attract and retain highly qualified
managerial, technical and business development personnel. In
particular, competition for key management personnel continues to
be intense. We cannot be certain that we will retain our key
managerial, technical and business development personnel or be able
to attract or assimilate key personnel in the future. Failure to
attract and retain such personnel would materially adversely affect
our businesses, financial position, results of operations and cash
flows.
Our debt obligations may limit our financial flexibility. As
of December 26, 2020, we had a total of approximately $6.4 million
in debt outstanding under the PPP Loan and the Revolving Credit
Facility. We may incur additional debt in order to fund our
operational activities. A higher level of indebtedness increases
the risk that our financial flexibility may deteriorate. Our
ability to meet our debt obligations and service our debt depends
on future performance. General economic conditions, commodity
prices, and financial, business and other factors may affect our
operations and our future performance. Many of these factors are
beyond our control and we may not be able to generate sufficient
cash flow to pay the debt, and future working capital, borrowings
and equity financing may not be available to pay or refinance such
debt.
Our loan under the Paycheck Protection Program may not be forgiven
in full. On April 13, 2020, we obtained the PPP Loan
pursuant to the PPP under the CARES Act. The United States Small
Business Administration administers PPP loans and may partially or
fully forgive the PPP Loan if the proceeds are used for covered
payroll, rent and utility costs incurred during the 24-week covered
period that commenced on the date of funding and if at least 60% of
the proceeds are used for covered payroll costs. Although the
Company currently believes it may be able to seek full PPP Loan
forgiveness, no assurance can be provided that we will be eligible
for and obtain forgiveness of all or a portion of the PPP
Loan.
Our dependence on one or a few customers could adversely affect
us. One or a few clients have in the past and may in the
future contribute a significant portion of our consolidated revenue
in any one year or over a period of several consecutive years. In
2020, our top three clients accounted for 25.1%, 17.9% and 13.9% of
our revenue, respectively, and our ten largest customers accounted
for 86.8% of our revenue. As our backlog frequently reflects
multiple projects for individual clients, one major customer may
comprise a significant percentage of our backlog at any point in
time. Because these significant customers generally contract with
us for specific projects, we may lose them in other years as their
projects with us are completed. If we do not continually replace
them with other customers or other projects, our business could be
materially adversely affected. Also, the majority of our contracts
can be terminated at will. Although we have long-standing
relationships with many of our significant customers, our contracts
with these customers are on a project-by-project basis and the
customers may unilaterally reduce or discontinue their purchases at
any time. In addition, dissatisfaction with the results of a single
project could have a much more widespread impact on our ability to
get additional projects from a single major client. The loss of
business from any one of such customers could have a material
adverse effect on our business or results of
operations.
12
Internal system or service failures could disrupt our business and
impair our ability to effectively provide our services and products
to our clients, which could damage our reputation and adversely
affect our revenue, profitability and operating results. Our
information technology systems are subject to systems failures,
including network, software or hardware failures, whether caused by
us, third-party service providers, intruders or hackers, computer
viruses, malicious code, cyber-attacks, phishing and other cyber
security problems, natural disasters, power shortages or terrorist
attacks. Any such failures could cause loss of data and
interruptions or delays in our business, cause us to incur
remediation costs, subject us to claims and damage our reputation.
Failure or disruption of our communications or utilities could
cause us to interrupt or suspend our operations or otherwise
adversely affect our business. Any system or service disruptions if
not anticipated and appropriately mitigated could have a material
adverse effect on our business including, among other things, an
adverse effect on our ability to bill our clients for work
performed on our contracts, collect the amounts that have been
billed and produce accurate financial statements in a timely
manner. Our property and business interruption insurance may be
inadequate to compensate us for all losses that may occur as a
result of any system or operational failure or disruption and, as a
result, our results of operations could be materially and adversely
affected. We have invested and will continue to pursue further
investments in systems that will allow us to achieve and remain in
compliance with the regulations governing our business; however,
there can be no assurance that such systems will be effective at
achieving and maintaining compliance or that we will not incur
additional costs in order to make such systems
effective.
If we are unable to collect our receivables, our results of
operations and cash flows could be adversely affected. Our
business depends on our ability to successfully obtain payment from
our clients of the amounts they owe us for work performed and
materials supplied. In the ordinary course of business, we extend
unsecured credit to our customers. We may also agree to allow our
customers to defer payment on projects until certain milestones
have been met or until the projects are substantially completed,
and customers typically withhold some portion of amounts due to us
as retainage. As of December 26, 2020, we had projects that had
$1.7 million in retainage. We bear the risk that our clients will
pay us late or not at all. Though we evaluate and attempt to
monitor our clients’ financial condition, there is no
guarantee that we will accurately assess their creditworthiness. To
the extent the credit quality of our clients deteriorates or our
clients seek bankruptcy protection, our ability to collect
receivables and our results of operations could be adversely
affected. Even if our clients are credit-worthy, they may delay
payments in an effort to manage their cash flow. Financial
difficulties or business failure experienced by one or more of our
major customers has had and could, in the future, continue to have
a material adverse effect on both our ability to collect
receivables and our results of operations.
Liability claims could result in losses. Providing
engineering and design services involves the risk of contract,
professional errors and omissions and other liability claims, as
well as adverse publicity. Further, many of our contracts require
us to indemnify our clients not only for our negligence, if any,
but also for the concurrent negligence of our clients. We currently
maintain liability insurance coverage, including coverage for
professional errors and omissions. However, claims outside of or
exceeding our insurance coverage may be made. A significant claim
could result in unexpected liabilities, take management time away
from operations, and have a material adverse impact on our cash
flow.
Unsatisfactory safety performance can affect customer
relationships, result in higher operating costs and result in high
employee turnover. Our workers are subject to the normal
hazards associated with providing services on construction sites
and industrial facilities. Even with proper safety precautions,
these hazards can lead to personal injury, loss of life, damage to,
or destruction of property, plant and equipment, and environmental
damages. We are intensely focused on maintaining a safe environment
and reducing the risk of accidents across all of our job sites.
However, poor safety performance may limit or eliminate potential
revenue streams from many of our largest customers and may
materially increase our future insurance and other operating costs.
In hiring new employees, we normally target experienced personnel;
however, we also hire inexperienced employees. Even with thorough
safety training, inexperienced employees have a higher likelihood
of injury which could lead to higher operating costs and insurance
rates.
Our dependence on third party subcontractors and equipment
manufacturers could adversely affect us. We rely on third
party subcontractors as well as third party suppliers and
manufacturers to complete our projects. To the extent that we
cannot engage subcontractors or acquire supplies or materials, our
ability to complete a project in a timely fashion may be impaired.
If the amount we are required to pay for these goods and services
exceeds the amount we have estimated in bidding for fixed-price or
time-and-material contracts, we could experience losses on these
contracts. In addition, if a subcontractor or supplier is unable to
deliver its services or materials according to the negotiated
contract terms for any reason, including the deterioration of its
financial condition or over-commitment of its resources, we may be
required to purchase the services or materials from another source
at a higher price. This may reduce the profit to be realized or
result in a loss on a project for which the services or materials
were needed.
Force majeure events such as natural disasters or global or
national health epidemics or concerns, such as the recent COVID-19
coronavirus outbreak, could negatively impact the economy and the
industries we service, which may negatively affect our financial
condition, results of operations and cash flows. Force
majeure events, such as hurricanes or global or national health
epidemics or concerns, such as the recent COVID-19 coronavirus
outbreak, could negatively impact the economies of the areas in
which we operate. For example, in 2017 Hurricane Harvey caused
considerable damage along the Gulf Coast not only to the refining
and petrochemical industry, but also the commercial segment which
competes for labor, materials and equipment resources needed
throughout the entire United States. In some cases, we remain
obligated to perform our services after a natural disaster even
though our contracts may contain force majeure clauses. In those
cases, if we are not able to react quickly and/or negotiate
contractual relief on favorable terms to us, our operations may be
significantly and adversely affected, which would have a negative
impact on our financial condition, results of operations and cash
flows.
13
RISKS RELATED TO OUR COMMON STOCK OUTSTANDING
The trading price of our stock may continue to be volatile, which
could cause you to lose part or all of your investment.
The trading price of our common stock
has been highly volatile and could continue to be subject to wide
fluctuations in response to various factors, some of which are
beyond our control. During the past twelve months, the sales price
of our stock ranged from a low of $0.46 per share in March 2020, to
a high of $9.40 per share in January 2021.
We do not believe that this volatility corresponds to any recent
change in our financial condition.
The stock market in general has experienced extreme price and
volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those
companies.
As a result of this volatility, our securities could experience
rapid and substantial decreases in price, and you may be able to
sell securities you purchase under this prospectus only at a
substantial loss to the price at which you purchased the securities
in this offering.
Some, but not all, of the factors that may cause the market price
of our common stock to fluctuate include:
●
fluctuations in our
quarterly or annual financial results or the quarterly or annual
financial results of companies perceived to be similar to us or
relevant for our business;
●
changes in
estimates of our financial results or recommendations by securities
analysts;
●
failure of our
services or products to achieve or maintain market
acceptance;
●
changes in market
valuations of similar or relevant companies;
●
success of
competitive service offerings or technologies;
●
changes in our
capital structure, such as the issuance of securities or the
incurrence of debt;
●
announcements by us
or by our competitors of significant services, contracts,
acquisitions or strategic alliances;
●
regulatory
developments in the United States, foreign countries, or
both;
●
litigation;
●
additions or
departures of key personnel;
●
investors’
general perceptions; and
●
changes in general
economic, industry or market conditions.
In
addition, if the market for energy related stocks, or the stock
market in general, experiences a loss of investor confidence, the
trading price of our common stock could decline for reasons
unrelated to our business, financial condition, or results of
operations. Further, in the past, following periods of volatility
in the overall market and the market price of a particular
company’s securities, securities class action litigation has
often been instituted against these companies. If any of the
foregoing occurs, it could cause our stock price to fall and may
expose us to lawsuits that, even if unsuccessful, could be costly
to defend and a distraction to management.
14
A possible “short squeeze” due to a sudden increase in
demand of our common stock that largely exceeds supply may lead to
additional price volatility. Historically there has not been
a large short position in our common stock. However, in the future
investors may purchase shares of our common stock to hedge existing
exposure or to speculate on the price of our common stock.
Speculation on the price of our common stock may involve long and
short exposures. To the extent an aggregate short exposure in our
common stock becomes significant, investors with short exposure may
have to pay a premium to purchase shares for delivery to share
lenders at times if and when the price of our common stock
increases significantly, particularly over a short period of time.
Those purchases may in turn, dramatically increase the price of our
common stock. This is often referred to as a “short
squeeze.” A short squeeze could lead to volatile price
movements in our common stock that are not directly correlated to
our business prospects, financial performance or other traditional
measures of value for the Company or our common stock.
A small number of stockholders own a significant portion of our
outstanding common stock, thus limiting the extent to which other
stockholders can effect decisions subject to stockholder
vote. Directors, executive officers and principal
stockholders of ENGlobal and their affiliates, beneficially own
approximately 47% of our outstanding common stock on a fully
diluted basis as of the date of this Report. Accordingly, these
stockholders, as a group, are able to affect the outcome of
stockholder votes, including votes concerning the adoption or
amendment of provisions in our Articles of Incorporation or bylaws
and the approval of mergers and other significant corporate
transactions.
The
existence of these levels of ownership concentrated in a few
persons makes it unlikely that any other holder of common stock
will be able to affect the management or direction of the Company.
These factors may also have the effect of delaying or preventing a
change in management or voting control of the Company.
Our Board of Directors may authorize future sales of ENGlobal
common stock, which could result in a decrease in the market value
to existing stockholders of the shares they hold. Our
Articles of Incorporation authorize our Board of Directors to issue
up to an additional 47,473,824 shares of common stock and an
additional 2,000,000 shares of undesignated preferred stock as of
December 26, 2020. These shares may be issued without stockholder
approval unless the issuance is 20% or more of our outstanding
common stock, in which case the NASDAQ requires stockholder
approval. We may issue shares of stock in the future in connection
with acquisitions or financings. In addition, we may issue
restricted stock or options under our Amended and Restated 2009
Equity Incentive Plan. Future issuances of substantial amounts of
common stock, or the perception that these sales could occur, may
affect the market price of our common stock. In addition, the
ability of the Board of Directors to issue additional stock may
discourage transactions involving actual or potential changes of
control of the Company, including transactions that otherwise could
involve payment of a premium over prevailing market prices to
holders of our common stock.
Future issuances of our securities in connection with financing
transactions or under equity incentive plans could dilute current
stockholders’ ownership. We may decide to raise
additional funds to fund our operations through the issuance of
public or private debt or equity securities. We cannot predict the
effect, if any, that future issuances of debt, our common stock,
other equity securities or securities convertible into or
exchangeable for our common stock or other equity securities or the
availability of any of the foregoing for future sale, will have on
the market price of our common stock. The issuance of substantial
amounts of our common stock or securities convertible into or
exchangeable for our common stock (including shares issued upon the
exercise of stock options or the conversion or exchange of any
convertible or exchangeable securities outstanding now or in the
future), or the perception that such issuances could occur, may
adversely affect prevailing market prices for our common stock. In
addition, further dilution to our existing stockholders will
result, and new investors could have rights superior to existing
stockholders.
15
ITEM 2. PROPERTIES
We
lease space in five buildings in the U.S. totaling approximately
184,895 square feet. The leases have remaining terms ranging from
four months to twenty-four months and are on terms that we consider
commercially reasonable. We have no major encumbrances related to
these properties.
Our
principal office is located in Houston, Texas. We have other
offices in Tulsa, Oklahoma, Denver, Colorado, and Henderson, Texas.
Approximately 81,000 square feet of our total office space is
designated for our professional, technical and administrative
personnel. We believe that our office and other facilities are well
maintained and adequate for existing and planned operations at each
operating location. Our Automation segment performs assembly
services in its Houston, Texas integration facility with
approximately 81,089 square feet of space. Our EPCM segment
performs fabrication services in its Henderson, Texas facility on 7
acres with approximately 22,450 square feet of shop
space.
|
Location
|
Square Feet
|
|
Denver,
CO
|
6,851
|
|
Henderson,
TX
|
22,450
|
|
Houston,
TX
|
27,823
|
|
Houston,
TX (Portwall)
|
81,089
|
|
Tulsa,
OK
|
46,682
|
|
|
184,895
|
ITEM 3. LEGAL PROCEEDINGS
From
time to time, ENGlobal or one or more of its subsidiaries may be
involved in various legal proceedings or may be subject to claims
that arise in the ordinary course of business alleging, among other
things, claims of breach of contract or negligence in connection
with the performance or delivery of goods and/or services. The
outcome of any such claims or proceedings cannot be predicted with
certainty. As of the date of this filing, management is not aware
of any such claims against the Company or any subsidiary business
entity.
ITEM 4. MINE SAFETY DISCLOSURES
Not
applicable.
16
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information and Holders
Our
common stock has been quoted on the NASDAQ Capital Market (NASDAQ -
CM) under the symbol “ENG” since April 16, 2013 and the
NASDAQ Global Market prior to that date. Newspaper and on-line
stock listings identify us as “ENGlobal.”
As of
December 26, 2020, approximately 91 stockholders of record held our
common stock. We do not have information regarding the number of
holders of beneficial interests in our common stock.
Issuer Purchases of Equity Securities
The
following table sets forth certain information with respect to
repurchases of our common stock for the fourth quarter of
2020:
|
Period
|
Total
Numberof
SharesPurchased
|
Average
Price
Paid
per
Share
|
Total Number of
Shares
Purchased as
Part of Publicly Announced Plans or Programs (1)
|
Maximum Number
(or Approximate Dollar Value)
of Shares That
May Yet be Purchased Under Plans
or Programs
(1)
|
|
September 27, 2020 to October 24,
2020
|
—
|
—
|
—
|
$—
|
|
October 25, 2020 to November 28,
2020
|
—
|
—
|
—
|
$—
|
|
November 29, 2020 to December 26,
2020
|
—
|
—
|
—
|
$—
|
|
Total
|
—
|
—
|
1,290,460
|
$425,589
|
(1)
On April 21, 2015,
the Company announced that its Board of Directors had authorized
the repurchase of up to $2.0 million of the Company’s common
stock from time to time through open market or privately negotiated
transactions, based on prevailing market conditions. The Company is
not obligated to repurchase any dollar amount or specific number of
shares of common stock under the repurchase program, which may be
suspended, discontinued or reinstated at any time. The stock
repurchase program was suspended on May 16, 2017 and was reinstated
on December 19, 2018. As of December 26, 2020, the Company had
purchased and retired 1,290,460 shares at an aggregate cost of $1.6
million under this repurchase program. Management does not intend
to repurchase any shares in the near future.
Dividend Policy
We have
never declared or paid a cash dividend on our common stock. We
intend to retain any future earnings for reinvestment in our
business and we do not intend to pay cash dividends in the
foreseeable future. The payment of dividends in the future, if any,
will depend on numerous factors, including our earnings, capital
requirements and operating and financial position as well as
general business conditions.
17
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion is qualified in its entirety by, and should be
read in conjunction with, our Consolidated Financial Statements and
Notes thereto, included elsewhere in this Report.
Overview
We have
identified modular project execution offerings as the opportunity
to which our capabilities are best applied, focused our business
development team on communicating these offerings to specific
clients and realigned our internal reporting structure to better
facilitate complete modular project execution. We have identified
five strategic market initiatives where we have a history of
delivering project solutions and can provide complete project
execution that includes engineering, design, fabrication and
integration of automated control systems as a complete packaged
solution for our clients, preferably in a modular form. This
“design it once – build it many times” concept
has many merits including a single vendor interface, better control
of costs, better control of schedule and lower safety risk. These
five targeted market initiatives include: (i) Renewables; (ii)
Automation; (iii) Refining and Transportation; (iv) Upstream and
(v) Government Services. We have identified specific individuals
within the Company to lead the efforts for each market initiative -
“a champion” - while coordinating with the other sales
leaders.
