10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2012

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-14217

ENGlobal Corporation

(Exact name of registrant as specified in its charter)

Nevada

(State or other jurisdiction of

incorporation or organization)

88-0322261

(I.R.S Employer Identification No.)

654 N. Sam Houston Parkway E., Suite 400, Houston, TX	77060-5914
(Address of principal executive offices)	(Zip code)

(281) 878-1000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shortened period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and smaller reporting company in Rule 12b-2 of the Exchange Act. (check one):

Large Accelerated Filer	o	Accelerated Filer	o
Non-Accelerated Filer (Do not check if a smaller reporting company)	o	Smaller Reporting Company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o No  x

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the close of business on November 14, 2012.

$0.001 Par Value Common Stock 26,964,339 shares

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 29, 2012

TABLE OF CONTENTS

		Page Number
Part I. Financial Information
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 29, 2012 and September 30, 2011	3
	Unaudited Condensed Consolidated Balance Sheets at September 29, 2012 and December 31, 2011	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 29, 2012 and September 30, 2011	5
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
Part II. Other Information
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
	Signatures	32

PART I. - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

ENGlobal Corporation

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 29, 2012			September 30, 2011			September 29, 2012			September 30, 2011
	(amounts in thousands, except loss per share data)
Operating revenues	$	57,482		$	60,482		$	$ 175,805		$	162,961
Operating costs		54,212			53,706			162,455			145,767
Gross profit		3,270			6,776			13,350			17,194
Selling, general and administrative expenses		6,162			6,682			19,301			18,716
Goodwill impairment		14,568			—			14,568			—
Operating income (loss)		(17,460	)		94			(20,519	)		(1,522	)
Other income (expense):
Other income (expense), net		(98	)		(8	)		(100	)		(68	)
Interest expense, net		(643	)		(303	)		(1,320	)		(711	)
Loss from continuing operations before income taxes		(18,201	)		(217	)		(21,939	)		(2,301	)
Provision (benefit) for federal and state income taxes		412			138			5,606			(460	)
Loss from continuing operations		(18,613	)		(355	)		(27,545	)		(1,841	)
Loss from discontinued operations, net of taxes		(3,717	)		(918	)		(4,779	)		(1,263	)
Net loss		(22,330	)		(1,273	)	$	(32,324	)		(3,104	)
Other comprehensive income (expense)
Foreign currency translation adjustment		—			—			(1	)		—
Comprehensive loss	$	(22,330	)	$	(1,273	)	$	(32,325	)	$	( 3,104	)
Loss per common share – basic and diluted:
Net loss from continuing operations	$	(0.69	)	$	(0.01	)	$	(1.02	)	$	(0.07	)
Net loss from discontinued operations	$	(0.14	)	$	(0.04	)	$	(0.18	)	$	(0.05	)
Net loss	$	(0.83	)	$	(0.05	)	$	(1.20	)	$	(0.12	)
Weighted average shares used in computing loss per common share – basic and diluted		26,964			26,620			26,882			26,585

See accompanying notes to unaudited interim condensed consolidated financial statements.

3

ENGlobal Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

ASSETS	September 29, 2012			December 31, 2011
	(amounts in thousands, except share amounts)
Current Assets:
Cash and cash equivalents	$	634		$	26
Restricted cash		6,134			2,275
Trade receivables, net of allowances of $2,299 and $1,792		46,949			44,159
Prepaid expenses and other current assets		504			846
Notes receivable		514			514
Costs and estimated earnings in excess of billings on uncompleted contracts		7,632			6,790
Assets held for sale		13,813			19,054
Federal and state income taxes receivable		389			79
Deferred tax asset		—			3,989
Total Current Assets		76,569			77,732
Property and equipment, net		3,241			3,260
Goodwill		2,805			17,373
Other intangible assets, net		2,097			2,835
Long-term trade and notes receivable, net of current portion and allowances		899			899
Deferred tax asset, non-current		—			1,206
Other assets		882			874
Total Assets	$	86,493		$	104,179
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	9,247		$	8,316
Accrued compensation and benefits		13,328			10,400
Current portion of debt		29,406			16,602
Deferred rent		606			635
Billings in excess of costs and estimated earnings on uncompleted contracts		3,986			4,421
Liabilities held for sale		2,862			4,058
Other current liabilities		706			1,247
Total Current Liabilities		60,141			45,679
Commitments and Contingencies (Note 11)
Stockholders' Equity:
Common stock - $0.001 par value; 75,000,000 shares authorized; 26,964,339 and 26,882,518 shares outstanding and    27,945,438 and 27,803,617 shares issued at September 29, 2012 and December 31, 2011, respectively		28			28
Additional paid-in capital		38,258			38,081
Retained earnings (deficit)		(9,502	)		22,822
Treasury stock - 981,099 shares at September 29, 2012 and December 31, 2011		(2,362	)		(2,362	)
Accumulated other comprehensive loss		(70	)		(69	)
Total Stockholders' Equity		26,352			58,500
Total Liabilities and Stockholders' Equity	$	86,493		$	104,179

See accompanying notes to unaudited interim condensed consolidated financial statements.

4

ENGlobal Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended
	September 29, 2012			September 30, 2011
	(amounts in thousands)
Cash Flows from Operating Activities:
Net loss	$	(32,324	)	$	(3,104	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization		1,452			2,730
Share-based compensation expense		177			307
Deferred income tax expense (benefit)		6,166			(1,047	)
Impairment of goodwill		16,965			—
(Gain) loss on disposal of property, plant and equipment		47			(18	)
Changes in current assets and liabilities, net of acquisitions:
Trade accounts and other receivables		(1,467	)		(3,300	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(704	)		(1,693	)
Prepaid expenses and other assets		16			482
Accounts payable		770			(210	)
Accrued compensation and benefits		3,986			4,289
Billings in excess of costs and estimated earnings on uncompleted contracts		(520	)		1,163
Other liabilities		(2,578	)		1,876
Income taxes receivable		(264	)		(425	)
Net cash provided by (used in) operating activities	$	(8,278	)	$	1,050
Cash Flows from Investing Activities:
Property and equipment acquired		(228	)		(452	)
Restricted cash		(3,859	)		—
Proceeds from sale of other assets		170			65
Net cash used in investing activities	$	(3,917	)	$	(387	)
Cash Flows from Financing Activities:
Borrowings on line of credit		149,872			118,947
Payments on line of credit		(136,818	)		(116,358	)
Repayments under capital lease		—			(51	)
Other long-term debt repayments		(250	)		(941	)
Net cash provided by financing activities	$	12,804		$	1,597
Effect of Exchange Rate Changes on Cash		(1	)		—
Net change in cash		608			2,260
Cash and cash equivalents, at beginning of period		26			49
Cash and cash equivalents, at end of period	$	634		$	2,309

See accompanying notes to unaudited interim condensed consolidated financial statements.

5

Notes to Unaudited Interim Condensed Consolidated Financial Statements

NOTE 1 – BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES

The condensed consolidated financial statements of ENGlobal Corporation (which may be referred to as "ENGlobal”, "the Company," "we," "us," or "our") are prepared in accordance with accounting principles generally accepted in the United States of America.  The Company consolidates all of its subsidiaries' financial results, and significant inter-company accounts and transactions have been eliminated in the consolidation.

The condensed consolidated financial statements of the Company included herein are unaudited for the three and nine-month periods ended September 29, 2012 and September 30, 2011, have been prepared from the books and records of the Company pursuant to the rules and regulations of the Securities and Exchange Commission, and in the case of the condensed balance sheet as of December 31, 2011, have been derived from the audited financial statements of the Company. These financial statements reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary to fairly present the results for the periods presented.  Certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission.  These condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2011, included in the Company's Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission.  The Company has assessed subsequent events through the date of filing of these condensed consolidated financial statements with the Securities and Exchange Commission and believes that the disclosures made herein are adequate to make the information presented herein not misleading.  Certain reclassifications have been made to the 2011 condensed consolidated financial statements to conform the presentation to report discontinued operations. Refer to Note 3.

On January 1, 2012, we changed from a traditional month-end calendar close cycle to a 4-4-5 calendar close methodology. Under this new methodology, each quarter (formerly comprised of 3 calendar months) is comprised of 13 weeks, which includes two 4-week months and one 5-week month.  This change in accounting periods has not had a material effect on the comparability to prior periods.

NOTE 2 – LIQUIDITY

The Company has been operating under difficult circumstances in 2012.  For the nine-month period ended September 29, 2012, the Company reported a net loss of approximately $32.3 million that included a non-cash charge of approximately $16.9 million relating to a goodwill impairment (see Note 4) and a non-cash charge of approximately $6.2 million relating to a valuation allowance established in connection with the Company’s deferred tax assets (see Note 9).   During 2012,  our net borrowings under our revolving credit facilities have increased approximately $13.0 million to fund our operations.  Due to challenging market conditions, our revenues and profitability have declined during 2012.  As a result, we have failed to comply with several financial covenants under our credit facilities resulting in defaults (see Note 7).  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.

NOTE 3 - DISCONTINUED OPERATIONS

During the third quarter of 2011, as part of its strategic evaluation of operations, the Company determined that the expected future profitability of the Electrical Services group was not sufficient to support maintaining it as a viable business and that it did not fit within the future strategic plan due to its operational differences.  As a result, effective July 1, 2011, the Company initiated a plan to sell the operations of its Electrical Services group. These assets and their related operations have been classified as discontinued operations and accordingly, are presented as discontinued operations in the Company's re-casted consolidated financial statements. The net assets and liabilities related to the discontinued operations are shown on the Condensed Consolidated Balance Sheet as "Assets held for sale" and "Liabilities held for sale," respectively. The results of the discontinued operations are shown on the Condensed Consolidated Statements of Operations as "Loss from discontinued operations, net of taxes".

6

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.

On September 10, 2012, the Company entered into a definitive agreement to sell its Field Solutions segment. The Field Solutions segment includes the Land and Right-of-Way and Inspection divisions, primarily serving pipeline and electric power companies. On November 2, 2012, the Company completed the divestiture of its Land and Right-of-Way division of its Field Solutions segment effective October 26, 2012, and retained the Inspection division pursuant to the terms of the amended definitive agreement.  The transaction was valued at approximately $7.5 million, consisting of approximately $4.5 million in working capital at closing to the Company and a $3 million promissory note payable to the Company over four years.  The Company is continuing to pursue the sale of the Inspection division and, as such, the Inspection division will continue to be classified as held-for-sale.

The assets and liabilities of the Electrical Services and Field Solutions divisions and their related operations have been classified as discontinued operations and accordingly, are presented as discontinued operations in the Company's re-cast condensed consolidated financial statements. The net assets and liabilities related to the discontinued operations are shown on the Condensed Consolidated Balance Sheet as "Assets held for sale" and "Liabilities held for sale," respectively. 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 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.  Summarized financial information for the discontinued operations is shown below:

	For the Three Months Ended						For the Nine Months Ended
Statement of Operations Data:	September 29, 2012			September 30, 2011			September 29, 2012			September 30, 2011
	(amounts in thousands)
Revenues	$	14,559		$	21,598		$	52,442		$	75,981
Operating costs		14,227			21,382			49,586			72,995
Operating income (loss)		332			216			2,856			2,986
SG&A		1,650			1,712			3,676			4,888
Goodwill impairment		2,397			—			2,397			—
Other income (expense)		(2	)		1			(5	)		2
Total income (loss) before taxes		(3,717	)		(1,495	)		(3,222	)		(1,900	)
Tax expense (benefit)		—			(577	)		1,557			(637	)
Net loss	$	(3,717	)	$	(918	)	$	(4,779	)	$	(1,263	)

7

Notes to Unaudited Interim Condensed Consolidated Financial Statements

Balance Sheet Data:	September 29, 2012		December 31, 2011
	(amounts in thousands)
Assets:
Trade receivables	$	10,929	$	12,252
Cost and estimated earnings in excess of billings on uncompleted contracts		—		138
Deferred tax asset		—		995
Property and equipment, net		111		372
Goodwill and other assets		2,773		5,297
Total assets held for sale	$	13,813	$	19,054
Liabilities:
Accounts payable	$	316		477
Accrued compensation and benefits		1,818		760
Deferred rent		45		53
Billings in excess of costs and estimated earnings on uncompleted contracts		73		158
Other current liabilities		610		2,610
Total liabilities held for sale	$	2,862	$	4,058

8

Notes to Unaudited Interim Condensed Consolidated Financial Statements

NOTE 4 – GOODWILL

Goodwill has an indefinite useful life.  Goodwill is not amortized but, instead, tested at least annually for impairment.  Because of deteriorating market conditions, our declining financial performance and the decision to sell several of our assets, we made a decision to perform an interim assessment of the carrying value of our goodwill as of September 29, 2012. We reviewed a number of factors on a segment by segment basis, including market conditions, projected cash flows, cost of capital, growth rates and other factors which could significantly impact the reported value of our goodwill.  As a result of this review, we recorded a goodwill impairment of approximately $16.9 million as of September 29, 2012.  Of this amount, approximately $14.6 million related to continuing operations and approximately $2.4 million relating to discontinued operations.  Summarized financial information for goodwill is shown below:

Description of Segment	Balance at December 31, 2011		Impairments			Balance at   September 29, 2012
	(amounts in thousands)
Engineering and Construction	$	15,288	$	(14,568	)	$	720
Automation		2,085		—			2,085
Field Solutions*		5,241		(2,397	)		2,844
Total	$	22,614	$	(16,965	)	$	5,649
* Amounts are included in Assets held for sale and Loss from discontinued operations, net of taxes

NOTE 5 – STOCK COMPENSATION PLANS

In April 2012, the Compensation Committee of the Board of Directors approved an increase of 500,000 shares under our 2009 Equity Incentive Plan (the “Equity Plan”), which was subsequently approved by our shareholders. As of November 14, 2012, 502,335 shares of restricted stock have been granted under the Equity Plan, of which 133,115 remain subject to outstanding awards.  Unvested restricted stock awards and restricted stock units are included in diluted earnings per share until the shares have been vested.  The vested shares are then included in basic earnings per share.

Total share-based compensation expense of approximately $18,000 and $109,000 was recognized during the three-months ended September 29, 2012 and September 30, 2011, respectively. Total share-based compensation expense in the amount of $177,000 and $307,000 was recognized during the nine months ended September 29, 2012 and September 30, 2011, respectively. Share-based compensation expense is reported in selling, general and administrative expense.

Restricted Stock Awards

Restricted stock awards granted to directors are intended to compensate and retain the directors over the one-year service period commencing July 1 of the year of service.  These awards vest in quarterly installments beginning September 30 of the year of service, so long as the grantee continues to serve as a director of the Company.  Restricted stock awards granted to employees vest in four equal annual installments beginning December 31 in the year granted, so long as the grantee remains employed full-time with the Company as of each vesting date.  During 2012, the Company granted restricted stock awards per the following table:

Date Issued	Issued to	Number of Individuals	Number of Shares	Market Price		Fair Value		Grants Forfeited
June 14, 2012	Employee	1	50,336	$	1.49	$	75,000	—
June 14, 2012	Director	3	100,671	$	1.49	$	150,000	—

The amount of compensation expense related to all restricted stock awards that had not been recognized at September 29, 2012, totaled $173,000.  This compensation expense is expected to be recognized over a weighted-average period of approximately 17 months.

