San Antonio Theater Shooting - Gun Control and Media

Rev. 3.0

San Antonio Theater Shooting



On Sunday December 17, 2012, 2 days after the Connecticut shooting, a man went to a restaurant in San Antonio to kill his ex-girlfriend. After he shot her, most of the people in the restaurant fled next door to a theater. The gunman followed them and entered the theater so he could shoot more people. He started shooting and people in the theater started running and screaming. It was like the Aurora, CO theater story plus now a restaurant!

Now aren’t you wondering why this wasn't a lead story in the national media along with the recent school shooting?
There is a reason for this.

There was an off duty county deputy at the theater. SHE pulled out her gun and shot the man 4 times before he had a chance to kill anyone. So, since this story makes the point that the best thing to stop a bad person with a gun is a good person with a gun, the media is treating it like it never happened.

Only the local media covered it. The city is giving her a medal next week.

Analysis

Don't you find this interesting? The media wants to support the liberal idea of gun control being the only method to deal with these problems and will neglect an event when it ends in a manner that shows a better alternative. Bad people and bad things are going to happen no matter what. It is better to be prepared for those moments and prevent further losses.

Was the Connecticut shooting the worse school mass murder? No - not by any means. Check this out:

http://en.wikipedia.org/wiki/Bath_School_disaster

This perpetrator used dynamite and pyrotol to kill 38 school kids, 6 adults and injured 58 other people. No gun used at all. Look what Timothy McVeigh did with simple fertilizer. No guns used at all.

Gun control will not stop nutcases. There are 250-300 million guns in the US. Those guns give us the largest standing militia in the world and the key to our security as a nation. They are not going to be collected - ever. Minnesota has so many hunters it rates as about the 8th largest "Army" in the world. Even the Japanese considered invading America briefly and decided to attack Pearl Harbor instead. They thought invasion would be suicide or as Admiral Isoroku Yamamoto said, "You cannot invade the mainland United States. There would be a rifle behind every blade of grass." I wonder now why so many entertain gun control considering our second amendment was a great deterrent to the US being invaded during WWII. Does gun control really work? Just ask Hitler, Stalin, Mao Tse-tung, Castro, Qaddafi, Pol Pot, Idi Amin and Kim Jong-il. Gun control is how they took over their own countries.

"When the people fear their government, there is tyranny; when the government fears the people, there is liberty."

"The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government."

Both of the above quotes are by Thomas Jefferson. He and others founded this country. I believe him.

I am continuously incensed with the media’s deliberate attempts to spin the news in a biased manner while creating their own narrative for liberal agenda.

Do liberals really think this is going to work?

A Reminder In History How The Media Play Politics

General VoNguyen Giap.

General Giap was a brilliant, highly respected leader of the North Vietnam military. The following quote is from his memoirs currently found in the Vietnam war memorial in Hanoi:   “What we still don't understand is why you Americans stopped the bombing of Hanoi. You had us on the ropes. If you had pressed us a little harder, just for another day or two, we were ready to surrender! It was the same at the battle of TET. You defeated us!

We knew it, and we thought you knew it. But we were elated to notice your media was helping us. They were causing more disruption in America than we could in the battlefields. We were ready to surrender. You had won!”

General Giap has published his memoirs and confirmed what most Americans knew. The Vietnam war was not lost in Vietnam — it was lost at home. The same slippery slope, sponsored by the U.S. media, is currently underway. It exposes the enormous power of a Biased Media to cut out the heart and will of the American public.

A truism worthy of note: . . . Do not fear the enemy, for they can take only your life. Fear the media, for they will distort your grasp of reality and destroy your honor.

Here is another good article displaying the same sentiment. It is written by Jennifer Cruz about a defensive shooting the took place in Lumberton, TX.

http://www.examiner.com/article/texas-woman-shoots-wanted-serial-robber-possible-rapist-story-ignored-by-msm

Pilot out.

ENGlobal Corporation: Needs More Time To Close A Deal

Houston, TX, Dec. 19, 2012 (GLOBE NEWSWIRE) -- ENGlobal Corporation (NASDAQ: ENG), a leading provider of energy-related engineering and automation solutions, announced today that it entered into a "Second Amendment to Revolving Credit and Security Agreement, Waiver and Forbearance Extension" with its lender.  The extension will be in place through April 30, 2013 and requires ENGlobal's compliance with certain terms and conditions.  This extended period is expected to allow ENGlobal's management sufficient time to see the results of the implementation of its business improvement plan.  As previously reported, ENGlobal hired a management consultant and subsequently developed a plan to restore the Company's compliance with the revolving credit facility.

Opinion: Key phrase, "...requires ENGlobal's compliance with certain terms and conditions."

ENGlobal Corporation: Reduces Operations

ENGlobal Announces Agreement to Sell its Midstream Inspection Division to Furmanite

Houston, TX, Dec. 11, 2012 (GLOBE NEWSWIRE) -- ENGlobal Corporation (NASDAQ: ENG), a leading provider of energy-related engineering and automation services, announced today that it has reached an agreement on terms under which ENGlobal's Midstream Inspection division will be divested to Furmanite America, Inc. ("FAI") a subsidiary of Furmanite Corporation.  The total value of the transaction to ENGlobal is expected to be approximately $6.5 million, consisting of cash at closing, retained working capital, and a promissory note issued with a parent company guarantee.

ENGlobal intends to use the net proceeds from this transaction to reduce outstanding debt.  The transaction is expected to close at year-end, subject to lender approval and the completion of customary conditions.

"Once closed, this sale ensures that 100% of management's attention can be applied to ENGlobal's Engineering and Automation segments," said William A. Coskey, P.E., Founder, Chairman and Chief Executive Officer. "Since August, ENGlobal has been focused on divesting our Field Solutions segment, leading improvement initiatives, and implementing an organizational restructuring that has resulted in a more efficient company."

ENGlobal announced its plan to explore divestiture options of its Field Solutions segment, which included both its Land/Right of Way and Midstream Inspection divisions, in September 2012.  The Company will complete the divestiture within both the timeline and the estimated value attributed to the segment by ENGlobal.

Opinion:

I think it is a good move; getting the house cleaning done for the 'next step'. Ensuring that 100% of management's attention on anything also sounds good to me; on core segments that can be sold - even better.

Good luck to everyone.

ENGlobal Corporation - 3Q Press Release and 10Q Analyses

Rev. 1.1

It was a record breaking quarterly report so let’s take a look.

Press Release

“ENGlobal reported a net loss of $22.3 million, or $0.83 per diluted share, for the quarter ended September 29, 2012…” Well folks, one thing we have learned about ENGlobal, they always seem to deliver more than you expect.

I am astounded. Are you guys kidding me? When you go cleaning up the books and get a number that bad it is sure sign the BOD, CEO and many others were not doing their jobs.

The next paragraph was a standard we have heard for x number of quarters (I have lost count for 3+ years). “Commenting on the results, William A. Coskey, P.E., ENGlobal's Founder, Chairman and Chief Executive Officer, said, "To a large extent, the third quarter is comprised of heritage financial items that have impacted our Company and mask some recent improving financial trends in our business.  For example, we continue to see gradual improvements across several of our working capital-related metrics. I am very pleased with current business activity in our operations, and also the progress we have made on several fronts since August 1st of this year."

Well you didn’t see gradual improvements in DOS as it appeared to increase to around 85 days for 3Q.  Wonder why ENG stopped reporting that metric?

Some facts here:

• Mr. Pagano resigned at the beginning of August. 
• He was CEO for one month of the third quarter. 

Examine "Heritage financial items". Is Mr. Coskey throwing Mr. Pagano under the bus or patting himself on the back, or maybe both? For once, I would like to see a CEO or Chairman of the Board take responsibility for results and not try to 'Pass the Buck'. Regardless, who was the Chairman of the Board during the creation of these “heritage financial items”? I am surprised it wasn't Bush's fault.

Too bad the miniscule positives don’t outweigh continuing operations' negatives, much less the every quarter “non-recurring special event”. These improvements are really just polishing the silverware on the Titanic. To explain it another way. Lets say you have stalled your aircraft and are in an unrecoverable spin with a downward velocity of 10,000 ft per minute. You eject and your upward velocity for a short period is 2,000 ft per minute. Guess what? You are still losing altitude and if you don't have enough altitude above ground level you are going to impact. 

Results were so bad ENGlobal is not even going to hold a conference call. If ever they needed a conference call it is now!  If Mr. Coskey truly believes this rhetoric he should get on the line and tell the world about all their accomplishments and provide some supportive details for the, I quote, “progress on our strategic priorities, including collaborating with our management consultant to improve financial performance, reorganizing our management team, pursuing opportunities to improve margins and reduce expenses, and completing the divestiture of our Land and Right-of-Way division of the Field Solutions segment”.  Details would be a nice change from the ongoing ‘trust us’ situation because we have seen what that got us for those x number of quarters.


10Q Analysis

From the Condensed Consolidated Balance Sheets (Unaudited):

Goodwill - $2,805,000

How does this remain?  Any Goodwill has been lost to the clients, employees, and shareholders.  They did say it was an interim assessment so there is more to come!

Long-term trade and notes receivable, net of current portion and allowances - $899,000

This looks like another SLE write-down if not collected in the forth quarter.

Current portion of debt - $29,406,000 

Almost doubled since the end of the year. The right-away sale should help reduce this amount by approx. $4.5 mil as retained AR is collected because there was no immediate cash in the deal!