COVID-19 Update
On March 11, 2020, the World Health Organization
declared that the worldwide spread and severity of a new
coronavirus, referred to as COVID-19, was severe enough to be
characterized as a pandemic. In response to the continued spread of
COVID-19, governmental authorities in the United States and around
the world have imposed various restrictions designed to slow the
pace of the pandemic, including restrictions on travel and other
restrictions that prohibit employees from going to work, in cities
where we have offices, employees, and customers causing severe
disruptions in the worldwide economy, including the global demand
for oil and natural gas. In response, companies within the energy
industry (including many of our customers) have announced capital
spending cuts which, in turn, may result in a decrease in new
project awards or adjustments, reductions, suspensions,
cancellations or payment defaults with respect to existing project
awards. We have been fortunate that we entered 2020 with a robust
backlog and that the larger projects in our backlog have not been
cancelled or postponed. This has allowed us to keep a significant
portion of our workforce productive. However, we have not been
successful in replacing our backlog as quickly as it has been
converted to revenues. As a result, our backlog has decreased by
approximately $34.9 million from $59.2 million at December 28, 2019
to $24.3 million at December 26, 2020. While we have many potential
opportunities in our sales pipeline that could replace a
significant portion of this backlog reduction, inefficiencies and
complications resulting from many of our clients’ remote
working conditions combined with the uncertainty of new project
necessity and funding caused by COVID-19 related disruptions have
largely contributed to delays in project awards and our inability
to replace our backlog as quickly as it has been converted to
revenue. While we believe our backlog is sufficient to keep a
significant portion of our workforce productive in the near
term, it may not be at our current
operating levels. The extent to which the disruption of COVID-19
may impact our business, financial condition and results of
operations will depend on future developments, which are highly
uncertain and cannot be predicted at this time. The duration and
intensity of these impacts and resulting disruption to our
business, financial condition and results of operations is
uncertain and we will continue to monitor the situation and assess
the operational and financial impact on our
business.
As
a result of these current and future uncertainties, we felt it
necessary to utilize all avenues of available assistance as they
may not be available in the future when needed. On April 13, 2020,
we obtained a $4.9 million loan (the “PPP Loan”)
pursuant to the Paycheck Protection Program (the “PPP”)
under Division A, Title I of the Coronavirus Aid, Relief, and
Economic Security Act (“CARES Act”), which we expect to
be forgiven. We are also utilizing relief for employees impacted by
COVID-19 under the Families First Coronavirus Response Act in order
to minimize the impact to both our employees and our business.
Further, we are utilizing some of the tax payment deferral
opportunities and federal refund acceleration opportunities
provided by the IRS and the CARES Act.
On
May 21, 2020, in order to provide additional liquidity, the Company
and its subsidiaries (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 in
the aggregate amount of up to $6.0 million, subject to a credit
limit. For additional information, see “Liquidity and Capital
Resources.” As we continue to monitor the situation and
assess the operational and financial impact on our business, we may
determine to take further actions in response.
18
On
June 27, 2020, we temporarily closed one of our operational
facilities and sponsored COVID-19 testing for employees in response
to a potential COVID-19 exposure. During the closure, we cleaned
and sanitized the facility, and we reopened the facility after one
week. Employees and visitors were allowed to return to the facility
only after negative test results were received or after a fourteen
day quarantine period. Although the closure was only for one week,
the disruption to our operations was longer as testing results were
received slower than expected and project progress was
delayed.
Because
the severity, magnitude and duration of the COVID-19 pandemic and
its economic consequences are uncertain, rapidly changing and
difficult to predict, the impact on our business, financial
condition and results of operations remains uncertain and difficult
to predict. If COVID–19 continues to spread or if the
response to contain the COVID-19 pandemic is unsuccessful, we could
experience a material adverse effect on our business, financial
condition, and results of operations. For additional information,
see Part II. Item 1A “Risk Factors.”
Results of Operations
Our
revenue is comprised of services revenue and the sale of engineered
modular solutions. We generally recognize service revenue as soon
as the services are performed. The majority of our engineering
services have historically been provided through time-and-material
contracts whereas a majority of our engineered modular solutions
revenues are earned on fixed-price contracts. During 2020, we
worked on 323 projects ranging in size from $1 thousand to $26.7
million. The average size of the projects during 2020 was $518
thousand and we recorded an average revenue of $200 thousand per
project.
In the
course of providing our services, we routinely provide materials
and equipment and may provide construction management or
construction services on a subcontractor basis. Generally, these
materials, equipment and subcontractor costs are passed through to
our clients and reimbursed, along with handling fees, which in
total are at margins much lower than those of our services
business. In accordance with industry practice and generally
accepted accounting principles, all such costs and fees are
included in revenue. The use of subcontractor services can change
significantly from project to project; therefore, changes in
revenue and gross profit, SG&A expense and operating income as
a percent of revenue may not be indicative of our core business
trends.
Segment
operating SG&A expense includes management and staff
compensation, office costs such as rents and utilities,
depreciation, amortization, travel, bad debt and other expenses
generally unrelated to specific client contracts, but directly
related to the support of a segment’s operations. Corporate
SG&A expenses includes investor relations, business
development, governance, finance, accounting, health, safety,
environmental, human resources, legal and information technology
which are unrelated to specific projects but which are incurred to
support corporate activities.
Reporting Segments
Our
segments are strategic business units that offer different services
and products and therefore require different marketing and
management strategies. Separate operational leaders are in charge
of our engineering offices and our automation offices, including
the office that contracts with government agencies. The operating
performance of our segments is regularly reviewed with the
operational leaders of the two segments, the CEO, CFO and others.
This group represents the CODM for ENGlobal.
Our
corporate and other expenses that do not individually meet the
criteria for segment reporting are reported separately as Corporate
expenses.
19
Comparison of the years ended December 26, 2020 and December 28,
2019
The
following table set forth below, for the years ended December 26,
2020 and December 28, 2019, provides financial data that is derived
from our consolidated statements of operations (amounts in
thousands, except per share data).
|
Operations
Data
|
EPCM
|
Automation
|
Corporate
|
Consolidated
|
|
|
For
the Year Ended December 26, 2020:
|
|
|
|
|
|
|
Revenue
|
$25,929
|
$38,520
|
$—
|
$64,449
|
100.0%
|
|
Gross
profit
|
2,358
|
6,093
|
—
|
8,451
|
13.1%
|
|
SG&A
|
2,427
|
1,569
|
4,838
|
8,834
|
13.7%
|
|
Operating income
(loss)
|
(69)
|
4,524
|
(4,838)
|
(383)
|
(0.6)%
|
|
Other income,
net
|
|
|
|
14
|
0.1%
|
|
Interest expense,
net
|
|
|
|
(153)
|
(0.2)%
|
|
Tax
expense
|
|
|
|
(103)
|
(0.2)%
|
|
Net
loss
|
|
|
|
(625)
|
(1.0)%
|
|
Loss per
share
|
|
|
|
$(0.02)
|
|
|
|
EPCM
|
Automation
|
Corporate
|
Consolidated
|
|
|
For
the Year Ended December 28, 2019:
|
|
|
|
|
|
|
Revenue
|
$19,436
|
$37,010
|
$—
|
$56,446
|
100.0%
|
|
Gross
profit
|
1,631
|
6,285
|
—
|
7,916
|
14.0%
|
|
SG&A
|
2,461
|
1,690
|
5,166
|
9,317
|
16.5%
|
|
Operating income
(loss)
|
(830)
|
4,595
|
(5,166)
|
(1,401)
|
(2.5)%
|
|
Other income,
net
|
|
|
|
49
|
0.1%
|
|
Interest expense,
net
|
|
|
|
(31)
|
(0.1)%
|
|
Tax
expense
|
|
|
|
(83)
|
(0.1)%
|
|
Net
loss
|
|
|
|
(1,466)
|
(2.6)%
|
|
Loss per
share
|
|
|
|
$(0.05)
|
|
|
|
|
|
|
|
|
20
|
|
EPCM
|
Automation
|
Corporate
|
Consolidated
|
|
|
Year
Over Year Increase (Decrease) in Operating Results:
|
|
|
|
|
|
|
Revenue
|
$6,493
|
$1,510
|
$—
|
$8,003
|
14.2%
|
|
Gross
profit
|
727
|
(192)
|
—
|
535
|
6.8%
|
|
SG&A
|
(34)
|
(121)
|
(328)
|
(483)
|
(5.2)%
|
|
Operating income
(loss)
|
761
|
(71)
|
328
|
1,018
|
(72.7)%
|
|
Other income,
net
|
|
|
|
(35)
|
(71.4)%
|
|
Interest expense,
net
|
|
|
|
(122)
|
393.5%
|
|
Tax
expense
|
|
|
|
(20)
|
24.1%
|
|
Net
loss
|
|
|
|
841
|
(57.3)%
|
|
Loss per
share
|
|
|
|
$0.03
|
|
Revenue –
Overall, our revenue for the year ended December 26, 2020, as
compared to the year ended December 28, 2019, increased $8.0
million, or 14.2%, to $64.5 million from $56.5 million. Revenue
from the Automation segment increased $1.5 million, or 4.1%, to
$38.5 million for the year ended December 26, 2020, as compared to
$37.0 million for the comparable period in 2019. Revenue from the
EPCM segment increased $6.5 million, or 33.5%, to $25.9 million for
the year ended December 26, 2020 as compared to $19.4 million for
the comparable period in 2019. Our 2020 revenue for the EPCM
segment increased primarily due to the progress of one large
project during the year partially offset by the completion of
projects that were not renewed as our clients decreased activities
in all sectors of the energy industry due to COVID-19. The
Automation segment benefited from two projects that increased in
scope during the first two quarters of 2020 partially offset by
delays in government projects due to base closures and travel
restrictions imposed by the U.S. Government as a result of COVID-19
and Automation projects that were not renewed or replaced due to
the uncertainty from the COVID-19 pandemic.
Gross Profit –
Gross profit for the year ended December 26, 2020 was $8.4 million,
an increase of $0.5 million, or 6.8%, from $7.9 million for the
comparable period in 2019. Gross profit margin was 13.1% for the
year ended December 26, 2020, a decrease from the 14.0% gross
profit margin for the year ended December 28, 2019.
Gross
profit in our EPCM segment increased $0.7 million, or 44.6%, to
$2.4 million for a gross profit margin of 9.1% for the year ended
December 26, 2020 as compared to $1.6 million for a gross profit
margin of 8.4% for the year ended December 28, 2019. The increase
in gross profit margin is primarily attributable to one large
project that began in 2020 and that is expected to be completed in
2021, partially offset by costs associated with underutilized
staffing at one of our locations as projects were completed without
subsequent renewals during 2020, including a project cancellation
due to COVID-19, and supply purchases for our employees to adhere
to COVID-19 safe work practices.
Gross
profit in the Automation segment decreased $0.2 million, or 3.1%,
to $6.1 million for a gross profit margin of 15.8% for the year
ended December 26, 2020 as compared to $6.3 million with a gross
profit margin of 17.0% for the year ended December 28, 2019. The
decrease in gross profit is primarily due to inefficiencies on one
of our large projects in addition to delays caused from COVID-19
restrictions prompting employees to work remotely, supply purchases
for our employees to adhere to COVID-19 safe work practices, and
delays in government projects due to base closures and travel
restrictions imposed by the U.S. Government as a result of
COVID-19.
Selling, General and
Administrative – Overall, our SG&A expenses
decreased by $0.5 million for the year ended December 26, 2020 as
compared to the year ended December 28, 2019. This decrease in
SG&A is driven by reductions in travel costs due to COVID-19
restrictions of $0.1 million, facility costs of $0.1 million, legal
fees of $0.1 million, and $0.2 in computer software costs. We
continue to look for ways to streamline our processes and delay
expenditures while we continue to invest in our business
development activities.
21
Other income,
net
– Other income, net
of expense, decreased $35 thousand for the year ended December 26,
2020 as compared to the year ended December 28, 2019 primarily due
to rental income received in 2019 with no comparable occurrence in
2020.
Tax expense –
Tax expense was $0.1 million for the year ended December 26, 2020
and December 28, 2019.
Net Income
(Loss) – Net loss
for the year ended December 26, 2020 was $0.6 million compared to a
net loss of $1.5 million for the year ended December 28, 2019,
primarily as a result of our increase in revenue and higher margin
projects from our EPCM segment and decrease in SG&A expense
year-over-year, partially offset by project delays and
inefficiencies due to the COVID-19 pandemic.
Liquidity and Capital Resources
Overview
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, and borrowings under the PPP Loan and
the Revolving Credit Facility. Our cash increased to $13.7 million
at December 26, 2020 from $8.3 million at December 28, 2019, as our
operating activities used approximately $0.5 million in net cash
during the year ended December 26, 2020 primarily due to decreased
contract assets net of contract liabilities, decreased accounts
payable, and operating losses, partially offset by a decrease in
trade receivables, depreciation and cash provided by other
components of working capital. Our working capital as of December
26, 2020 was $14.0 million as compared to $11.3 million as of
December 28, 2019.
On April 13, 2020,
we obtained the PPP Loan, which
was a significant cash injection for us. In addition, on May 21,
2020, we entered into the Revolving Credit Facility pursuant to
which the Lender agreed to extend credit of up to $6.0 million,
subject to a credit limit. As of December 26, 2020, the credit
limit under the Revolving Credit Facility was $2.4 million and
outstanding borrowings were $1.5 million, which yields enough
interest to cover our minimum monthly interest charge. As of
December 26, 2020, we were in compliance with all of the covenants
under the PPP Loan and Revolving Credit Facility. For additional
information on the PPP Loan and Revolving Credit Facility, see Part
II, Item 8, Note 7 – Debt -.
In
addition, on January 29, 2021, we filed a shelf registration
statement on Form S-3 (the “Registration Statement”)
with the SEC, pursuant to which we may offer and sell, at our
option, securities having an aggregate offering price of up to $100
million. On the same date, we entered into an at market issuance
sales agreement with B. Riley Securities, Inc. pursuant to which we
may offer and sell shares of our common stock having an aggregate
offering price of up to $25 million to or through B. Riley, as
sales agent, from time to time, in an “at the market
offering”. 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
has not yet become effective and these securities may not be sold
nor may offers to buy be accepted prior to the time the
Registration Statement becomes effective.
We
believe our cash on hand, internally generated funds and
availability under the Revolving Credit Facility along with other
working capital will be sufficient to fund our current operations
and expected activity for the next twelve months.
Cash
and the availability of cash could be materially restricted if (1)
outstanding invoices billed are not collected or are not collected
in a timely manner, (2) circumstances prevent the timely internal
processing of invoices, (3) we lose one or more of our major
customers or our major customers significantly reduce the amount of
work requested from us, (4) we are unable to win new projects that
we can perform on a profitable basis or (5) we are unable to
reverse our use of cash to fund losses. If any such event occurs,
we would be forced to consider alternative financing
options.
Our
Board of Directors continues to review strategic transactions,
which could include strategic 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.
22
Cash Flows from Operating Activities
Operating
activities used approximately $0.5 million in net cash during the
year ended December 26, 2020, compared with net cash provided by
operating activities of $2.7 million during the comparable period
in 2019. The primary driver of the cash used by operations for the
year ended December 26, 2020 was a decrease of $4.4 million in
contract assets net of contract liabilities, a decrease of $1.1
million in trade payables, and our $0.6 million operating loss,
partially offset by cash provided from decreases of $3.7 million in
trade receivables, $0.5 million in deprecation, $0.2 million in
share-based compensation, an increase of $1.3 million in accrued
compensation and benefits, and a decrease of $0.1 million in other
components of working capital. For the year ended December 28,
2019, cash provided by operations was primarily related to an
increase of $4.2 million from contract assets net of contract
liabilities and $1.2 million in cash provided by other working
capital items, offset by our net loss of $1.5 million and an
increase in trade receivables of $1.2 million.
Cash Flows from Investing Activities
Investing
activities used cash of $0.4 million during the year ended December
26, 2020 and used cash of $0.3 million during the year ended
December 28, 2019 primarily related to the purchase of equipment
used to outfit our fabrication facility and to upgrade our
accounting and purchasing system.
Cash Flows from Financing Activities
Financing
activities provided cash of $6.3 million during the year ended
December 26, 2020 primarily due to the proceeds from the PPP Loan
and Revolving Credit Facility partially offset by payments on our
finance leases. Financing activities used cash of $0.1 million
during the year ended December 28, 2019 for the repurchase of our
common stock and payments on finance leases.
Stock Repurchase Program
On
April 21, 2015, the Company announced that our Board of Directors
had authorized the repurchase of up to $2.0 million of our common
stock from time to time through open market or privately negotiated
transactions, based on prevailing market conditions. We were not
obligated to repurchase any dollar amount or specific number of
shares of common stock under the repurchase program, which may be
suspended, discontinued or reinstated at any time. From April 2015
through December 2017, the Company purchased and retired 1,191,050
shares at a cost of $1.5 million. The stock repurchase program was
suspended on May 16, 2017 and was reinstated on December 19, 2018.
During the year ended December 28, 2019, we purchased and retired
77,687 shares at a cost of $61 thousand. During the year ended
December 26, 2020, no shares were repurchased. Management does not
intend to repurchase any shares in the near future.