9

Notes to Unaudited Interim Condensed Consolidated Financial Statements

NOTE 6 – CONTRACTS

Costs, estimated earnings and billings on uncompleted contracts consisted of the following at September 29, 2012 and December 31, 2011:

Description	September 29, 2012			December 31, 2011
	(amounts in thousands)
Costs incurred on uncompleted contracts	$	59,177		$	43,455
Estimated earnings on uncompleted contracts		8,982			5,591
Earned revenues		68,159			49,046
Less: billings to date		64,513			46,677
Net costs and estimated earnings in excess of billings on uncompleted contracts	$	3,646		$	2,369
Costs and estimated earnings in excess of billings on uncompleted contracts	$	7,632		$	6,790
Billings in excess of costs and estimated earnings on uncompleted contracts		(3,986	)		(4,421	)
Net costs and estimated earnings in excess of billings on uncompleted contracts	$	3,646		$	2,369

Revenue on fixed-price contracts is recorded primarily using the percentage-of-completion (cost-to-cost) method.  Under this method, revenue is recognized in the ratio that contract costs incurred bear to total estimated contract costs.  Revenue and gross margin on fixed-price contracts are subject to revision throughout the lives of the contracts and any required adjustments are made in the period in which the revisions become known.  To manage unknown risks, management may use contingency amounts to increase the estimated costs, therefore, lowering the earned revenues until the risks are better identified and quantified or have been mitigated.  Losses on contracts are recorded in full as they are identified.

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 $0.1 million as of September 29, 2012, compared to $0.3 million as of December 31, 2011.  We expect a majority of the deferred revenue amount to be realized by year end 2012.

NOTE 7 – LINE OF CREDIT AND DEBT

The carrying value of debt is composed of the following:

Description:	September 29, 2012		December 31, 2011
Secured debt:	(amounts in thousands)
Wells Fargo Credit Facility	$	—	$	16,352
PNC Credit Facility		29,406		—
Subordinated and unsecured debt:
Control Dynamics International, L.P.		—		250
Total debt	$	29,406	$	16,602

The rates applicable to the PNC Credit Facility line of credit and the Wells Fargo Credit Facility line of credit outstanding at September 29, 2012 and December 31, 2011 were 7.0% and 4.125%, respectively.  Effective June 20, 2012, upon defaulting on the PNC Credit Facility, the interest rate increased from 5.0% to 7.0% (the default interest rate is 2.0% higher than the applicable facility rate).  For the three-month periods ended September 29, 2012 and 2011, the Company recognized interest expense of $0.6 million and $0.3 million, respectively.  For the nine-month periods ended September 29, 2012 and 2011, the Company recognized interest expense of $1.3 million and $0.7 million, respectively.

In addition to the terms of the PNC Credit Facility described below, the PNC Credit Facility also contains a subjective acceleration clause (in the form of a material adverse effect clause) and a provision requiring the establishment and utilization of a lock-box account into which all proceeds of collateral are deposited and applied to reduce borrowings outstanding under the PNC Credit Facility.  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.

10

Notes to Unaudited Interim Condensed Consolidated Financial Statements

PNC Credit Facility

On May 29, 2012, the Company entered into the PNC Credit Facility with PNC Bank, National Association, as administrative agent (the "Agent") for the lenders (the "Lenders") pursuant to which the Lenders agreed to extend credit to the Company in the form of loans (each a "Loan" and collectively, the "Loans") on a revolving basis of up to $35.0 million (the "Commitment"). Capitalized terms used but not otherwise defined herein shall have the meaning given to them in the loan agreement.  Set forth below are certain of the material terms of the loan agreement:

Revolving Advances: Each Lender, severally and not jointly, will make revolving advances to the Company in aggregate amounts outstanding at any time equal to such Lender's Commitment Percentage of the lesser of (a) $35.0 million less the maximum undrawn amount on all outstanding letters of credit, or (b) an amount equal to the sum of: (i) up to 85% of Eligible Receivables, plus (ii) up to the lesser of (x) up to 85% of Eligible Extended Term Receivables or (y) $3.0 million, plus (iii) up to the lesser of (x) up to 85% of Eligible Government Receivables or (y) $800,000, plus (iv) up to the lesser of (x) 75% of Eligible Unbilled Receivables or (y) $8.5 million; provided, however, that no more than $800,000 of the amount resulting from the calculation of this part (iv) may be attributable to Eligible Unbilled Receivables owed by Government Customers, plus (v) up to the lesser of (x) up to 50% of Eligible Costs in Excess of Billings or (y) $4.0 million, minus (vi) the Maximum Undrawn Amount of all outstanding letters of credit, minus (vii) such reserves as Agent may deem proper and necessary in the exercise of its discretion. Certain of the percentages and dollar amounts discussed above may be increased or decreased by Agent at any time, so long as such increase or decrease is done is reasonable and done in good faith.

Interest: Any Loans will bear interest at (a) the sum of the Alternate Base Rate (defined as a fluctuating rate equal to the highest of (x) the commercial lending rate of Agent as publicly announced and in effect on such day, (y) the daily federal funds open rate as quoted by ICAP North America, Inc. in effect on such day plus 1/2 of 1%, and (z) the Daily Libor Rate plus 1% (with the Daily LIBOR Rate determined by taking the LIBOR rate published in the Wall Street Journal and dividing it by a number equal to 1 minus the reserve percentage on that day as determined by the Board of Governors of the Federal Reserve), plus the Applicable Margin (defined below) for Domestic Rate Loans or (b) the sum of the Eurodollar Rate (defined as a fluctuating rate determined by Agent by dividing the quoted LIBOR rate (as selected from a variety of sources) by a number equal to 1 minus the reserve percentage on that day as determined by the Board of Governors of the Federal Reserve), plus the Applicable Margin with respect to Eurodollar Rate Loans.

Collateral: All obligations of the Company under the loan agreement are secured by a first priority perfected lien against any and all personal property assets of the Company (other than certain excluded property, including certain accounts receivable related to the Caspian Pipeline Consortium pledged under the Ex-Im Transaction Specific Credit Agreement dated as of July 13, 2011 between ENGlobal US and Wells Fargo Bank, National Association).

Term: All Loans and all other obligations outstanding under the loan agreement shall be payable in full on May 29, 2015, unless otherwise terminated pursuant to the terms of the loan agreement.

Covenants: The loan agreement requires the Company to comply with various financial, affirmative and negative covenants affecting their businesses and operations, including:

•   Maintain as of the last day of each applicable period a Tangible Net Worth at least equal to the amount set forth for such period: (a) for each of the fiscal quarters ending June 30, 2012, September 29, 2012 and December 31, 2012, a minimum Tangible Net Worth of 90% of the Tangible Net Worth of the Company on a consolidated basis on the Closing Date, and (b) for the fiscal quarter ending March 31, 2013, and as of the last day of each fiscal quarter thereafter, a minimum Tangible Net Worth equal to that required on December 31 of the immediately preceding fiscal year plus (i) 75% of the Company’s after tax net income for such year if such after tax net income is greater than $0, or (ii) $0, if the Company’s after tax net income for such year is less than or equal to $0.

•   Maintain a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00, measured as of (a) June 30, 2012, for the fiscal quarter then most recently ended, (b) September 29, 2012, for the two fiscal quarter period then most recently ended, (c) December 31, 2012, for the three fiscal quarter then most recently ended, (d) March 31, 2013 and as of the last day of each fiscal quarter thereafter, for the four fiscal quarter period then most recently ended.

•   Maintain at all times Average Excess Availability of not less than $3.5 million measured monthly as of the last day of the month.

•   Not permit the aggregate amount of all costs and expenses incurred in connection with the Company's performance of its Caspian project obligations to exceed the aggregate amount of cash receipts attributable to the Caspian Contracts by more than the following amounts: (a) for the month ending June 30, 2012, $6.5 million, (b) for the month ending September 29, 2012, $1.0 million, and (c) for the month ending December 31, 2012, $0.

11

Notes to Unaudited Interim Condensed Consolidated Financial Statements

•   The Company will not be party to mergers, acquisitions, consolidations, reorganizations or similar transactions.

•   The Company will not sell, lease, transfer or otherwise dispose of any of their properties or assets (subject to certain exceptions set forth in the Loan Agreement).

•   The Company will not contract for, purchase or make any expenditure or commitment for capital expenditures in the fiscal year ending December 31, 2012 and in any fiscal year thereafter, in an aggregate amount in excess of $3.5 million.

•   The Company will not declare, pay or make any dividend or distribution on any shares of common or preferred stock or use any funds, property or assets to repurchase or otherwise retire any common or preferred stock.

Compliance with Covenants and Fulfillment of Conditions:As of September 29, 2012, the Company was not in compliance with the covenants described below:

·   The Company did not provide a foreign good standing certificate for ENGlobal US issued by the Secretary of State or other appropriate official of the State Illinois within 14 days of the closing of the PNC Credit Facility.  The Company filed the amended and restated franchise tax filings with the Illinois Secretary of State on July 20, 2012. Since that time, the Company has received and responded to additional information requests from the Illinois Secretary of State.  As of the date of this filing, the Company was continuing to work with the Illinois Secretary of State to obtain the foreign good standing certificate.

·   The Company did not maintain Tangible Net Worth, as of September 29, 2012, of at least 90% of the Borrowers' Tangible Net Worth as of the closing date of the PNC Credit Facility.

·   The Company did not maintain a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00 measured as of September 29, 2012, for the two fiscal quarter periods then most recently ended.

·    The Company did not maintain Average Excess Availability of not less than $3.5 million for the fiscal monthly period ended August 25, 2012.

On September 27, 2012, the Company entered into the First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement (the "Forbearance Agreement"), with the Lenders regarding the PNC Credit Facility.  Under the terms of the Forbearance Agreement, the Lenders agreed to forbear, during the Forbearance Period (as defined below), from exercising their rights and remedies, under the PNC Credit Facility, with respect to events of default, including those discussed in Note 7. The "Forbearance Period" commenced on the Effective Date and ended on October 31, 2012.  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 forebearance default occur).

In addition, under the terms of the Forbearance Agreement, the Company retained, for the duration of the Forbearance Period, a turnaround consultant to provide a turnaround or exit plan, in form and substance satisfactory to the Agent, and services as are reasonably necessary to facilitate the Company's ability to operate in compliance with the terms of the loan agreement.

In addition, under the terms of the Forbearance Agreement, during the Forbearance Period and subject to the other conditions set forth in the loan agreement and the Forbearance Amendment, Lenders may, in their sole and absolute discretion, make revolving advances to the Company in such portions and at the times set forth in the loan agreement, which advances will bear interest at the default rate of interest (currently 7%).

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.

Wells Fargo Credit Facility

In December 2009, the Company entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”) which provided a 28-month, $25 million senior secured revolving credit facility (“Wells Fargo Credit Facility”). On September 30, 2010, the Company entered into an amendment to the Wells Fargo Credit Facility with Wells Fargo which converted our borrowings from a revolving credit facility to an asset based lending agreement. On August 1, 2011, the Company entered into an Amended and Restated Credit Agreement with Wells Fargo that allowed a maximum available principal amount of $35 million under the Wells Fargo Credit Facility.  The Wells Fargo Credit Facility, as amended and restated, terminated concurrent with the closing of the PNC Bank Facility on May 29, 2012.

12

Notes to Unaudited Interim Condensed Consolidated Financial Statements

Ex-Im Bank Facility

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 Company is required to collateralize letters of credit outstanding under the Ex-Im Bank Facility with cash or eligible Russian receivables resulting from the CPC project.  As of the date of this filing, there was one $9.1 million letter of credit outstanding under this facility.  This letter of credit was collateralized by $2.3 million in cash. In the near term, the Company intends to keep the Ex-Im Bank Facility with Wells Fargo until the CPC project has receivables from the Russian portion of the project that are at a sufficient level for borrowing base collateral coverage and this facility is transferred to our new senior lender.

Covenants: The Ex-Im Bank Facility requires the Company to comply with various, financial, affirmative and negative covenants affecting its businesses and operations, including:

•   The Company will not be a party to mergers, acquisitions, consolidations, reorganizations or similar transactions.

•   The Company will not contract for, purchase or make any expenditure or commitment for capital expenditures in any fiscal year, in an aggregate amount in excess of $3.5 million.

•   The Company will not incur any indebtedness except for (a) ENGlobal's liabilities under the PNC Credit Facility, and (b) any other liabilities of ENGlobal not to exceed $1 million in indebtedness in any 12 month period for the unsecured financing of insurance premiums.

•   The Company will not declare, pay or make any dividend or distribution on any shares of common or preferred stock or use any funds, property or assets to repurchase or otherwise retire any common or preferred stock.

•   The Company will maintain as of the last day of each applicable period a Tangible Net Worth ratio not greater than 2.25 to 1.0.

•   The Company will maintain a Fixed Charge Coverage Ratio of not less than 1.75 to 1.00, measured as of each fiscal quarter end commencing September 30, 2011, determined on a rolling 4-quarter basis.

Compliance with Covenants: As of September 29, 2012, the Company was not in compliance with the covenants described below:

·   The Company did not maintain a Tangible Net Worth ratio greater than 2.25 to 1.0.

·    The Company did not maintain a Fixed Charge Coverage Ratio of not less than 1.75 to 1.00 measured for the rolling four quarter period ended September 29, 2012.

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.

NOTE 8 – SEGMENT INFORMATION

The Engineering and Construction segment provides services relating to the development, management and execution of projects requiring professional engineering and related project services primarily to the midstream and downstream sectors throughout the United States. Services provided by the Engineering and Construction segment include feasibility studies, engineering, design, procurement and construction management. The Engineering and Construction segment includes the government services group, which provides engineering, design, installation and operation and maintenance of various government, public sector and international facilities. The Automation segment provides services related to the design, fabrication and implementation of process distributed control and analyzer systems, advanced automation, information technology, electrical and heat tracing projects primarily to the upstream and downstream sectors throughout the United States as well as specific projects in the Middle East and Central Asia.

Identifiable assets, revenue, gross profit and operating income for each segment are set forth in the following table. The amount identified as corporate includes those activities that are not allocated to the operating segments and include costs related to business development, executive functions, finance, accounting, health, safety, and environmental, human resources and information technology that are not specifically identifiable with the segments. The Corporate function supports all business segments and therefore cannot be specifically assigned to any specific segment. A significant portion of corporate costs are allocated to each segment based on each segment's revenue.

13

Notes to Unaudited Interim Condensed Consolidated Financial Statements

Total Assets by Segment	As of September 29, 2012		As of December 31, 2011
	(amounts in thousands)
Engineering and Construction	$	37,033		$	52,108
Automation		28,009			24,080
Field Solutions*		13,103			15,297
Electrical Services*		710			3,757
Corporate		7,638			8,937
Total	$	86,493		$	104,179
* All of these assets are included in assets held for sale from discontinued operations as of September 29, 2012 and December 31, 2011.