Total Stockholders' Equity - $26,352,000

Lost $32.1 mil in equity in 9 months.  Book value @ approx. $0.98 per share; Tangible Net Worth (book value less Goodwill and Other Intangibles) @ $0.80 per share)


From Condensed Consolidated Statements of Cash Flows (Unaudited):

Net cash provided by (used in) operating activities for the first nine months - ($8,278,000)

Still negative cash flow for the year but positive for the 3rd quarter by $910k… a good sign!


Note 2 - Liquidity

"Although we have sold assets and reduced personnel in an attempt to improve our liquidity position, we cannot assure you that we will be successful in obtaining the cure or waiver of the defaults under the respective credit facilities. If we fail to obtain the cure or waiver of the defaults under the facilities after any forbearance period, the lenders may exercise any and all rights and remedies available to them under their respective agreements, including demanding immediate repayment of all amounts then outstanding or initiating foreclosure or insolvency proceedings. In such event and if we are unable to obtain alternative financing, our business will be materially and adversely affected, and we may be forced to sharply curtail or cease our operations. In addition, based on current conditions, it is probable that our independent registered public accounting firm will include an explanatory paragraph with respect to our ability to continue as a going concern in its report on our financial statements for the year ending December 31, 2012."


Notes to Unaudited Interim Condensed Consolidated Financial Statements:

"The Company has been unable to sell the Electrical Services group as planned and has decided to dispose of substantially all of the group’s remaining assets. During the third quarter of 2012, the Company completed the disposal of the group’s remaining assets concurrent with the completion of the last remaining lump sum project. During the third quarter, the Company incurred approximately $0.5 million of costs to complete the remaining lump sum project. Going forward, the Company will have no continuing involvement with these operations after the completion of the remaining lump sum project."

I wonder when this discontinued project will be completed? This was going to be taken care of several quarters ago.

"On September 10, 2012, the Company entered into a definitive agreement to sell its Field Solutions segment...The transaction was valued at approximately $7.5 million, consisting of approximately $4.5 million in working capital at closing to the Company [NO CASH!] and a $3 million promissory note payable to the Company over four years."

"The results of the discontinued operations are shown on the Condensed Consolidated Statements of Operations as "Loss from discontinued operations, net of taxes". During the third quarter, the Company incurred or accrued approximately $3.6 million [shows $3.717 mil in the actual table] of additional costs (which includes a loss on the sale of the Land and Right-of-Way division of approximately $1.1 million) related to the sale of these divisions."

Sounds like the Electrical Group took another $2.5 mil hit on the project.


Note 7 - Line of Credit and Debt

"Pursuant to generally accepted accounting principles, the combination of both a subjective acceleration clause and a lock-box arrangement required by the lender results in borrowings outstanding under the PNC Credit Facility being classified as short-term obligations despite the three-year term of the agreement."

Nothing like long-term being classified as short-term. Unfortunately by the same token ENGlobal finally now has long-term losses.


Notes to Unaudited Interim Condensed Consolidated Financial Statements:

"On October 30, 2012, the Forbearance Period was extended to November 15, 2012.  On November 14, 2012, the Forbearance Period was extended to November 30, 2012 (or earlier should any forbearance default occur)."

Looks like PNC is only giving ENG relief in 2-week increments. Wonder if ENG has received another 2-week extension last Friday?

"As of the result of covenant violations, including those described above, the Company is currently in default under the terms of the PNC Credit Facility. As of the date of this filing, the Agent has not taken any action with respect to the Company's defaults and the Company was actively discussing with the Agent the terms under which such defaults may be cured or waived. Although the Company is in active discussions with the Agent, if the Company is not successful in obtaining the cure or waiver of such defaults, at the end of the Forbearance Period, the Agent may exercise any and all rights and remedies available to it, including demanding immediate repayment of all amounts then outstanding or initiating foreclosure or insolvency proceedings. In such event and if we are unable to obtain alternative financing, our business will be materially and adversely affected, and we may be forced to sharply curtail or cease our operations."

Now we get the same for the Ex-Im Bank Facility.

"As of the result of covenant violations, including those described above, the Company is currently in default under the terms of the Ex-Im Bank Facility.  As of the date of this filing, Wells Fargo had not taken any action with respect to the Company's defaults and the Company was actively discussing with Wells Fargo the terms under which such defaults may be cured or waived.  Although the Company is in active discussions with Wells Fargo, if the Company is not successful in obtaining the cure or waiver of such defaults, Wells Fargo may exercise any and all rights and remedies available to it, up to and including terminating the Ex-Im Bank Facility. In such event and if we are unable to obtain an alternative facility, our business will be materially and adversely affected, and we may be forced to sharply curtail or cease our operations."


Notes to Unaudited Interim Condensed Consolidated Financial Statements, Total Assets by Segment, As of September 29, 2012:

If you subtract the discontinued operations (see the asterisk note) in the table from the Total Assets ($86,493,000) it looks like continuing operations has only $72,680,00 in assets!

Now stroll down to Net Loss ($22,330,000):

If you add back Goodwill at $14.6 mil and Discontinued Ops at $3.7 mil continuing Ops still lost $4.0 million! Consider E&C making 6.5% and Automation making 16.4% in margin with overall rate at 5.7%.  With a $6.0 million overhead they need to double revenue to just break even OR they need to double margins.


Note 12 – Subsequent Events

Notice of Delisting:

"The Company intends to consider available options to resolve the noncompliance with the minimum bid price requirement. No determination regarding the Company’s response has been made at this time. There can be no assurance that the Company will be able to regain compliance with the minimum bid price requirement or will otherwise be in compliance with other NASDAQ listing criteria."

Closing of Sale of the Land and Right of Way Division of the Field Solutions Segment:

"Pursuant to the final agreement, the Company will retain approximately $4.5 million of this division's working capital at the time of closing [again, that means no cash received], in addition to receiving a $3.0 million promissory note payable over four years."

"As previously reported, the original agreement provided for the sale of substantially all of the assets of both divisions of its Field Solutions segment, the Land and Right-of-Way, and Inspection. However, the Inspection division was not sold as part of the final transaction, and ENGlobal will retain the Tulsa-based business for the foreseeable future, while actively pursuing its sale and reporting its financial position and results of operations as discontinued operations. The Company expects no changes to the personnel of its Inspection operation as a result of this transaction."

Maybe another mandate from division management and employees to ‘sell or we leave’ will prompt accelerate selling activity.


Financial Overview of Continuing Operations:

"Improving our margins on our existing work is an important area of focus.  During the recent period of industry-wide decline in demand for the types of services we provide, we reduced our rates significantly, as was required to obtain and retain business. Although the level of demand has increased, pricing in certain geographical markets is still extremely competitive and we have not yet been able to increase our margins to prior levels. We have recently engaged a management consultant to assist us in improving our profit margins."

Does that mean the remaining management cannot come up with ideas to improve margins?  Are they "energized" but just do not know what to do?


Results of Continuing Operations– Three Months ended September 29, 2012 versus September 30, 2011:

Overall comments - As noted in the summary Revenue down 5% and Gross Profit down 52%.  Concerned should be that the core business is no longer able to make margins to cover SG&A.  The drop in revenue probably comes out of in-office projects, which is making margins (as a percent of revenue) decline, as in-plant revenue becomes a bigger piece of the pie. Bad market mix for E&C. Risk of losing Caspian due to ENG’s cash issues and paying subs. A loss or delay of the next phase of the work could materially impact revenue and margins coming out of Automation. SG&A is saddled with office rents that are not easily re-negotiated and will make it difficult to downsize quickly.

Gross Profit (Loss):

"Gross profit for the three months ended September 29, 2012, as compared to the comparable 2011 period, decreased by approximately $3.5 million, or 5.8%.  As a percentage of revenue, gross profit decreased from 11.2% to 5.7% [massive] for the three months ended September 29, 2012, as compared to the same period in 2011"

"Our gross profit and gross profit margin decreased primarily due to increased direct and variable costs [wonder what their utilization rate is running, or how billable man-hours are trending?] in our E&C Segment, resulting in lower profit margins.  We continue to be affected by intense competition and pricing pressures."

This seems to be a rather lame excuse when you look at apparent growth of competition in similar markets.


Liquidity and Capital Resources

Overview:

"ENGlobal does not intend to provide updates or make any further comment regarding its exploration and evaluation of strategic alternatives unless and until the Board of Directors has approved a definitive course of action."

Based on the Board’s reactions to what appear to be critical items this could take a while for them to approve anything. This does not really surprise you, does it?

Cash Flows from Operating Activities:

"The primary changes in working capital during the nine months ended September 29, 2012 included increased Costs in Excess of Billings [not getting billings out on time] and Decreased Billings in Excess of Costs [not getting favorable contract terms to allow for positive cash flows on lump sum projects] on uncompleted contracts of $1.3 million on fixed price projects where billing milestones have not been met, partially offset by an increase in accounts receivable of $2.8 million."

Again, bad terms, or poor order-to-cash processes.


PNC Credit Facility:

"Forbearance Period was subsequently extended to November 15, 2012 and again to November 30, 2012 (or earlier should any forbearance default occur) at a cost of $17,500 for each extension."

That could get expensive at $35k per month.


Conclusions and Opinion

Glancing at the latest financials posted (November 24th) and the revenue trends certainly are an eye opener!  Revenue trends over the last 4 quarters go from approx. $150mm as December 2011, $75mm in Q1, $77mm in Q2, and then $23mm in Q3 although I suspect the December 2011 numbers may not be correct*.  The Q3 results give ENG a current continuing revenue run-rate of less than $95mm which is about where it started in 2001.  Would be interesting to look back at what level of SG&A ENG had at that time.