Accounts Receivable
We
typically sell our products and services on short-term credit and
seek to minimize our credit risk by performing credit checks and
conducting our own collection efforts. Our trade accounts
receivable decreased $3.6 million, or 31.6%, to $7.8 million
as of December 26, 2020 compared to $11.4 million as of December
28, 2019. We had bad debt expense of $0.1 million for the year
ended December 26, 2020 and no bad debt expense for the year ended
December 28, 2019. Our allowance for uncollectible accounts was
$0.4 million as of December 26, 2020 and $0.2 million as of
December 28, 2019 and increased as a percentage of trade accounts
receivable to 5.0% for 2020 from 2.1% for 2019. We continue to
manage this portion of our business very carefully.
23
Risk Management
In
performing services for our clients, we could potentially face
liability for breach of contract, personal injury, property damage
or negligence, including professional errors and omissions. We
often agree to indemnify our clients for losses and expenses
incurred as a result of our negligence and, in certain cases, the
sole or concurrent negligence of our clients. Our quality control
and assurance program includes a control function to establish
standards and procedures for performance and for documentation of
project tasks, and an assurance function to audit and to monitor
compliance with procedures and quality standards. We maintain
liability insurance for bodily injury and third party property
damage, professional errors and omissions, and workers’
compensation coverage, which we consider sufficient to insure
against these risks, subject to self-insured amounts.
Seasonality
Our
revenues are generated by services, and therefore holidays and
employee vacations during our fourth quarter negatively impact
revenues for that quarter, which is only partially offset by the
year-end efforts on the part of many clients to spend any remaining
funds budgeted for services and capital expenditures during the
year. Our clients’ annual budget process is normally
completed in the first quarter, which can slow the award of new
work at the beginning of the year. Principally due to these
factors, our first and fourth quarters are typically less robust
than our second and third quarters.
Critical Accounting Policies
Please
see Part II, Item 8, Note 2 – Accounting Policies and New Accounting
Pronouncements for additional information regarding our
critical accounting policies.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
audited financial information below is attached hereto and made
part hereof:
INDEX
|
|
PAGE
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
|
26
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS
|
28
|
|
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
29
|
|
|
|
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
30
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
31
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
32
|
25
Report of Independent Registered Public Accounting
Firm
To the
Stockholders and the Board of Directors of
ENGlobal
Corporation
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of ENGlobal
Corporation (the “Company”) as of December 26, 2020 and
December 28, 2019, the related consolidated statements of
operations, stockholders’ equity and cash flows for the years
then ended, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion,
the consolidated financial statements
present fairly, in all material respects, the consolidated
financial position of the Company as of December 26, 2020 and
December 28, 2019, and the consolidated results of its operations
and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we
are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such
opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due
to error or fraud, and performing procedures to respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the
consolidated financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits
provide a reasonable
basis for our opinion.
Critical Audit Matter
The
critical audit matter communicated below is a matter arising from
the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit
committee and that (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
26
Revenue Recognition - Estimates of Costs to Complete
As
described in Note 2, the Company recognizes revenue on fixed-price
contracts over time when there is a continuous transfer of control
to the customer over the duration of the contract as the services
are rendered. The accounting conclusions for contracts involve
significant judgment, particularly as it relates to determining the
amount, timing and presentation of revenue that will be recognized
for each performance obligation within the contract, and the
distinct number of performance obligations represented by the
contract.
We
identified management’s estimate of costs to complete on
contracts where revenue is recognized over time as a critical audit
matter. On certain contracts, revenue is recognized over time using
a cost-based input method that measures the extent of progress
towards completion of a performance obligation. The majority of
contract costs are labor costs, but costs also include material and
allocable indirect expenses. Generally, revenue is recognized
proportionally as labor costs are incurred. 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 subcontractors, the
availability and timing of funding, and overhead cost rates, among
other variables. A significant change in one or more of these
estimates could affect the profitability of the Company’s
contracts. Given the significant judgments necessary to determine
the amount, timing and presentation of revenue and to estimate
total costs for the performance obligations that recognize revenue
using a cost-based input method, auditing such estimates required
extensive audit effort due to the complexity of these fixed-price
contracts and a high degree of auditor judgment when performing
audit procedures and evaluating the results of those
procedures.
The
primary procedures we performed to address this critical audit
matter included:
●
Developing an
independent expectation of revenue and gross margins and comparing
it to the recorded balance.
●
For a selection of
contracts, performing elements of the following for each
contract:
o
Confirming contract
terms including contract price and related change orders, revenue
earned to date, retainage, balance currently due, and estimated
completion date.
o
Evaluating the
terms and conditions of each contract and the appropriateness of
the accounting treatment in accordance with generally accepted
accounting principles by:
■
Inspecting the
executed contract to test that the facts on which
management’s conclusions were reached were consistent with
the actual terms and conditions of the contract.
■
Evaluating the
contract within the context of the five-step model prescribed by
ASC 606, Revenue from Contracts with Customers, and evaluating
whether management’s conclusions were appropriate by
evaluating the nature of the promises within the contract, the
interrelationship of the promised services provided, the pattern by
which obligations are fulfilled, the number of performance
obligations identified, and which party is responsible for
fulfillment.
o
Comparing the
transaction price to the consideration expected to be received
based on current rights and obligations under the contracts and any
modifications that were agreed upon with the
customers.
o
Testing the
accuracy and completeness of the costs incurred to date for the
performance obligation.
o
Evaluating the
estimates of total cost and fees for the performance obligation
by:
■
Comparing costs
incurred to date to the costs management estimated to be incurred
by that date.
■
Evaluating
management’s ability to achieve the estimates of total cost
by performing corroborating inquiries with the Company’s
project managers, and comparing the estimates to management’s
work plans.
o
Testing the
mathematical accuracy of management’s calculation of revenue
for the performance obligation.
o
Performing a gross
margin fade analysis during the year and a look-back analysis on
completed contracts to assess variances between actual and
estimated costs to complete.
/s/Moss
Adams
Houston,
Texas
March
11, 2021
We have
served as the Company’s auditor since 2017.
27
ENGLOBAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share amounts)
|
|
December
26,
2020
|
December
28,
2019
|
|
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
Cash
|
$13,706
|
$8,307
|
|
Trade receivables,
net of allowances of $386 and $236
|
7,789
|
11,435
|
|
Prepaid expenses
and other current assets
|
891
|
889
|
|
Contract
assets
|
4,090
|
3,862
|
|
Total Current
Assets
|
26,476
|
24,493
|
|
Property
and equipment, net
|
1,263
|
1,033
|
|
Goodwill
|
720
|
720
|
|
Other
assets
|
|
|
|
Right of use
asset
|
1,628
|
2,133
|
|
Deposits and other
assets
|
351
|
307
|
|
Total Other
Assets
|
1,979
|
2,440
|
|
Total
Assets
|
$30,438
|
$28,686
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$2,138
|
$3,261
|
|
Accrued
compensation and benefits
|
3,048
|
2,783
|
|
Current portion of
leases
|
1,541
|
1,041
|
|
Contract
liabilities
|
1,258
|
5,438
|
|
Current portion of
note
|
3,707
|
—
|
|
Other current
liabilities
|
745
|
681
|
|
Total Current
Liabilities
|
12,437
|
13,204
|
|
Deferred payroll
tax
|
1,037
|
—
|
|
Long-term
debt
|
2,733
|
—
|
|
Long-term
leases
|
608
|
1,458
|
|
Total
Liabilities
|
16,815
|
14,662
|
|
Commitments
and Contingencies (Note 15)
|
|
|
|
Stockholders’
Equity:
|
|
|
|
Common stock -
$0.001 par value; 75,000,000
shares authorized; 27,560,686 and 27,413,626 shares issued and
outstanding at December 26, 2020 and December 28, 2019,
respectively
|
28
|
27
|
|
Additional paid-in
capital
|
37,157
|
36,934
|
|
Accumulated
deficit
|
(23,562)
|
(22,937)
|
|
Total
Stockholders’ Equity
|
13,623
|
14,024
|
|
Total Liabilities
and Stockholders’ Equity
|
$30,438
|
$28,686
|
See
accompanying notes to consolidated financial
statements.
28
ENGLOBAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
|
|
Year Ended
December 26,
|
Year Ended
December 28,
|
|
|
2020
|
2019
|
|
|
|
|
|
Operating
revenues
|
$64,449
|
$56,446
|
|
Operating
costs
|
55,998
|
48,530
|
|
Gross
profit
|
8,451
|
7,916
|
|
Operating
costs and expenses:
|
|
|
|
Selling, general,
and administrative expenses
|
8,834
|
9,317
|
|
Operating
loss
|
(383)
|
(1,401)
|
|
Other
income (expense)
|
|
|
|
Interest expense,
net
|
(153)
|
(31)
|
|
Other income,
net
|
14
|
49
|
|
Loss
before income taxes
|
(522)
|
(1,383)
|
|
|
|
|
|
Provision
for federal and state income taxes
|
(103)
|
(83)
|
|
|
|
|
|
Net
loss
|
$(625)
|
$(1,466)
|
|
|
|
|
|
Basic
and diluted loss per common share
|
$(0.02)
|
$(0.05)
|
|
|
|
|
|
Basic
and diluted weighted average shares used in computing loss per
share:
|
27,474
|
27,414
|
See
accompanying notes to consolidated financial
statements.
29
ENGLOBAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands)
|
|
Year Ended
December 26,
|
Year Ended
December 28,
|
|
|
2020
|
2019
|
|
|
|
|
|
Common
Stock
|
|
|
|
Balance at
beginning of year
|
$27
|
$27
|
|
Common stock
issued
|
1
|
—
|
|
Balance at end of
year
|
28
|
27
|
|
|
|
|
|
Additional
Paid-in Capital
|
|
|
|
Balance at
beginning of year
|
36,934
|
36,934
|
|
Share-based
compensation - employee
|
223
|
61
|
|
Stock
retired
|
—
|
(61)
|
|
Balance at end of
year
|
37,157
|
36,934
|
|
|
|
|
|
Accumulated
Deficit
|
|
|
|
Balance at
beginning of year
|
(22,937)
|
(21,471)
|
|
Net
loss
|
(625)
|
(1,466)
|
|
Balance at end of
year
|
(23,562)
|
(22,937)
|
|
|
|
|
|
Total
Stockholders’ Equity
|
$13,623
|
$14,024
|
See
accompanying notes to consolidated financial
statements.
30
ENGLOBAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
|
|
Year
Ended
December
26,
2020
|
Year
Ended
December
28,
2019
|
|
Cash
Flows from Operating Activities:
|
|
|
|
Net
loss
|
$(625)
|
$(1,466)
|
|
Adjustments to
reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
Depreciation and
amortization
|
449
|
389
|
|
Share-based
compensation expense
|
223
|
61
|
|
Changes in current
assets and liabilities:
|
|
|
|
Trade accounts
receivable
|
3,646
|
(1,224)
|
|
Contract
assets
|
(228)
|
(689)
|
|
Other current
assets
|
(46)
|
245
|
|
Accounts
payable
|
(1,123)
|
89
|
|
Accrued
compensation and benefits
|
1,301
|
482
|
|
Contract
liabilities
|
(4,180)
|
4,834
|
|
Income taxes
payable
|
(57)
|
84
|
|
Other current
liabilities, net
|
121
|
(140)
|
|
Net cash provided
by (used in) operating activities
|
$(519)
|
$2,665
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
Proceeds from notes
receivable
|
—
|
24
|
|
Property and
equipment acquired
|
(428)
|
(345)
|
|
Net cash used in
investing activities
|
$(428)
|
$(321)
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
Purchase of
stock
|
—
|
(61)
|
|
Payments on finance
leases
|
(93)
|
(36)
|
|
Proceeds from PPP
loan
|
4,949
|
—
|
|
Proceeds from
revolving credit facility
|
1,490
|
—
|
|
Net cash provided
by (used in) financing activities
|
$6,346
|
$(97)
|
|
Net change in
cash
|
5,399
|
2,247
|
|
Cash
at beginning of year
|
8,307
|
6,060
|
|
Cash
at end of year
|
$13,706
|
$8,307
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
Cash paid during
the period for interest
|
$153
|
$33
|
|
Right of use assets
obtained in exchange for new operating lease liability
|
$963
|
$2,854
|
|
Leased assets
obtained in exchange for new finance lease liabilities
|
$219
|
$351
|
|
Cash paid during
the period for income taxes (net of refunds)$ 86
|
$ 86
|
$26
|
See
accompanying notes to consolidated financial
statements.
31
ENGLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Organization and
Operations –
ENGlobal Corporation is a Nevada corporation formed in 1994. Unless
the context requires otherwise, references to “we”,
“us”, “our”, “the Company” or
“ENGlobal” are intended to mean the consolidated
business and operations of ENGlobal Corporation. Our business
operations consist of providing engineered modular solutions and
professional services related to design, assembly, procurement,
maintenance, environmental and other governmental compliance and
construction management, primarily with respect to energy sector
infrastructure facilities throughout the United States of America
(“U.S.”). Please see “Note 14 - Segment
Information” for a description of our segments and segment
operations.
Basis of
Presentation –
The accompanying consolidated financial statements and related
notes present our consolidated financial position as of December
26, 2020 and December 28, 2019, and the results of our operations,
cash flows and changes in stockholders’ equity for the 52
week period ended December 26, 2020 and for the 52 week period
ended December 28, 2019. They are prepared in accordance with
accounting principles generally accepted in the U.S. Certain
amounts for prior periods have been reclassified to conform to the
current presentation. In preparing financial statements, management
makes informed judgments and estimates that affect the reported
amounts of assets and liabilities as of the date of the financial
statements and affect the reported amounts of revenues and expenses
during the reporting periods. On an ongoing basis, management
reviews its estimates, including those related to
percentage-of-completion contracts in progress, litigation, income
taxes, impairment of long-lived assets and fair values. Changes in
facts and circumstances or discovery of new information may result
in revised estimates. Actual results could differ from these
estimates.
NOTE 2 - ACCOUNTING POLICIES AND NEW ACCOUNTING
PRONOUNCEMENTS
Consolidation
Policy – Our
consolidated financial statements include our accounts and those of
our wholly-owned subsidiaries.
Fair Value
Measurements –
Fair value is defined as the amount that would be received for the
sale of an asset or paid for the transfer of a liability in an
orderly transaction between unrelated third party market
participants at the measurement date. In determination of fair
value measurements for assets and liabilities we consider the
principal, or most advantageous market, and assumptions that market
participants would use when pricing the asset or
liability.
Cash and cash
equivalents –
Cash and cash equivalents include all cash on hand, demand deposits
and investments with original maturities of three months or less.
We consider cash equivalents to include short-term, highly liquid
investments that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value.
Our cash balance at financial institutions may exceed Federal
Deposit Insurance Corporation (“FDIC”) insured amounts
from time to time.
Receivables
– Our components of
trade receivables include amounts billed, amounts unbilled,
retainage and allowance for uncollectible accounts. Subject to our
allowance for uncollectible accounts, all amounts are believed to
be collectible within a year. There are no amounts unbilled
representing claims or other similar items subject to uncertainty
concerning their determination or ultimate realization. In
estimating the allowance for uncollectible accounts, we consider
the length of time receivable balances have been outstanding,
historical collection experience, current economic conditions and
customer specific information. When we ultimately conclude that a
receivable is uncollectible, the balance is charged against the
allowance for uncollectible accounts.
Concentration of
Credit Risk –
Financial instruments which potentially subject ENGlobal to
concentrations of credit risk consist primarily of trade accounts
and notes receivable. Although our services are provided largely to
the energy sector, management believes the risk due to this
concentration is limited because a significant portion of our
services are provided under contracts with major integrated oil and
gas companies and other industry leaders. When we enter into
contracts with smaller customers, we may incur an increased credit
risk.
32
Our
businesses or product lines are largely dependent on a few
relatively large customers. Although we believe we have an
extensive customer base, the loss of one of these large customers
or if such customers were to incur a prolonged period of decline in
business, our financial condition and results of operations could
be adversely affected. For the year ended December 26, 2020, four
customers provided more than 10% each of our consolidated operating
revenues (25.1%, 17.9%, 13.9%, and 13.8%). Two customers provided
more than 10% each of our consolidated operating revenues for the
year ended December 28, 2019 (23.3% and 18.3%). Amounts included in
trade receivables related to these customers totaled $0.0 million,
$0.6 million, $0.8 million, and $1.5 million, respectively, at
December 26, 2020 and $0.2 million and $0.7 million, respectively,
at December 28, 2019.
We
extend credit to customers in the normal course of business. We
have established various procedures to manage our credit exposure,
including initial credit approvals, credit limits and terms,
letters of credit, and occasionally through rights of offset. We
also use prepayments and guarantees to limit credit risk to ensure
that our established credit criteria are met. Our most significant
exposure to credit risks relates to situations under which we
provide services early in the life of a project that is dependent
on financing. Risks increase in times of general economic downturns
and under conditions that threaten project
feasibility.
Property and
Equipment –
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
The estimated service lives of our asset groups are as
follows:
|
Asset
Group
|
Years
|
|
Shop
equipment
|
5 – 10
|
|
Furniture and
fixtures
|
5 – 7
|
|
Computer equipment;
Autos and trucks
|
3 – 5
|
|
Software
|
3 – 5
|
Leasehold
improvements are amortized over the remaining term of the related
lease. See Note 4 for details related to property and equipment and
related depreciation. Expenditures for maintenance and repairs are
expensed as incurred. Upon disposition or retirement of property
and equipment, any gain or loss is charged to
operations.
Goodwill
– Goodwill represents
the excess of the purchase price of acquisitions over the fair
value of the net assets acquired and liabilities assumed. Goodwill
is not amortized but rather is tested and assessed for impairment
annually, or more frequently if certain events or changes in
circumstance indicate the carrying amount may exceed fair value.
