ENGlobal Corporation: 4Q and 1Q Comments

Rev. 1.1

The news has recently been quiet for ENGlobal and most everyone has been wondering what will happen next? The last credit facility expired on 30 April and we have had no news on that either. I would think some processes have already started and an event is waiting to happen.

Let’s review some of the last financial reports. For the 4Q and FY 2012 ENGlobal reported a loss from continuing operations of ($1.12). However, that wasn’t the end of the story. When you read the SEC filing the NET loss was ($1.25). An additional loss of (.13) came in from Discontinued Operations; this was a bullet point that didn’t make lead headlines.

This additional loss does not look unusual until you compare it to 1Q 2013. ENGlobal reported a profit of $.07/share. This number looked great until you see that they also reported a loss of $.04/share from Continuing Operations. Losing from Continuing Operations is bad and you are not going to get out of the hole performing like that.

In turn, this begs the question, why the profit in 1Q and what offset the loss from continuing operations? Looking into the SEC filing the answer was again Discontinued Operations (DO) but this time with a profit! So… why a loss from DO in 4Q 2012 and profit from DO in 1Q 2013? Should not the two DOs have occurred together and leveled at a ($.02) in 4Q? Those are good questions. CFO’s do have some flexibility and that is all that I can comment on as to why it happened, but one would have to think by the time they issued 4Q 2012 results they would also have known the profitable impact from the sale of DO.  Subsequently, where is the transparency and full-disclosure?  Must be a GAAP thing!

The salient issue, however, is the ongoing loss from continuing operations. This is a Black and Red issue that PNC or investment backers will not tolerate. Many months ago I proposed that ENG may be sold. Recently we saw a spike up in the stock. I think this may be an indicator of something happening. Be wise that this does not necessarily mean a sale or an associated price, however, a calculated possibility. There could be a myriad of possibilities including a stock swap. Did anyone notice that there has been no announcement of an Annual Meeting or the associated SEC filings? Logic would dictate not to expend money and energy on a moot scenario. Nevertheless, ENGlobal cannot continue to operate at loss.

Good luck to everyone.