*(According to SEC filings ENG 2011 annual revenue was approx $313mm and the 2011 3Q revenue was approx $222mm, or a net revenue for the 4th quarter of approx $91mm.)

Back to the press release and 10Q - OK folks, it is a disaster. No profit is going to be made. So what is going to happen?

Let's look at the recent history. ENG's losses were increasing. It is obvious PNC didn't trust management anymore. A consultant was forced upon ENG through the Credit Facility by PNC to manage ENGlobal.

Then, parts of the company are/were being sold and this continues. It is a liquidation process in my honest opinion.

Now another firm comes in (Simmons) assigned to help determine the future of ENG, however, ENG is not indicating any particular avenue. Cutting through the BS, I believe they are trying to sell the company. Moreover, we are getting close to that time. Why? One, for tax reasons - before the end of the year. Two, it sure looks like they threw in everything that would be a loss into this quarter to take all problems off the balance sheet. This would clean up those books for a potential sale. Three, PNC would never extend more time to ENGlobal with their risks increasing from further company losses unless a deal is imminent.

If you own stock I think you will get something for it, either in stock trade or cash. This is better than nothing. If you have a job there you may continue to have one, adjustments will be made. Who will buy ENG? First, let me say the deeper the buyer’s pockets are the better off you will be. In addressing who would be a buyer - who wants to create or increase their presence in the Golden Triangle, someone like CDI, Jacobs or CDI.

Good luck to everyone.

ENGlobal Corporation: 3Q - OMG

HOUSTON, Nov. 19, 2012 (GLOBE NEWSWIRE) -- ENGlobal (Nasdaq:ENG), a leading provider of energy-related project delivery solutions, announced today its financial results for its third quarter ended September 29, 2012. ENGlobal reported a net loss of $22.3 million, or $0.83 per diluted share, for the quarter ended September 29, 2012, compared to a net loss of $1.3 million, or $0.05 per diluted share for the same period last year. Included in the third quarter 2012 results were one-time, non-cash charges of approximately $17.5 million, primarily relating to goodwill impairments and a write-down of the assets of the Field Solutions segment that was classified as held-for-sale at quarter end, in addition to charges on completed fixed price projects.

Commenting on the results, William A. Coskey, P.E., ENGlobal's Founder, Chairman and Chief Executive Officer, said, "To a large extent, the third quarter is comprised of heritage financial items that have impacted our Company and mask some recent improving financial trends in our business.  For example, we continue to see gradual improvements across several of our working capital-related metrics. I am very pleased with current business activity in our operations, and also the progress we have made on several fronts since August 1st of this year."

Mr. Coskey continued, "While we are disappointed in the quarterly results, we believe that the measures that are being implemented should begin to have a positive impact. During the quarter, we continued to make progress on our strategic priorities, including collaborating with our management consultant to improve financial performance, reorganizing our management team, pursuing opportunities to improve margins and reduce expenses, and completing the divestiture of our Land and Right-of-Way division of the Field Solutions segment. One thing I can say with certainty is that our management team is engaged and energized, and working hard to produce better results going forward."

Third quarter revenues decreased to $57.5 million, 5% lower than the $60.5 million for the third quarter of fiscal year 2011, primarily due to a decrease in revenue from the Gulf Coast region of the Engineering and Construction segment.

In response to the reduced activity levels expected for the remainder of 2012, the Company began reducing overhead and selling, general and administrative ("SG&A") staff levels beginning in June and has continued this effort throughout the third quarter. Overall, SG&A expenses decreased $0.5 million from $6.7 million in the three months ended September 30, 2011, to $6.2 million in the third quarter of 2012. As a percentage of revenue, SG&A expense decreased to 10.7% for the three months ended September 29, 2012, from 11.0% for the comparable prior year period.

ENGlobal continues to negotiate with its lender and work with its management consultant to restore the Company's compliance with its credit facility.

The Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 2012 will be filed with the Securities and Exchange Commission today reflecting these results. The Company will not be hosting an earnings conference call for the quarter ended September 29, 2012.

ENGlobal Corporation files another NT 10-Q

Rev. 2.0

Earnings Delayed again.

http://sec.gov/Archives/edgar/data/933738/000117184312004137/nt10q_111312.htm

PART III - NARRATIVE

State below in reasonable detail the reasons why Forms 10-K, 20-F, 11-K, 10-Q, N-SAR or the transition report or portion thereof could not be filed within the prescribed time period.

The Registrant is unable to file the subject report in a timely manner because the Registrant was not able to complete timely its financial statements without unreasonable effort or expense.  The Registrant’s management deemed additional time is necessary to ensure full, complete and accurate disclosure and to complete the financial statements required for inclusion within the Quarterly Report on Form 10-Q for the period ended September 29, 2012. We believe that the subject quarterly report will be available for filing on or before November 19, 2012.

Oh, by the way did you notice this?

(3) Is it anticipated that any significant change in results of operations from the corresponding period for the last fiscal year will be reflected by the earnings statements to be included in the subject report or portion thereof? ☒ Yes ☐ No

If so, attach an explanation of the anticipated change, both narratively and quantitatively, and, if appropriate, state the reasons why a reasonable estimate of the results cannot be made.

Explanation:  The Registrant’s results of operations for the quarter ended September 29, 2012 will differ materially from the same period in 2011.  The Registrant is in the process of finalizing an interim goodwill impairment review and anticipates an impairment of approximately $16.9 million.

Four More Years

ENGlobal Corporation: Some Of The Deal Finalized

ENGlobal Finalizes Divestiture of Land and Right of Way Division

Houston, TX, Nov. 5, 2012 (GLOBE NEWSWIRE) -- ENGlobal Corporation (NASDAQ: ENG), announced today that it successfully completed the divestiture of its Land and Right of Way division to Steele & Company, LP based in Tyler, Texas ("Steele"). Pursuant to the final agreement, the Company will retain approximately $4.5 million of this division's working capital at the time of closing, in addition to receiving a $3.0 million promissory note payable over four years from Steele. Subject to the agreement, the purchase price was adjusted based on the net working capital of the division at the time of closing. ENGlobal intends to use the net proceeds from this transaction to reduce outstanding debt.

As previously reported, the original agreement between ENGlobal and Steele provided for the sale of substantially all of the assets of both divisions of its Field Solutions segment, Land and Right of Way, and Inspection. However, the Inspection division was not sold as part of the final transaction, and ENGlobal will retain the Tulsa-based business for the foreseeable future. The Company expects no changes to the personnel of its Inspection operation as a result of this transaction.

ENGlobal Corporation: A Stay Is Granted

HOUSTON, Oct. 31, 2012 (GLOBE NEWSWIRE) -- ENGlobal Corporation (Nasdaq:ENG), a leading provider of energy-related project delivery solutions, announced today that it has been granted additional time by its lender for the purpose of negotiating the terms of an extended waiver period. As previously announced, ENGlobal has hired a management consultant and is developing a plan to restore the Company's compliance with its credit facility. This extended period through the first quarter of 2013 would allow ENGlobal's management sufficient time to implement this plan.

ENGlobal Corporation: Hires Help To Determine Their Future

ENGlobal Engages Simmons & Company International


HOUSTON, Oct. 11, 2012 (GLOBE NEWSWIRE) -- ENGlobal Corporation (Nasdaq:ENG), a leading provider of energy-related project delivery solutions, announced today that its Board of Directors has initiated a process to explore and consider possible strategic alternatives for enhancing shareholder value and supporting the Company's long-term financial strength. These alternatives could include, but are not limited to, raising capital, selling a portion of the Company's assets, and the possible sale or merger of ENGlobal, among other alternatives.

The Board of Directors has retained Simmons & Company International, an international financial advisory firm with significant experience in the energy industry, as its financial advisor during this process. ENGlobal continues to take actions to streamline its operations, including the previously announced divestiture of its Field Solutions segment, the implementation of expense reduction initiatives, and the retention of a management consultant to perform advisory services.

"It's important to note that management's primary focus is to implement our plan to return the Company to profitability," said Mr. Coskey. "Simmons will assist us with the evaluation and negotiation of various proposals presented to the Company to date in addition to other alternatives."

Mr. Coskey continued. "I firmly believe we are a company with inherent value, including tangible book value, that is greater than our current stock price would indicate. I would like to thank our loyal employees and valued clients for their continued support. We are committed to taking the necessary steps to turn our business around and ensure its long-term success."

The Company has not made any decision to engage in any specific strategic alternative at this time, and the exploration of strategic alternatives may not result in any specific action or transaction. ENGlobal does not intend to provide updates or make any further comment regarding its exploration and evaluation of strategic alternatives unless and until the Board of Directors has approved a definitive course of action.

ENGlobal Corporation: Notice of Delisting

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On October 3, 2012, ENGlobal Corporation (the “Company”) received written notice from The NASDAQ Stock Market LLC (“NASDAQ”) indicating that the Company is not in compliance with the $1.00 minimum bid price requirement for continued listing on the NASDAQ Global Select Market, as set forth in Listing Rule 5450(a)(1). The notice has no immediate effect on the listing of the Company’s common stock, and its common stock will continue to trade on the NASDAQ Global Select Market under the symbol “ENG” at this time.

In accordance with Listing Rule 5810(c)(3)(A), the Company has a grace period of 180 calendar days, or until April 1, 2013, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for at least ten consecutive business days during this 180-day grace period.

If the Company is not in compliance by April 1, 2013, the Company may be afforded a second 180 calendar day grace period if it transfers the listing of its common stock to The NASDAQ Capital Market. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The NASDAQ Capital Market, except for the minimum bid price requirement. In addition, the Company would be required to notify NASDAQ of its intent to cure the minimum bid price deficiency by effecting a reverse stock split if necessary.