The annual test for goodwill impairment is performed in the fourth
quarter of each year.
In
January 2017, the Financial Accounting Standards Board
(“FASB”) issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic
350): Simplifying the Test for Goodwill Impairment. The
standard simplifies the subsequent measurement of goodwill by
removing the requirement to perform a hypothetical purchase price
allocation to compute the implied fair value of goodwill to measure
impairment. Instead, goodwill impairment is measured as the
difference between the fair value of the reporting unit and the
carrying value of the reporting unit. The standard also clarifies
the treatment of the income tax effect of tax-deductible goodwill
when measuring goodwill impairment loss. This standard is effective
for annual or any interim goodwill impairment test in fiscal years
beginning after December 15, 2019, with early adoption permitted
for impairment tests performed after January 1, 2017. The Company
early adopted ASU 2017-04 on December 29, 2018, the last day of its
fiscal 2018 year.
The
Company compares its fair value of a reporting unit and the
carrying value of the reporting unit to measure goodwill impairment
loss as required by ASU 2017-04. Fair value was determined by
applying a historical earnings multiple times the cash flow of the
operating unit after allocation of certain corporate
overhead.
We
performed a qualitative assessment of goodwill for each of the
years ended December 26, 2020 and December 28, 2019. This
assessment indicated that there was no impairment of goodwill for
the years ended December 26, 2020 and December 28, 2019.
33
Impairment of
Long-Lived Assets – We review property and
equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may
not be recoverable. The recoverability of long-lived assets is
measured by comparison the future undiscounted cash flows expected
to result from the use and eventual disposition of the asset to the
carrying value of the asset. Estimates of expected future cash
flows represent management’s best estimate based on
reasonable and supportable assumptions. If the carrying amount is
not recoverable, an impairment loss is measured as the excess of
the asset’s carrying value over its fair value. We assess the
fair value of long-lived assets using commonly accepted techniques,
and may use more than one method, including, but not limited to,
recent third party comparable sales, internally developed
discounted cash flow analysis and analysis from outside advisors.
During 2020 and 2019 there were no events or changes in
circumstances that indicated that the carrying amount of our assets
may not be recoverable.
Revenue
Recognition – Our revenue is comprised of engineering,
procurement and construction management services and sales of
fabricated systems and integrated control systems that we design
and assemble. The majority of our services are provided under
time-and-material contracts. Some time-and-material contracts may
have limits not to exceed. Revenue is not recognized over these
limits until authorization by the client has been
received.
A
majority of sales of fabrication and assembled systems are under
fixed-price contracts. We account for a contract when it has
approval and commitment from both parties, the rights of the
parties are identified, payment terms are identified, the contract
has commercial substance and collectability of consideration is
probable.
We
generally recognize revenue over time as we perform because of
continuous transfer of control to the customer. Our customer
typically controls the work in process as evidenced either by
contractual termination clauses or by our rights to payment for
work performed to date plus a reasonable profit to deliver products
or services that do not have an alternative use to the Company. The
selection of the method to measure progress towards completion
requires judgment and is based on the nature of the products or
service to be provided, which measures the ratio of costs incurred
to date to the total estimated costs at completion of the
performance obligation. We generally use the cost-to-cost method on
the labor portion of a project for revenue recognition to measure
progress of our contracts because it best depicts the transfer of
control to the customer which occurs as we consume the materials on
the contracts. Therefore, revenues and estimated profits are
recorded proportionally as labor costs are incurred.
Under
the typical payment terms of our fixed-price contracts, the
customer pays us progress payments. These progress payments are
based on quantifiable measures of performance or on the achievement
of specified events or milestones. The customer may retain a small
portion of the contract price until completion of the contract.
Revenue recognized in excess of billings is recorded as a contract
asset on the balance sheet. Amounts billed and due from our
customers are classified as receivables on the balance sheet. The
portion of the payments retained by the customer until final
contract settlement is not considered a significant financing
component because the intent is to protect the customer should we
fail to adequately complete some or all of our obligations under
the contract. For some contracts we may receive advance payments
from the customer. We record a liability for these advance payments
in contract liabilities on the balance sheet. The advance payment
typically is not considered a significant financing component
because it is used to meet working capital demand that can be
higher in the early stages of a contract and to protect us from the
other party failing to adequately complete some or all of its
obligations under the contract.
To
determine proper revenue recognition for contracts, we evaluate
whether two or more contracts should be combined and accounted for
as one single performance obligation or whether a single contract
should be accounted for as more than one performance obligation.
This evaluation requires significant judgment and the decision to
combine a group of contracts or separate a single contract into
multiple performance obligations could change the amount of revenue
and profit recorded in a given period. For most of our contracts,
we provide a significant service of integrating a complex set of
tasks and components into a single project. Hence, the entire
contract is accounted for as one performance obligation. Less
commonly, we may provide distinct goods or services within a
contract in which case we separate the contract into more than one
performance obligation. If a contract is separated into more than
one performance obligation, we allocate the total transaction price
to each performance obligation in an amount based on the estimated
relative standalone selling price of the promised goods or services
underlying each performance obligation and use the expected cost
plus margin approach to estimate the standalone selling price of
each performance obligation. Due to the nature of the work required
to be performed on many of our performance obligations, the
estimation of total revenue and cost at completion is complex,
subject to variables and requires significant judgment. We estimate
variable consideration at the most likely amount to which we expect
to be entitled. We include estimated amounts in the transaction
price to the extent it is probable that a significant reversal of
cumulative revenue recognized will not occur when the uncertainty
associated with the variable consideration is resolved. Our
estimates of variable consideration and determination of whether to
include estimated amounts in the transaction price are based
largely on an assessment of our anticipated performance and all
information (historical, current and forecasted) that is reasonably
available to us.
34
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 is estimated.
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.
Incremental
Costs – Our incremental costs of obtaining a contract,
which may consist of sales commission and proposal costs, are
reviewed and those costs that are immaterial to the financial
statements are expensed as they occur. Those costs that are deemed
to be material to the contract are deferred and amortized over the
period of contract performance. We classify incremental costs as
current or noncurrent based on the timing of when we expect to
recognize the expense. The current and noncurrent portions of
incremental costs are included in prepaid expenses and other
current assets and other assets, net, respectively in our
consolidated balance sheet. We had no incremental costs that met
our materiality threshold in 2020 or 2019.
Income
Taxes – We
account for deferred income taxes in accordance with FASB ASC Topic
740 “Income Taxes” (“ASC 740”), which
provides for recording deferred taxes using an asset and liability
method. We recognize deferred tax assets and liabilities based on
differences between the financial statement carrying amounts and
the tax bases of assets and liabilities including net operating
loss and tax credit carryforwards using enacted tax rates in effect
for the year in which the differences are expected to reverse. The
provision for income taxes represents the current taxes payable or
refundable for the period plus or minus the tax effect of the net
change in the deferred tax assets and liabilities during the
period. Tax law and rate changes are reflected in income in the
period such changes are enacted.
A
valuation allowance is recorded to reduce previously recorded tax
assets when it becomes more-likely-than-not such asset will not be
realized. We evaluate the
realizability of deferred tax assets based on all available
evidence, both positive and negative, regarding historical
operating results, including the estimated timing of future
reversals of existing taxable temporary differences, estimated
future taxable income exclusive of reversing temporary differences
and carryforwards and potential tax planning strategies which may
be employed to prevent an operating loss or tax credit carryforward
from expiring unused.
We
account for uncertain tax positions in accordance with ASC 740.
When uncertain tax positions exist, we recognize the tax benefit of
the tax positions to the extent that the benefit will
more-likely-than-not be realized. The determination as to whether
the tax benefit will more-likely-than-not be realized is based upon
technical merits of the tax positions as well as consideration of
the available facts and circumstances. The Company recognizes
interest and penalties related to unrecognized tax benefits in the
provision for income taxes.
Earnings per
Share – Our
basic earnings per share (“EPS”) amounts have been
computed based on the weighted average number of shares of common
stock outstanding for the period. Diluted EPS amounts include the
effect of common stock equivalents associated with outstanding
stock options, restricted stock awards and restricted stock units,
if including such potential shares of common stock is dilutive. We
only had restricted stock awards outstanding during
2020.
35
Treasury
Stock – We use
the cost method to record treasury stock purchases whereby the
entire cost of the acquired shares of our common stock is recorded
as treasury stock (at cost). When we subsequently retire these
shares, the cost of the shares acquired are recorded in common
stock and additional paid-in capital. All shares acquired during
2019 were retired.
Stock–Based
Compensation –
We have issued stock-based compensation in the form of non-vested
restricted stock awards to directors, employees and officers. We
apply the provisions of ASC Topic 718 “Compensation - Stock
Compensation” (“ASC 718”) and recognize
compensation expense over the applicable service for all
stock-based compensation based on the grant date fair value of the
award.
The
Company accounts for restricted stock awards granted to consultants
using the accounting guidance included in ASC 505-50
“Equity-Based Payments to Non-Employees” (“ASC
505-50”). All transactions in which services are received in
exchange for share-based awards are accounted for based on the fair
value of the consideration received or the fair value of the awards
issued, whichever is more reliably measurable. Share-based
compensation is measured at fair value at the earlier of the
commitment date or the date the services are
completed.
NOTE 3 - DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
The
components of trade receivables, net as of December 26, 2020 and
December 28, 2019, are as follows (amounts in
thousands):
|
|
2020
|
2019
|
|
Amounts
billed
|
$5,050
|
$5,523
|
|
Amounts
unbilled
|
1,455
|
5,576
|
|
Retainage
|
1,670
|
572
|
|
Less: Allowance for
uncollectible accounts
|
(386)
|
(236)
|
|
Trade receivables,
net
|
$7,789
|
$11,435
|
The
components of prepaid expense and other current assets are as
follows as of December 26, 2020 and December 28, 2019 (amounts in
thousands):
|
|
2020
|
2019
|
|
Prepaid
expenses
|
$843
|
$816
|
|
Other receivables -
employee
|
48
|
54
|
|
Note
receivable
|
—
|
19
|
|
Prepaid expenses
and other current assets
|
$891
|
$889
|
36
The
components of other current liabilities are as follows as of
December 26, 2020 and December 28, 2019 (amounts in
thousands):
|
|
2020
|
2019
|
|
Accrual for known
contingencies
|
$215
|
$145
|
|
Customer
prepayments
|
4
|
1
|
|
Gross receipts tax
payable
|
23
|
96
|
|
State income taxes
payable
|
83
|
67
|
|
Insurance
payable
|
420
|
372
|
|
Other current
liabilities
|
$745
|
$681
|
Our
accrual for known contingencies includes litigation accruals, if
any. See “Note 15 – Commitments and
Contingencies” for further information.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and
equipment consist of the following at December 26, 2020 and
December 28, 2019 (amounts in thousands):
|
|
2020
|
2019
|
|
Computer equipment
and software
|
$1,170
|
$989
|
|
Shop
equipment
|
1,683
|
1,301
|
|
Furniture and
fixtures
|
193
|
190
|
|
Leasehold
improvements
|
845
|
623
|
|
Autos and
trucks
|
87
|
87
|
|
Construction in
progress
|
—
|
141
|
|
|
$3,978
|
$3,331
|
|
Accumulated
depreciation and amortization
|
(2,715)
|
(2,298)
|
|
Property and
equipment, net
|
$1,263
|
$1,033
|
Depreciation
expense was $0.4 million and $0.3 million for the years ended
December 26, 2020 and December 28, 2019, respectively. During the
year ended December 28, 2019, we disposed of $4.9 million of assets
in connection with relocating several of our offices and upgrading
our IT equipment in several locations. There was no gain or loss
associated with these disposals due to the assets being fully
depreciated. The $4.9 million total consisted of $1.6 million of
leasehold improvements, $0.1 million of furniture and fixtures,
$0.2 million of machinery and equipment, and $3.0 million of
computer equipment and software.
37
NOTE 5 – REVENUE RECOGNITION
Our
revenue by contract type was as follows (amounts in
thousands):
|
|
For the Three
Months Ended
|
For the Years
Ended
|
||
|
|
December
26,
2020
|
December
28,
2019
|
December
26,
2020
|
December
28,
2019
|
|
Fixed-price
revenue
|
$7,037
|
$4,670
|
$35,822
|
$19,088
|
|
Time-and-material
revenue
|
4,540
|
12,018
|
28,627
|
37,358
|
|
Total
Revenue
|
11,577
|
16,688
|
64,449
|
56,446
|
38
NOTE 6 - CONTRACTS
Costs,
estimated earnings, and billings on uncompleted contracts consist
of the following at December 26, 2020 and December 28, 2019
(amounts in thousands):
|
|
2020
|
2019
|
|
Costs incurred on
uncompleted contracts
|
$39,154
|
$23,846
|
|
Estimated earnings
on uncompleted contracts
|
4,388
|
5,188
|
|
Earned
revenues
|
43,542
|
29,034
|
|
Less: billings to
date
|
40,710
|
30,610
|
|
Net costs in excess
of billings on uncompleted contracts
|
$2,832
|
$(1,576)
|
|
|
|
|
|
Costs and estimated
earnings in excess of billings on uncompleted
contracts
|
$4,090
|
$3,862
|
|
Billings in excess
of costs and estimated earnings on uncompleted
contracts
|
(1,258)
|
(5,438)
|
|
Net costs in excess
of billings on uncompleted contracts
|
$2,832
|
$(1,576)
|
Revenue
on fixed-price contracts is recorded primarily using the
percentage-of-completion (cost-to-cost) method. Revenue and gross
margin on fixed-price contracts are subject to revision throughout
the lives of the contracts and any required adjustments are made in
the period in which the revisions become known. To manage unknown
risks, management may use contingency amounts to increase the
estimated costs, therefore, lowering the earned revenues until the
risks are better identified and quantified or have been mitigated.
We had $0.2 million in contingency amounts as of December 26, 2020
and had $0.9 million in contingency amounts as of December 28,
2019. Losses on contracts are recorded in full as they are
identified.
We
recognize service revenue as soon as the services are performed.
For clients that we consider higher risk, due to past payment
history or history of not providing written work authorizations, we
have deferred revenue recognition until we receive either a written
authorization or a payment. We had $0.3 million in deferred revenue
for the year ended December 26, 2020 and $0.2 million for the year
ended December 28, 2019. This deferred revenue represents work on
not to exceed contracts that has been performed but has not been
billed or been recorded as revenue due to our revenue recognition
policies as the work was performed outside the contracted amount
without obtaining proper work order changes. It is uncertain as to
whether these revenues will eventually be recognized by us or the
proceeds collected. The costs associated with these billings have
been expensed as incurred.
NOTE 7 – DEBT
The
components of debt were as follows (amounts in
thousands):
|
|
December
26,
2020
|
December
28,
2019
|
|
PPP
Loan (1)
|
$4,949
|
$—
|
|
Revolving
Credit Facility (2)
|
1,491
|
—
|
|
Total
debt
|
6,440
|
—
|
|
Amount
due within one year
|
3,707
|
—
|
|
Total long-term
debt
|
$2,733
|
$—
|
(1)
On April 13, 2020, the Company was granted an
unsecured loan (the “PPP Loan”) from Origin Bank in the
aggregate principal amount of $4,915,800 pursuant to the Paycheck
Protection Program (the “PPP”) under Division A,
Title I of the Coronavirus Aid, Relief and Economic
Security Act (“CARES Act”). The PPP Loan is evidenced by a promissory note,
dated as of April 13, 2020 (the “Note”), by the Company
in favor of Origin Bank, as lender.
39
Interest Rate:
The interest rate on the PPP Loan is
1% per year.
Potential PPP Loan
Forgiveness: Under the PPP, the Company may apply for
forgiveness of the amount due on the PPP Loan in an amount equal to
the sum of the following costs incurred during the covered period
beginning on the date of the first disbursement of the PPP Loan:
(a) payroll costs, (b) any payment of interest on a covered
obligation (which shall not include any prepayment of or payment of
principal on a covered mortgage obligation), (c) any payment on a
covered rent obligation, and (d) any covered utility payment,
calculated in accordance with the terms of the CARES
Act.
We have
elected to utilize a 24-week covered period as allowed by the
Paycheck Protection Program Flexibility Act (“PPPFA”)
enacted on June 5, 2020. When applying for PPP Loan forgiveness, we
have the option to increase the repayment period for any unforgiven
portion of the PPP Loan to five years as permitted under the
PPPFA.
We have
calculated qualified forgivable expenses in excess of our PPP Loan
amount. Although we expect the full PPP Loan amount to be forgiven,
we cannot guarantee our forgiveness application will be accepted
allowing for a fully forgiven loan.
(2)
On May 21, 2020 (the “Closing Date”), the Company and
its wholly owned subsidiaries, ENGlobal U.S., Inc. and ENGlobal
Government Services, Inc. (collectively, the
“Borrowers”) entered into a Loan and Security Agreement
(the “Revolving Credit Facility”) with Pacific Western
Bank dba Pacific Western Business Finance, a California
state-chartered bank (the “Lender”), pursuant to which
the Lender agreed to extend credit to the Borrowers in the form of
revolving loans (each a “Loan” and collectively, the
“Loans”) in the aggregate amount of up to $6.0 million
(the “Maximum Credit Limit”).
Set
forth below are certain of the material terms of the Revolving
Credit Facility:
Credit
Limit: The credit limit
is an amount equal to the lesser of (a) the Maximum Credit Limit
and (b) the sum of (i) 85% of the Borrowers’ Eligible
Accounts (as defined in the Revolving Credit Facility), plus
(ii) the lesser of (A) 75% of the Borrowers’
Eligible Unbilled Accounts (as defined in the Revolving Credit
Facility), or (B) $3,000,000 plus (iii) the lesser of
(A) 20% of Borrowers’ Eligible Fixed Price Accounts, or
(B) $250,000. As of December 26, 2020, the credit limit under
the Revolving Credit Facility was $2.4 million.