Statement of Operations Data:	Engineering and Construction			Automation		Corporate			Consolidated
	(amounts in thousands)
Three months ended September 29, 2012
Revenue	$	40,779		$	16,703	$	—		$	57,482
Gross profit (loss)		2,638			2,734		(2,102	)		3,270
SG&A		2,055			1,096		3,011			6,162
Goodwill impairment		14,568			—		—			14,568
Operating income (loss)		(13,985	)		1,638		(5,113	)		( 17,460	)
Other expense										(98	)
Interest expense, net										(643	)
Tax expense										(412	)
Discontinued operations - net of taxes										(3,717	)
Net loss										(22,330	)
Three months ended September 30, 2011
Revenue	$	46,695		$	13,787	$	—		$	60,482
Gross profit		4,659			2,117		—			6,776
SG&A		2,009			1,148		3,525			6,682
Operating income (loss)		2,650			969		(3,525	)		94
Other expense										(8	)
Interest expense, net										(303	)
Tax expense										(138	)
Discontinued operations - net of taxes										(918	)
Net loss									$	(1,273	)

14

Notes to Unaudited Interim Condensed Consolidated Financial Statements

Statement of Operations Data:	Engineering and Construction			Automation			Corporate			Consolidated
				(amounts in thousands)
Nine months ended September 29, 2012
Revenue	$	131,161		$	44,644		$	—		$	175,805
Gross profit (loss)		9,874			5,578			(2,102	)		13,350
SG&A		6,684			3,186			9,431			19,301
Goodwill impairment		14,568			—			—			14,568
Operating income (loss)		(11,378	)		2,392			(11,533	)		(20,519	)
Other expense											(100	)
Interest expense, net											(1,320	)
Tax expense											(5,606	)
Discontinued operations - net of taxes											(4,779	)
Net loss										$	(32,324	)
Nine months ended September 30, 2011
Revenue before eliminations	$	128,240		$	34,949		$	—		$	163,189
Inter-segment eliminations		(1	)		(227	)		—			(228	)
Revenue		128,239			34,722			—			162,961
Gross profit		12,240			4,954			—			17,194
SG&A		5,702			3,083			9,931			18,716
Operating income (loss)		6,538			1,871			(9,931	)		(1,522	)
Other expense											(68	)
Interest expense, net											(711	)
Tax benefit											460
Discontinued operations - net of taxes											(1,263	)
Net loss										$	(3,104	)

NOTE 9 – FEDERAL AND STATE INCOME TAXES

As a result of the valuation allowance recorded against our deferred tax assets as of September 29, 2012, the effective income tax rates for the three and nine month periods ended September 29, 2012 were not meaningful. The effective income tax rates for the three and nine month periods ended September 30, 2011 were 25.6% and 26.1%, respectively.

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 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 September 29, 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 $10.4 million has been provided against deferred tax assets as of September 29, 2012.

15

Notes to Unaudited Interim Condensed Consolidated Financial Statements

NOTE 10 – INCOME (LOSS) PER SHARE

Income (loss) per share is computed by dividing net income (loss) from operations attributable to common stock by the weighted average number of common shares outstanding during each period. Income (loss) per share is calculated for both continuing and discontinued operations.  Diluted income (loss) per share is computed by adjusting the average number of common shares outstanding for the dilutive effect, if any, of common stock equivalents such as stock options and restricted stock. Diluted net income (loss) per share is the same as basic net income (loss) per share for all periods presented because potential common stock equivalents were anti-dilutive. The Company excluded potentially issuable shares of 593,000 from the computation of diluted income (loss) per share, as the effect of including the shares would have been anti-dilutive for the three month period ended September 30, 2011, and the nine month period ended September 30, 2011.  There were no potentially issuable shares in 2012.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Litigation

In June 2008, ENGlobal filed an action in the United States District Court for the Eastern District of Louisiana; Case Number 08-3601, against South Louisiana Ethanol LLC (“SLE”) entitled ENGlobal Engineering, Inc. and ENGlobal Construction Resources, Inc. vs. South Louisiana Ethanol, LLC. The lawsuit seeks to enforce collection of $15.8 million owed to ENGlobal and its affiliates for services performed on an ethanol plant in Louisiana. In August 2009, SLE filed for Chapter 11 protection in the United States Bankruptcy Court for the Eastern District of Louisiana, Case Number 09-12676. Pursuant to the bankruptcy, the plant assets were sold for $6,802,000. On December 6, 2011, the court issued an order allocating proceeds from the sale and authorizing their distribution.  Of the total amount, $1,054,418 was allocated to ENGlobal.  Of that amount, $845,529 is still being held by the court pending the outcome of continuing litigation regarding the claims of one subcontractor. We estimate the court will render a final decision regarding this matter in the fourth quarter of 2012.

In June 2012, a Contractor filed an action in the United States District Court for Tulsa County, Oklahoma against ENGlobal Construction Resources, Inc dba. ENGlobal Inspection Services.  The Contractor alleges that ENGlobal Inspection failed to properly inspect and verify that the nondestructive testing of girth welds on portions of the pipeline system was completed in accordance with state and federal regulations and contract specifications.  The Contractor further alleges that ENGlobal Engineering failed to properly manage the work of ENGlobal Inspection to ensure that the work was properly performed, causing the Contractor to incur in excess of $2,500,000 in damages.  ENGlobal maintains that the Contractor managed and failed to properly staff the project.  The work at issue was not under ENGlobal’s scope of work and ENGlobal was not authorized by the Contractor to perform such work.  The case is still in discovery.  At this time, we express no opinion with respect to the likelihood of an unfavorable outcome, because we have not formed a judgment that an unfavorable outcome is either probable or remote and we express no opinion with respect to an estimate of the amount or range of potential loss if the outcome should be unfavorable. We are still gathering facts on our exposure, discussing coverage with our carriers and have accrued a $600,000 liability associated with this claim.  Because this liability was incurred in the Field Solutions segment, it is included in Liabilities held for sale on the Condensed Consolidated Balance Sheets and Income (Loss) from Discontinued Operations on the Condensed Consolidated Statement of Operations.

From time to time, ENGlobal or one or more of its subsidiaries is involved in various legal proceedings or are subject to claims that arise in the ordinary course of business alleging, among other things, claims of breach of contract or negligence in connection with the performance or delivery of goods and/or services. The outcome of any such claims or proceedings cannot be predicted with certainty. We believe, as of the date of this filing, all such active proceedings and claims of substance that have been raised against any subsidiary business entity have been adequately allowed for, or are covered by insurance, such that, if determined adversely to the Company, individually or in the aggregate, they would not have a material adverse effect on our results of operations or financial position.

Insurance

The Company carries a broad range of insurance coverage, including general and business automobile liability, commercial property, professional errors and omissions, workers' compensation insurance, director's and officer's liability insurance and a general umbrella policy.  The Company is not aware of any claims in excess of insurance recoveries.  ENGlobal is partially self-funded for health insurance claims.  Provisions for expected future payments are accrued based on the Company's experience.  Specific stop loss levels provide protection for the Company with $200,000 per occurrence.  The self-insurance liability, which is included in the Accrued Compensation and Benefits line of the balance sheet, was $1.6 million as of September 29, 2012 and $1.2 million as of December 31, 2011.

16

Notes to Unaudited Interim Condensed Consolidated Financial Statements

NOTE 12 – SUBSEQUENT EVENTS

Notice of Delisting

On October 3, 2012, 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. 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.

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.

Extension of the Forbearance Agreement

On September 27, 2012, the Company entered into the First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement (the "Forbearance Agreement"), with the Lenders regarding the PNC Credit Facility.  Under the terms of the Forbearance Agreement, the Lenders agreed to forbear, during the Forbearance Period (as defined below), from exercising their rights and remedies, under the PNC Credit Facility, with respect to events of default, including those discussed in Note 7. The "Forbearance Period" commenced on the Effective Date and ended on October 31, 2012.  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 forebearance default occur).

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

On November 2, 2012, the Company completed the divestiture of its Land and Right-of-Way division of the Field Solutions segment (effective October 26, 2012). 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. Subject to the terms of the final 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.  This transaction will result in a loss on sale of these assets of approximately $1.1 million.

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.

17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain information contained in this Quarterly Report on Form 10-Q, as well as other written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences or otherwise, may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.  This information includes, without limitation, statements concerning the Company's future financial position and results of operations, planned capital expenditures, business strategy and other plans for future operations, the future mix of revenues and business, customer retention, project reversals, commitments and contingent liabilities, future demand and industry conditions.  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Generally, the words “anticipate,” “believe,” “estimate,” “expect,” “may” and similar expressions, identify forward-looking statements, which generally are not historical in nature.  Actual results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth in this Quarterly Report on Form 10-Q, the specific risk factors identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, and those described from time to time in our future reports filed with the Securities and Exchange Commission. The following discussion is qualified in its entirety by, and should be read in conjunction with, the Company's condensed consolidated financial statements, including the notes thereto, included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Business Overview

For the three and nine-month periods ended September 29, 2012, the Company reported  net losses of approximately $22.3 million and $32.3 million, respectively. Included in the third quarter results were non-cash charges totaling approximately $17.5 million relating to an impairment of goodwill, a litigation accrual and a write-down of the assets of the Field Solutions segment currently classified as held-for-sale.

Accounting standards require companies to evaluate the carrying value of goodwill when there are events or changes in circumstance that indicate a possible impairment.  As a result of the Company’s continuing losses and its recent decision to sell its Field Solutions segment, the Company concluded that it was appropriate to evaluate the carrying value of its goodwill.  As a result of this evaluation, the Company recognized a non-cash goodwill impairment charge of approximately $16.9 million.  Of this amount, approximately $14.6 million related to the Engineering and Construction segment and is included in continuing operations and approximately $2.4 million (of which approximately $1.1 million represented the write-down of the assets of the Land and Right-of-Way division of the Field Solutions segment the sale of which closed on November 2, 2012) related to the Field Solutions segment and is included in discontinued operations.

In June 2012, a contractor filed an action against the Company.  The contractor alleges that the Company, through the Inspection division of the Field Solutions segment, failed to properly inspect and verify welds on portions of a pipeline system were completed in accordance with state and federal regulations and contract specifications.  We are still gathering facts on our exposure, discussing coverage with our carriers and have accrued a $0.6 million liability that is included in discontinued operations.

During the quarter, the Company finished a very difficult project in its Electrical division, which is included in Discontinued Operations. This is the last remaining project in this division and one where the Company underestimated the strict working environment of the project which significantly increased the labor required on the project, the quality of the available labor pool which also increased the labor required on the project and scope of the project. As a result, the Company recorded significant losses from this project. The Company recorded a reserve on this project of $0.5 million during this quarter.

During the quarter, the Company completed a large, fixed price project for one of its customers. During the project, the scope of the project changed significantly resulting in significant increases in the costs. These increases were not passed on to the customer in a timely manner resulting in disputed costs. While the Company is in continuing discussion with its customer and believes it has sufficient grounds to prevail, it has recorded a loss on this project during the quarter of approximately $0.6 million.

18

The results for the nine-month period ended September 29, 2012 include the impact of the items discussed above and a non-cash charge of approximately $6.2 million relating to a valuation allowance established in connection with the Company’s deferred tax assets during the second quarter of 2012.

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.  As a result of the uncertainty created by the credit facility transition, we spent valuable time reassuring our customers, vendors and stakeholders. Unfortunately, the internal focus, while necessary, was also counterproductive to our business development. As a result, our sales throughout the second and third quarters have been weaker than expected.

In May 2012, we closed on a new three-year secured revolving credit facility with PNC Bank, N.A.  The PNC Credit Facility allows the Company to borrow up to $35 million pursuant to a borrowing base formula based primarily on the Company's eligible accounts receivable.  The PNC Credit Facility was used to repay the outstanding indebtedness under the former credit facility with Wells Fargo Bank and to provide ongoing working capital.  ENGlobal's existing letter of credit facility with Export-Import Bank of the United States remains in place to support the Company's Caspian Pipeline Consortium (CPC) project.  We have failed to comply with all of the covenants of these facilities and are presently in default with respect to both facilities.

On September 27, 2012, the Company entered into the First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement, with the Lenders regarding the PNC Credit Facility.  Under the terms of the Forbearance Agreement, the Lenders agreed to forbear, during the Forbearance Period (as defined below), from exercising their rights and remedies, under the PNC Credit Facility, with respect to events of default, including those discussed in Note 7. The Forbearance Period commenced on the Effective Date and ended on October 31, 2012.  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 forebearance default occur).  After that date, PNC Bank 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.

On October 11, 2012, we announced that our Board of Directors had initiated a process to explore and consider possible strategic alternatives for enhancing shareholder value and supporting the Company's long-term financial strength.  The Board of Directors retained Simmons & Company International as its financial advisor during this process. We continue to take actions to streamline our operations, including the divestiture of our Field Solutions segment, the implementation of expense reduction initiatives, and the retention of a management consultant to perform advisory services.  We have 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.

19

Financial Overview of Continuing Operations

The following financial information sets forth a general overview of our financial condition and results of operations for the three and nine months ended September 29, 2012, compared to the corresponding periods in 2011.

Selected Results of Operations	During the three months ended September 29, 2012			During the nine months ended September 30, 2012
Revenues	Decreased	5.0	%	Increased	7.9	%
Gross profit	Decreased	51.7	%	Decreased	22.4	%
Selling, general and administrative expense	Decreased	7.8	%	Increased	3.1	%

	As of		As of		As of
	September 29,		December 31,		September 30,
Selected Balance Sheet Comparisons	2012		2011		2011
	(amounts in thousands)
Working capital	$	16,428	$	32,053		$	35,175
Total assets*	$	86,493	$	104,179		$	116,283
Accounts receivable (net)	$	46,949	$	44,159		$	46,231
Stockholders' equity	$	26,352	$	58,500		$	62,305
*Includes $13.8 million, $19.1 million, and $22.2 million of assets held for sale from discontinued operations at September 29, 2012, December 31, 2011, and September 30, 2011, respectively.

The Company recognizes service revenue as soon as the services are performed.  For clients that we consider higher risk, such as developer clients, clients with a late payment history or history of not providing written work authorizations, we have deferred revenue recognition until we receive either a written authorization or payment.  The current amount of revenue deferred for these reasons is approximately $0.1 million. We expect a majority of the deferred revenue amount to be realized by year end.

Revenue on fixed-price contracts is recorded primarily using the percentage-of-completion (cost-to-cost) method.  Under this method, revenue is recognized in the ratio that contract costs incurred bear to total estimated contract costs.  Revenue and gross margin on fixed-price contracts are subject to revision throughout the lives of the contracts and any required adjustments are made in the period in which the revisions become known.  To manage unknown risks, management may use contingency amounts to increase the estimated costs, therefore lowering the earned revenues until the risks are better identified and quantified or have been mitigated.  Losses on contracts are recorded in full as they are identified.

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.

Early on, the CPC project was hampered by administrative issues related to two major design revisions, which ultimately delayed our portion of the project by several months.  In addition, the client’s slow responsiveness on document approvals also contributed to the delay.  Over the course of the year, we have worked diligently to understand the client's processes in order to reduce the lag time between the time documents are submitted for and ultimately receive approval.  We have been focusing on improving our cash flow position on this project by expediting our client's approval of our work which is a precondition to invoicing for milestones.  As a result of these efforts, the project was essentially cash flow neutral as of September 29, 2012.  Despite these issues, we believe we have a solid working relationship with the client and we still anticipate completing the project and recognizing approximately $86 million in revenue over the life of the project. We continue to manage our overall billing and client collection processes toward reducing days of sales outstanding to the extent practicable.

20

In the course of providing our services, we routinely provide engineering, materials and equipment and may provide construction services on a subcontractor basis.  Generally, the materials, equipment and subcontractor costs are passed through to our clients and reimbursed, along with fees, which in total are at margins lower than those of our normal core business.  In accordance with industry practice and generally accepted accounting principles, all such costs and fees are included in revenue.  The use of subcontractor services can change significantly from project to project; therefore, changes in revenue and gross profit, selling, general and administrative expense and operating income as a percent of revenue may not be indicative of the Company's core business trends.

Selling, general and administrative expense in the segments includes management and staff compensation, office costs such as rents and utilities, depreciation, amortization, travel, bad debt and other expenses generally unrelated to specific contracts, but directly related to the support of a segment's operations.  All other selling, general and administrative expense is comprised primarily of business development costs, as well as costs related to the executive, investor relations/governance, finance, corporate accounting, health, safety, and environmental, human resources, legal and information technology departments and other costs generally unrelated to specific projects but which are incurred to support corporate activities and initiatives.  We have recently reviewed these expense items and have made some reductions in personnel and departmental expenses.  We will continue to review these expenses and seek further reductions where appropriate.