If the Company does not regain compliance within the allotted compliance period(s), including any extensions that may be granted by NASDAQ, NASDAQ will provide notice that the Company’s common stock will be subject to delisting. The Company would then be entitled to appeal the NASDAQ Staff’s determination to a NASDAQ Listing Qualifications Panel and request a hearing.

The Company intends to consider available options to resolve the noncompliance with the minimum bid price requirement. No determination regarding the Company’s response has been made at this time. There can be no assurance that the Company will be able to regain compliance with the minimum bid price requirement or will otherwise be in compliance with other NASDAQ listing criteria.


http://sec.gov/Archives/edgar/data/933738/000117184312003594/f8k_100512.htm

Tumultuous Tulsa

Rev 1.1

Tulsa is the home of the Golden Hurricanes but that is not where the turbulence is. I was intrigued by several postings and circulating opinions that some event occurred up in ENGlobal’s Tulsa Government Office. I looked into those claims and now have some facts.

Tulsa, OK - ENGlobal Government Services

Several former members of the ENGlobal Government Group said that a massive resignation and walkout has occurred in the Tulsa, Oklahoma office by the Senior Program and Project Management Team, System Integration Department Head/Project Manager, several Systems Analysts and the Sr. Electrical Engineer. No details are revealed. The only fact known is that management fired one key manager which resulted in the resignation of multiple other key managers.

Any other details are really unnecessary anyway. Let’s examine just that basic information. The fact that one member was fired and many others left fairly quickly indicates several important psychological facts:

• There was sharp disagreement with management.

• The disagreement was deep enough to fore go fears of unemployment. There may have been a longer history of discord between management and the team indicating misunderstanding and poor relations. It is well known this team made high profit for many past years to present – you may draw your own conclusions.

• There is a strong emotional and support bond within this group – they stand together. This usually means they performed as a group well, which is typical for long-term government contracting. There is usually a great deal of respect between the government and long-lived groups.

The firing triggered a cascade of resignations that could impact performance on past and recently awarded contracts. Will ENGlobal eventually lose the contracts without the team? No one can be absolutely sure but with that much central talent gone it should severely impact performance. I will discuss my experiences. Having performed some government contracting in the past I know that if a contractor has not paid vendors and/or cannot perform work or convince the government of unfettered performance the contract will be cancelled for "non-performance" or "convenience". This happens rather procedurally and relatively fast once the government gets any red flags. If the government hears of this walkout it will be on alert and they will look for any performance issues. All government actions are based on performance on the contract.

If performance issues are noted the first step is for the government to issue “Cure” letters. If the issues from those letters are not remedied then the next step is reached. That step is “Show/Cause” notifications. If these are not actively engaged and solved then “Notice of Termination” results. This process is very procedural, paced and the government provides adequate time for reflexive action. Note: The opinion of the contractor that is having problems will always differ on the latter point. If you act slowly or ignore the government the termination comes justifiably quicker. The government pays on time and quickly (~ 10 days) – you should not waste their time or fair procedure with excuses or silence. 

When a government contractor loses team members it cannot simply replace any single team member with another Program or Project Manager, Analyst, Engineer, etc. Why? This is due to the fact that the government will not accept or approve of just any person filling those roles. The government has a serious responsibility to U.S. taxpayers to spend money wisely with tight controls. Contracting team members that they will approve of are very professional and have pedigreed resumes by working up to those positions under previous government contracts and have a history of accepted performance.

So what will ENG corporate do now?

One, they can refill those positions with government approved personnel and continue to service the contract. If ENG is able to refill the positions and continue to service the contract, it is doubtful that they would continue to receive the same quantity of work that the previous experienced team was able to win.  ENG still has to bid this work against other contract awardees and these other firms are likely to be a beneficiary of this situation.  If this occurs revenue from this group will start to decline.

ENG might try and pick up new work in other Government sectors, however their current financial situation will make this difficult.  It is doubtful other Government agencies will want to risk new contract awards to a company struggling financially.

If they cannot do the above then, two, they can sell the contract, before they lose it, to a group properly registered to do government work. Remember, there are other awardees on that same contract also.

Three, they can lose the contract with little value. The actual contract value to ENG is $8,333.00 with the huge balance not presently awarded. Yes, even though millions were touted those contract blocks have not been awarded yet! ENG may try to attract the group back with more money but the factors that led them to quit would remain.

Good luck to everyone.

Fall and Winter News and Events 2012

Rev. 4.6

ENGlobal Reaches Forbearance Agreement With Lender

HOUSTON, Oct. 1, 2012 (GLOBE NEWSWIRE) -- ENGlobal Corporation (Nasdaq:ENG), a leading provider of energy-related project delivery solutions, announced today that it has reached a forbearance agreement with its lender under the Company's senior secured revolving credit facility with respect to existing events of default and anticipated events of default. The forbearance agreement allows the Company time to hire a consultant and develop a turnaround plan by October 15, 2012. ENGlobal has hired a consultant and intends to work with them to develop a plan to restore the Company's compliance with the credit facility. The forbearance agreement extends through October 31, 2012.

Opinion 1/10

Again, you can really see who is in power, the lenders - PNC. Do they think ENG can restructure on their own? Nope.

Here is a Houston Business Journal article that is short and interesting. Apparently, they are unaware of the sale of Field Solutions:

http://www.bizjournals.com/houston/blog/drilling-down/2012/10/eng-gets-two-more-weeks-for-turnaround.html?ana=yfcpc

Take a look at the SEC filing and you will see quite a bit more information including the covenants broken. Moreover, there is one sentence that is quite different from the news release with an added keyword I will underline: "The Consultant is to be retained to provide a turnaround or exit plan, in form and substance satisfactory to Agent, by October 15, 2012 (or such later date as may be permitted by Agent in its sole discretion) and services as are reasonably necessary to facilitate Borrowers' ability to operate in compliance with the terms of the Credit Agreement."

You can see the filing here:

http://sec.gov/Archives/edgar/data/933738/000117184312003507/document.htm



ENGlobal Enters Agreement to Sell Its Field Solutions Segment

HOUSTON, Sept. 10, 2012 (GLOBE NEWSWIRE) -- ENGlobal Corporation, a leading provider of energy-related project delivery solutions, announced today that a subsidiary has entered into a definitive agreement to sell substantially all of the assets of its Field Solutions segment to Steele & Company, LP based in Tyler, Texas. ENGlobal's Field Solutions segment includes its Right of Way and Inspection divisions, primarily serving pipeline and electric power operating companies. The purchase price will be approximately $15 million, consisting of approximately $10 million in cash at closing to ENGlobal and a $5 million promissory note payable to ENGlobal over four years. In addition, the definitive agreement provides for a purchase price adjustment based on the net working capital of the business as of closing.

Once the transaction is finalized, Mr. David Sinclair, Executive Vice President of the Field Solutions segment, will become President of the newly formed entity, Steele Land & Inspection. LLC. Mr. Sinclair has over 30 years of Right of Way and land management experience in both domestic and international assignments for the pipeline industry.

"The sale of the Field Solutions segment is important to ENGlobal and serves as a win-win for all parties," said William A. Coskey, P.E., ENGlobal's Chairman and Chief Executive Officer. "Brandon Steele and his team possess a rich heritage and successful operating history in our industry. Both our valued Field Solutions clients as well as personnel in this group are going to be served by a strong, vibrant and honorable organization. Finally, for ENGlobal and our shareholders, this transaction is expected to be a positive step - both in terms of financial liquidity and for our strategic engineering and automation focus going forward."

"The acquisition of ENGlobal's Land and Inspection divisions is a solid strategic fit and allows us to undertake a variety of energy infrastructure projects across the United States," said Brandon Steele, Steele & Company's Chairman of the Board. "In addition, the continuity of the management team will enable us to continue operations with very little disruption. We are confident that the combined portfolio under the Steele name will be well positioned to capitalize on meaningful opportunities in the growing energy marketplace."

The transaction is subject to certain closing conditions, including approval of ENGlobal's lenders. Proceeds provided by the transaction would be used to repay borrowings under ENGlobal's credit facility.

Opinion 9/13

First, I'd like to say that Steele and Company, LP is a fine company. Field Services is lucky to have them as a new parent and Brandon Steele as a great CEO. David Sinclair's leadership and the group will do well there.

I have been watching the stock making new lows after ENGlobal’s Field Services segment has been sold. It does not look like the market has viewed the sale as beneficial and possibly a negative indicator. Let’s examine the sale and look at some facts. Second, let's review the final statement in the news portion of the 8K:

“The transaction is subject to certain closing conditions, including approval of ENGlobal's lenders. Proceeds provided by the transaction would be used to repay borrowings under ENGlobal's credit facility.”

Well you can really see who is in power, the lenders - PNC. Additionally, you can see where the cash is going, into the Credit Facility. This simply allows ENG to borrow more, at a percentage, to operate. We will revisit this later.

It appears this just a way to monetize AR off the Balance Sheet. The sale price is approximate 2.5 times average monthly revenue for FS which could also equal AR and Unbilled at 70-75 days sales outstanding. PNC may be forcing ENG to handle the liquidation too. As far as the FS employees being "served by strong, vibrant, and honorable organization", this will at least be a switch for those FS employees!

ENG loses 22% of their revenue and as a percent of revenue the most profitable segment in their portfolio. The sale is probably the only option within the company that could bring anything in a sale and with the $5 million note ENG discounted its AR by 30%. If the CEO got 60% of all AR he could pay off his debt but not sure he could fund operations going forward. All this appears to be is quick short-term option to pay down debt.