Interest: Any
Loans will bear interest at a rate per annum equal to the Prime
rate (defined as the rate announced as the “prime rate”
or “bank prime rate” in the Western Edition of the Wall
Street Journal) plus 2.0%; provided that interest will not be less
than $7,500 per month.
Collateral:
Lender receives a first priority lien on all assets of the
Borrowers, including accounts receivable, inventory, equipment,
deposit accounts, general intangibles and investment
property.
Maturity: The
maturity date is May 20, 2023 and shall be automatically extended
for additional periods of one-year each, if written notice of
termination is not given by one party to the other at least thirty
days prior to the maturity date.
Loan Fee: The Borrowers will pay to Lender a loan fee of
1.00% of the Maximum Credit Limit at the time of funding and
annually thereafter on the anniversary date of the initial
funding.
Termination
Fee: In the event the Borrowers
terminate the Revolving Credit Facility prior to the maturity date,
the Borrowers will pay to Lender a termination fee of (i) 2.00% of
the Maximum Credit Limit, if the termination occurs on or prior to
the first anniversary of the Closing Date, (ii) 1.00% of the
Maximum Credit Limit, if the termination occurs after the first
anniversary of the Closing Date and on or prior to the second
anniversary of the Closing Date and (iii) 0.05% of the Maximum
Credit Limit, if the termination occurs after the second
anniversary of the Closing Date.
Covenants: The Revolving Credit Facility requires the
Borrowers to comply with certain customary affirmative covenants,
and negative covenants that, among other things, restrict, subject
to certain exceptions, the ability of the Borrowers to engage in
mergers, acquisitions or other transactions outside of the ordinary
course of business, make loans or investments, incur indebtedness,
pay dividends or repurchase stock, or engage in affiliate
transactions. The Revolving Credit Facility does not require the
Borrowers to comply with any financial
covenants.
40
The
future scheduled maturities of our debt are (amounts in
thousands):
|
|
PPP Loan and
Revolving
Credit Facility
(1)
|
Revolving
Credit
Facility
(1)
|
|
2021
|
$3,707
|
$—
|
|
2022
|
1,242
|
—
|
|
2023
|
1,491
|
1,491
|
|
2024
|
—
|
—
|
|
Thereafter
|
—
|
—
|
|
|
$6,440
|
$1,491
|
(1)
If the PPP Loan is
entirely forgiven, only the Revolving Credit Facility would remain
as debt.
NOTE 8 - LEASES
The
Company leases land, office space and equipment. Arrangements are
assessed at inception to determine if a lease exists and, with the
adoption of ASC 842, “Leases,” right-of-use
(“ROU”) assets and lease liabilities are recognized
based on the present value of lease payments over the lease term.
Because the Company’s leases do not provide an implicit rate
of return, the Company uses its incremental borrowing rate at the
inception of a lease to calculate the present value of lease
payments. The Company has elected to apply the short-term lease
exception for all asset classes, excluding lease liabilities from
the balance sheet and recognizing the lease payments in the period
they are incurred.
The
components of lease expense were as follows (amounts in
thousands):
|
|
Financial
Statement Classification
|
Year
ended
December 26,
2020
|
Year
ended
December 28,
2019
|
|
Finance
leases:
|
|
|
|
|
Amortization
expense
|
SG&A
Expense
|
$92
|
$33
|
|
Interest
expense
|
Interest expense,
net
|
20
|
7
|
|
|
$112
|
$40
|
|
|
Operating
leases:
|
|
|
|
|
Operating
costs
|
Operating
costs
|
633
|
1,214
|
|
Selling, general
and administrative expenses
|
SG&A
Expense
|
1,830
|
1,857
|
|
|
$2,463
|
$3,071
|
|
|
Total lease
expense
|
|
$2,575
|
$3,111
|
41
Supplemental
balance sheet information related to leases was as follows (amounts
in thousands):
|
|
Financial
Statement Classification
|
December
26,
2020
|
December
28,
2019
|
|
ROU
Assets:
|
|
|
|
|
Operating
leases
|
Right of Use
asset
|
$1,628
|
$2,133
|
|
Finance
leases
|
Property and
equipment, net
|
442
|
318
|
|
Total ROU
Assets:
|
|
$2,070
|
$2,451
|
|
|
|
|
|
|
Lease
liabilities:
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Operating
leases
|
Current portion of
leases
|
$1,421
|
$961
|
|
Finance
leases
|
Current portion of
leases
|
120
|
80
|
|
Noncurrent
Liabilities:
|
|
|
|
|
Operating
leases
|
Long Term
Leases
|
286
|
1,220
|
|
Finance
leases
|
Long Term
Leases
|
322
|
238
|
|
Total lease
liabilities
|
|
$2,149
|
$2,499
|
The
weighted average remaining lease term and weighted average discount
rate were as follows:
|
|
December
26,
2020
|
December
28,
2019
|
|
Weighted average
remaining lease term (years)
|
|
|
|
Operating
leases
|
1.2
|
2.2
|
|
Finance
leases
|
4.2
|
3.3
|
|
Weighted average
discount rate
|
|
|
|
Operating
leases
|
1.7%
|
3.3%
|
|
Finance
leases
|
5.8%
|
11.0%
|
42
Maturities of
operating lease liabilities as of December 26, 2020 are as follows
(dollars in thousands):
|
Years
ending:
|
Operating
leases
|
Finance
leases
|
Total
|
|
2021
|
1,448
|
133
|
1,581
|
|
2022
|
288
|
113
|
401
|
|
2023
|
—
|
93
|
93
|
|
2024
|
—
|
73
|
73
|
|
2025 and
thereafter
|
—
|
57
|
57
|
|
Total lease
payments
|
1,736
|
469
|
2,205
|
|
Less: imputed
interest
|
(29)
|
(27)
|
(56)
|
|
Total lease
liabilities
|
$1,707
|
$442
|
$2,149
|
NOTE 9 - EMPLOYEE BENEFIT PLANS
ENGlobal sponsors a
401(k) profit sharing plan for its employees. The Company, at the
direction of the Board of Directors, may make discretionary
contributions. Our employees may elect to make contributions
pursuant to a salary reduction agreement upon meeting age and
length-of-service requirements. The Company does not currently
match employees’ deferrals. The match was suspended beginning
December 30, 2018 and no contributions were made during the years
ended December 26, 2020 and December 28, 2019.
NOTE 10 - STOCK COMPENSATION PLANS
The
Company’s Amended and Restated 2009 Equity Incentive Plan
(the “Equity Plan,” or the “Plan”),
currently provides for the aggregate issuance of up to 625,109
shares of common stock. The Equity Plan provides for grants of
non-statutory options, incentive stock options, restricted stock
awards, performance shares, performance units, restricted stock
units and other stock-based awards, in order to enhance the ability
of ENGlobal to motivate current employees, to attract employees of
outstanding ability and to provide for grants to be made to
non-employee directors. At December 26, 2020, 478,049 shares of
common stock are available to be issued pursuant to the Equity
Plan.
We
recognized non-cash stock-based compensation expense related to our
Equity Plan of $0.2 million for the year ended December 26, 2020
and $0.1 million for the year ended December 28, 2019.
Restricted Stock
Awards –
Restricted stock awards granted to non-employee directors are
intended to compensate and retain the directors over the one-year
service period commencing July 1 of the year of service. These
awards generally vest in quarterly installments beginning September
30th of
the year of grant, so long as the grantee continues to serve as a
director of the Company as of each vesting date. The Company had
delayed the vesting of restricted stock awards made in 2017; these
awards were vested in full during the year ended December 26, 2020.
Restricted stock awards granted to employees generally vest in four
equal annual installments on the anniversary date of grant, so long
as the grantee remains employed full-time with us as of each
vesting date. Shares are generally issued from new shares at the
time of grant. The grant-date fair value of restricted stock grants
is determined using the closing quoted market price on the grant
date.
43
The
following is a summary of the status of our restricted stock awards
and of changes in restricted stock outstanding for the year ended
December 26, 2020:
|
|
Number
of
unvested
restricted
shares
|
Weighted-average
grant-date fair
value
|
|
Outstanding at
December 28, 2019
|
191,404
|
$1.12
|
|
Granted
|
147,060
|
1.02
|
|
Vested
|
(193,168)
|
1.10
|
|
Forfeited
|
—
|
—
|
|
Outstanding at
December 26, 2020
|
145,296
|
$1.05
|
As of
December 26, 2020, there was $0.2 million of total unrecognized
compensation cost related to unvested restricted stock awards which
is expected to be recognized over a weighted-average period of 1
year. During the year ended December 26, 2020, the Company granted
the following restricted stock awards.
|
Date
Issued
|
Issued
to
|
Number of
Shares
|
Market
Price
|
Fair
Value
|
|
June 11, 2020
|
Directors (3)
|
147,060
|
$1.02
|
$150,000
|
During
the year ended December 28, 2019, the Company granted the following
restricted stock awards.
|
Date
Issued
|
Issued
to
|
Number of
Shares
|
Market
Price
|
Fair
Value
|
|
August 6, 2019
|
Employees (1)
|
10,000
|
$1.22
|
$12,200
|
NOTE 11 - TREASURY STOCK
On
April 21, 2015, we announced that the Board of Directors had
authorized the repurchase of up to $2.0 million of our common stock
from time to time through open market or privately negotiated
transactions, based on prevailing market conditions. We are not
obligated to repurchase any dollar amount or specific number of
shares of common stock under the repurchase program, which may be
suspended, discontinued or reinstated at any time. As of December
26, 2020, the Company had purchased and retired 1,290,460 shares
for $1.6 million under this program. The stock repurchase program
was suspended from May 16, 2017 and was reinstated on December 19,
2018. During the year ended December 28, 2019, we purchased and
retired 77,687 shares at a cost of $61 thousand. No shares were
repurchased during the year ended December 26, 2020. Management
does not intend to repurchase any shares in the near
future.
NOTE 12 - REDEEMABLE PREFERRED STOCK
We are
authorized to issue 2,000,000 shares of Preferred Stock, par value
$0.001 per share (the “Preferred Stock”). The Board of
Directors has the authority to approve the issuance of all or any
of these shares of the Preferred Stock in one or more series, to
determine the number of shares constituting any series and to
determine any voting powers, conversion rights, dividend rights and
other designations, preferences, limitations, restrictions and
rights relating to such shares. While there are no current plans to
issue the Preferred Stock, it was authorized in order to provide
the Company with flexibility to take advantage of contingencies
such as favorable acquisition opportunities.
44
NOTE 13 - FEDERAL AND STATE INCOME TAXES
The
components of our income tax expense for the years ended December
26, 2020 and December 28, 2019 were as follows (amounts in
thousands):
|
|
2020
|
2019
|
|
Current:
|
|
|
|
State
|
103
|
83
|
|
Total
current
|
103
|
83
|
|
Deferred:
|
|
|
|
Federal
|
(25)
|
(55)
|
|
State
|
25
|
55
|
|
Total
deferred
|
—
|
—
|
|
Total income tax
expense
|
$103
|
$83
|
The
following is a reconciliation of expected income tax benefit to
actual income tax expense for the years ended December 26, 2020 and
December 28, 2019 (amounts in thousands):
|
|
2020
|
2019
|
|
Federal income tax
(benefit) at statutory rate of 21%
|
$(110)
|
$(270)
|
|
State income tax,
net of federal income tax effect
|
64
|
93
|
|
Nondeductible
expenses
|
29
|
37
|
|
Stock
Compensation
|
—
|
(1)
|
|
Prior year
adjustments and true-ups
|
36
|
23
|
|
Change in valuation
allowance
|
84
|
201
|
|
Total tax
expense
|
$103
|
$83
|
45
The
components of the deferred tax asset (liability) consisted of the
following at December 26, 2020 and December 28, 2019 (amounts in
thousands):
|
|
2020
|
2019
|
|
Noncurrent Deferred
tax assets
|
|
|
|
Federal and state
net operating loss carryforward
|
$7,036
|
$7,145
|
|
Tax credit
carryforwards
|
1,971
|
1,971
|
|
Allowance for
uncollectible accounts
|
93
|
53
|
|
Accruals not yet
deductible for tax purposes
|
613
|
352
|
|
Goodwill
|
364
|
485
|
|
Depreciation
|
3
|
7
|
|
Lease
payable
|
390
|
488
|
|
Total noncurrent
deferred tax assets
|
10,470
|
10,501
|
|
Less: Valuation
allowance
|
(10,016)
|
(9,912)
|
|
Total noncurrent
deferred tax assets, net
|
$454
|
$589
|
|
Noncurrent deferred
tax liabilities:
|
|
|
|
Other
|
(70)
|
(107)
|
|
Right to use
asset
|
(384)
|
(482)
|
|
Total noncurrent
deferred tax liabilities
|
(454)
|
(589)
|
|
Net deferred tax
assets/deferred tax Liabilities
|
$—
|
$—
|
We
account for uncertain tax positions in accordance with ASC 740.
When uncertain tax positions exist, we recognize the tax benefit of
the tax positions to the extent that the benefit will more likely
than not be realized. The determination as to whether the tax
benefit will more likely than not be realized is based upon
technical merits of the tax positions as well as consideration of
the available facts and circumstances. We recognize interest and
penalties related to unrecognized tax benefits in the provision for
income taxes. As of December 26, 2020 and December 28, 2019, we do
not have any significant uncertain tax positions.
We
record a valuation allowance to reduce the carrying value of our
deferred tax assets when it is more likely than not that a portion
or all of the deferred tax assets will expire before realization of
the benefit or future deductibility is not probable. The ultimate
realization of the deferred tax assets depends on the ability to
generate sufficient taxable income of the appropriate character and
in the related jurisdiction in the future. In evaluating our
ability to recover our deferred tax assets, we consider the
available positive and negative evidence, including our past
operating results, the existence of cumulative losses in the most
recent years and our forecast of future taxable income. In
estimating future taxable income, we develop assumptions, including
the amount of pretax operating income, the reversal of temporary
differences and the implementation of feasible and prudent tax
planning strategies. These assumptions require significant
judgment. During 2017, after evaluating all available evidence, we
recorded a valuation allowance on all net deferred tax
assets.
46
For the
year ended December 26, 2020, we recognized a total income tax
expense of $103 thousand on a pretax book loss of $0.5 million
compared to an income tax expense of $83 thousand on a pretax book
loss of $1.3 million for the year ended December 28, 2019. As a
result of permanent difference add-backs to taxable income related
to meals and entertainment, the tax expense increased by $29
thousand which decreased the effective tax rate by 5.5%. An
increase of $84 thousand in the valuation allowance decreased the
effective tax rate by 16.1%. State income tax (net of Federal)
expense in the amount of $83 thousand decreased the effective tax
rate by 15.8% mainly due to Texas margins tax. Federal and state
tax true-ups increased tax expense in the amount of $36 thousand
and decreased the effective tax rate by 6.8%. An effect of rate
change due to state tax increased tax expense by $19 thousand and
decreased the effective rate by 3.6%.
As of
December 26, 2020, the Company has a gross federal net operating
loss carry-forward of approximately $31.4 million, which will begin
to expire in 2032. Under the Tax Cuts and Jobs Act of 2017
("TCJA"), net operating losses ("NOLs") generated in tax year 2018
and forward have an indefinite carryforward but are limited to 80%
of taxable income when utilized. For NOLs incurred in tax year 2017
and prior, the limitation to 80% of taxable income does not apply,
but the NOLs are subject to expiration. The provisions were
subsequently amended further under the CARES Act on March 27, 2020.
The CARES Act amended the net operating loss provisions in the 2017
Tax Cuts and Jobs Act (“TCJA”) and allows for the
carryback of NOLs arising in the taxable years ending December 31,
2017 and before January 1, 2021, to each of the five taxable years
preceding the taxable year of the loss. Additionally, the 80%
limitation related to application of NOLs towards current federal
taxable income has been removed for taxable years prior to January
1, 2021; thereby allowing 100% of the NOL to be applied to federal
taxable income.
As of
December 26, 2020, the Company has federal research and development
tax credit carryforwards of approximately $1.07 million available
to reduce future tax liabilities. The research and development tax
credit will begin to expire in 2030. The Company has foreign tax
credit carryforwards of approximately $900 thousand which will
begin to expire in 2025. Additionally under the TCJA, alternative
minimum tax ("AMT") was repealed for corporations and any
unutilized AMT credits have become refundable. The Company received
the remaining AMT refundable credit in 2020.
NOTE 14 - SEGMENT INFORMATION
Reporting Segments
Our
segments are strategic business units that offer different services
and products and therefore require different marketing and
management strategies. Separate operational leaders are in charge
of our engineering offices and our automation offices, including
the office that contracts with government agencies. The operating
performance of our segments is regularly reviewed with the
operational leaders of the two segments, the chief executive
officer (“CEO”), the chief financial officer
(“CFO”) and others. This group represents the chief
operating decision maker (“CODM”) for
ENGlobal.
Our
corporate and other expenses that do not individually meet the
criteria for segment reporting are reported separately as Corporate
expenses.
The
Engineering, Procurement and Construction Management
(“EPCM”) segment provides services relating to the
development, management and execution of projects requiring
professional engineering and related project services primarily to
the energy industry throughout the United States. The Automation
segment provides services related to the design, integration and
implementation of advanced automation, information technology,
process distributed control systems, analyzer systems, and
electrical projects primarily to the upstream and downstream
sectors of the energy industry throughout the United States. The
Automation segment includes the government services group, which
provides engineering, design, installation and operation and
maintenance of various government, public sector and international
facilities and the fabrication operation.