Discontinued Operations

In 2011, as part of its strategic evaluation of operations, the Company determined that the expected future profitability of the Electrical Services group was not sufficient to support maintaining it as a viable business and that it did not fit within the future strategic plan.  As a result, effective July 1, 2011, the Company initiated a plan to sell the operations of its Electrical Services group.  In addition, on September 10, 2012, we announced an agreement to sell our Field Solutions segment (see Note 3 – “Discontinued Operations”).  These assets, liabilities and their related operations have been classified as discontinued operations in the Company's consolidated financial statements.

On November 2, 2012, the Company completed the divestiture of its Land and Right-of-Way division of its Field Solutions segment effective October 26, 2012, and retained the Inspection division pursuant to the terms of the amended agreement.  The transaction was valued at approximately $7.5 million, consisting of approximately $4.5 million in working capital at closing to the Company and a $3 million promissory note payable to the Company over four years.

21

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

Results of operations for the three months ended September 29, 2012 and September 30, 2011 are summarized below:

For the three months ended September 29, 2012	Engineering and Construction			Automation			Corporate			Consolidated
	(amounts in thousands)
Revenue	$	40,779		$	16,703		$	—		$	57,482		100	%
Gross profit (loss)		2,638			2,734			(2,102	)		3,270		5.7	%
SG&A		2,055			1,096			3,011			6,162		10.7	%
Goodwill impairment		14,568			—			—			14,568		25.3	%
Operating income (loss)		(13,985	)		1,638			(5,113	)		(17,460	)	(30.3	)%
Other income (expense)											(98	)	(0.2.	)%
Interest expense, net											(643	)	(1.1	)%
Tax benefit (expense)											(412	)	(0.7	)%
Net loss from continuing operations										$	(18,613	)	(32.3	)%
Diluted loss per share from continuing operations										$	(0.69	)
For the three months ended September 30, 2011
Revenue	$	46,695		$	13,787		$	—		$	60,482		100	%
Gross profit		4,659			2,117			—			6,776		11.2	%
SG&A		2,009			1,148			3,525			6,682		11.0	%
Goodwill impairment		—			—						—		0.0	%
Operating income (loss)		2,650			969			(3,525	)		94		0.2	%
Other income (expense)											(8	)	(0.0	)%
Interest expense, net											(303	)	(0.5	)%
Tax benefit (expense)											(138	)	(0.2	)%
Net loss from continuing operations										$	(355	)	(0.5	)%
Diluted loss per share from continuing operations										$	(0.01	)
Increase (Decrease)  in Operating Results
Revenue before eliminations	$	(5,916	)	$	2,916		$	—		$	(3,000	)	(5.0	%)
Gross profit (loss)		(2,021	)		617			(2,102	)		(3,506	)	(5.8	)%
SG&A		46			(52	)		(514	)		(520	)	(0.9	)%
Goodwill impairment		14,568			—			—			14,568		24.1	%
Operating income (loss)		(16,635	)		669			(1,588	)		(17,554	)	(29.0	)%
Other income (expense)											(90	)	(0.1	)%
Interest expense, net											(340	)	(0.6	)%
Tax benefit (expense)											(274	)	(0.5	)%
Net loss from continuing operations										$	(18,258	)	(30.2	)%
Diluted loss per share from continuing operations										$	(0.68	)

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The increases and decreases in operating results comparing the three months ended September 29, 2012 to September 30, 2011 are discussed below:

Revenue:

Our revenue is generally driven by the projects that we are currently working on. These projects vary significantly in size and quantity and primarily serve clients in the upstream, midstream and downstream sectors of the energy industry. Projects are bid and awarded based upon a large number of factors most of which are governed by our customers.  Revenue for the three months ended September 29, 2012, as compared to the same period in 2011 decreased approximately $3.0 million.  The Automation segment experienced increased revenue, while the Engineering and Construction (“E&C”) segment experienced decreased revenue. The E&C segment decrease is due to a decrease in the in-office revenues for the Gulf Coast Region in the third quarter of 2012. The Automation segment experienced an increase in revenue in both the Fab and Non-Fab divisions.

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% 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 in our E&C Segment, resulting in lower profit margins.  We continue to be affected by intense competition and pricing pressures.

Selling, General, and Administrative ("SG&A"):

SG&A expense declined $0.5 million for the three months ended September 29, 2012, as compared to the same period for 2011.  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.  During September 2012, we continued reducing overhead and staff levels in response to reduced activity levels. These staff reductions resulted in severance costs of approximately $0.1 million during the quarter.  The declines were the result of reductions in personnel during 2012.

Goodwill Impairment:

A goodwill impairment of $14.6 million was recorded for the three months ended September 29, 2012, due to a determination of erosion in the carrying value associated with the E&C segment.  No impairment was recorded for the three months ended September 30, 2011.

Interest Expense, net:

Interest expense increased for the three months ended September 29, 2012, as compared to the same period for 2011, due to higher interest rates and higher levels of borrowing under our former Wells Fargo Credit Facility and current PNC Credit 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 September 29, 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 $10.4 million has been provided against deferred tax assets as of September 29, 2012.

Discontinued Operations – Three Months ended September 29, 2012 versus September 30, 2011

The net loss from discontinued operations increased from $0.9 million for the three months ended September 30, 2011 to $3.7 million for the three months ended September 29, 2012.  This increase was due primarily to the impairment of goodwill of $2.4 million and a $0.6 million reserve established related to ongoing litigation, partially offset by decreased losses from the Electrical Services segment of $0.2 million.  Losses decreased as the Electrical Services segment was wound down throughout 2012.  Its operations were significant in 2011 as the Company did not make the decision to discontinue these operations until the end of the third quarter of 2011.

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Results of Operations – Nine Months ended September 29, 2012 versus September 30, 2011

Results of operations for the nine months ended September 29, 2012 and 2011 are summarized below:

For the nine months ended September 29, 2012	Engineering and Construction			Automation			Corporate			Consolidated
	(amounts in thousands)
Revenue before eliminations	$	131,161		$	44,644		$	—		$	175,805		100.0	%
Gross profit (loss)		9,874			5,578			(2,102	)		13,350		7.6	%
SG&A		6,684			3,186			9,431			19,301		11. 0	%
Goodwill impairment		14,568			—			—			14,568		8.3	%
Operating income (loss)		(11,378	)		2,392			(11,533	)		(20,519	)	(11.7	)%
Other income (expense)											(100	)	(0. 1	)%
Interest expense, net											(1,320	)	(0.8	)%
Tax benefit (expense)											(5,606	)	(3.1	)%
Net loss from continuing operations										$	( 27,545	)	(15.7	)%
Diluted loss per share from continuing operations										$	(1.02	)
For the nine months ended September 30, 2011
Revenue before eliminations	$	128,240		$	34,949		$	—		$	163,189
Inter-segment eliminations		(1	)		(227	)		—			(228	)
Revenue		128,239			34,722			—			162,961		100.0	%
Gross profit (loss)		12,240			4,954			—			17,194		10.6	%
SG&A		5,702			3,083			9,931			18,716		11.5	%
Goodwill impairment		—			—			—			—		0.0	%
Operating income (loss)		6,538			1,871			(9,931	)		(1,522	)	(0.9	)%
Other income (expense)											(68	)	(0.1	)%
Interest expense, net											(711	)	(0.4	)%
Tax benefit (expense)											460		0.3	%
Net loss from continuing operations										$	(1,841	)	(1.1	)%
Diluted loss per share from continuing operations										$	(0.07	)
Increase (Decrease)  in Operating Results
Revenue before eliminations	$	2,921		$	9,695		$	—		$	12,616
Inter-segment eliminations		1			227			—			228
Revenue		2,922			9,922			—			12,844		7.9	%
Gross profit (loss)		(2,366	)		624			(2,102	)		(3,844	)	(29.9	)%
SG&A		982			103			(500	)		585		4.6	%
Goodwill impairment		14,568			—			—			14,568		113.4	%
Operating loss		(17,916	)		521			(1,602	)		(18,997	)	(147.9	)%
Other income (expense)											(32	)	(0.2	)%
Interest expense, net											(609	)	(4. 7	)%
Tax benefit (expense)											(6,066	)	(47. 3	)%
Net loss from continuing operations										$	( 25,704	)	(200.1	)%
Diluted loss per share from continuing operations										$	(0.95	)

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The increases and decreases in operating results comparing the nine months ended September 29, 2012 to September 30, 2011 are discussed below:

Revenue:

Our revenue is generally driven by the projects that we are currently working on. These projects vary significantly in size and quantity and primarily serve clients in the upstream, midstream and downstream sectors of the energy industry. Projects are bid and awarded based upon a large number of factors most of which are governed by our customers.  Revenue for the nine months ended September 29, 2012, as compared to the same period in 2011 increased approximately $12.8 million.  The E&C and Automation segments both experienced increased revenues. The E&C segment was awarded and performed projects for several major global energy companies.  The Automation segment experienced an increase in revenue in both the Fab and Non-Fab divisions.

Gross Profit (Loss):

Gross profit for the nine months ended September 29, 2012, as compared to the comparable 2011 period, decreased by approximately $3.8 million, or a 29.9% decrease.  As a percentage of revenue, gross profit decreased from 10.6% to 7.6% for the nine months ended September 29, 2012, as compared to the same period in 2011.

Our gross profit and gross profit margin decreased primarily due to higher direct and variable labor costs as a percentage of revenue in our Automation and Field Solutions segments, resulting in lower overall profit margins. In addition, we are still affected by intense competition and pricing pressures.  However, our Automation segment experienced increases in gross profit due to higher revenues and increased efficiencies.

Selling, General, and Administrative ("SG&A"):

The $0.6 million increase in SG&A expense for the nine months ended September 29, 2012, as compared to the same period for 2011, primarily resulted from increased salary and related expenses, office expenses and professional expenses of approximately $3.5 million, offset by decreases in facility, amortization, and facility expenses of approximately $2.7 million. As a percentage of revenue, SG&A expense decreased to 11.0% for the nine months ended September 29, 2012, from 11.5% for the comparable prior year period. During 2012, 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.  The overall decline was the result of reduction in personnel during 2012.

Goodwill Impairment:

A goodwill impairment of $14.6 million was recorded for the nine months ended September 29, 2012, due to a determination of erosion in the carrying value associated with the E&C segment.  No impairment was recognized for the nine months ended September 30, 2011.

Interest Expense, net:

Interest expense increased for the nine months ended September 29, 2012, as compared to the same period for 2011, due to higher levels of borrowing under our former Wells Fargo Credit Facility and current PNC Credit 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 September 29, 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 $10.4 million has been provided against deferred tax assets as of September 29, 2012.

Discontinued Operations – Nine Months ended September 29, 2012 versus September 30, 2011

The net loss from discontinued operations increased from $1.3 million for the nine months ended September 29, 2012 to $4.8 million for the nine months ended September 29, 2012.  This increase was due primarily to the impairment of goodwill of $2.4 million, a $0.6 million reserve established relating to ongoing litigation and increased losses from the Electrical Services segment of $0.7 million.  Its operations were significant in 2011 as the Company did not make the decision to discontinue these operations until the end of the third quarter of 2011.

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Liquidity and Capital Resources

Overview

The Company defines liquidity as its ability to pay liabilities as they become due, fund business operations and meet monetary contractual obligations. Historically, our primary sources of liquidity have been cash flow from operations and availability under our credit facilities, including the PNC Credit Facility and the Ex-Im Bank Facility.  As a result of the defaults under the PNC Credit Facility and the Ex-Im Bank Facility described in Note 7 – Line of Credit and Debt, additional borrowings under the PNC Credit Facility are at the sole discretion of PNC.  As of November 14, 2012, unrestricted cash on hand totaled approximately $0.6 million.  As ofNovember 14, 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 or Ex-Im Bank Facilities.

If any such event occurs and continues without remedy, we would be required to consider alternative financing options.  See “PNC Credit Facility,” “Ex-IM Bank Facility” and “Item 1A- Risk Factors” below for additional information about existing defaults under the PNC Credit Facility and the Ex-Im Bank Facility.

On October 11, 2012, we announced that our Board of Directors had initiated a process to explore and consider possible strategic alternatives for enhancing shareholder value and supporting the Company's long-term financial strength.  The Board of Directors retained Simmons & Company International as its financial advisor during this process. We continue to take actions to streamline our operations, including the divestiture of our Field Solutions segment, the implementation of expense reduction initiatives, and the retention of a management consultant to perform advisory services.  We have 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.

Cash Flows from Operating Activities:

Operating activities used approximately $8.3 million in cash during the nine months ended September 29, 2012, compared with $1.1 million provided by operating activities during the same period in 2011.   During 2012, we used $7.5 million in cash from our operations and utilized $0.8 million of our working capital.    These uses of cash were caused by the deteriorating market conditions for our services discussed above.

The primary changes in working capital during the nine months ended September 29, 2012 included increased Costs in Excess of Billings and Decreased Billings in Excess of Costs 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.

PNC Credit Facility

On May 29, 2012, we replaced our Wells Fargo Credit Facility with the new $35 million PNC Credit Facility (See Note 7).  The PNC Credit Facility has a maturity date of May 29, 2015.  At September 29, 2012, our borrowings under the PNC Credit Facility totaled approximately $29.4 million, which was subject to a fluctuating interest rate.

Due to the net losses for the second and third quarters ended June 30, 2012 and September 29, 2012, respectively, the Company failed to comply with the fixed charge coverage ratio, the tangible net worth and average excess availability covenants.  On September 27, 2012, the Company entered into the First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement with the Lenders regarding the PNC Credit Facility.  Under the terms of the Forbearance Agreement, the Lenders agreed to forbear, during the Forbearance Period (as defined below), from exercising their rights and remedies, under the PNC Credit Facility, with respect to events of default, including those discussed above. The Forbearance Period commenced on the Effective Date and ended on October 31, 2012.  The 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.

26

In addition, under the terms of the Forbearance Agreement, the Company retained, for the duration of the Forbearance Period, a turnaround consultant to provide a turnaround or exit plan, in form and substance satisfactory to the Agent, and services as are reasonably necessary to facilitate Borrowers' ability to operate in compliance with the terms of the loan agreement.

In addition, under the terms of the Forbearance Agreement, during the Forbearance Period and subject to the other conditions set forth in the loan agreement and the Forbearance Amendment, Lenders may, in their sole and absolute discretion, make revolving advances to the Company in such portions and at the times set forth in the loan agreement, which advances will bear interest at the default rate of interest (currently 7%).

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.

The PNC Credit Facility also contains various other affirmative and negative covenants that place certain limitations on the Company including limits on other indebtedness, mergers, asset sales, investments, guaranties, and restrictions on certain distributions and pledges of assets. See Note 7 to our financial statements for a more complete description of the PNC Credit Facility.

In addition to the terms of the PNC Credit Facility described above, the PNC Credit Facility also contains a subjective acceleration clause (in the form of a material adverse effect clause) and a provision requiring the establishment and utilization of a lock-box account into which all proceeds of collateral are deposited and applied to reduce borrowings outstanding under the PNC Credit Facility.  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.

Ex-Im Bank Facility

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 Company is required to collateralize letters of credit outstanding under the Ex-Im Bank Facility with cash or eligible Russian receivables resulting from the CPC project.  As of the date of this filing, there was one $9.1 million letter of credit outstanding under this facility.  This letter of credit was collateralized by approximately $2.3 million in cash. In the near term, the Company intends to keep the Ex-Im Bank Facility with Wells Fargo until the CPC project has receivables from the Russian portion of the project that are at a sufficient level for borrowing base collateral coverage and this facility is transferred to our new senior lender.