The cash value, if it were used for such represents about 18 days of payroll. The cash will help in one way only, it will be used to pay off debt, increasing the base formula of the CF to borrow more money while an additional percentage of borrowing debt is added. Revisiting this topic again from above, will it help? Sure short-term. But in the long-term it does not help if you don’t make money. You can't pay any debt back if you continue to lose money. Moreover, hemorrhaging valuable employees on a continual basis will only hasten the inevitable.

Comments are welcome.

• 9/10 New 5-year intraday low on ENG stock, $0.64.
• 9/11 New 5-year intraday low on ENG stock, $0.61. New 5-year closing low on ENG stock, $0.64, volume 68K shares.
• 9/13 New 5-year closing low on ENG stock, $0.62, volume 177K shares.
• 9/18 New 5-year intraday low on ENG stock, $0.60.
• 9/19 New 5-year closing low on ENG stock, $0.59.
• 9/20 New 5-year intraday low on ENG stock, and new 5-year closing low on ENG stock, $0.51, volume 174K shares.
• 9/21 New 5-year intraday low on ENG stock, $0.50.
• 10/3 ENG files Delisting Notice 8K from the NASDAQ with the SEC. 180 days timeout. :(
• 10/9 New 5-year intraday low on ENG stock, and new 5-year closing low on ENG stock, $0.45, volume 81K shares.
• 10/10 New 5-year intraday low on ENG stock, $0.32. New 5-year closing low on ENG stock, $0.33, volume 369K shares. It looks as though somebody is expecting a bad event.
• The heads of Engineering, HR and Business Development have left ENGlobal.
• 3Q Earnings are delayed - NT 10Q filed 11/13 (see post).

2Q 2012 10Q More Analysis

In looking at the 10Q closer there are more interesting notes and comments to make. Let’s look at it by section:

Note 3 - Discontinued Operations

"The Company has been unable to sell the Electrical Services group business as planned and has decided to sell substantially all of the assets of this business. The Company expects to complete the disposal of its discontinued operations concurrent with the completion of the last remaining lump sum project, which is expected to occur in the third quarter of 2012. During the second quarter, the Company accrued approximately $0.5 million of additional costs expected to be incurred to complete the remaining lump sum project. The Company will have no continuing involvement with these operations after the sale or disposal."

The trend in losses since the election of “discontinued operations”:
    06/30/2011 – loss of $0.430 mil
    09/30/2011 – loss of $1.036 mil
    12/31/2011 – loss of $0.933 mil
    03/31/2012 – loss of $0.113 mil;
That’s $2.512 mil in the prior 4 quarters and now another $2.073 mil in 2Q of 2012!  Sounds like it was not discontinued... Where was project controls and internal audit on assessment of ETC on this project?  Where is the credibility that such project will now be completed in 3Q?  What additional losses will we see?

Note 4 – Stock Compensation Plans

I find this section generally painful to read considering company results:

"In April 2012, the Compensation Committee of the Board of Directors approved an increase of 500,000 shares, which was subsequently approved by our shareholders. As of August 17, 2012, 470,773 shares of restricted stock have been granted under the Equity Plan, of which 133,115 remain subject to outstanding awards."

Where did the 470,773 shares go?  Who produced results to get such grants other than the board?  As you recall the CEO and the board received just over 151,000 shares for their efforts and direction.

Note 5 – Contracts

“The Company recognizes 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 defer revenue recognition until we receive either a written authorization or a payment. The current amount of revenue deferred for these reasons is approximately $1.7 million as of June 30, 2012, compared to $0.3 million as of December 31, 2011.” - THEY ARE STILL DOING WORK WITHOUT CHANGE ORDERS!

“We expect a majority of the deferred revenue amount to be realized by year end 2012.” If they expect this revenue to be realized why are they deferring?

Credit Facility

You need to read the sections concerning the Credit Facility in the 10Q. The facility was covered previously within a dedicated post. I had several people read that lengthy and onerous money contract and contribute their thoughts to that post to get that monster right. It is tough and restrictive contract as noted then. The information within the current 10Q is a good, well-written abstract synopsis of that Credit Facility - too bad ENG fell into such financial condition that this was the result. The abstract is shorter than the approximately 114 pages of the actual CF, however it is still lengthy so I will provide you a link, see section labeled "PNC Credit Facility". As a side note see the section above it labeled "Current Classification of Borrowings under the PNC Credit Facility". I find it humorous that a three-year term agreement is classified as "Current".

http://sec.gov/Archives/edgar/data/933738/000093373812000012/eng-10qx063012q.htm

Note 8 – Federal and State Income Taxes

Remember the big percentage of this quarter’s loss?

"During the quarter, based upon the Company's recent performance, management determined the realization of deferred tax assets is uncertain as the Company is unable to consider tax planning strategies or projections of future taxable income in its evaluation of the realizability of its deferred tax assets as of June 30, 2012. Under these circumstances, deferred tax assets may only be realized through future reversals of taxable temporary differences and carryback of net operating losses to available carryback periods. We have performed such an analysis and a valuation allowance of approximately $6.2 million has been provided against deferred tax assets as of June 30, 2012."

Translation: Basically we do not think we will make enough money to take advantage of the deferred tax asset… if that’s true why wouldn’t this be a triggering event for goodwill impairment?

MD&A Overview

“After a period of declining revenues due to poor domestic economic conditions, we were encouraged by our project proposal activity during the fourth quarter of 2011 and into the first quarter of 2012, which resulted in an increase in backlog and revenue." Where are the awards?  We have not seen any press releases sharing any recent successes.

"In the first quarter of 2012, we were notified by Wells Fargo Bank that they were no longer willing to support the Company with its credit facility. In response, we began looking for a replacement credit facility to meet our working capital needs, while curtailing unnecessary expenditures. The majority of our vendors and customers have been amenable to working with us through this transition."

Really, so vendors have agreed to work without pay and customers have agreed to pay early?  We can see where AP has increased since December 31, 2011 from $8.4 mil to $8.9 mil at the end of March 30, 2012 and $11.5 mil at the end of June 30, 2012 but what we cannot see customer help with early payments?

"As a result of the uncertainty created by the credit facility transition, we spent valuable time reassuring our stakeholders. Unfortunately, the internal focus - while necessary - was also counterproductive to our business development momentum. As a result, our sales throughout the second quarter have been weaker than expected." REALLY? Profits would be the most assuring thing for the stakeholders.  How about spending time making that happen?

Management's Discussion and Analysis

"During the recent period of industry-wide decline in demand for the types of services we provide, we reduced our rates significantly, as was required to obtain and retain business. Although the level of demand has increased, pricing in certain geographical markets is still extremely competitive and we have not yet been able to increase our margins to prior levels." - What?  Tell that to Richard Industrial Group and Burrow Global. Competitors are growing!

Revenue:
"The Field Solutions segment experienced decreased revenue in the Land division due to decreased project activity with major midstream energy companies while the Inspection Division experienced decreased revenue due to completion of the Ruby Pipeline Project." Where does the flight of senior management fit into the chicken and the egg theory within Field Solutions?

Selling, General, and Administrative:
“The $1.1 million increase in SG&A expense for the three months ended June 30, 2012 , as compared to the same period for 2011 , primarily resulted from increased salary and related expenses of approximately $0.8 million incurred primarily as a result of initiatives undertaken in anticipation of increased activity for the remainder of the year.” Who was reading these tealeaves?  Maybe it is just rose-colored glasses or the smoke from burning pizza!

"As a percentage of revenue, SG&A expense increased to 10.2% for the three months ended June 30, 2012, from 9.2% for the comparable prior year period. During June, we began reducing overhead and staff levels in response to reduced activity levels. These staff reductions resulted in severance costs of approximately $0.2 million during the quarter.”  Surely there will be other severance costs for the CEO, the VP of HSE, the SVP of Field Solutions and others both voluntary and due to staff reductions that will come in Q3.  Have those costs been taken or accrued? What about the bonuses being paid to keep staff in tact?

Liquidity and Capital Resources

This section speaks for itself:

"As a result of the defaults under the PNC Credit Facility and the Ex-Im Bank Facility described below, additional borrowings under these facilities may be limited or restricted. As of August 15, 2012, unrestricted cash on hand totaled approximately $0.7 million and availability under the PNC Credit Facility totaled approximately $1.3 million, subject to certain restrictions on revolving advances and the requirement to maintain Average Excess Availability of not less than $3.5 million measured monthly. As of August 15, 2012, one $9.1 million letter of credit was outstanding under the Ex-Im Bank Facility and collateralized by $2.3 million in cash. As a result, the Company's ability to pay liabilities as they become due, fund business operations and meet monetary contractual obligations, currently depends primarily on cash flow from operations and the timely collection of outstanding invoices.

Cash and the availability of cash could be materially restricted if:

• Outstanding invoices billed are not collected or are not collected in a timely manner,
• Circumstances prevent the timely internal processing of invoices,
• We lose one or more of our major customers,
• We are unable to win new projects that we can perform on a profitable basis, or
• We are unable to obtain the cure or waiver of existing defaults under the PNC Credit Facility or the Ex-Im Bank Facility.

If any such event occurs and continues without remedy, we would be required to consider alternative financing options." L

"The primary changes in working capital accounts during the six months ended June 30, 2012 were increased Costs in Excess of Billings and Decreased Billings in Excess of Costs on uncompleted contracts of $8.4 million on fixed price projects where billing milestones have not been met [Could this be due to performance issues related to the loss of staff?] and increased Accounts Receivable of $1.0 million."