47
Sales,
operating income, identifiable assets, capital expenditures and
depreciation 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 include costs
related to business development, executive functions, finance,
accounting, safety, human resources and information technology that
are not specifically identifiable with the segments. Segment
information for the years ended December 26, 2020 and December 28,
2019 is as follows (amounts in thousands):
|
For the year
ended
December 26,
2020:
|
EPCM
|
Automation
|
Corporate
|
Consolidated
|
|
|
|
|
|
|
|
Operating
revenues
|
$25,929
|
$38,520
|
$—
|
$64,449
|
|
Operating income
(loss)
|
(69)
|
4,524
|
(4,838)
|
(383)
|
|
Depreciation and
amortization
|
275
|
57
|
117
|
449
|
|
Tangible
assets
|
7,389
|
7,806
|
14,504
|
29,699
|
|
Goodwill
|
—
|
720
|
—
|
720
|
|
Other intangible
assets
|
—
|
19
|
—
|
19
|
|
Total
assets
|
7,389
|
8,545
|
14,504
|
30,438
|
|
Capital
expenditures
|
145
|
15
|
268
|
428
|
|
For the year
ended
December 28,
2019:
|
EPCM
|
Automation
|
Corporate
|
Consolidated
|
|
|
|
|
|
|
|
Operating
revenues
|
$19,436
|
$37,010
|
$—
|
$56,446
|
|
Operating income
(loss)
|
(830)
|
4,595
|
(5,166)
|
(1,401)
|
|
Depreciation and
amortization
|
189
|
109
|
91
|
389
|
|
Tangible
assets
|
6,253
|
12,864
|
8,830
|
27,947
|
|
Goodwill
|
—
|
720
|
—
|
720
|
|
Other intangible
assets
|
—
|
19
|
—
|
19
|
|
Total
assets
|
6,253
|
13,603
|
8,830
|
28,686
|
|
Capital
expenditures
|
202
|
43
|
100
|
345
|
48
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
We have
employment agreements with certain of our executive and other
officers with severance terms ranging from six to twelve months.
Such agreements provide for minimum salary levels. If employment is
terminated for any reason other than 1) termination for cause, 2)
voluntary resignation or 3) the employee’s death, we are
obligated to provide a severance benefit equal to six months of the
employee’s salary, and, at our option, an additional six
months at 50% of the employee’s salary in exchange for an
extension of a non-competition agreement. The terms of these
agreements include evergreen provisions allowing for automatic
renewal. No liability is recorded for our obligations under
employment agreements as the amounts that will ultimately be paid
cannot be reasonably estimated.
Litigation
From
time to time, ENGlobal or one or more of its subsidiaries may be
involved in various legal proceedings or may be subject to claims
that arise in the ordinary course of business alleging, among other
things, claims of breach of contract or negligence in connection
with the performance or delivery of goods and/or services. The
outcome of any such claims or proceedings cannot be predicted with
certainty. As of the date of this filing, management is not aware
of any such claims against the Company or any subsidiary business
entity.
Insurance
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), and are partially
self-funded for these claims. Provisions for expected future
payments are accrued based on our experience, and specific stop
loss levels provide protection for the Company. We believe we have
adequate reserves for the self-funded portion of our insurance
policies. We are not aware of any material litigation or claims
that are not covered by these policies or which are likely to
materially exceed the Company’s insurance
limits.
NOTE 16 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date these
financial statements were issued. The Company determined there were
no events, other than as described below, that required disclosure
or recognition in these financial statements.
PPP Forgiveness
On
November 30, 2020, our lender, Origin Bank, transmitted our PPP
Loan forgiveness application to the U.S. Small Business
Administration. We have not received a forgiveness decision on our
PPP Loan.
At The Market Offering
On
January 29, 2021, the Company filed a shelf registration statement
on Form S-3 with the U.S. Securities and Exchange Commission (the
“SEC”) (the “Registration Statement”),
pursuant to which the Company may offer and sell, at its option,
securities having an aggregate offering price of up to $100
million. On the same date, the Company entered into an at market
issuance sales agreement with B. Riley Securities, Inc. (“B.
Riley”), pursuant to which the Company may offer and sell
shares of its common stock, par value $0.001 per share, having an
aggregate offering price of up to $25 million (the “Placement
Shares”), to or through B. Riley, as sales agent (the
“Sales Agreement”), from time to time, in an “at
the market offering” (as defined in Rule 415(a)(4) under the
Securities Act of 1933, as amended) of the Placement Shares (the
“ATM Offering”). The Registration Statement includes a
base prospectus (the “Base Prospectus”) and a sales
agreement prospectus relating to the ATM Offering, specifically
relating to the sale of the Placement Shares under the Sales
Agreement (the “ATM Prospectus,” and collectively with
the Base Prospectus, the “Prospectus”) both of which
form part of the Registration Statement. The Company is not
obligated to make any sales of Placement Shares under the Sales
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
has not yet become effective and these securities may not be sold
nor may offers to buy be accepted prior to the time the
Registration Statement becomes effective.
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Disclosure controls
and procedures are controls and other procedures of a registrant
designed to ensure that information required to be disclosed by the
registrant in the reports that it files or submits under the
Exchange Act is properly recorded, processed, summarized and
reported, within the time periods specified in the Securities and
Exchange Commission’s (“SEC”) rules and forms.
Disclosure controls and procedures include processes to accumulate
and evaluate relevant information and communicate such information
to a registrant’s management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for
timely decisions regarding required disclosures.
We
evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of December 26, 2020, as
required by Rule 13a-15 of the Exchange Act. Based on the
evaluation described above, our Chief Executive Officer and Chief
Financial Officer have concluded that, as of December 26, 2020, our
disclosure controls and procedures were effective insofar as they
are designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms. Our
disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or
submit under the Exchange Act is accumulated and communicated to
our management, including our principal executive and principal
financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.
(b) Management’s Annual Report on Internal Control over
Financial Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting as that term is defined
in Exchange Act Rule 13a-15(f). Our internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of our financial statements for external reporting
purposes in accordance with generally accepted accounting
principles (“GAAP”). Our internal control over
financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect our transactions and dispositions of
our assets; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of our financial
statements in accordance with GAAP, and that our receipts and
expenditures are being made only in accordance with authorizations
of our management and directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on our financial statements.
Internal control
over financial reporting cannot provide absolute assurance of
achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process
that involves human diligence and compliance and is subject to
lapses in judgment and breakdowns resulting from human failures.
Internal control over financial reporting also can be circumvented
by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is
possible to design safeguards into the process to reduce, although
not eliminate, this risk. In addition, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions or because the degree of compliance with the policies or
procedures may deteriorate.
50
In
order to evaluate the effectiveness of our internal control over
financial reporting as of December 26, 2020, as required by Section
404 of the Sarbanes-Oxley Act of 2002, our management conducted an
assessment, including testing, based on the criteria set forth in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the
“COSO Framework”). A material weakness is a control
deficiency, or a combination of control deficiencies, that results
in more than a remote likelihood that a material misstatement of
our annual or interim financial statements will not be prevented or
detected. In assessing the effectiveness of our internal control
over financial reporting, management did not identify a material
weakness in internal control over financial reporting as of
December 26, 2020. We have concluded that our internal control over
financial reporting at December 26, 2020 was
effective.
(c) No Attestation Report of the Registered Public Accounting
Firm
This
Report does not include an attestation report of the
Company’s independent registered public accounting firm
regarding the Company’s internal control over financial
reporting. Management’s report was not subject to attestation
by the Company’s independent registered public accounting
firm pursuant to an exemption for smaller reporting companies under
Section 989G of the Dodd-Frank Act. We qualify for the Dodd-Frank
Act exemption from the independent auditor attestation requirement
under Section 404(b) of the Sarbanes-Oxley Act for smaller
reporting companies.
(d) Changes in Internal Control over Financial
Reporting
No
changes in our internal controls over financial reporting occurred
during the quarter ended December 26, 2020, that materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
51
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Board of Directors
|
Name:
|
William A. Coskey, P.E.
|
|
Position:
|
Chairman of the Board, President and Chief Executive
Officer
|
|
Director Since:
|
1985
|
|
Age:
|
68
|
Present positions and offices with the Company, principal
occupations and other directorships during the past five
years:
Mr.
Coskey founded ENGlobal in 1985 and has served in various
positions, including service as Chairman of the Board since June
2005 and as President and Chief Executive Officer since August
2012. From April 2007 until May 2010, he served as Chief Executive
Officer. Prior to that, he served as Chairman of the Board, Chief
Executive Officer and President from 1985 until 2001, Chief
Operating Officer from 2001 to 2003, and President from 2001 to
June 2005. Mr. Coskey, an honors graduate, received a Bachelor of
Science in Electrical Engineering from Texas A&M University in
1975 and is a Registered Professional Engineer. He served on the
Texas A&M University Electrical Engineering Department Advisory
Council from 1999 to 2014, and from 2006 until 2014, he served as
Chairman of the Council. Mr. Coskey received the 2014 Outstanding
Alumni Honor Award from the Texas A&M University College of
Engineering. In 2014, Mr. Coskey was also appointed to the Texas
A&M College of Engineering Advisory Council.
Qualifications for Consideration:
The
Board selected Mr. Coskey to serve as a director because it
believes that, as the founder of ENGlobal, he provides a unique
perspective to the Board. He was responsible for ENGlobal’s
initial public offering in 1994, listing on the American Stock
Exchange in 1998, and listing on the NASDAQ Stock Market in 2007.
In June 2009, he was awarded the Ernst & Young Entrepreneur of
The Year® in the Energy Services category for the Houston
& Gulf Coast Area. The Board believes Mr. Coskey’s
industry knowledge and business experiences give him invaluable
insights into the Company’s challenges, opportunities and
operations.
|
Name:
|
David W. Gent, P.E.
|
|
Position:
|
Lead Independent Director
|
|
Director Since:
|
1994
|
|
Age:
|
68
|
Present positions and offices with the Company, principal
occupations and other directorships during the past five
years:
Mr.
Gent has served as a director of ENGlobal since June 1994, is
Chairman of the Nominating & Corporate Governance Committee and
is a member of the Audit and Compensation Committees. Mr. Gent has
served as the Company’s Lead Independent Director since 2002.
Since 2011, Mr. Gent has served as the Chairman of SofTest Designs
Corporation, an automation and test systems company that he founded
in 1980. From 1991 through 2011, Mr. Gent held various positions
for Bray International, Inc., an industrial flow control
manufacturer. From 2005 to 2011, Mr. Gent served as Executive Vice
President of Bray International and was responsible for overseeing
worldwide engineering, information services, and training. Mr.
Gent, an honors graduate, received a Bachelor of Science in
Electrical Engineering from Texas A&M University in 1975 and a
Master of Business Administration from Houston Baptist University
in 1984. He is a Registered Professional Engineer. Mr. Gent serves
on the Texas A&M University Electrical and Computer Engineering
Department Advisory Council and he holds several patents in the
field of industrial flow controls.
52
Qualifications for Consideration:
The
Board selected Mr. Gent to serve as a director, and as Lead
Independent Director, because it believes he possesses valuable
engineering expertise, including extensive experience managing
multinational engineering, research and development, information
technology, and manufacturing operations, including domestic and
international operations obtained through start-ups and
acquisition. He provides the perspective of a leader with
experience in global operations and strategy who has faced and
effectively dealt with economic and governance issues.
|
Name:
|
David C. Roussel
|
|
Position:
|
Independent Director
|
|
Director Since:
|
2001
|
|
Age:
|
71
|
Present positions and offices with the Company, principal
occupations and other directorships during the past five
years:
Mr.
Roussel has served as a Director of the Company since December
2001, is Chairman of the Compensation Committee and is a member of
the Audit and Nominating & Corporate Governance Committees. Mr.
Roussel served as President of Petrolog Automation, Inc., an oil
field service company providing well site automation and data
collection, from August 2016 until his retirement in October 2017.
He previously worked for Jefferies Energy Investment Banking, a
leading mergers and acquisitions advisor in the global oil and gas
industry, or its predecessor companies from 2003 until 2014 and
served as a Senior Vice President responsible for managing
acquisition and divestiture projects on behalf of clients.
Jefferies Energy Investment Banking is a division of Jefferies
& Company, Inc., a global investment bank and institutional
securities firm. Mr. Roussel received a Bachelor of Science degree
in Mechanical Engineering from Iowa State University in 1971 and
completed the Harvard Advanced Management Program in
1992.
Qualifications for Consideration:
The
Board selected Mr. Roussel to serve as a director because it
believes he possesses valuable engineering experience, including a
sound background in the energy industry, business operations and
business development practices. Mr. Roussel’s experience in
senior and general management roles helps the Board address the
challenges the Company faces with respect to development of its
growth strategy, mergers and acquisitions, and joint venture
formation. ENGlobal also benefits from Mr. Roussel’s ability
to address diverse matters that come before the Board.
|
Name:
|
Kevin M. Palma
|
|
Position:
|
Independent Director
|
|
Director Since:
|
2016
|
|
Age:
|
42
|
Present positions and offices with the Company, principal
occupations and other directorships during the past five
years:
Mr.
Palma has served as a Director of the Company since June 2016, is
Chairman of the Audit Committee and is a member of the Compensation
and Nominating & Corporate Governance Committees. Mr. Palma served as the Chief
Financial Officer of B-29 Investments, LP, an energy private equity
firm, from 2006 until he was promoted to Chief Operating Officer in
December 2018, and also served as the Chief Financial Officer of
B-29 Family Holdings, LLC, a family office, since its inception in
2014 until December 2018. In his role within the private equity
space, Mr. Palma focuses on investment strategy, investment
execution, and portfolio company management for both privately-held
and publicly-traded companies. Mr. Palma currently serves on
several private company boards, including Silver Creek Oil and Gas,
LLC, Caliber Completion Services, LLC, and Klear Bit Technologies,
LLC. His past experiences on private company boards include Crest
Pumping Technologies, LLC and TEC Holdings, LLC (which was recently
rebranded as AXIS Energy Services, LLC). Prior to his roles at
B-29, Mr. Palma was a member of the energy investment banking team
at Raymond James & Associates, focusing on capital market
raises and merger and acquisition activity. Mr. Palma is licensed
as a Certified Public Accountant in the State of Texas, and holds a
Master of Business Administration from the Harvard Business School
in addition to a Bachelor of Business Administration and a Master
of Public Administration from the University of
Texas.
53
Qualifications for Consideration:
The
Board selected Mr. Palma to serve as a director because his
experience in identifying strategic growth trends in the energy
industry, evaluating and completing numerous acquisitions, and
exhibiting an extensive knowledge of financial markets make him
well qualified to serve on ENGlobal’s board of
directors.
Executive Officers
Our
executive officers serve at the pleasure of our Board of Directors
and are subject to annual appointment by the Board at the first
meeting following the annual meeting of shareholders. Set forth
below is a brief description of the business experience of each of
our executive officers, except Mr. Coskey, whose biography is
listed above.
|
Executive Officer:
|
Mark A. Hess
|
|
Position:
|
Chief Financial Officer, Corporate Secretary and
Treasurer
|
|
Age:
|
62
|
Present positions and offices with the Company, principal
occupations during the past five years:
Mr.
Hess has served as Chief Financial Officer and Treasurer of
ENGlobal Corporation since September 2012 and served as interim
Chief Financial Officer from June 2012 to September 2012. Mr. Hess
previously served as the Company’s Corporate Controller from
July 2011 until June 2012. Mr. Hess assumed the Corporate Secretary
responsibilities in December 2017. Prior to joining ENGlobal, Mr.
Hess served as Vice President and Chief Accounting Officer of
Geokinetics, Inc., a publicly-traded seismic data service company,
from April 2008 to April 2010. From November 2004 to April 2008, he
served as Director of Finance for CGGVeritas, a publicly -traded seismic data service
company. In total, he has over 35 years of experience in various
accounting, merger and acquisition, and finance roles primarily in
public companies. Mr. Hess is a licensed CPA in the state of Texas,
holds a Bachelor of Business Administration in Accounting from the
University of Houston and is an active member of Financial
Executives International.
|
Executive Officer:
|
Roger Westerlind
|
|
Position:
|
President of ENGlobal U.S. Inc.
|
|
Age:
|
65
|
Mr.
Westerlind has served as President of
the Company’s subsidiary, ENGlobal U. S., Inc., since
December 2020 and is responsible for Engineering,
Procurement and Construction (EPC), Automation and Business
Development. Prior to joining ENGlobal, Mr. Westerlind was a
consultant for InterOil Group on business development, project
management and project execution activities from 2016 to December
2020. Mr. Westerlind served as President-International Division of
Dynamic Industries from 2004 to 2016, where he spearheaded that
company’s strategy for international operations and major
project development. Through these efforts, he helped reposition
Dynamic Industries from a small local Louisiana fabrication and
maintenance company to an internationally recognized engineering
and construction management contractor for large multinational,
integrated oil and gas companies as well as large engineering and
construction firms. Prior to joining Dynamic Industries, from 1989
to 2004, Mr. Westerlind held various senior positions with ABB
Group, a leader in power and automation technologies enabling
utility and industrial customers to improve performance while
lowering environmental impact. His most recent position with ABB
was Vice President, ABB Lummus Global Oil & Gas, where he
marketed the company’s process technologies, project
management and engineering, procurement and construction management
services to the oil and gas, petrochemical and refining industries
worldwide. Mr. Westerlind holds a degree in Electronics Engineering
from Göteborgs Tekniska Institut (GTI) and an MBA from IHM
Business School, both in Gothenburg, Sweden.
|
Executive Officer:
|
R. Bruce Williams
|
|
Position:
|
Senior Vice President
|
|
Age:
|
68
|
54
Present positions and offices with the Company, principal
occupations during the past five years:
Mr.