Due to the net loss for the rolling four-quarter period ended September 29, 2012 and for the quarter ended September 29, 2012, the Company failed to comply with the fixed charge coverage ratio and the tangible net worth ratio covenants.  As of the result of covenant violations, including those discussed above (see Note 7 – Line of Credit and Debt), 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.  The Ex-Im Bank Facility also contains various other affirmative and negative covenants that place certain limitations on the Company including limits on other indebtedness, mergers, asset sales, investments, guaranties, and restrictions on certain distributions and pledges of assets. See Note 7 to our financial statements for a more complete description of the Ex-Im Credit Facility.

27

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and debt obligations.  The book value of cash and cash equivalents, accounts receivable, accounts payable and short-term notes payable are considered to be representative of fair value because of the short maturity of these instruments.

We do not utilize financial instruments for trading purposes and we do not hold any derivative financial instruments that could expose us to significant market risk.  In the normal course of business, our results of operations are exposed to risks associated with fluctuations in interest rates and, to a minor extent, currency exchange rates.

Our exposure to market risk for changes in interest rates relates primarily to our obligations under the PNC Credit Facility.  As of September 29, 2012, $29.4 million was outstanding under the PNC Credit Facility that accrued interest at 7.0%, the default interest rate.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures of a registrant designed to ensure that information required to be disclosed by the registrant in the reports that it files or submits under the Exchange Act is properly recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's (“SEC”) rules and forms.  Disclosure controls and procedures include processes to accumulate and evaluate relevant information and communicate such information to a registrant's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

 The Company's management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 29, 2012, as required by Rule 13a-15 of the Exchange Act.  Based on the evaluation described above, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 29, 2012, our disclosure controls and procedures were effective insofar as they are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting occurred during the three months ended September 29, 2012, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

From time to time, ENGlobal or one or more of its subsidiaries is involved in various legal proceedings or is subject to claims that arise in the ordinary course of business alleging, among other things, claims of breach of contract or negligence in connection with the performance or delivery of goods and/or services.  The outcome of any such claims or proceedings cannot be predicted with certainty.  Certain specific matters are discussed in Note 11 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.  We believe, as of the date of this filing, all such active proceedings and claims of substance that have been asserted against ENGlobal or one or more of its subsidiaries have been adequately allowed for, or are covered by insurance, such that, if determined adversely to the Company, individually or in the aggregate, they would not have a material adverse effect on our results of operations or financial position.

ITEM 1A.  RISK FACTORS

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 the new $35 million 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 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 September 29, 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.

If we are unable to regain compliance with the requirements to maintain a continued listing on the NASDAQ Global Select Market, the value and liquidity of our common stock may decline significantly.

On October 3, 2012, 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.

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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.  If the Company is unable to regain compliance with the requirements to maintain a listing on the NASDAQ Global Select Market, the value and liquidity of its common stock may decline significantly.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

See discussion under Note 7 - Line of Credit and Debt to our Notes to Unaudited Interim Condensed Consolidated Financial Statements, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 1A – Risk Factors and elsewhere in this quarterly report regarding defaults under the PNC Credit Facility and the Ex-Im Bank Credit Facility.

ITEM 5.  OTHER INFORMATION

None.

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ITEM 6.  EXHIBITS

Exhibit No.	Description	Form or Schedule	Exhibit No.	Filing Date with SEC	SEC File Number
3.1	Restated Articles of Incorporation of Registrant dated August 8, 2002	10-Q	3.1	11/14/2002	001-14217
3.2	Amendment to the Restated Articles of Incorporation of the Registrant, filed with the Nevada Secretary of State on September 2, 2006	8-A12B	3.1	12/17/2007	001-14217
3.3	Amended and Restated Bylaws of Registrant dated November 6, 2007	10-K	3.3	3/28/2008	001-14217
3.4	Amendments to Amended and Restated Bylaws of Registrant dated April 29, 2008.	10-Q	3.2	5/7/2008	001-14217
*10.1	First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement by and between the Registrant and PNC dated September 21, 2012.
*10.2	Extension of Forbearance of Rights and Remedies by and between the Registrant and PNC dated October 30, 2012.
*10.3	Extension of Forbearance of Rights and Remedies by and between the Registrant and PNC dated November 14, 2012.
*10.4	Asset Purchase Agreement by and between the Registrant and Steele Land and Inspection, LLC dated September 7, 2012.
*10.5	Amendment One to Asset Purchase Agreement by and between the Registrant and Steele Land and Inspection, LLC dated November 2, 2012.
*31.1	Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934 for the Third Quarter 2012
*31.2	Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934 for the Third Quarter 2012
*32.0	Certification Pursuant to Rule 13a – 14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Third Quarter 2012
*101.ins	XBRL instance document
*101.sch	XBRL taxonomy extension schema document
*101.cal	XBRL taxonomy extension calculation linkbase document
*101.def	XBRL taxonomy extension definition linkbase document
*101.lab	XBRL taxonomy extension label linkbase document
*101.pre	XBRL taxonomy extension presentation linkbase document

* Filed herewith

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:	November 19, 2012
		ENGlobal Corporation
	By:	/s/ Mark A. Hess
		Mark A. Hess
		Chief Financial Officer

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EX-10.1

EXHIBIT 10.1

FIRST AMENDMENT TO

REVOLVING CREDIT AND SECURITY AGREEMENT AND FORBEARANCE AGREEMENT

THIS FIRST AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT AND FORBEARANCE AGREEMENT (this “Amendment”) is made and entered into effective as of the 21st day of September, 2012 (the “First Amendment Closing Date”), by and among ENGLOBAL CORPORATION, a corporation organized under the laws of the State of Nevada (“Holdings”), ENGLOBAL U.S., INC., a corporation organized under the laws of the State of Texas (“ENGlobal US”), ENGLOBAL INTERNATIONAL, INC., a corporation organized under the BVI Business Companies Act of 2004 (“ENGlobal International”), ENGLOBAL GOVERNMENT SERVICES, INC., a corporation organized under the laws of the State of Texas (“ENGlobal Government”; and together with Holdings, ENGlobal US and ENGlobal International, individually, each a “Borrower” and jointly and severally, “Borrowers”), the financial institutions which are a party hereto (collectively, the “Lenders” and individually a “Lender”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as agent for itself and as agent for the other Lenders (PNC, together with its successors and assigns in such capacity, “Agent”).

PRELIMINARY STATEMENTS

A.Borrowers, Lenders and Agent are parties to that certain Revolving Credit and Security Agreement dated May 29, 2012 (as amended, restated or otherwise modified from time to time, the “Credit Agreement”);

B.Events of Default (the “Existing Events of Default”) pursuant to Section 10.5 of the Credit Agreement have occurred and are continuing as a result of Borrowers’ (i) failure to timely comply with the financial covenant set forth in Section 6.5(a) of the Credit Agreement, entitled “Tangible Net Worth”, for the fiscal quarter ended June 30, 2012, (ii) failure to timely comply with the financial covenant set forth in Section 6.5(b) of the Credit Agreement, entitled “Fixed Charge Coverage Ratio”, for the fiscal quarter ended June 30, 2012, (iii) failure to maintain Average Excess Availability as set forth in Section 6.5(c) of the Credit Agreement for the month ended August 31, 2012, (iv) failure to timely comply with the delivery requirements set forth in Section 9.2(b) of the Credit Agreement for the months ending May 31, 2012 and June 30, 2012, (v) failure to timely comply with the delivery requirements set forth in Section 9.9 of the Credit Agreement for the month ending July 31, 2012, (vi) failure to deliver to Agent foreign good standing certificate for ENGlobal US issued by the Secretary of State or other appropriate office of the State of Illinois, and (vii) failure to comply with Section 10.13 of the Credit Agreement as a result of cross default under Section 6.1 of the EX-IM Transaction Specific Credit Agreement dated July 13, 2011, by and between ENGlobal U.S., Inc. and Wells Fargo Bank, National Association;

C.Borrowers expect additional Events of Default to occur as a result of the following: (i) Borrowers’ failure to comply with the financial covenant set forth in Section 6.5(a) of the Credit Agreement for the fiscal quarter ending September 30, 2012, entitled “Tangible Net Worth”, (ii) Borrowers’ failure to comply with the financial covenant set forth in Section 6.5(b) of the Credit Agreement for each of the fiscal quarters ending June 30, 2012 and September 30, 2012, entitled “Fixed Charge Coverage Ratio”, (iii) Borrowers’ failure to maintain Average Excess Availability as set forth in Section 6.5(c) of the Credit Agreement throughout the Forbearance Period (as hereinafter defined), and (iv) Borrowers’ failure to deliver to Agent a foreign good standing certificate for ENGlobal US issued by the Secretary of State or other appropriate office of the State of Illinois before October 1, 2012 (collectively, the “Expected Events of Default”);

D.Borrowers acknowledge the continuance of the Existing Events of Default and also acknowledge their expectation of the Expected Events of Default;

E.By reason of the existence of the Existing Events of Default, Agent and Lenders have no obligation to make additional Revolving Advances under the Credit Agreement, and Agent and Lenders have full legal right to exercise their rights and remedies under the Credit Agreement and the Other Documents.  Further, upon the occurrence of the Expected Events of Default, and by reason thereof, Agent and Lenders will have no obligation to make additional Revolving Advances under the Credit Agreement, and Agent and Lenders will have full legal right to exercise their rights and remedies under the Credit Agreement and the Other Documents.  In each case, such rights and remedies include, but are not limited to, the right to accelerate the Obligations and the right to foreclose upon and sell the Collateral, and Borrowers have no defenses, offsets or counterclaims to the exercise of such rights and remedies;

F.The Existing Events of Default and the Expected Events of Default, if any, that occur during the Forbearance Period (without implying any obligation or intention of the Agent and Lenders to extend the Forbearance Period) shall be collectively referred to herein as the “Subject Events of Default”;

G.Borrowers have requested that Agent and Lenders (i) continue to make Revolving Advances irrespective of the occurrence and continuance of the Subject Events of Default, and (ii) forbear from exercising certain of their rights and remedies under the Credit Agreement and the Other Documents with respect to the Subject Events of Default;

H.Agent and Lenders are willing, irrespective of the occurrence and confirmation of the Subject Events of Default, (i) to continue to make Revolving Advances, in their absolute discretion, for the periods set forth in Section 7.01 below to Borrowers subject to the terms and conditions set forth herein and (ii) to forbear from exercising certain of their rights and remedies under the Credit Agreement and the Other Documents with respect to the Subject Events of Default, in each case subject to the terms and conditions set forth herein;

I.Notwithstanding the foregoing, Agent and Lenders implemented Default Rate pricing on all Obligations retroactive to June 20, 2012 pursuant to the letter dated August 21, 2012 from Agent to Borrowers.  Borrowers acknowledge and agree that simultaneous with Agent’s implementation of the Default Rate, Agent expressly reserved all of Agent’s and Lender’s rights and remedies under the Credit Agreement and Other Documents;

J.Borrowers, Lenders and Agent desire to amend the Credit Agreement and Agent and Lenders are willing to do so subject to the terms and conditions set forth herein; and

K. This Amendment shall constitute an Other Document (as defined in the Credit Agreement) and these recitals shall be construed as part of this Amendment.

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NOW, THEREFORE, in consideration of the forgoing and the mutual covenants contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows:

ARTICLE I

DEFINITIONS

1.01Capitalized terms used in this Amendment are defined in the Credit Agreement, as amended hereby, unless otherwise stated.

ARTICLE II

AMENDMENTS

2.01Amendment to Section 1.2.  Effective as of the Effective Date hereof, Section 1.2 of the Credit Agreement is hereby amended by adding (in proper alphabetical order) new definitions of “Consultant”, “First Amendment” and “Forbearance Period” to read as follows, respectively:

“Consultant” shall have the meaning set forth in Section 6.13 hereof.

“First Amendment” shall mean that certain First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement dated as of September 21, 2012, by and among Borrowers, Agent and Lenders.

“Forbearance Period” shall have the meaning set forth in the First Amendment.

2.02Amendment to Article VI.  Effective as of the Effective Date hereof, Article VI of the Credit Agreement is hereby amended by adding a new Section 6.13 which shall read as follows:

“6.13           Consultants.  Borrowers shall hire and retain, for the duration of the Forbearance Period, a turnaround consultant (“Consultant”) acceptable to Agent and the Lenders, and with a scope of duties acceptable to Agent and the Lenders.  Consultant shall 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.  Borrowers shall (i) provide Consultant full access to all aspects of Borrowers’ business, finances and operations, (ii) promptly respond to and accommodate Consultant’s requests for access or information and (iii) cause Consultant to provide Agent and the Lenders full access to all aspects of Borrowers’ business, finances and operations and to promptly respond to and accommodate requests for access or information.”

ARTICLE III

CONDITIONS PRECEDENT; CONDITIONS SUBSEQUENT AND POST-CLOSING OBLIGATIONS

3.01Conditions to Effectiveness.  The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent, unless specifically waived in writing by Agent (the first date upon which all such conditions have been satisfied being herein called the “Effective Date”):

(a)Agent shall have received the following documents or items, each in form and substance satisfactory to Agent and its legal counsel:

(i)this Amendment duly executed by Borrowers and Lenders; and

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(ii)all other documents Agent may reasonably request with respect to any matter relevant to this Amendment or the transactions contemplated hereby;

(b)Each document (including any Uniform Commercial Code financing statement) required by the Credit Agreement, any related agreement or under law or reasonably requested by Agent to be filed, registered or recorded in order to create, in favor of Agent, a perfected security interest in or lien upon the Collateral shall have been properly filed, registered or recorded in each jurisdiction in which the filing, registration or recordation thereof is so required or requested, and Agent shall have received an acknowledgment copy, or other evidence satisfactory to it, of each such filing, registration or recordation and satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto;

(c)All fees and expenses due and owing by Borrowers to Agent and Lenders shall have been paid in full;

(d)All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Agent and its legal counsel;

(e)The representations and warranties contained herein and in the Credit Agreement and the Other Documents, as each is amended hereby, shall be true and correct as of the date hereof, as if made on the date hereof; and

(f)No Default or Event of Default, other than the Existing Defaults, shall have occurred and be continuing.

Agent shall provide notice to Borrowers of the occurrence of the “Effective Date;” provided, however, that Borrowers so have no rights arising from and Agent shall have no liability whatsoever with respect to any failure by Agent to provide such notice.

3.02Amendment Fee.  In consideration of the agreements set forth herein, Borrowers agree to pay Agent, for the ratable benefit of Agent and Lenders, an amendment fee in an amount equal to $35,000, which amendment fee shall be deemed fully earned and nonrefundable upon Borrowers’ execution of, and release of its signature pages to, this Amendment.

ARTICLE IV

NO WAIVER

4.01No Waiver.  Nothing contained in this Amendment shall be construed as a waiver by Agent or any Lender of any covenant or provision of the Credit Agreement, the Other Documents, this Amendment, or of any other contract or instrument between Borrowers, Lenders and Agent or any Lender, and the failure of Lenders and Agent or any Lender at any time or times hereafter to require strict performance by Borrowers of any provision thereof shall not waive, affect or diminish any right of Agent to thereafter demand strict compliance therewith.  Lenders and Agent hereby reserves all rights granted under the Credit Agreement, the Other Documents, this Amendment and any other contract or instrument between Borrowers, Lenders and Agent.

4

ARTICLE V

RATIFICATIONS, REPRESENTATIONS, WARRANTIES

AND OTHER AGREEMENTS

5.01Ratifications.  The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement and the Other Documents, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement and the Other Documents are ratified and confirmed and shall continue in full force and effect.  Borrowers hereby agrees that all liens and security interest securing payment of the Obligations under the Credit Agreement are hereby collectively renewed, ratified and brought forward as security for the payment and performance of the Obligations.  Borrowers, Lenders and Agent agree that the Credit Agreement and the Other Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms.