Conclusion

There is not much cash left and once again ENGlobal is in a workout group, this time with PNC. This is virtually the same predicament as in May, same company - different lender. Can it be worked out? Sure, however, I think it will be with more restrictions. Additionally, cash will need to be raised. How? An equity partner and/or sale of assets as noted in previous commentary is most likely.

I get a lot of questions about liquidation and bankruptcy. I do not wish to amplify the subjects above their natural possibilities so please keep that in mind. In the case of bankruptcy the stock is always cancelled - zero value to shareholders.

In addressing liquidation start looking at Tangible Net Worth:
   
Current assets - $78 mil
Current liabilities - $60 mil
That is a net of $18 mil for shareholders
   
Why, we have $48.7 in stockholder equity?  The balance of approx. $30.8 million is made up of:

$3.3 mil in PP&E, which would not offer much cash
$25.0 mil in goodwill & other intangibles
$899K in a note held by the courts on a legal claim
$1.6 mil in “Other Assets” whatever that includes

$18 - $21mil for shareholders equates to $0.67 to $0.78 per share in liquidation scenario.

The best path is for ENGlobal to manage better, probably downsize to viable capability and rebuild as conditions and management capability permits. Good luck to everyone.

Comments are welcome.
   

Neil Armstrong - Salute

        Godspeed Neil Armstrong

ENGlobal Corporation 2Q 2012 Results and 10Q Analysis

It is hard to not become overwhelmed by the staggering $0.37/share loss ENGlobal has reported for 2Q 2012. I am sure many of you are wondering as I do; will there be a 3Q 2012? Let’s start with answering some of questions posed in the earlier post covering 2Q possibilities and then move through the 10Q information:


"What If" results:

Yes, DSO increased! Depending on how you calculate it was 78 to 82 days. At 65 days they could have pulled $11.1 to $14.5 million in cash off the Balance Sheet.

Yes, vendors and subcontractors continue to not get paid as accounts payable increased $2.6 million over 1Q.

Yes, billable hours decreased 4% from 1Q and 14% from the same period in 2011. It seems illogical that staffing levels hold and hours decline.

No, manpower utilization did not increase. We did not get a figure for 1Q of 2012 so we cannot compare Q over Q but compared to 2Q 2011 the current quarter’s utilization decreased 3%

Q over Q for 2012

E&C revenue was down from $45.6 mil to $44.8 mil and gross profit down from 9.6% to 6.4%. Issues seem to be in both growth and performance. Quality issues maybe under this iceberg!
Automation revenue was up from $13.6 mil to $14.3 mil and gross profit even at 10.2%. This seems to be the stable segment anchored by the Caspian project.
Field Services revenue was up from $16.3 mil to $17.8 mil and gross profit down from 10.8% to 7.3%. I think we questioned the margins from FS last quarter and thought they were higher than normal.
Overall revenue was up from $75.4 mil to $76.9 mil but gross profit down from 9.9% to 7.3%

What’s wrong with this “Outlook”?

“Although we are in active discussions with PNC Bank and Wells Fargo, we cannot assure you that we will be successful in obtaining the cure or waiver of the defaults under their respective facilities. If we fail to obtain the cure or waiver of the defaults under the facilities with PNC Bank and Wells Fargo, PNC Bank and Wells Fargo may exercise any and all rights and remedies available to them under their respective agreements, including demanding immediate repayment of all amounts then outstanding or initiating foreclosure or insolvency proceedings. In such event and if we are unable to obtain alternative financing, our business will be materially and adversely affected, and we may be forced to sharply curtail or cease operations.”

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011 , which outlines factors that could materially affect our business, financial condition or future results, and the additional risk factors below. The risks described, in our Annual Report on Form 10-K and below, are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditions or operating results.

If we are unable to obtain the cure or waiver of defaults under the PNC Credit Facility and Ex-Im Bank Facility, our business may be materially and adversely affected and we may be forced to sharply curtail or cease operations.

Historically, we have relied upon a revolving credit facility to provide us with adequate working capital to operate our business. On May 29, 2012, we replaced our Wells Fargo Credit Facility with a new $35 million revolving credit facility provided by PNC Bank, National Association (the “PNC Credit Facility”). The PNC Credit Facility has a maturity date of May 29, 2015. In July 2011, with the support of Wells Fargo's Global Banking Group, ENGlobal and the Export-Import Bank of the United States (“Ex-Im Bank”) entered into a separate $9.5 million letter of credit facility (the “Ex-Im Bank Facility”) to support the Company's Caspian Pipeline Consortium (CPC) project. Under the terms of this agreement, the Company may issue letters of credit to CPC for its performance under the CPC project. The PNC Facility and the Ex-Im Bank Facility require us to maintain compliance with specified financial ratios and satisfy certain financial condition tests. As of June 30, 2012, we were in default with respect to certain of these ratios and financial condition tests and other covenants. As of the date of this filing, we were in active discussions with PNC Bank and Wells Fargo regarding the cure or waiver of the defaults under the PNC Credit Facility and the Ex-Im Bank Facility.

Failure to obtain the cure or waiver of the defaults under the PNC Credit Facility and the Ex-Im Bank Facility could result in all indebtedness outstanding under the PNC Facility and the Ex-Im Bank Facility becoming immediately due and payable. If that should occur, we may not be able to pay all such amounts or borrow sufficient funds to refinance them. Even if new financing were then available, it may not be on terms that are acceptable to us. If we were unable to repay those amounts, the lenders could accelerate the maturity of the debt or proceed against any collateral granted to them to secure such defaulted debt. In such an event, our business will be materially and adversely affected and we may be forced to sharply curtail or cease operations.

As a result of the defaults under the PNC Credit Facility and the Ex-Im Bank Facility described below, additional borrowings under these facilities may be limited or restricted. As of August 15, 2012, unrestricted cash on hand totaled approximately $0.7 million and availability under the PNC Credit Facility totaled approximately $1.3 million, subject to certain restrictions on revolving advances and the requirement to maintain Average Excess Availability of not less than $3.5 million measured monthly. As of August 15, 2012, one $9.1 million letter of credit was outstanding under the Ex-Im Bank Facility and collateralized by $2.3 million in cash. As a result, the Company's ability to pay liabilities as they become due, fund business operations and meet monetary contractual obligations, currently depends primarily on cash flow from operations and the timely collection of outstanding invoices.

Cash and the availability of cash could be materially restricted if:

• Outstanding invoices billed are not collected or are not collected in a timely manner,

• Circumstances prevent the timely internal processing of invoices,

• We lose one or more of our major customers,

• We are unable to win new projects that we can perform on a profitable basis, or

• We are unable to obtain the cure or waiver of existing defaults under the PNC Credit Facility or the Ex-Im Bank Facility.

Tax Expense:

ASC Topic 825, “Income Taxes” requires all available evidence, both positive and negative, be considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. During the current quarter, based upon the Company's recent performance, management determined the realization of deferred tax assets is uncertain as the Company is unable to consider tax planning strategies or projections of future taxable income in its evaluation of the realizability of its deferred tax assets as of June 30, 2012. Under these circumstances, deferred tax assets may only be realized through future reversals of taxable temporary differences and carryback of net operating losses to available carryback periods. We have performed such an analysis and a valuation allowance of approximately $6.2 million has been provided against deferred tax assets as of June 30, 2012.

This basically means they do not think ENG will make enough money to take advantage of the tax benefits from past losses for the periods such credits remain. It seems the losses have exceeded ENG’s future profit expectations.

I think it will be difficult to keep PNC out of their office until resolutions to address defaults are achieved. Will this be the next in a long list of distractions for ENG management?

Goodwill

With the Company’s somewhat bleak outlook and going concern issues did they not consider this as a triggering event for impairment testing?

Conclusion

A two-year slide has seemingly hit the bottom of the hill. It appears the Titanic has hit the iceberg, backed up and hit it again while management was concerned over what to select for dessert. Where has the Chairman and the Board been as we sat in the stands and watched ENG go sailing by?

Maybe the analysts that follow ENG will ask some questions to get full disclosure and transparency for the shareholders. ENG lists the following analysts providing coverage:

Enerecap Partners – Craig Bell

Keybanc – Matt Tucker & Ahird Afzal

Lazard Capital – Will Gabrielski

8/21 0753 EDT KeyBanc Downgrades ENGlobal Corporation (ENG) to Hold; Q2 Miss, Visibility Weak (see Blog Update)

Listen in to the Conference Call tomorrow. Good luck to everyone.

NT 10-Q Filed by ENGlobal

2Q Earnings Delay - see Late Summer 2012 Stock News And Events (scroll down)

ENGlobal CEO Resigns

Rev. 1.8

First things first, understand where the news release attempts to take you from a psychological point of view. The actual headline reads: ENGlobal Appoints New Chief Executive Officer. The word “New” is designed to bring hope and change. I am not trying to create any associated illustration – it is just that in simple form.

I Love The Smell Of Burned Pizza In The Morning - It Smells Like.... Inevitability.

Edd Pagano has resigned and Mr. Coskey picked up the loose reins. Well folks that took some time to happen didn’t it? Wasn’t it just over a month ago Mr. Pagano was reelected along with the rest of the Directors overwhelmingly to the BOD? Didn’t he get an increased share of stock options (50,335 shares – 120% increase YoY) for his banner service? What does this tell how about how the BOD is managing your company’s business? To me this firing looks purely reactionary. I would prefer a BOD that is proactive. These behaviors further display the BOD is responsible just as much as Mr. Pagano is for his poor management and should be held accountable.