Williams is currently serving as a Senior Vice President for
ENGlobal’s Engineering and Construction segment. Mr. Williams
served as the Chief Operating Officer from December 2013 through
March 2017 and the President of ENGlobal Government Services, Inc.
from September 2012 through March 2017. He served as Senior Vice
President, Midwest/Southwest Operations of ENGlobal’s
Engineering and Construction segment from September 2012 to
September 2013. He initially joined ENGlobal in 2004, and from
November 2010 until September 2012, he served in various roles at
ENGlobal, including General Manager of the Tulsa Office, Vice
President of Midwest and Southwest Operations, Senior Project
Manager of Engineering/ Projects, and acting General Manager of
ENGlobal Government Services, Inc. Prior to joining ENGlobal, Mr.
Williams served as Vice President – Engineering for U.S.
Transcarbon LLC, a petroleum coke gasification project developer,
from April 2008 until October 2010. In total, he has over 35 years
of domestic and international experience in engineering and project
management, including several project management positions of
increasing responsibility in the U.S., Middle East, Papua New
Guinea, Asia, Mexico and Brazil. Mr. Williams has an undergraduate
degree in Chemistry from the University of Northern Iowa, with post
graduate studies in Environmental Management from the University of
Houston and MBA studies at Incarnate Word University.
Retirement and Succession
On
February 24, 2021, Mr. Coskey notified the Board that, effective
March 12, 2021, he will be retiring and stepping down from his
officer positions with the Company and its subsidiaries. Mr. Coskey
will continue with the Company in his present role as Chairman of
the Board.
On
February 24, 2021, the Board appointed Mr. Hess as the
Company’s Chief Executive Officer, Roger Westerlind as the
Company’s President, and Darren Spriggs, the Company’s
Corporate Controller, as the Company’s Chief Financial
Officer, each such appointment to be effective March 12,
2021.
Mr.
Spriggs, age 51, has served as Corporate Controller of the Company
since June 2019. Prior to joining the Company, Mr. Spriggs served
as Director of Accounting for ABM Industries Inc., a Fortune 500
company providing end-to-end facility solutions to commercial,
industrial and governmental facilities, from April 2008 to June
2019. From 2007 to 2008, he served as Financial Planning Manager
for Kinder Morgan, Inc., a major midstream energy company whose
pipeline network transports natural gas, refined petroleum products
and crude oil. From 2002 to 2007, Mr. Spriggs served as a Financial
Reporting Manager for David Weekley Homes, the largest privately
held homebuilder in the U.S. From 2000 to 2002, he served as
Assistant Controller for American Tower Inc., a leading independent
owner, operator and developer of broadcast and wireless
communication towers. Mr. Spriggs is a licensed CPA and CMA in the
state of Texas, and holds a Bachelor of Business Administration in
Accounting from the Texas A&M University.
Code of Business Conduct and Ethics
The
Company has adopted a Code of Business Conduct and Ethics that
applies to all of the Company’s directors, officers and
employees in accordance with NASDAQ rules. The purpose and role of
this code is to focus our officers, directors, and employees on
areas of ethical risk, provide guidance to help them recognize and
deal with ethical issues, provide mechanisms to report unethical or
unlawful conduct, and help enhance and formalize our culture of
integrity, honesty and accountability. We have posted this Code of
Business Conduct and Ethics on the “Investors –
Governance Highlights” section of our website at
www.englobal.com.
The Company also has a Code of Ethics applicable
to the Chief Executive Officer and certain senior financial
officers of the Company that complies with Item 406 of Regulation
S-K of the Exchange Act and with applicable NASDAQ rules. We have
posted this Code of Ethics on the “Investors –
Governance Highlights” section of our website at
www.englobal.com.
To
the extent required by SEC rules, we intend to disclose any
amendments to, or a waiver from, a provision of these Codes for the
benefit of our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions, on our website within four (4)
business days following any such amendment of waiver, or within any
other period that may be required under SEC rules from time to
time.
55
Audit Committee
The
Company has an audit committee, composed of three members: Kevin M.
Palma (Chairperson), David W. Gent and David C. Roussel. The Board
has determined that Mr. Palma is qualified as an audit committee
financial expert under the SEC’s rules and regulations. In
addition, the Board has determined that each member of the Audit
Committee has the requisite accounting and related financial
management expertise under NASDAQ rules.
Delinquent Section 16(a) Reports
Section
16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than 10% of our
equity securities to file with the SEC initial reports of ownership
and reports of changes in ownership of our common stock. Officers,
directors and greater than 10% stockholders are required by SEC
regulation to furnish us with copies of all Section 16(a) reports
they file.
To
our knowledge, based solely on review of the copies of such reports
furnished to us and written representations that no other reports
were required, during the fiscal year ended December 26, 2020, our
officers, directors and greater than 10% beneficial owners timely
filed all required Section 16(a) reports, except that the following
individuals failed to file timely reports for such fiscal year:
Roger Westerlind was late in filing one Form 3.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The
following table sets forth information regarding compensation
earned during the last two fiscal years by our Chief Executive
Officer, Chief Financial Officer, and Senior Vice President (the
“named executive officers”).
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus(1)
($)
|
Stock
Awards(2)
($)
|
Non-Equity Incentive Plan Compensation(3)
|
All Other Compensation(4)
($)
|
Total
($)
|
|
Mr. Coskey ~
President & Chief Executive Officer
|
2020
|
49,442
|
-
|
-
|
-
|
-
|
49,442
|
|
|
2019
|
49,442
|
-
|
-
|
-
|
-
|
49,422
|
|
|
|
|
|
|
|
|
|
|
Mr. Hess ~
Chief Financial Officer, Secretary & Treasurer
|
2020
|
250,016
|
-
|
-
|
-
|
9,616
|
259,632
|
|
|
2019
|
246,126
|
-
|
-
|
-
|
-
|
246,126
|
|
|
|
|
|
|
|
|
|
|
Mr. Williams ~
Senior Vice President
|
2020
|
236,912
|
69,984
|
-
|
-
|
-
|
306,896
|
|
|
2019
|
236,912
|
-
|
-
|
-
|
-
|
236,912
|
(1)
This column
includes compensation paid pursuant to ENGlobal U.S. Inc.’s
Growth Incentive Plan which provides a variable compensation
component for developing and selling significant projects for the
Company, including products and services. ENGlobal U.S. Inc.
adopted the plan on November 5, 2019.
(2)
This column shows
the grant date fair value of equity awards computed in accordance
with stock-based compensation accounting rules (FASB ASC Topic
718). Values for awards subject to performance conditions are
computed based upon the probable outcome of the performance
condition as of the grant date. For a description of certain
assumptions made in the valuation of stock awards, see Part II,
Item 8, Note 10.
(3)
The Non-Equity
Incentive Plan includes amounts awarded pursuant to the
Company’s Short Term Incentive Plan. Metrics are set annually
and are generally contingent on the Company reaching certain levels
of Net Operating Income.
(4)
All Other
Compensation includes PTO cash outs. Does not include perquisites
or personal benefits if the aggregate amount is less than $10,000.
Does not include medical, dental, life, short and long term
disability or paid time off benefits which were available to all
employees.
56
Outstanding
Equity Awards at Fiscal Year End 2020
The
following table sets forth information as of December 26, 2020
regarding outstanding equity awards held by the named executive
officers. On December 24, 2020, the closing price on NASDAQ for the
Company’s common stock was $2.95 per share.
|
|
Restricted Stock
Awards
|
|||
|
Name
|
Number
of
Shares
That
Have
Not
Vested(1)
|
Market Value
of
Shares of
Stock
That Have
Not
Vested
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares That
Have
Not
Vested
|
Equity Incentive
Plan
Awards: Market
Value
of Unearned
Shares
That Have Not
Vested
|
|
|
|
|
|
|
|
Mr. Coskey
|
--
|
--
|
--
|
--
|
|
Mr. Hess(1)
|
10,000
|
$29,500
|
--
|
--
|
|
Mr. Williams(2)
|
7,500
|
$22,125
|
--
|
--
|
(1)
Includes 10,000
shares that were granted under the Amended and Restated 2009 Equity
Incentive Plan (the “Plan”) on August 10, 2017, which
will vest 10,000 shares on August 10, 2021.
(2)
Includes 7,500 shares
that were granted under the Plan on August 10, 2017 which will vest
on August 10, 2021
Employment
Agreements; Termination and Change-in-Control
Arrangements
As of
December 26, 2020, Messrs. Coskey and Hess were each a party to a
written employment agreement (the “Employment
Agreements”) with ENGlobal. The Employment Agreements provide
for an annual base salary, subject to discretionary increases by
the Board, and other compensation in the form of cash bonuses,
incentive compensation, stock options, stock appreciation rights,
and restricted stock awards. Additionally, the executives receive
health, life, and other insurance benefits in accordance with the
terms of the Company’s benefit plans, and the Company
provides management level support services and reimbursement for
specified business expenses.
The
Employment Agreements provide for severance payments and benefits
in the case of termination of employment. If employment ends
because of death, the Company will pay any accrued but unpaid
salary, additional compensation, and other benefits earned up to
that date. In the case of a physical or mental disability that
prevents the executive from performing his services under the
Employment Agreement for a period of six months in the case of Mr.
Coskey, and three months, in the case of Mr. Hess, the Company may
terminate the executive’s employment. If the Company
terminates an executive’s employment in such cases of
disability, the Employment Agreements provide that the Company will
continue to pay the executive his full salary and benefits for the
six months following the date of termination (the “Initial
Severance Period”). At the Company’s option, severance
payments consisting of 50% of the monthly amount of the base salary
for Mr. Coskey, and in the case of Mr. Hess, 100% of the monthly
amount of his base salary, and full benefits may be extended for an
additional six-month period following the Initial Severance
Period.
57
If the
Company terminates an executive’s employment for
“cause,” as defined in the Employment Agreements, the
Company will pay any accrued but unpaid salary, additional
compensation, and other benefits earned up to the effective date of
termination. If the Company terminates an executive’s
employment without “cause,” the Employment Agreement
provides that the Company will continue to pay the executive his
full salary and benefits for the Initial Severance Period. At the
Company’s option, severance payments consisting of 50% of the
monthly amount of the base salary for Mr. Coskey, and in the case
of Mr. Hess, 100% of the monthly amount of his base salary, and
full benefits may be extended for an additional six-month period
following the Initial Severance Period.
The
Employment Agreements include a covenant not to compete following
termination of employment for a period of up to one year, as well
as confidentiality provisions that are customary in nature and
scope, for such agreements.
The
terms of the Employment Agreements were set through the course of
arms-length negotiations with the executives. As part of these
negotiations, the Compensation Committee analyzed the terms of the
same or similar arrangements for comparable executives employed by
some of the companies in our peer group. The Compensation Committee
used this approach in setting the amounts payable and the
triggering events under the Employment Agreements. The Employment
Agreements’ termination of employment provisions were entered
into in order to address competitive concerns by providing the
executives with a fixed amount of compensation that would offset
the potential risk of foregoing other opportunities. At the time of
entering into the Employment Agreements, the Compensation Committee
considered ENGlobal’s aggregate potential obligations in the
context of retaining the executives and their expected
compensation.
Executive Perquisites
Our use
of perquisites as a component of compensation is limited and
largely based on historical practices and policies of our Company.
These perquisites and other benefits are provided to assure
competitiveness and provide an additional retention incentive for
these executives. Our Compensation Committee endeavors to adhere to
a high level of propriety in managing executive benefits and
perquisites. We do not own a plane and do not provide any personal
aircraft use for executives.
Other Compensation
From
time to time, we make available to employees and executives certain
other fringe benefits. We may provide club memberships, tickets to
sporting or cultural events, tickets to community events, etc. To
the extent that such items are taxable to the individual, they are
considered to be part of the individual’s compensation
package.
Review
of and Conclusion Regarding All Components of Executive
Compensation
Based
on our performance during the past several years, and in light of
our executives’ efforts in directing the Company, the
Compensation Committee and the Board have determined that the
compensation paid to Mr. Coskey, as well as compensation paid to
our other named executive officers, serves the best interests of
our shareholders and continues to emphasize programs that the
Compensation Committee and the Board believe positively affect
shareholder value.
58
DIRECTOR
COMPENSATION
The
following table discloses cash and equity awards and other
compensation earned, paid or awarded, as the case may be, to each
of the Company’s non-employee directors during the fiscal
year ended December 26, 2020.
|
Name
|
Fees Earned or Paid in Cash
($)(1)
|
Stock Awards ($)(2)
|
Option Awards
($)
|
All Other
Compensation ($)
|
Total
|
|
|
|
|
|
|
|
|
Randall B.
Hale(3)
|
$34,000
|
$50,000
|
--
|
--
|
$84,000
|
|
David W.
Gent
|
$30,000
|
$50,000
|
--
|
--
|
$80,000
|
|
David C.
Roussel
|
$30,000
|
$50,000
|
--
|
--
|
$80,000
|
|
Kevin M.
Palma
|
--
|
--
|
--
|
--
|
--
|
(1)
Amount paid in cash
to non-employee directors for director compensation earned for
their 2020 Board service.
(2)
This column shows
the grant date fair value of equity awards computed in accordance
with stock-based compensation accounting rules (FASB ASC Topic
718). Values for awards subject to performance conditions are
computed based upon the probable outcome of the performance
condition as of the grant date. For a description of certain
assumptions made in the valuation of stock awards, see Part II,
Item 8, Note 10. Represents 49,020 shares of restricted stock at a
fair market value per share price of $1.02 granted to each director
on June 11, 2020, as described below under “Restricted Stock
Grants.” As of December 26, 2020, Messrs. Hale, Gent and
Roussel each had a total of 36,765 shares of restricted stock that
were unvested.
(3)
Mr. Hale resigned
from the Board on February 23, 2021.
The
principal objectives of our director compensation programs are to:
(i) compensate for time spent on the Company’s behalf, and
(ii) align the compensation programs with long-term value to the
Company’s shareholders. We attempt to accomplish these
objectives in an economical manner through a combination of
reasonable director retainer fees and equity incentive grants to
the directors.
Retainer Fees
Historically, our
non-employee directors received a cash retainer as compensation for
their service to the Company, and our Chairman of the Audit
Committee also received an additional cash retainer as compensation
for such service. Our non-employee directors are also eligible for
reimbursement of travel and other miscellaneous expenses associated
with attendance at Board and Committee meetings. However, due to
the losses that the Company incurred during 2016 and 2017, the
Compensation Committee recommended and the Board approved that cash
retainer fees be suspended effective October 1, 2017 and reviewed
for reinstatement on a quarterly basis. Cash retainer fees were
reinstated during fiscal year 2020. Our non-employee
directors, Messrs. Gent, Hale and Roussel, received an annual cash
retainer of $30,000 as compensation for their service to the
Company and Mr. Hale received an additional $4,000 for his service
as Audit Committee Chairman.
Restricted Stock Grants
Under
the Plan, non-employee directors are eligible to receive equity
grants. Our non-employee directors typically receive the equity
grants in June concurrent with the annual shareholders' meeting. On
June 11, 2020, in recognition of the services provided by its Board
for the 2020-2021 service term, our non-employee directors, Messrs.
Gent, Hale and Roussel, each received 49,020 restricted shares of
the Company’s common stock, valued at $50,000 based on the
fair market value of the shares on the date of grant, or $1.02 per
share. One quarter of the shares vested on September 30, 2020. Due
to the losses that the Company incurred in 2016 and 2017, the
Compensation Committee recommended and the Board had suspended the
vesting provisions of the 42,735 restricted shares issued to
Messrs. Gent, Hale and Roussel in 2017; in 2020, the Board lifted
the suspension and the shares vested May 5, 2020.
Mr.
Palma did not receive any compensation from the Company for his
service as a director in 2020, but was eligible for reimbursement
of travel and other miscellaneous expenses associated with
attendance at Board and Committee meetings.
59
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Authorized For Issuance Under Equity Compensation
Plans
The
following table sets forth certain information concerning the
Amended and Restated ENGlobal Corporation 2009 Equity Incentive
Plan (the “Restated Plan”) as of December 26,
2020.
|
|
Number of
Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants and Rights
|
Number of
Securities Remaining Available for Future Issuance Under Equity
Compensation Plan
|
|
|
|
|
|
|
Equity compensation
plans approved by security holders (1)
|
—
|
—
|
478,049
|
|
|
|
|
|
|
Equity compensation
plan not approved by security holders
|
—
|
—
|
—
|
|
Total
|
—
|
—
|
478,049
|
(1) Does
not include 110,295 shares of unvested restricted common stock
outstanding at December 26, 2020. The Restated Plan will terminate
on the earlier of June 11, 2021 or the date of the Company’s
2021 Annual Meeting of Shareholders.
Directors and Executive Officers
The
following table shows the number of shares of our common stock
beneficially owned as of March 8, 2021, by each director, the
executive officers named in the “Summary Compensation
Table” and all directors and executive officers as a group.
None of these shares are pledged as security.
|
Name of
Beneficial Owner
|
Amount and
Nature of
Beneficial
Ownership(1)
|
Percent of
Class(2)
|
|
|
|
|
|
Mr.
Coskey
|
8,840,697(3)
|
32.12%
|
|
Mr.
Gent
|
380,366(4)
|
1.38%
|
|
Mr.
Roussel
|
340,366(5)
|
1.24%
|
|
Mr.
Palma
|
44,891(6)
|
*
|
|
Mr.
Hess
|
325,731(7)
|
1.18%
|
|
Mr.
Williams
|
52,456(8)
|
*
|
|
|
|
|
|
All directors and
executive officers as a group (7 persons)
|
9,984,507(9)
|
36.27%
|
*
Represents less
than 1% of the shares of common stock outstanding.