5.02For Avoidance of Doubt.  Borrowers hereby acknowledge that time is of the essence with respect to the performance of any and all collateral and financial reporting covenants made by Borrowers under the Credit Agreement (including all reporting covenants set fort in Article IX of the Credit Agreement as amended by this Amendment) and Borrowers shall strictly comply with the delivery dates and time lines associated with delivery of such reports and statements to Agent.  Borrowers further acknowledge that failure to strictly comply with such deadlines may be considered a Forbearance Default.

5.03Representations and Warranties with respect to Other Documents.  Each Borrower hereby represents and warrants to Agent and Lenders as of the First Amendment Closing Date as follows: (A) it is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; (B) the execution, delivery and performance by it of this Amendment, the Credit Agreement and all Other Documents executed and/or delivered in connection herewith are within its powers, have been duly authorized, and do not contravene (i) its certificate of formation, operating agreement, or other organizational documents, or (ii) any applicable law; (C) no consent, license, permit, approval or authorization of, or registration, filing or declaration with any Governmental Body or other Person, is required in connection with the execution, delivery, performance, validity or enforceability of this Amendment, the Credit Agreement or any of the Other Documents executed and/or delivered in connection herewith by or against it; (D) this Amendment, the Credit Agreement and all Other Documents executed and/or delivered in connection herewith have been duly executed and delivered by it; (E) this Amendment, the Credit Agreement and all Other Documents executed and/or delivered in connection herewith constitute its legal, valid and binding obligation enforceable against it in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by general principles of equity; (F)  except for the Existing Events of Default, it is not in default under the Credit Agreement or any of the Other Documents, and no Default or Event of Default (other than the Existing Events of Default) exists, has occurred and is continuing or would result by the execution, delivery or performance of this Amendment; (G) except with the respect to the Existing Events of Default and as set forth in Section 3.01 of this Amendment, each Borrower is in full compliance with all covenants and agreements contained in the Credit Agreement and the Other Documents; (H) the representations and warranties contained in the Credit Agreement and the Other Documents are true and correct in all material respects on and as of the date hereof and on and as of the date of execution hereof as though made on and as of each such date; and (I) except as previously disclosed to Agent in writing, no Borrower has amended its certificate of formation or operating agreement (or applicable organizational or governing documents) since May 29, 2012.

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ARTICLE VI

MISCELLANEOUS PROVISIONS

6.01Survival of Representations and Warranties.  All representations and warranties made in the Credit Agreement or the Other Documents, including, without limitation, any document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the Other Documents, and no investigation by Agent or any Lender shall affect the representations and warranties or the right of Agent and Lenders to rely upon them.

6.02Reference to Credit Agreement.  Each of the Credit Agreement and the Other Documents, and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement, as amended hereby, are hereby amended so that any reference in the Credit Agreement and such Other Documents to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby.

6.03Expenses of Agent.  Borrowers agree to pay on demand all reasonable costs and expenses incurred by Agent in connection with any and all amendments, modifications, and supplements to the Other Documents, including, without limitation, the costs and fees of Agent’s legal counsel, and all costs and expenses incurred by Agent in connection with the enforcement or preservation of any rights under the Credit Agreement, as amended hereby, or any Other Documents, including, without, limitation, the costs and fees of Agent’s legal counsel.

6.04Expenses of Lenders.  In addition to the costs and expenses set forth in Section 6.03 above, Borrowers agrees to pay on demand all reasonable costs and expenses incurred by Lenders (other than Agent) in connection with the enforcement of the Credit Agreement and any Other Document and this Amendment, including, without limitation, the costs and fees of legal counsel.

6.05Severability.  Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable.

6.06Successors and Assigns.  This Amendment is binding upon and shall inure to the benefit of Agent, Lenders and Borrowers and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations hereunder without the prior written consent of Agent.

6.07Counterparts.  This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument.

6.08Effect of Waiver.  No consent or waiver, express or implied, by Lenders or Agent to or for any breach of or deviation from any covenant or condition by Borrowers shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty.

6.09Headings.  The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.

6.10Applicable Law.  THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

6

6.11Final Agreement.  THE CREDIT AGREEMENT AND THE OTHER DOCUMENTS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED.  THE CREDIT AGREEMENT AND THE OTHER DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.  NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY THE BORROWER AND THE AGENT.

6.12Release.  THE BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY ANY LOANS OR EXTENSIONS OF CREDIT FROM AGENT AND LENDERS TO BORROWER UNDER THE CREDIT AGREEMENT OR THE OTHER DOCUMENTS OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDERS AND THE AGENT.  THE BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDERS, THE AGENT, THEIR PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE AGAINST LENDERS AND THE AGENT, THEIR PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY LOANS OR EXTENSIONS OF CREDIT FROM LENDERS AND THE AGENT TO THE BORROWER UNDER THE CREDIT AGREEMENT OR THE OTHER DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE CREDIT AGREEMENT OR OTHER DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.

ARTICLE VII

AGREEMENT TO FORBEAR; DISCRETIONARY FUTURE ADVANCES; APPLICATION OF PAYMENTS

7.01Forbearance.  During the period commencing on the Effective Date and ending on the earlier to occur of (a) 5:00 p.m. (Dallas, Texas time) on October 31, 2012; or (b) the date that any Forbearance Default (as defined in Section 9.01 hereof) occurs (the "Forbearance Period"), and subject to the other terms and conditions of this Amendment, Agent and Lenders agree that they will forbear from exercising their rights and remedies, including, without limitation, (i) initiating judicial proceedings for the collection of the Obligations, (ii) initiating any judicial enforcement action for the foreclosure upon and sale of the Collateral; or (iii) filing or joining in any filing any involuntary petition under the Bankruptcy Code with respect to Borrowers, in respect of the Subject Events of Default; provided, however, that Agent may, but shall not be obligated to, collect the Accounts and proceeds of other Collateral and apply such collections and proceeds thereof to the Obligations and impose the Default Rate as contemplated in the Credit Agreement.

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Upon the expiration or termination of the Forbearance Period, Agent and Lenders’ forbearance shall automatically terminate and Agent and Lenders shall be entitled to exercise any and all of their rights and remedies under this Amendment, the Credit Agreement and/or the Other Documents with respect to the Subject Events of Default.  Borrowers agree that Agent and Lenders shall have no obligation to extend the Forbearance Period, and that the inclusion of the Expected Events of Default (to the extent that they occur within the Forbearance Period) within the “Subject Defaults” shall not imply any intention to do so.  This Amendment and the forbearance contemplated by this Section 7.01 shall not be construed as establishing a custom or a course of dealing or conduct among Agent, Lenders and Borrowers.

7.02Future Revolving Advances.  Borrowers acknowledge and agree that as a result of the Subject Events of Default and notwithstanding the forbearance set forth above, Lenders have no obligation under the Credit Agreement to make any advances, loans or otherwise extend any credit to or for the benefit of Borrowers. During the Forbearance Period and subject to the other conditions set forth in the Credit Agreement (as amended by this Amendment) and this Amendment, Lenders may, in their sole and absolute discretion, make Revolving Advances to Borrowers in such portions and at the times set forth in the Credit Agreement.  Each Revolving Advance made after the First Amendment Closing Date (i) shall accrue interest at the Default Rate and (ii) shall constitute part of the Obligations secured by all of the Collateral.

7.03Application of Payments.  Borrowers irrevocably waive the right to direct the application of any and all payments and collections at any time or times received by Agent and Lenders from or on behalf of Borrowers, and Borrowers irrevocably agree that Agent shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times by Agent or any Lender or any of their agent against the Obligations, in such order and manner as Agent may deem advisable, notwithstanding any entry by Agent upon any of its books and records.

ARTICLE VIII

COLLATERAL; ADDITIONAL COVENANTS

8.01Additional Rights. Borrowers, recognizing that Agent and Lenders by this Amendment are changing their respective positions in reliance upon the expressed good faith of Borrowers and the representations, acknowledgments, warranties and covenants of the Borrowers contained in this Amendment, further agrees as follows: Borrowers hereby renounce and waive all rights that are waivable under Article 9 of the Uniform Commercial Code (”UCC”) of any jurisdiction in which any Collateral may now or hereafter be located.  Without limiting the generality of the foregoing, Borrowers hereby (i) renounce any right to receive notice of any disposition by Agent of the Collateral pursuant to Section 9-611 of the UCC upon termination of the Forbearance Period, whether such disposition is by public or private sale under the UCC or otherwise, and (ii) waive any rights relating to compulsory disposition of the Collateral pursuant to Sections 9-620(e) of the UCC.

8.02Further Assurances.  Borrowers hereby agree, upon Agent’s request (i) to delivery to Agent such fully authorized and executed agreements and instruments, including, but not limited to, any amendments to the Other Documents, and (ii) to take such actions as Agent deems necessary and appropriate in connection with the transactions contemplated by this Amendment.

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8.03Additional Covenants.  Borrowers also agree that during the Forbearance Period and thereafter until such time as all of the Obligations have been finally and indefeasibly paid in full in cash, it will continue to comply with all covenants and other obligations of Borrowers under this Amendment, the Credit Agreement and the Other Documents.

ARTICLE IX

DEFAULT

9.01Each of the following shall constitute a "Forbearance Default" hereunder:

(a)Borrowers shall suffer the appointment of a receiver, trustee, custodian or similar fiduciary, or shall make an assignment for the benefit of creditors, or any petition for an order for relief shall be filed by or against Borrowers under the Bankruptcy Code, or Borrowers shall make any offer or agreement of settlement, extension or compromise to or with Borrowers’ unsecured creditors generally; or

(b)any representation or warranty of Borrowers contained in this Amendment proves to have been false or misleading in any material respect when made or furnished (or reaffirmed in connection with any portion of the Obligations); or

(c)Borrowers shall fail to keep or perform any of the covenants or agreements contained herein; or

(d)A Default or an Events of Default occurs under the Credit Agreement or the Other Documents, except with regard to the Subject Events of Default.

9.02In addition to causing the termination of the Forbearance Period as contemplated in Section 7.01, the occurrence of any Forbearance Default under this Amendment shall be deemed and shall constitute an Event of Default.

[remainder of page intentionally left blank; signature pages follow]

9

                IN WITNESS WHEREOF, each of the parties hereto has executed this Amendment as of the date first above-written.

BORROWERS:

ENGLOBAL CORPORATION

By:       /s/ William A. Coskey                                       

Name:  William A. Coskey

Title:  CEO

ENGLOBAL U.S., INC.

By:       /s/ William A. Coskey                                        

Name:  William A. Coskey

Title:  CEO

ENGLOBAL INTERNATIONAL, INC.

By:       /s/ William A. Coskey                                        

Name:  William A. Coskey

Title:  CEO

ENGLOBAL GOVERNMENT SERVICES, INC.

By:       /s/ William A. Coskey                                            

Name:  William A. Coskey

Title:  CEO

10

AGENT:

PNC BANK, NATIONAL ASSOCIATION,

as Lender and as Agent

By:       /s/ Ron Eckhoff                                                          

Name: Ron Eckhoff

Title: Vice President

11

EX-10.2

EXHIBIT 10.2

PNC Bank, National Association

2100 Ross Avenue, Suite 1850

Dallas, Texas  75201

October 30, 2012

ENGlobal Corporation

654 N. Sam Houston Parkway – Suite 400

Houston, Texas 77060

Attention: Tami Walker

Re:           Extension of Forbearance of Rights and Remedies

Ladies and Gentlemen:

Reference is hereby made to that certain First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement (as amended from time to time, the “Forbearance Agreement”), dated September 21, 2012, by and among ENGLOBAL CORPORATION, a corporation organized under the laws of the State of Nevada (“Holdings”), ENGLOBAL U.S., INC., a corporation organized under the laws of the State of Texas (“ENGlobal US”), ENGLOBAL INTERNATIONAL, INC., a corporation organized under the BVI Business Companies Act of 2004 (“ENGlobal International”), ENGLOBAL GOVERNMENT SERVICES, INC., a corporation organized under the laws of the State of Texas (“ENGlobal Government”; and together with Holdings, ENGlobal US and ENGlobal International, individually, each a “Borrower” and jointly and severally, “Borrowers”), the financial institutions which are a party thereto (collectively, “Lenders” and individually a “Lender”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as agent for itself and as agent for the other Lenders (PNC, together with its successors and assigns in such capacity, “Agent”), through which, among other things, Agent and Lenders agreed to refrain from exercising or enforcing their rights and remedies under that certain  Revolving Credit and Security Agreement (as amended from time to time, the “Credit Agreement”), dated May 29, 2012, by and among Borrowers, Lenders and Agent and the Other Documents (as defined in the Credit Agreement) until a time specified therein.  Defined terms used in this letter and not otherwise defined in this letter have the meaning given to them in the Forbearance Agreement.

By execution of this letter agreement, Agent, Lenders and Borrowers hereby agree that (a) the definition of Forbearance Period set forth in the Forbearance Agreement is hereby amended to replace the date “October 31, 2012” contained therein with the date “November 15, 2012”.

In consideration of the agreements set forth herein, Borrowers agree to pay Agent, for the ratable benefit of Agent and Lenders, an extension fee in an amount equal to $17,500, which extension fee shall be deemed fully earned and nonrefundable upon Borrowers’ execution of, and release of its signature pages to, this letter agreement.

The terms and provisions set forth in this letter agreement shall modify and supercede any inconsistent terms and provisions set forth in the Forbearance Agreement, the Credit Agreement and the Other Documents and, except as expressly modified or superceded by this letter agreement, the terms and provisions of the Forbearance Agreement, the Credit Agreement and the Other Documents are ratified and confirmed and shall continue in full force and effect.  Borrowers, Agent and Lenders agree that the Forbearance Agreement, the Credit Agreement and the Other Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms.

Nothing contained herein shall be construed as a waiver by Agent and Lenders of any covenant or provision of the Forbearance Agreement, the Credit Agreement, the Other Documents, this letter agreement or any other contract or instrument between Agent and Lenders and Borrowers, and the failure of Agent and Lenders at any time or times hereafter to require strict performance by Borrowers of any provision thereof shall not waive, effect or diminish any right of Agent and Lenders to thereafter demand strict compliance therewith.

This letter shall be governed by and construed in accordance with the laws of the State of Texas, without reference to the choice of law principles thereof.

This letter agreement may be executed in any number of counterparts and by facsimile which, when taken together, shall constitute one and the same original instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

Very truly yours,

PNC BANK, NATIONAL ASSOCIATION,

as Lender and as Agent

By: /s/ Ron Eckhoff                                

Name: Ron Eckhoff

Title: Vice President

Accepted and agreed to as of October 30, 2012:

ENGLOBAL CORPORATION

By:           /s/ Mark Hess                                    

Name:      Mark Hess

Title:        CFO

ENGLOBAL U.S., INC.

By:           /s/ Mark Hess                                      

Name:      Mark Hess

Title:        CFO

ENGLOBAL INTERNATIONAL, INC.

By:           /s/ Mark Hess                                    

Name:      Mark Hess

Title:        CFO

ENGLOBAL GOVERNMENT SERVICES, INC.