From the news release: "Mr. Pagano will be available in a consulting capacity through the remainder of 2012 to ensure a smooth and seamless leadership transition." As a consultant? This is probably another another way of saying Mr. Pagano is still "being paid". Let's put it this way - If you had the unfortunate experience of enduring a divorce would you go back to your ex-spouse for marriage counseling tips?

Reaction to What?

I believe the possibility of what happened was covered within the possibilities of the 2Q 2012 Predictions And "What Ifs" post. We know more about what permutation line we are traveling down. We now have “New” management or “New-Old” management. Whatever it is you are supposed to feel good about it, and it is certainly better than the misguided leadership before. So why did this happen?

There are a number of possibilities. This cannot be a good sign for 2Q results. As stated before in the 2Q 2012 Predictions post and for reasons given there I think 2Q is going to be awful. Given that probability what choice is left at this point, over 3 years, with the accumulation of losses. Mr. Pagano is not a scapegoat in terms of his actions. He deserves to be fired. He is, however, a scapegoat in terms of BOD responsibilities and them not performing their fiduciary responsibilities earlier, preventing this condition. Like I said, this is reactive.

The 2Q numbers have been in and the BOD knows them. If any bad results were being pushed forward to 3Q they should be taken in now. With Pagano’s departure they should take ALL the losses and give Mr. Coskey a chance in Q3.  Still, it may be too little too late for a recovery. Let's hope not.

PNC may have lost faith in Mr. Pagano and informed the board with their own ultimatum given their powers from the controlling Credit Facility. PNC may have threatened to pull the plug, period. A government investigation could be taking place that has not manifested publicly. A reverse merger, corporation sale or asset buyout could be in the works. Any of these scenarios certainly would lessen the impact of a debilitating quarter and would render it moot by degree of the actual event level. You have to believe if these last three possibilities were to happen the plans would not include Mr. Pagano.

Mr. Coskey certainly can do a better job than Mr. Pagano, however, I think his taking over is for a company in transition. More big news is coming as stated before and it will happen soon. Two CFOs gone, one CEO gone with a multitude of Senior and Middle Management departed. Mr. Coskey has a talent for growing a company, and is one of the best entrepreneurs I have ever seen. Sure there were mistakes but that is a normal condition for true entrepreneurship. He likes to delegate with a “hands off” leadership style. That works better during good economic times, and not so well when close management is needed for recession periods. I mentioned this in past posts that when Hulda Coskey was involved they made a great team and everything ran better. Ms. Coskey did about everything in the earlier companies that Mr. Coskey didn’t do. Now that he has taken the CEO position she would be effective as COO, however, neither IDS or ENG ever went the COO route. She could perform CFO duties well, with her meticulous number control and attention to detail. The conference call should be interesting – no permanent CFO announced and another CEO trying to hold a company together. Good luck to everyone.

Comments are welcome.

Burrow Global Automation Group – Quality You Can Trust

by Olan Weeks, P.E.

The Burrow Global Automation Group is comprised of the finest experienced professionals we can find. Our competent team has successfully performed automation projects from as small as one input-output to several “World Class” projects exceeding 30,000 input/outputs. We treat all projects, no matter what size, with the same expertise. We consistently achieve satisfied clients by not only performing the project to the parameters of the client in regards to cost, schedule and quality; but also by automating the systems to be as easy and friendly to operate and maintain as possible. Successful automation systems not only satisfy the needs of process control engineers but also the desires and needs of the personnel who must sit continually day-in and day-out operating these controls. Our experiences have shown it is much easier to live with and operate a friendly system when working long hours than dreading a system which tends to make operations personnel fatigued, agitated or operationally uncomfortable. Our ergonomic designs not only increase control and efficiency they promote the safety and the well being of your employees.
 
Burrow Global Automation (BGA) personnel take pride in working to meet the needs of the operations personnel as well as satisfying the process automation engineering requirements. BGA personnel have performed thousands of automation projects both domestically and internationally helping corporations and governments meet the global demands. Our list of automation clientele is large and in essentially all cases they will give the BGA TEAM very positive references. Most of the key BGA personnel have spent their entire professional experience within the industry and have transitioned from pneumatics to electronics, and then onward to the DCS/SIS systems of today. BGA personnel are ready to respond to any size projects and will work to meet or exceed the expectations of its customers.

One of the key attributes of BGA by design is inventiveness – we employ visionaries. Our personnel tend to think out-of-the-box and have developed automation methodologies in the DCS/SIS arena, which has saved our customers money. One current customer is now saving millions of dollars in hot cutover cost by using a Burrow Global developed technique that is both innovative and unique. Most projects have been cutover while the process units are still operating. In fact, our TEAM has successfully performed over one million hot cutovers without a shutdown. If you have a challenge – we are ready to solve it.

As the President of the Burrow Global Automation Group I am proud to state that in my 45 years in the automation business, I believe the BGA group is the finest automation group in the world. All of the BGA personnel would like to take this opportunity to express our appreciation for the many opportunities that have been given us in the past and we will appreciate any new business opportunities in the future.

May mankind’s Greatest Spiritual Engineer of the past, present and future, Jesus Christ be your guide.

Burrow Global Automation is expanding with great new clients. Are you motivated and desire to perform challenging work to highest quality standards? Do you want to join our professional automation team? Please send your resume to: L.Watkins@burrowglobal.com



Editor's note: Olan Weeks P.E. started his disciplined career in the US Navy, earned an Electrical Engineering Degree from Lamar University and has worked in the automation arena ever since. Mr. Weeks began his engineering career working for Petrocon in Beaumont, which evolved into ENGlobal Corporation. There he performed various jobs from Senior Project Management to CEO of Systems (Automation).  He was one of the co-inventors of the patented “Integrated Rack System ™” owned by that corporation (the article is still posted on this website, 9/28/08). He is now President of Burrow Global Automation group.

Late Summer 2012 Stock News And Events

Rev 6.6

I Love The Smell Of Burned Pizza In The Morning - It Smells Like....Inevitability.

• Edd Pagano has resigned and Mr. Coskey picked up the loose reins. Well folks, that took some time to happen. See new post - ENGlobal CEO Resigns.
• The stock markets so far seem unimpressed. The price is virtually unaffected near the multi-year lows at ~ $1.45. The volume is up huge with big blocks trading.  Looks like no increase in confidence so far.
• 8/2 New 5-year low on ENG stock, $1.34 on 71K shares.
• 8/7 New 5-year intraday low on ENG stock, $1.26.Closed at $1.28 on 157K shares.
• 8/9  New 5-year intraday low on ENG stock, $1.16. Closed at $1.18 on 55K shares.
• 8/10  New 5-year intraday low on ENG stock, $1.0302. Closed at $1.12 on 114K shares. Market Cap is below liquidation value.
• 8/13 New 5-year intraday low and close on ENG stock, $1.01 on 192K shares.
• 8/13 1630 No announcements currently. I would think that if there were some hopeful news it would be before 2Q earnings. It maybe possible 2Q will be delayed but now we wait and see if it will be tomorrow as announced and what other possible news may accompany it.
• 8/13 NT 10Q Filed by ENGlobal - Earnings Delay.  PART III--NARRATIVE
  
  State below in reasonable detail why forms 10-K, 20-F, 11-K, 10-Q, 10-D, N-SAR, or the transition report or portion thereof, could not be filed within the prescribed time period.
  
  The Registrant’s management deemed additional time is necessary to ensure full, complete and accurate disclosure and to complete the financial statements required for inclusion within the Quarterly Report on Form 10-Q for the period ended June 30, 2012. We believe that the subject quarterly report will be available for filing on or before August 20, 2012.
• 8/14 New 5-year intraday low on ENG stock, $0.92. Closed at $0.97 on 123K shares.
• 8/15 New 5-year intraday low on ENG stock, $0.80. Closed at $0.87 on 92K shares
• 8/16 The stock rose today on heavy volume to $0.98. As stated above in the NT 10Q the report filing may occur on or before August 20, 2012.
• Friday should be an interesting day for the stock. Watch for the SEC filing from now until Monday: http://sec.gov/cgi-bin/browse-edgar?company=&match=&CIK=eng&filenum=&State=&Country=&SIC=&owner=exclude&Find=Find+Companies&action=getcompany
• Friday 8/17 The PR came out and made proper reference to the last set report date of 8/14 with the delayed date set on 8/20 "After Market Close". The Conference Call will be held the next day 8/21 at 1100 EDT. Should be interesting. Maybe some more PR issued then also.
• 8/21 New 5-year intraday low on ENG stock, $0.68. Closed at $0.79 on 1.2M shares.
• 8/22 New 5-year low close of .77 on 419K shares.
• 8/27 New 5-year low close of .73 on 104K shares.
• 8/31 New 5-year low close of .70 on 56K shares.
• 9/7 New 5-year intraday low on ENG stock, $0.65. New 5-year close at $0.69 on 246K shares. 

• HOUSTON, Aug. 1, 2012 /PRNewswire/ -- Express Energy Services, LLC (EES) today announces that John R. Beall has joined as Chief Financial Officer, effective July 5, 2012. Mr. Beall replaces Jim Davis, who is retiring from EES.  See "Appointments And Moves" for more information.

8/21 0753 EDT KeyBanc Downgrades ENGlobal Corporation (ENG) to Hold; Q2 Miss, Visibility Weak KeyBanc downgraded ENGlobal Corporation (NASDAQ: ENG) from Buy to Hold.

