ENGlobal Corporation: One Year Later

Rev. 1.1

It was just a year ago on 1 April I revived and renamed the Engineering Blog. A few of you guessed that the date renewed on was no coincidence. Let’s examine where has ENGlobal gone in the last year? I thought the then presiding CEO was ineffective. Despite the long time it took for others to see the problem the CEO “resigned” and his fruitless management finally ended, albeit with severe damage. Just look at the financial results of the last year Q4 2012 – (.15), Q1 2013 – (.01), Q2 2013 – (.37), & Q3 2013 – (.83). It looks like some pretty nasty situations were uncovered after he left and had to be accounted for.

What will the financial results be in Q4 & FY 2013? I do not think it will be good news. Notice that this report did not come out in March as usual before last year. You may recall last year was delayed also. This FY report is delayed and to the extent that a NT 10-K had to be filed. ENG usually delays when the news is bad and/or when news can be bundled for a better street reaction.

NT 10-K

From the filing: “The Registrant has limited staffing and extremely limited resources. Accordingly, the Company will be unable to file its Annual Report on Form 10-K for the year ended December 29, 2012 within the prescribed period. We believe that the subject annual report will be available for
filing on or before Monday, April 15, 2013.” Does this sound good to you?

http://www.sec.gov/Archives/edgar/data/933738/000117184313001182/nt10k_032813.htm

There is more bad news within. Look at note (3) question: “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”
And, then the Explanation:  The Registrant’s results of operations for the year ended December 29, 2012 will differ materially from the same period in 2011.  For fiscal year 2012, the Registrant expects to report a net loss from continuing operations of $30.1 million and loss per share from continuing operations of $1.13 compared to net loss from continuing operations of $4.4 million and loss per share from continuing operations of $0.16 in fiscal year 2011. In addition, due to the Registrant’s losses from operations and defaults under its debt covenants, the Registrant’s auditors have informed us that their opinion will include a going concern qualification.

I added the underlining but the bad news is clear. A FY 2012 loss from continuing operations of $1.13 per share and a decrease of .97 cents over last year’s loss is phenomenal. This is the severe damage I spoke of earlier. Please note that this is comparing Continuing Operations. ENGlobal’s loss form continuing operations was (.16) in FY 2011, however, their Net Loss was (.27)! In comparing apples to apples the Net Loss for FY 2012 is sure to be much higher than the $1.13 per share because the YTD Net loss from discontinued operations at the end of 3Q 2012 was already (.18).  Even without additional losses in the fourth quarter from discontinued operations they are looking at a Net loss of $1.31 which would exceed FY 2011 by a whopping $1.04 per share.

I would have thought ENG would be sold or nearly so by now. The length of time with no announcement as such or even other such indicators is worrisome. The auditors are not rendering an opinion for nothing. It would be a moot point in the event of a sale. So in reality with what we know, with no sale in sight; what do you think the ENGlobal’s auditor’s opinion as the company being a “going concern” will be?

Continuation of an entity as a “going concern” is assumed in financial reporting in the absence of significant information to the contrary. Ordinarily, information that significantly contradicts the “going concern” assumption relates to the entity's inability to continue to meet its obligations as they become due without substantial disposition of assets outside the ordinary course of business, restructuring of debt, externally forced revisions of its operations, or similar actions.  By including a “going concern” qualification in their opinion, ENGlobal’s external auditors may be forcing disclosures about continuity that might not be otherwise forthcoming from management.  If you are interested in more information on this subject just “Google” the subject “concerning auditors going concern qualification”.

Additionally, the NASDAQ should be delisting ENGlobal soon by the stock not recovering to over $1 for the required amount of time. Moreover, the Credit Facility is on a multiple extension, expiring April 30 – lending money to a company with consistent losses…doesn’t take a genius to figure the rest out.

If you look at all the recent SEC filings you will see some SC 13G/As and a SC 13G filed. Statement and amended statements of ownership. Given the number of shared amended and owned there exists the possibility of taking the company private. That would mean an end with a low recovery for investors and a smaller company that can still provide some jobs after the cuts. If that possibility happens the comapny still needs to be run competently.

You may see the dialog here change as more information becomes available. ENG has discontinued many operations and sold of several business units. Revenue will decrease and I hope they can balance to something profitable. Good luck to everyone.