By:           /s/ Mark Hess                                   

Name:      Mark Hess

Title:        CFO

EX-10.3

EXHIBIT 10.3

PNC Bank, National Association

2100 Ross Avenue, Suite 1850

Dallas, Texas  75201

November 14, 2012

ENGlobal Corporation

654 N. Sam Houston Parkway – Suite 400

Houston, Texas 77060

Attention: Tami Walker

Re:           Extension of Forbearance of Rights and Remedies

Ladies and Gentlemen:

Reference is hereby made to that certain First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement, dated September 21, 2012, by and among ENGLOBAL CORPORATION, a corporation organized under the laws of the State of Nevada (“Holdings”), ENGLOBAL U.S., INC., a corporation organized under the laws of the State of Texas (“ENGlobal US”), ENGLOBAL INTERNATIONAL, INC., a corporation organized under the BVI Business Companies Act of 2004 (“ENGlobal International”), ENGLOBAL GOVERNMENT SERVICES, INC., a corporation organized under the laws of the State of Texas (“ENGlobal Government”; and together with Holdings, ENGlobal US and ENGlobal International, individually, each a “Borrower” and jointly and severally, “Borrowers”), the financial institutions which are a party thereto (collectively, “Lenders” and individually a “Lender”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as agent for itself and as agent for the other Lenders (PNC, together with its successors and assigns in such capacity, “Agent”), as amended by that certain Letter Agreement, dated October 30, 2012 (as further amended from time to time, the “Forbearance Agreement”), through which, among other things, Agent and Lenders agreed to refrain from exercising or enforcing their rights and remedies under that certain  Revolving Credit and Security Agreement (as amended from time to time, the “Credit Agreement”), dated May 29, 2012, by and among Borrowers, Lenders and Agent and the Other Documents (as defined in the Credit Agreement) until a time specified therein.  Defined terms used in this letter and not otherwise defined in this letter have the meaning given to them in the Forbearance Agreement.

By execution of this letter agreement, Agent, Lenders and Borrowers hereby agree that (a) the definition of Forbearance Period set forth in the Forbearance Agreement is hereby amended to replace the date “November 15, 2012” contained therein with the date “November 30, 2012”.

In consideration of the agreements set forth herein, Borrowers agree to pay Agent, for the ratable benefit of Agent and Lenders, an extension fee in an amount equal to $17,500, which extension fee shall be deemed fully earned and nonrefundable upon Borrowers’ execution of, and release of its signature pages to, this letter agreement.

The terms and provisions set forth in this letter agreement shall modify and supercede any inconsistent terms and provisions set forth in the Forbearance Agreement, the Credit Agreement and the Other Documents and, except as expressly modified or superceded by this letter agreement, the terms and provisions of the Forbearance Agreement, the Credit Agreement and the Other Documents are ratified and confirmed and shall continue in full force and effect.  Borrowers, Agent and Lenders agree that the Forbearance Agreement, the Credit Agreement and the Other Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms.

Nothing contained herein shall be construed as a waiver by Agent and Lenders of any covenant or provision of the Forbearance Agreement, the Credit Agreement, the Other Documents, this letter agreement or any other contract or instrument between Agent and Lenders and Borrowers, and the failure of Agent and Lenders at any time or times hereafter to require strict performance by Borrowers of any provision thereof shall not waive, effect or diminish any right of Agent and Lenders to thereafter demand strict compliance therewith.

This letter shall be governed by and construed in accordance with the laws of the State of Texas, without reference to the choice of law principles thereof.

This letter agreement may be executed in any number of counterparts and by facsimile which, when taken together, shall constitute one and the same original instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

Very truly yours,

PNC BANK, NATIONAL ASSOCIATION,

as Lender and as Agent

By: /s/ Ron Eckoff                                       

Name: Ron Eckhoff

Title: Vice President

Accepted and agreed to as of November 14, 2012:

ENGLOBAL CORPORATION

By:           /s/ Mark Hess                            

Name:      Mark Hess

Title:        CFO

ENGLOBAL U.S., INC.

By:           /s/ Mark Hess                             

Name:      Mark Hess

Title:        CFO

ENGLOBAL INTERNATIONAL, INC.

By:           /s/ Mark Hess                               

Name:      Mark Hess

Title:        CFO

ENGLOBAL GOVERNMENT SERVICES, INC.

By:           /s/ Mark Hess                              

Name:      Mark Hess

Title:        CFO

EX-10.4

EXHIBIT 10.4

ASSET PURCHASE AGREEMENT

BETWEEN

STEELE AND COMPANY, LP

AND

ENGLOBAL U.S., INC.

Dated as of September 7, 2012

TABLE OF CONTENTS

		Page
ARTICLE 1  SALE AND PURCHASE OF ASSETS		1
1.1	General	1
1.2	Excluded Assets	3
ARTICLE 2  PURCHASE PRICE		3
2.1	Purchase Price	3
2.2	Liabilities	4
2.3	Allocation of Purchase Price	4
ARTICLE 3  REPRESENTATIONS AND WARRANTIES		5
3.1	Representations and Warranties of Seller	5
3.2	Purchaser’s Representations and Warranties	13
ARTICLE 4  ACTIONS BEFORE CLOSING		14
4.1	General Inspection	14
4.2	Interim Conduct of the Business	14
4.3	Liens	15
4.4	Notices of Certain Events	15
4.5	Lease Consent	15
ARTICLE 5  ADDITIONAL AGREEMENTS		15
5.1	Covenant Not to Compete and Non-Solicitation	15
5.2	Confidentiality	16
5.3	Public Disclosure	17
5.4	Further Assurances	17
5.5	Notification of Certain Matters	18
5.6	Business Disclosure Schedule	18
5.7	Preservation of Records	18
5.8	Exclusive Dealing	18
ARTICLE 6  CONDITIONS		19
6.1	Conditions Precedent to Purchaser’s Obligations and Closing	19
6.2	Conditions to Seller’s Obligations and Payments at Closing	20

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ARTICLE 7  CLOSING		20
7.1	The Closing	20
7.2	Time, Date and Place of Closing	20
7.3	Purchaser’s Obligations	20
7.4	Seller’s Obligations	21
7.5	Termination of Existing Employment Agreements	21
7.6	Employees	21
7.7	Key Employees	22
7.8	Prorations and Adjustments	22
ARTICLE 8  ACTIONS AFTER CLOSING		22
8.1	Further Action	22
8.2	Further Consents to Assignment	22
8.3	Confidential Information	22
8.4	Accounts Receivable	23
ARTICLE 9  INDEMNIFICATION		23
9.1	Indemnification of Purchaser	23
9.2	Indemnification of Seller	24
9.3	Responsibility for Defense	25
9.4	Payment of Fees and Expenses	26
9.5	Right of Set-Off	26
9.6	Rights of Indemnitor and Exclusive Remedy	26
9.7	No Consequential Damages	27
ARTICLE 10  AMENDMENT, WAIVER AND TERMINATION		27
10.1	Amendment	27
10.2	Waiver	27
10.3	Extension	27
10.4	Termination	27
10.5	Effect of Termination	28
10.6	Special Remedy	28
ARTICLE 11  MISCELLANEOUS		28
11.1	Cooperation	28
11.2	Severability	29
11.3	Brokers: Expenses	29
11.4	Taxes	29
11.5	Notices	29
11.6	Assignment	30
11.7	No Third Parties	30

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11.8	Incorporation by Reference	30
11.9	Counterparts, Faxes and Electronic Signatures	30
11.10	Entire Agreement; Time is of the Essence	30
11.11	Interpretation	30
11.12	Survival of Representations and Covenants	31
11.13	Governing Law	31

iii

ASSET PURCHASE AGREEMENT

This Agreement is made and entered into effective as of September 7, 2012 between Steele and Company, LP, a Delaware limited partnership, (collectively referred to herein as the “Steele Group” or “Purchaser”) and ENGlobal U.S., Inc., a Texas corporation (“ENG” or “Seller”).

Background

Seller desires to sell and transfer to Purchaser, and Purchaser desires to purchase and acquire from Seller, certain assets of Seller related to the operation of Seller’s “Field Solutions” business segment, including land acquisition and mid-stream inspection services (the “Business”).  Purchaser wishes to effect the Purchase of such assets in a manner that shall allow Purchaser to continue to operate the Business as it is currently operating, without being liable for, or being subject to, any liabilities of either the Business or of the Seller other than any liabilities specifically assumed by Purchaser in this Agreement.

Now, therefore, in consideration of the mutual promises and undertakings of the parties hereto, Seller on the one hand, and Purchaser, on the other hand, hereby agree as follows:

Article 1

Sale and Purchase of Assets

1.1           General.  On the terms and conditions set forth in this Agreement, Seller agrees to sell, convey, transfer, assign, and deliver to Purchaser, and Purchaser agrees to purchase from Seller, substantially all of the assets used in connection with the Business, including but not limited to the rights, assets, interests, privileges, and properties described in subparagraphs 1.1(a) through 1.1(h) below (but excluding the Excluded Assets as hereafter defined and described) (the “Purchased Assets”):

(a)           Work in progress, business leads, transactions in negotiations, and submitted bids of the Business as of the Closing Date, rights to complete any work in Progress, any rights to complete future work under any Sales Contracts and Proposals assigned to Purchaser at the time of Closing.

(b)           All furniture, fixtures, equipment, supplies, tools, inventory, trade fixtures, vehicles, and other tangible personal property used in connection with the Business, specifically including, but not necessarily limited to, any described on Schedule 1.1(b) but excluding any described on Schedule 1.2(b);

(c)           All rights which may be assigned in and to any and all permits, approvals, qualifications, authorizations, licenses, consents, certifications or clearances and the like held or used by Seller in the conduct of the Business issued by any government or governmental unit, agency, board, body or instrumentality, whether federal, state or local, and all applications therefore (the “Permits”), all of which will (to the extent assignable) be transferred or assigned to Purchaser at the Closing, including any described on Schedule 1.1(c) but excluding any described on Schedule 1.2(c).  In the event any such licenses, permits, certifications or the like are not transferable but are, in the good faith, reasonable and informed discretion of Purchaser, necessary or advantageous to the continuation of the Business or to the work in progress, Seller shall reasonably cooperate in any pre-closing or post-closing actions or applications to effect the assignment or transfer of same to Purchaser, or to effect the qualification of Purchaser to acquire, such license(s), permit(s), certification(s) or the like.  Any reasonable post-closing out of pocket costs associated with such efforts of Seller shall be paid by Purchaser.

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(d)           All rights in and to patents, patents pending, designs, telephone numbers, post office boxes, pictures, graphics and other intellectual property used in connection with the Business, including specifically the intellectual property rights described in Schedule 1.1(d).

(e)           All of the following (each a “Contract” and collectively, the “Contracts”):

(i)           Purchase and Service Contracts.  Seller’s rights under those certain orders, contracts and commitments for the purchase of goods or services listed on Schedule 1.1(e)(i), including specifically but without limitation the contracts for subcontracted services as described on Schedule 1.1(e)(i) (collectively, the “Purchase Contracts”);

(ii)           Sales Contracts and Proposals.  Seller’s rights under orders, contracts, proposals and commitments for providing of services including specifically but without limitation all described or referred to on Schedule 1.1(e)(ii) (collectively, the “Sales Contracts and Proposals”);

(iii)           General Contracts and Commitments.  Confidentiality, non-disclosure and protective agreements; software licenses; leases; licenses (including without limitation licenses under sales agreements); warranties, arrangements, subscriptions and other contracts and agreements with respect or related to the Business (the “General Contracts”) including specifically but without limitation all described or referred to on Schedule 1.1(e)(iii); and

(f)           Books and Records.  Seller’s records or the portions thereof which are currently used for the operation of the Business, including without limitation all files, drawings, and writings which embody, describe, analyze, illustrate or otherwise pertain to work performed or to be performed for clients; bid specifications; operating records; customer lists and records, subject to any and all confidentiality agreements between Seller and said customers; potential customer lists and records; supplier lists and records; business plans; sales and promotional literature; correspondence; information describing or related to Intellectual Property and Intangible Assets of the Business; and other records, files, and papers pertaining to the Purchased Assets, to the extent necessary for Purchaser to operate the Business (collectively the “Books and Records”).  Excluded Books and Records shall be described on Schedule 1.2(f).

(g)           Prepayments and Prepaid Accounts.  All prepaid expenses including the deposits, deferred charges, advance payments, purchase rebates, product or service deposits and similar items, whether paid or made by Seller to a third party or by a third party to Seller, not including any deferred bonuses or compensation or tax credits that may be extended to any employees of Seller, which have not been fully earned by the holder thereof at the time of the Closing or which remain subject to some rights of the depositor, including any described on Schedule 1.1(g) but excluding any described on Schedule 1.2(g).

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(h)           Real Property Interests.  Assignment or sublease of the office leases listed on Schedule 3.1(t)(iii).

(i)            Working Capital.  All Current Assets (other than reserve and cash accounts) and Current Liabilities existing as of the Closing Date, calculated in accordance with Section 2.1(a).  Current Assets include the following sub-ledger accounts: accounts receivable-trade, unbilled receivables-trade, and deposits.  Current Liabilities include the following sub-ledger accounts: accounts payable-trade, accrued payable-trade, accrued salaries, and accrued compensated absences (with the exception of accrued compensated absences for the Key Employees identified on Schedule 7.7).

1.2           Excluded Assets.  Notwithstanding the foregoing or anything herein to the contrary, cash accounts and cash equivalents, and the assets and property described on Schedule 1.2, if any, are not to be conveyed to Purchaser and are not included in the Purchased Assets for purposes of this Agreement and shall remain the property of Seller after Closing.

Article 2

Purchase Price

2.1           Purchase Price.  The purchase price for the Purchased Assets (the “Purchase Price”) shall equal a cash payment for the amount of Net Working Capital held by Seller on the Closing Date, subject to the procedure described in subsection (a) below to estimate and adjust the payment amount, together with a promissory note for five million dollars ($5,000,000.00) as described in subsection (b) below.

(a)Determination of Estimated Net Working Capital.

(i)No later than three (3) business days prior to the Closing, Seller shall provide to Purchaser (i) an estimated balance sheet of Seller prepared in accordance with the books and records of the Seller as of the Closing, (ii) Sellers good faith calculation of the Net Working Capital as of the date of such balance sheet (the “Estimated Net Working Capital”), and (iii) reasonable access during normal business hours and without undue disruption of the Business to the appropriate Seller personnel and all supporting financial statements, work sheets and other documentation used to determine the Estimated Net Working Capital that are reasonably requested by Purchaser.  As promptly as practicable but not later than one (1) Business Day prior to the Closing, Purchaser will identify any adjustments that it reasonably believes are required to such statements delivered by Seller.  If Seller disputes any such adjustments, Purchaser and Seller will use all commercially reasonable efforts to resolve such dispute, after which Seller will re-deliver to Purchaser the statements with such adjustments as the parties have agreed are appropriate.

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(ii)On the Closing Date, Purchaser shall pay to Seller an amount equal to the Estimated Net Working Capital (as adjusted), as a cash payment.

(iii)Within fourteen days after Closing, Purchaser and Seller shall determine the Final Net Working Capital Amount, fully reconciled to the sub-ledgers identified in Section 1.1(i), and Purchaser and Seller shall adjust the Purchase Price accordingly.  In the event the Final Net Working Capital Amount is less than the Estimated Net Working Capital, Seller shall pay the difference to the Purchaser in cash, within thirty days after the Closing Date.  In the event the Final Net Working Capital is greater than the Estimated Working Capital, the Purchaser shall pay the difference to the Seller in cash, within thirty days after the Closing Date.

(iv)In the event there is a dispute between the parties as to the amount of the Final Net Working Capital Amount, the procedures for a dispute resolution contained in Section 9.5 shall apply.