Analyst, Matt Tucker, said, "We are downgrading ENGlobal following its weaker-than-expected 2Q12 results, which have dampened our near to medium-term earnings outlook and have put the firm in violation of covenants under its new credit facility, generating some concerns around ENG's near-term liquidity. This follows several quarters of disappointing performance from ENG and adds to a series of events that have contributed to the uncertainty around the firm's direction, including recent credit issues that we believe impacted competitiveness in 1H12 (at least temporarily), the abrupt June 13 departure of its CFO (still without full-time replacement), and the unexpected August 1 departure of two-year CEO Edd Pagano, who was replaced by co-founder, Chairman and former CEO Bill Coskey."

 "...the unexpected August 1 departure of two-year CEO Edd Pagano" Don't read much, huh Matt?

KeyBanc lowers FY13 EPS estimate from $0.38 to $0.00.

Are you kidding me? What do you think they believe what conditions should constitute a Sell rating?

Opinion 8/10

Having thought about the situation ENGlobal is in for some time I think the most likely outcome and smart transition for ENGlobal is a merger/buyout of some type. Why? It is the best outcome for everyone. If the BOD lets this company go bankrupt what risk does that pose for them given the total loss for investors (the stock would be cancelled) and catastrophic blow to thousands of employees? This would be the poster child for reckless management for sure and lawyers to the SEC would agree.

To avoid all this, a merger/buyout is the best option. Most certainly they have been approached and received offers. Who would buy? A good question, however, ENG is not without value, there are assets, AR, contracts, backlog and loyal employees. I think large companies may find something imbedded within ENG that would interest them and there are a lot of large companies. Smaller local companies like Burrow Global or RDS are the major local players. BG would be eliminated purely on their competent, quick gentleman’s success story and prehistory. That leaves also successful and larger RDS along with a multitude of even larger players and with possible capitol investor groups.

The real problem I think happening within ENGlobal is cash and loss of personnel. Not paying vendors is problematic and costs trust and time. Not paying employees – well, they walk and this erodes ability to make money. Employees are the real long-term value in a company. Another scenario threat would have desperate people doing desperate things and not operating ethically with the highest integrity, without exception.  Managing in the face of crisis requires courage from the leadership.  Does ENG management, and the BOD, have it? Time for them to demonstrate such virtues may have gone by or at best is running out quickly.

I think there is a real race going on now to hold things together by the clock ticking with PNC using their power in some fashion, keeping employees paid, and getting a deal done with a company or capitol group to transition the company.  When may this be announced? This could occur Friday 8/10 after the close until Tuesday; before the 2Q announcement. That surely would render bad news moot by degree or level of transition. If this does not happen expect more stock volatility and anxiety from uncertainty - people do not do well with uncertainty, especially when they have a great deal at stake.

The prospect of ENGlobal continuing otherwise is not likely unless downsizing to core profitable services occurs. Additionally, a change in management style to one that is "hands-on" and active in a recession would be necessary. It is a “survival of the fittest” business environment.

ENGlobal SEC Filing 8/7/2012

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On August 3, 2012, Michael G. Bryant advised the Registrant of his resignation as Executive Vice President – Field Solutions for personal reasons effective immediately.  Mr. Bryant has served as Executive Vice President of Field Solutions since November 2011.  David Sinclair will replace Mr. Bryant.

David Sinclair, 54, has served as the Registrant’s Senior Vice President of its Field Solutions segment in November 2011.  From 2001 to November 2011, he served as the Vice President of Land in the Field Solutions segment for the Registrant and a predecessor company.  Mr. Sinclair brings over 30 years of experience in both domestic and international assignments for the pipeline industry. Prior to joining the Registrant, he spent 16 years at Enron as the Director of Right of Way and as an independent land consultant.  He is presently a Trustee and former President of the Right of Way International Education Foundation, an IRWA course facilitator, Past Chairman of the IRWA Pipeline Committee, Past President of IRWA Chapter 8, and a Past Chairman of the Southern Gas Association’s (SGA) Right of Way Roundtable. Mr. Sinclair holds a Bachelor of Business Administration from Texas Tech University.

Opinion

"Another one bites the dust"  Great as a song - bad as status quo for any company. This was revealed earlier on this website in an earlier comment on ENGlobal CEO Resigns.

David Sinclair who will take over the duties brings good experience to the job. Do not make the mistake of thinking that his working for Enron is a detriment, it isn't, it was good professional experience added to his career. I have had lunch with David in the past and have spoken with him several times at ENGlobal. I mentioned him within the past Annual Meeting posts that I made on the message boards. He is rock solid and a good man for the job.

2Q 2012 Predictions And "What Ifs"

I have been getting a lot of questions for an opinion on ENGlobal’s forthcoming 2Q financial results. This is a good opportunity to examine the Profit or No Profit scenarios and the “What If” permutations.

What if ENGlobal makes a Profit?

That could mean more “Pagano” for everyone, extra cheese and free delivery...enjoy.

How many of you think ENGlobal will make a profit? I don’t!  Please leave comments and reasons to why you think they will make a profit.  That’s it for this section.

What if ENGlobal makes No Profit?

I want to say outright I hope ENG makes some clean profit.  However, I do not think ENG will make a profit based on their past results, especially 1Q.  As illustrated in previous postings, reported financial results, conference call comments and SEC filings the numbers looked to be potentially embellished in 1Q for reasons I will leave up to readers.  Despite numbers that do not meet the smell test the 1Q results were still a loss. With just basic logic I think continuing operations (the true operational value without affect of questionable numbers) will be a severe loss.  Without further help from these questionable numbers or errors 2Q may be a real horror show.  If you have followed ENG you know traditionally 2Q has been one of the strongest financial reporting periods for the company.

At this stage in the game, 3+ years of losses, how do you think investors, employees and public opinion will think of the CEO and BOD?  The factors of fiduciary responsibility, competence, denial and ego have reached epic proportions and are in question.

I see several scenarios that could result from another “no profit” quarter…

First, if ENG is having difficulty paying bills while running out of money, the bank, PNC, will know this with the continuous reporting requirements ENG has to make to them.  The continuous reporting was done so PNC could simply monitor and control their investment (see the Credit Facility post) to hopefully prevent losses and increased investment risk. Remember the terms of the CF make current operations a near Chapter 13, Receivership, condition.  If PNC pulls the plug, I think ENG will partially or wholly cease to function while assets are sold to satisfy the CF. There was a clear equal statement of this featured in a previous post and SEC filing. At this point vendors, creditors and clients are dealing with the bank.  Chapter 11 may follow.

Second, ENG goes direct to Chapter 11.  No one at ENG takes responsibility and blames others for the “sudden” collapse. After a few weeks the determination will be that this blog caused it.

And a third possibility is that the BOD sees bad results or bank action coming and negotiates to sell part of or all of ENG to raise cash and prevent total loss.  At this time the BOD and upper management have to know the results for April and May, and with only 14 working days remaining until the 2Q report is filed and they should have an idea what it looks like for the last 90 days.  Even if they are successful in negotiating a sale there won’t be much saved this late in the decision game.  A White Knight scenario would seemingly be preposterous given the personality of the company unless it was preplanned.

I would say realistically you might see class action lawsuits or government investigations take place based on the strange numbers and calculations reported in past news releases, conference calls and SEC filings.  The stock may soon be below acceptable NASDAQ levels and when the time limit is reached (30 days) ENG will be notified, a SEC filing made and ENG will file for an extension to remain on the NASDAQ under probation status.  If they rise above $1 within the time requirement, they stay, if not – it will be to the small penny stock boards or back to the AMEX.

Other "What Ifs"…

What if DSO increases to 85 days?  First, that could depend on how it is calculated for 2Q.  It could also mean the struggle with the “order to cash process” of not getting bills out to clients and not collecting them in a timely manner continues.  Maybe operations should take over that function!

What if vendors and subcontractors are not getting paid?  Not paying vendors and sub-contractors could mean projects, shipments and work schedules may suffer, and that new government contract may be in jeopardy as well as that large international project.  These types of issues could have an impact on getting work completed, thus reducing revenues.

What if billable man-hours decline?  How can billable man-hours not decline when it appears the loss of management and staff to competitors continues?  Maybe bonuses could be paid to management to keep them around! Wouldn’t that be ironic! Have you heard or read about that recently, companies (our government/banks) not making money, not paying debts, and yet paying out bonuses?

What if manpower utilization increases? That could mean corporate and operational overhead staffing levels have been scaled back to coincide with a decline in manpower or it could mean billable man-hours have actually increased.  Either scenario would be good news. A combination of the two would be GREAT news.

What if the BOD suddenly awakened to the fact ENG may be in trouble and stepped-up with an action plan calling for one or all of the following:
·    New management;
·    A renewed emphasis on a “core” business;
·    The divestiture of “non-core” business operations for cash to allow for acquisitions or expansion supporting its “core” business;
·    A reduction, reorganization and centralization of overhead services to fit a new model;
·    Recognition that “customers” and “cash” are king;
·    Another reverse merger;
·    An equity partner;
·    A follow-on stock offering of 10,000,000 shares at $3.50 a share to reduce debt and provide working capital (yes this would dilute earnings, but WHAT earnings?); or
·     A 7-cent per share dividend beginning January 1st?

Conclusion

What if you were in charge for a day, what solutions or changes would you make?
It won’t be long until the earnings news will be out. Given the critical nature of what we have seen the sensible logic dictates the existing operational condition and same management practices cannot continue much longer. The credit facility and Bank simply will not let it or tolerate it, respectively. Some big event will happen and it will happen soon. There are a lot of great people working for ENGlobal, I wish you the best. Good luck to everyone.

Comments are welcome.