60
(1)
Beneficial
ownership of common stock has been determined for this purpose in
accordance with Rule 13d-3 under the Exchange Act, under which a
person is deemed to be the beneficial owner of securities if such
person has or shares voting power or investment power with respect
to such securities, has the right to acquire beneficial ownership
within 60 days, or acquires such securities with the purpose or
effect of changing or influencing the control of
ENGlobal.
(2)
Based on 27,526,176
shares issued and outstanding on March 8, 2021.
(3)
Includes 8,840,597
shares of common stock held in the name of Alliance 2000, Ltd.,
whose general partner is jointly owned by Mr. Coskey and his
spouse. Mr. Coskey has shared power to vote and dispose of such
shares.
(4)
Includes 36,765
unvested shares of restricted stock which were granted to Mr. Gent
in June 2020.
(5)
Includes 36,765
unvested shares of restricted stock which were granted to Mr.
Roussel in June 2020.
(6)
Of the total,
41,041 shares of common stock are held in a Beneficiary IRA and
3,850 shares of common stock are held in a Rollover
IRA.
(7)
Includes 10,000
shares of restricted stock which were granted to Mr. Hess on August
10, 2017 that will vest on August 10, 2021.
(8)
Includes 7,500
shares of restricted stock which were granted to Mr. Williams on
August 10, 2017 that will vest on August 10, 2021.
(9)
Includes 25,000
shares of unvested restricted stock granted to our executive
officers and 49,020 shares of unvested restricted stock granted to
our directors.
Principal Shareholders
Except
as set forth below, the following table sets forth information as
of March 8, 2021, about persons whom we know to be the beneficial
owners of more than 5% of our issued and outstanding common stock
based solely on our review of the statement of beneficial ownership
filed by these persons/entities with the SEC as of the date of such
filing:
|
Name and
Address
of Beneficial
Owner
|
Amount and
Nature of
Beneficial
Ownership(1)
|
Percent of
Class(1),(2)
|
|
|
|
|
|
Alliance 2000,
Ltd.
c/o 654 N. Sam
Houston Pkwy. E.
Suite
400
Houston, TX
77060-5914
|
8,840,697(3)
|
32.12%
|
|
NGP Energy
Technology Partners II, L.P.
NGP ETP II,
L.L.C.
Energy Technology
Partners, L.L.C.
Philip J.
Deutch
c/o 1700 K Street
NW, Suite 750Washington, D.C. 20006
|
1,530,128(4)
|
5.56%
|
|
NorthPointe
Capital, LLC
c/o 101 W. Big
Beaver, Suite 745
Troy, MI
48084
|
1,550,716(5)
|
5.63%
|
(1)
Beneficial
ownership of common stock has been determined for this purpose in
accordance with Rule 13d-3 under the Exchange Act, under which a
person is deemed to be the beneficial owner of securities if such
person has or shares voting power or investment power with respect
to such securities, has the right to acquire beneficial ownership
within 60 days, or acquires such securities with the purpose or
effect of changing or influencing the control of
ENGlobal.
(2)
Based on 27,526,176
shares issued and outstanding on March 8, 2021.
(3)
Alliance 2000, Ltd.
is a Texas limited partnership whose general partner is jointly
owned by Mr. Coskey and his spouse.
(4)
The foregoing
information is based solely upon information contained in a
Schedule 13G/A filed by NGP Energy Technology Partners II, L.P.
(“NGP Energy Tech”), NGP ETP II, L.L.C. (“NGP
GP”), Energy Technology Partners, L.L.C. (“ETP”),
and Mr. Philip J. Deutch with the SEC on February 13, 2020. NGP GP
is the general partner of NGP Energy Tech. ETP is the sole manager
of NGP GP and Mr. Deutch is the sole member and manager of ETP. NGP
Energy Tech will have sole voting and dispositive power with
respect to the shares beneficially owned by NGP Energy Tech. By
virtue of the relationships between and among the reporting persons
described in the Schedule 13G/A, NGP GP, ETP and Mr. Deutch
disclaim beneficial ownership of the reported securities except to
the extent of their pecuniary interest therein.
(5)
The foregoing
information is based solely upon information contained in a
Schedule 13G/A filed by NorthPointe Capital, LLC
(“NorthPointe”) with the SEC on February 11, 2014.
NorthPointe has the sole power to vote or direct the vote of
285,388 shares and sole power to dispose or direct the disposition
of 1,550,716 shares.
61
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
The
Board has adopted a policy requiring that all transactions between
the Company and its officers, directors, principal shareholders and
their respective affiliates be on terms no less favorable to the
Company than could be obtained from unrelated third parties and
that any such transactions be approved by a majority of the
disinterested members of the Board. Pursuant to such policy, the
Company’s Audit Committee is responsible for the review and
assessment of all related party transactions.
Director Independence
The
Board has determined that no non-employee director has a
relationship which, in the opinion of the Board, would interfere
with the exercise of his independent judgment in carrying out the
responsibilities of a director, and that all directors, except Mr.
Coskey, meet the criteria for independence under NASDAQ rules. The
Board has also determined that the members of each of its
committees, which include the Audit Committee, the Compensation
Committee and the Nominating & Corporate Governance Committee,
meet the criteria for membership applicable to each committee under
the NASDAQ listing standards and applicable SEC rules and
regulations.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Moss
Adams LLP was appointed as the Company’s independent auditors
on November 16, 2017 and has audited the Company’s 2020 and
2019 consolidated financial statements. During 2020 and 2019, Moss
Adams LLP did not audit the Company’s internal control over
financial reporting because the Company is a “smaller
reporting company” as defined under the rules of the Exchange
Act. The Audit Committee has determined that the audit-related
services provided by Moss Adams LLP are compatible with maintaining
its independence in the conduct of its auditing functions pursuant
to the auditor independence rules of the SEC. No non-audit services
were provided by Moss Adams LLP in 2020 and 2019.
The
following table shows the fees paid or accrued by ENGlobal for the
audit and other services provided by Moss Adams LLP for fiscal
years 2020 and 2019.
62
|
|
2020
|
2019
|
|
|
|
|
|
Audit
Fees
|
163,000
|
172,000
|
|
Audit-Related
Fees
|
--
|
--
|
|
Tax
Fees
|
--
|
--
|
|
All Other
Fees
|
--
|
--
|
|
Total
|
163,000
|
172,000
|
As
defined by the SEC, (i) “audit fees” are fees for
professional services rendered by the Company’s independent
registered public accounting firm for the audit of the
Company’s annual financial statements and review of financial
statements included in the Company’s Quarterly Reports on
Form 10 Q, or for services that are normally provided by the
accountant in connection with statutory and regulatory filings or
engagements for those fiscal years; (ii) “audit-related
fees” are fees for assurance and related services by the
Company’s independent registered public accounting firm that
are reasonably related to the performance of the audit or review of
the Company’s financial statements and are not reported under
“audit fees”; (iii) “tax fees” are fees for
professional services rendered by the Company’s independent
registered public accounting firm for tax compliance, tax advice,
and tax planning; and (iv) “all other fees” are fees
for products and services provided by the Company’s
independent registered public accounting firm, other than the
services reported under “audit fees,”
“audit-related fees,” and “tax
fees.”
Pre-Approval
Policy
Under
applicable SEC rules, except for the ability to designate a portion
of this responsibility as described below, the full Audit Committee
is required to pre-approve the audit and non-audit services
performed by the independent registered public accounting firm in
order to ensure that they do not impair the auditors’
independence from ENGlobal. The Audit Committee may delegate
pre-approval authority to a member of the Audit Committee, and if
it does, the decisions of that member must be presented to the full
Audit Committee at its next scheduled meeting. The SEC’s
rules specify the types of non-audit services that an independent
auditor may not provide to its audit client and establish the Audit
Committee’s responsibility for administration of the
engagement of the independent registered public accounting
firm.
Consistent with the
SEC’s rules, the Audit Committee Charter requires that the
Audit Committee review and pre-approve all audit services and
permitted non-audit services provided by the independent registered
public accounting firm to ENGlobal or any of its subsidiaries,
except that the Audit Committee Chairman has the right to approve
up to $25,000 of services in any year. During 2020, all fees were
pre-approved by the Audit Committee.
63
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The
consolidated financial statements filed as part of this Form 10-K
are listed and indexed in Part II, Item 8.
(a)(2) Schedules
All
schedules have been omitted since the information required by the
schedule is not applicable, or is not present in amounts sufficient
to require submission of the schedule, or because the information
required is included in the consolidated financial statements and
notes thereto.
(a)(3) Exhibits
EXHIBIT INDEX
|
|
|
|
|
Incorporated by Reference to:
|
|||||||||||||||||||||||
|
Exhibit No.
|
|
Description
|
|
Form or
Schedule
|
|
Exhibit
No.
|
|
Filing Date
with SEC
|
|
SEC File
Number
|
|||||||||||||||||
|
3.1
|
|
Restated
Articles of Incorporation of Registrant dated January 29,
2021
|
|
8-K
|
|
3.1
|
|
1/29/2021
|
|
001-14217
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
3.2
|
|
|
8-K
|
|
3.1
|
|
4/15/2016
|
|
001-14217
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
4.1
|
|
Registrant’s
specimen common stock certificate
|
|
S-3
|
|
4.1
|
|
10/31/2005
|
|
333-29336
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
*4.2
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
+10.1
|
|
ENGlobal
Corporation Incentive Bonus Plan Dated effective July 1,
2009
|
|
8-K
|
|
10.1
|
|
8/17/2009
|
|
001-14217
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
+10.2
|
|
Form of
Restricted Stock Unit Award Agreement between Registrant and its
Independent Non-employee Directors
|
|
10-Q
|
|
10.2
|
|
8/11/2008
|
|
001-14217
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
+10.3
|
|
Form of
Restricted Stock Award Agreement of 2009 Equity Incentive Plan
between Registrant and its independent directors
|
|
10-Q
|
|
10.1
|
|
8/10/2009
|
|
001-14217
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
+10.4
|
|
|
8-K
|
|
99.1
|
|
6/14/2010
|
|
001-14217
|
||||||||||||||||||
64
|
+10.5
|
|
Form of
Indemnification Agreement between Registrant and its Directors and
Executive Officers
|
|
10-Q
|
|
10.1
|
|
8/11/2008
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+10.6
|
|
ENGlobal
Corporation 2009 Equity Incentive Plan.
|
|
DEF
14A
|
|
Appendix
A
|
|
4/30/2009
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+10.7
|
|
|
DEF
14A
|
|
Appendix
A
|
|
4/30/2012
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+10.8
|
|
|
DEF
14A
|
|
Appendix
A
|
|
11/8/2013
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+10.9
|
|
|
DEF
14A
|
|
Appendix
A
|
|
4/24/2015
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+10.10
|
|
|
8-K
|
|
10.7
|
|
12/20/2012
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.16
|
|
Lease
Agreement between Oral Roberts University and ENGlobal Engineering,
Inc. dated January 27, 2005
|
|
10-K
|
|
10.11
|
|
3/28/2008
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.17
|
|
First
Amendment to the Lease Agreement between Oral Roberts University
and ENGlobal Engineering, Inc. dated April 5, 2005
|
|
10-K/A
|
|
10.26
|
|
3/29/2007
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.18
|
|
Second
Amendment to the Lease Agreement between Oral Roberts University
and ENGlobal Engineering, Inc. dated June 15, 2005
|
|
10-K/A
|
|
10.27
|
|
3/29/2007
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.19
|
|
Third
Amendment to the Lease Agreement between Oral Roberts University
and ENGlobal Eng Inc. dated December 28, 2005
|
|
10-K/A
|
|
10.28
|
|
3/29/2007
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.20
|
|
Fourth
Amendment to the Lease Agreement between Oral Roberts University
and ENGlobal Eng, Inc. dated February 27, 2006
|
|
10-K/A
|
|
10.29
|
|
3/29/2007
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.21
|
|
Fifth
Amendment to the Lease Agreement between Oral Roberts University
and ENGlobal Engineering, Inc. dated July 28, 2006
|
|
10-K/A
|
|
10.30
|
|
3/29/2007
|
|
001-14217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.22
|
|
Sixth
Amendment to the Lease agreement between Oral Roberts University
and ENGlobal Engineering, Inc. dated June 20, 2007
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10-K
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10.17
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3/28/2008
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001-14217
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10.23
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10-K
|
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10.11
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3/15/2018
|
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001-14217
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10.24
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10-K
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10.12
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3/15/2018
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001-14217
|
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10.25
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10-K
|
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10.13
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3/15/2018
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001-14217
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10.26
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10-Q
|
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10.2
|
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11/8/2018
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001-14217
|
65
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10.27
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10-K
|
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10.14
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3/15/2018
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001-14217
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10.28
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10-K
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10.15
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3/15/2018
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001-14217
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10.29
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10-K
|
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10.16
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3/15/2018
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001-14217
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10.30
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|
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10-K
|
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10.17
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3/15/2018
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001-14217
|
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10.31
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10-Q
|
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10.2
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|
3/5/2010
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001-14217
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10.32
|
|
|
10-K
|
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10.19
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3/15/2018
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001-14217
|
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10.33
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|
10-Q
|
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10.1
|
|
11/8/2018
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001-14217
|
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|
10.34
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|
10-K
|
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10.20
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3/15/2018
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001-14217
|
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10.35
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10-K
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10.21
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3/15/2018
|
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001-14217
|
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10.36
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|
10-K
|
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10.22
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3/15/2018
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001-14217
|
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10.37
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10-K
|
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10.23
|
|
3/15/2018
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001-14217
|
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10.38
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10-K
|
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10.24
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3/15/2018
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001-14217
|
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|
+10.39
|
|
ENGlobal
U.S. Inc. Redacted Growth Initiative Plan
|
|
10-Q
|
|
10.1
|
|
11/12/2019
|
|
001-14217
|
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10.40
|
|
Office
Lease between 700 17th Street,
LLC and ENGlobal U.S. Inc., dated January 23, 2019
|
|
10-Q
|
|
10.1
|
|
5/13/2019
|
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001-14217
|
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10.41
|
|
U.S.
Small Business Administration Note dated as of April 13, 2020, by
ENGlobal Corporation in favor of Origin Bank, as
lender
|
|
8-K
|
|
10.1
|
|
4/16/2020
|
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001-14217
|
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10.42
|
|
Loan
and Security Agreement dated as of May 18, 2020, by and among
ENGlobal Corporation, ENGlobal U.S., Inc., ENGlobal Government
Services, Inc., and Pacific Western Bank, a California bank, as
lender
|
|
8-K
|
|
10.1
|
|
5/26/2020
|
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001-14217
|
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|
+10.43
|
|
Amended and Restated ENGlobal Corporation
2009 Equity Incentive Plan
|
|
DEF
14A
|
|
Appendix
A
|
|
4/27/2020
|
|
001-14217
|
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|
10.44
|
|
At Market Issuance Sales Agreement, dated January 29, 2021, between
ENGlobal Corporation and B. Riley Securities,
Inc.
|
|
S-3
|
|
1.2
|
|
1/29/2021
|
|
333-252572
|
66
|
*21.1
|
|
Subsidiaries of the Registrant
|
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|||||||||||||||||
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|||||||||||||||||
|
*23.1
|
|
Consent of Moss Adams LLP
|
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|||||||||||||||||
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|||||||||||||||||
|
*31.1
|
|
Certification of Chief Executive Officer pursuant to Exchange Act
Rules 13a-14 or 15d-14
|
|
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|
|||||||||||||||||
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|||||||||||||||||
|
*31.2
|
|
Certification of Chief Financial Officer pursuant to Exchange Act
Rules 13a-14 or 15d-14
|
|
|
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|
|||||||||||||||||
|
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|||||||||||||||||
|
**32.1
|
|
Certification of Chief Executive Officer pursuant to Exchange Act
Rules 13a-14(b) or 15d-14(b) and 18 U.S.C. Section
1350
|
|
|
|
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|
|||||||||||||||||
|
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|
|||||||||||||||||
|
**32.2
|
|
Certification of Chief Financial Officer pursuant to Exchange Act
Rules 13a-14(b) or 15d-14(b) and U.S.C. Section 1350
|
|
|
|
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|
|||||||||||||||||
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|
|||||||||||||||||
|
*101
|
|
Interactive
Data Files.
|
|
|
|
|
|
|
|
|
|||||||||||||||||
* Filed
herewith
**
Furnished herewith
+
Management contract or compensatory plan or
arrangement
ITEM 16. FORM 10-K SUMMARY
None.
67
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
ENGlobal Corporation |
|
|
|
|
|
|
|
|
Date: March 11,
2021
|
By:
|
/s/ William A. Coskey
|
|
|
|
|
William A. Coskey, P.E. |
|
|
|
|
Chief Executive Officer |
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates
indicated:
|
|
By:
|
/s/ Mark A. Hess
|
March
11, 2021
|
|
|
|
Mark A.
Hess
|
|
|
|
|
Chief
Financial Officer, Treasurer
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
By:
|
/s/ William A. Coskey
|
March
11, 2021
|
|
|
|
William
A. Coskey, P.E.
|
|
|
|
|
Chief
Executive Officer,
Chairman
of the Board, Director
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
By:
|
/s/ David W. Gent
|
March
11, 2021
|
|
|
|
David
W. Gent, P.E., Director
|
|
|
|
|
|
|
|
|
By:
|
/s/ David C. Roussel
|
March
11, 2021
|
|
|
|
David
C. Roussel, Director
|
|
|
|
|
|
|
|
|
By:
|
/s/ Kevin M. Palma
|
March
11, 2021
|
|
|
|
Kevin
M. Palma, Director
|
|
68