(b)           Purchaser’s promissory note shall be secured by a second lien position for the Assets of the Business operation, bear interest at 8% per annum, and shall be payable in four (4) installments, with 25% of the remaining principal balance and interest paid at the end of year one, 33% of the remaining principal balance and interest paid at the end of year two, 50% of the remaining principal balance and interest paid at the end of year three, and the remaining principal and interest paid at the end of year four (the “Promissory Note”).  Seller agrees to take all reasonable post-closing steps necessary, if any, to subordinate its claims to the Assets of the Business to any senior lender.

2.2           Liabilities.  Purchaser and Seller agree that, Purchaser, by entering into this Agreement and consummating the transactions contemplated hereby, is not assuming or agreeing to pay, perform or discharge or otherwise become liable for any obligation or liability of Seller (regardless of whether such matter is disclosed on any schedule hereto), other than the obligations and liabilities of Seller set forth on Schedule 2.2 (such liabilities set forth on Schedule 2.2 are herein called the “Assumed Liabilities”), and Purchaser shall not assume any Assumed Liabilities prior to the Closing Date.  Purchaser shall assume those obligations arising out of Purchaser’s ownership of the Assets or operation of the Business after Closing.  Without limiting the generality of the foregoing, Purchaser shall not assume any indebtedness, obligation or liability for any litigation matter or other third party claim arising from the conduct of the Business prior to the Closing Date, including, without limitation, any Litigation Matter (as defined herein), regardless of whether such matter is disclosed on any schedule hereto.

2.3           Allocation of Purchase Price.  Purchaser and Seller agree that the Purchase Price of the Business will be allocated between fixed assets and intangible assets in a mutually agreeable manner.  Such allocation will be determined prior to the Closing Date, and documented by the parties as an amendment to this Agreement.

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Article 3

Representations and Warranties

3.1           Representations and Warranties of Seller.  Seller, to the best of its knowledge hereby represents and warrants to Purchaser that, both as of the date hereof (unless otherwise noted) and as of the Closing Date:

(a)           Organization and Existence.  Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Texas, has the full power and authority (corporate and otherwise) to carry on its business in the places and as it is now being conducted and to own and lease the properties and assets which it now owns or leases, and is qualified to do business as a foreign corporation in every jurisdiction in which such qualification is required and where the failure to be so qualified or in good standing would have a material adverse effect on the Purchased Assets or the Business.

(b)           Authority.

(i)           Authority of Seller Regarding Agreement.  With the exception of the third party consents listed on Schedule 3.1(p)(iii), Seller has all requisite power, authority and legal capacity to execute and deliver this Agreement and to consummate the transactions contemplated hereby.  This Agreement has been duly and validly executed and delivered by Seller and (assuming the due authorization, execution and delivery by the other parties hereto) this Agreement constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject to, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

(ii)           Authority of Seller Regarding Seller Documents.  With the exception of the third party consents listed on Schedule 3.1(p)(iii), Seller has all requisite power, authority and legal capacity to execute and deliver each agreement, document, or instrument or certificate to be executed by the Seller in connection with the consummation of the transactions contemplated by this Agreement (together with this Agreement, the “Seller Documents”) and to consummate the transactions contemplated thereby.  Each of the Seller Documents will be, at or prior to Seller’s execution and delivery thereof, duly and validly executed and delivered by Seller and (assuming the due authorization, execution and delivery by the other parties thereto) each of the Seller Documents when so executed and delivered will constitute legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity,  including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

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(c)           Liens and Encumbrances.

(i)            Except as described in Schedule 3.1(c)(i), Seller has good and indefeasible title to the Purchased Assets, free and clear of any lien, claim, charge, encumbrance or other right of any third party and Permitted Encumbrances.

As used herein “Permitted Encumbrances” means (i) liens for current taxes and assessments not yet due and payable, including, but not limited to, liens for non-delinquent ad valorem or personal property taxes, non-delinquent statutory liens arising other than by reason of any default on the part of Seller, (ii) such encumbrances or minor imperfections of title as do not in any material respect detract from the value, and do not interfere with the present use, of the property subject thereto, (iii) liens, for which payment for the goods or services is not past due, imposed by laws, such as carrier’s, warehousemen’s or mechanic’s liens incurred in good faith in the ordinary course of business, and (iv) liens and encumbrances related to any liability and/or obligation to be assumed by Purchaser hereunder.

(d)          Improvements, Fixtures and Equipment.

(i)Seller has good and indefeasible title to all of the items of tangible personal property listed on Schedule 1.1(b), free and clear of any and all liens except as disclosed on Schedule 3.1(c) and Permitted Encumbrances.  The improvements, fixtures and equipment, with the exception of those either obsolete or not currently in use, are sold in reasonably good repair and fit for the uses for which intended, ordinary wear and tear excepted.

(ii)Schedules 1.1(b) and 1.1(e)(iii) sets forth all leases of personal property (“Personal Property Leases”) relating to personal property used in the Business or to which the Business is a party or by which the properties or assets of the Business is bound.  The Seller has delivered or otherwise made available to Purchaser true, correct and complete copies of the Personal Property Leases, together with all amendments, modifications or supplements thereto.  The personal property which is subject to such Personal Property Leases is provided AS IS.

(iii)The Business has a valid leasehold interest under each of the Personal Property Leases under which it is a lessee, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity), and there is no material default under any Personal Property Lease by the Business or, to the knowledge of Seller, by any party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a material default thereunder by Seller.

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(e)           Intellectual Property and Intangible Assets.  Schedules 1.1(d) include all Intellectual Property that will be transferred to Purchaser.  To Seller’s knowledge, Seller has ownership of and good and indefeasible title to all of the Intellectual Property included in the Purchased Assets (subject to the rights of licensors and licensees under software licenses), and Seller has (and after Closing Purchaser will have) the right to use and exploit all Intellectual Property included in the Purchased Assets.  After Closing Purchaser will have the sole and exclusive right (except as disclosed on Schedule 1.1 (d)) to use and exploit all Intellectual Property listed as Seller Developed Software on Schedule 1.1(d) without infringing upon or otherwise violating the rights of any other person, and no consent, approval or authorization of any other person will be required for the use or exploitation by the Purchaser after Closing of the Seller Developed Software.  To Seller’s knowledge, each item of Intellectual Property included in the Purchased Assets is existing and valid and all rights therein are enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject to, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).  There is no claim pending or, to the knowledge of Seller, threatened against Seller, and there are no conditions or circumstances known to Seller, which draws or may draw into question any right of Seller (and after Closing, of Purchaser) to use or exploit the Intellectual Property included in the Purchased Assets, and Seller is not aware of any basis for such a claim or of conditions or circumstances which may be a basis for such a claim.  There is no license, assignment, agreement or other instrument to which Seller is a party, other than the Contracts, or by which it or the Purchased Assets are bound, relating to the ownership, use or exploitation by it of any Intellectual Property used in connection with, or otherwise directly related to, the Business.  Seller makes no warranties regarding the quality or fitness for use of the Seller Developed Software, which is sold AS-IS.

(f)           Financial Information. Schedule 3.1(f) includes materially true, correct and complete copies of Seller’s balance sheets as of June 30, 2012 and December 31, 2011 and income statement for the periods then ended (the “Financial Information”).  The Financial Information, as well as the statements provided pursuant to Section 2.1(a) fairly present the financial condition as of the date indicated and the results of operations for any period included therein has been prepared on a consistent basis throughout the period indicated.  In each case, the Financial Information, as well as the statements provided pursuant to Section 2.1(a) has been prepared in accordance with sound accounting practices and in a manner consistent with the Business’s historic accounting practices.

(g)           Contracts.

(i)            As of the Effective Date, Seller has made a commercially reasonable effort to list all of the Purchase Contracts to be acquired by Purchaser.  As of the Closing Date, Schedule 1.1(e)(i) will be, to the best of Seller’s knowledge, a complete and accurate list of all Purchase Contracts to be acquired by Purchaser.

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(ii)           As of the Effective Date, Seller has made a commercially reasonable effort to list all of the Sales Contracts to be acquired by Purchaser.  As of the Closing Date, Schedule 1.1(e)(ii) will be, to the best of Seller’s knowledge, a complete list of all Sales Contracts and Proposals to be acquired by Purchaser which have associated with them any continuing obligation of performance or liability of either party thereto, including, without limitation, any liability in the nature of continuing service or warranty (whether express or implied) or arising by course of conduct or business.  Each such order, contract or proposal is identified and categorized by customer and product.  All such Sales Contracts and Proposals are on commercially reasonable terms and conditions and provide for profit margins estimated by Seller to be consistent with past practices of Seller.  The Business has no liability arising out of any injury to individuals or property or damages to business operations as a result of the operation of the Business.  In the event additional Sales Contracts and Proposals are discovered between the Effective Date and the Closing Date, the parties reserve the right to amend or supplement the Schedules.

(iii)          As of the Effective Date, Seller has made a commercially reasonable effort to list all of the Sales Contracts to be acquired by Purchaser.  As of the Closing Date, Schedule 1.1(e)(iii) will be, to the best of Seller’s knowledge, a complete and accurate list of the General Contracts to be acquired by Purchaser under this Agreement.

(iv)          With respect to each Contract:

(a) Unless otherwise disclosed on Schedule 1.1(e)(ii), the Seller has delivered or made available to the Purchaser a true, correct and complete copy of such Contract (including all amendments and modifications thereto);

(b) Unless otherwise disclosed on Schedule 1.1(e)(ii) such Contract is in full force and effect and constitutes a valid, legal and binding obligation of Seller, enforceable against it in accordance with its terms, except as limited by any applicable bankruptcy, liquidation, conservatorship, moratorium, rearrangement, insolvency, reorganization or similar laws as in effect from time to time affecting the rights or remedies of the parties to contracts generally (hereafter “Debtor Relief Laws”) and constitutes a valid, legal and binding obligation of each third party thereto, enforceable against such third parties in accordance with its terms, except as limited by Debtor Relief Laws;

(c) Except as described on Schedule 3.1(g) iv) (c) neither Seller nor, to Seller’s knowledge, any other party to such Contract is in breach or default thereunder in any material respect, no notice of default, defense, set-off, counterclaim, termination, cancellation or acceleration has been received by any party with respect thereto, and to Seller’s knowledge, there exists no event or condition that would constitute a breach or violation thereof, or a default thereunder, or give rise to any right of set-off, counterclaim, termination, cancellation or acceleration pursuant thereto, and the Seller does not know of any threat to cancel, or not to renew or extend, any such Contract;

(d) Seller has neither given nor received notice of repudiation of such Contract and there are no disputes with respect to such Contract nor any agreements or understandings (whether written or oral) in connection therewith; and

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(e) such Contract, together with each other Contract, constitute substantially all of the active contracts, commitments and arrangements involved in or necessary to the conduct of the Business as of the date of this Agreement.

(h)           Permits.  Except as described on Schedule 3.1(h), the Permits include all permits, approvals, qualifications, authorizations, licenses, consents, certifications or clearances and the like issued by any government or governmental unit, agency, board, body or instrumentality, whether federal, state or local, which is required for the conduct of the Business.  Seller is not in material default, breach or noncompliance under any of the Permits and there are no actions, proceedings, investigations or surveys pending or, to the knowledge of Seller, threatened against the Business that could reasonably be expected to result in the suspension or cancellation of any such Permits.  Seller does not warrant that its Permits may be assigned to Purchaser.

(i)            Books and Records.  The Books and Records are located at the various business offices of Seller and copies or excerpts from items included within the Books and Records provided to Purchaser are true, correct and (except as may be noted therein) complete copies of the originals, in all material respects.

(j)            Prepaid Items and Deposits.  Section 1.1(h) includes all prepaid and similar items related to the Business, including, without limitation, all prepaid expenses, deposits, deferred charges, advance payments, and other prepaid items paid or received by Seller with respect to the Business.

(k)           Tax Matters.  Except for the Permitted Encumbrances, the Purchased Assets are not in any manner encumbered by liens arising out of unpaid taxes, governmental fees, levies or other governmental charges or assessments which are due and payable nor shall any such lien arise on account of any taxes due for any period prior to the Closing.  All tax returns, declarations of estimated tax and tax reports  required to be filed by Seller have been filed in timely fashion with the appropriate government agency, and all federal, state and local income, profits, employment, franchise, sales, use, occupation, property, excise or other taxes or charges, and all required estimated payments in respect thereof, applicable to the Business have been paid when due and Seller has withheld and paid to the appropriate taxing authority or jurisdiction any and all amounts required by law or agreement to be withheld from the wages or salaries of its employees.  There are no agreements by Seller for the extension of the time for the assessment of any tax, and all Federal, foreign, state, county and local taxes due and payable by Seller have been paid.

(l)            Environmental Matters. Seller has not received any notice from any governmental authority or other person respecting or related to any actual, threatened or potential release of Hazardous Materials, and no investigation or proceeding with respect to Hazardous Materials or Hazardous Materials Contamination is threatened, anticipated or in existence with respect to the real property used in operation of the Business or in any other manner otherwise related to the operation of the Business.  As used herein, the term “Hazardous Materials”means pollutants, contaminants, pesticides, petroleum and petroleum products, radioactive substances, solid wastes or hazardous or extremely hazardous, special, dangerous or toxic wastes, substances, mold, asbestos, chemicals or materials within the meaning of any Environmental Law, including without limitation any (i) “hazardous substance” as defined in the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601, et. seq., as amended and reauthorized (“CERCLA”), and (ii) any “hazardous waste” as defined in the Resource Conservation and Recovery Act, 42 U.S.C., § 6902, et. seq., as amended and reauthorized (“RCRA”).  As used herein, the term “Hazardous Materials Contamination” shall mean contamination (whether presently existing or hereafter occurring) of premises, buildings, facilities, soil, groundwater, air or other elements as a result of Hazardous Materials.

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(m)           Employees.  Seller has provided Purchaser with a complete and accurate listing of (i) all employees currently involved in the operation of the Business and all contracts or other arrangements under which they are currently employed, and (ii) all pension, retirement, profit-sharing, employee stock option or stock purchase, bonus, deferred compensation, incentive compensation, life insurance, health insurance, fringe benefit, or other employee benefit plans of Seller, or applicable to the Business or its employees.  The operation of the Business is presently in compliance in all material respects with, and at all times prior to the date of the Closing will have been in compliance in all material respects with, any and all job safety requirements applicable thereto, including without limitation any and all requirements of the Occupational Safety and Health Act of 1970, as amended, and any other requirements of any governmental authority with respect to the health or safety of workers.  In the past five years, Seller has received no notice of any failure to comply with any such law, order, rule or regulation, nor is any such complaint pending or threatened from any other party.  Seller has provided Purchaser with a copy of any report resulting from any audit, study or review performed with respect to health or safety of workers employed by Seller.  In the past five years, Seller has not entered into any agreements with respect to health or safety matters, nor has Seller been subject to any complaint with respect to worker safety or health, nor is Seller or any Shareholder aware of any fact or circumstance which would give rise to any such claim.  Seller has no current obligations concerning employees or employee’s safety in regard to any previous failure by it to comply with any governmental law, order, rule or regulation.

(n)           Finders.  Except as disclosed in Section 11.3, Seller has not engaged, nor is it directly or indirectly obligated to, anyone acting as a broker, finder, or in any other similar capacity in connection with the purchase of the Purchased Assets or any other transaction contemplated by this Agreement.

(o)           No Material Events.  The Business has been conducted only in the ordinary course since December 31, 2011, and except as disclosed in Section 3.1 (o), no event, condition, circumstance, or occurrence which has had or is likely to have a material adverse effect on the Purchased Assets, the Business or its condition (financial or otherwise) has occurred since that date.

(p)           No Conflicts; Compliance and Consents.

(i)            No Conflict.  None of the execution and delivery by Seller of this Agreement and the other Seller Documents to which Seller is a party, the consummation of the transactions contemplated hereby and thereby (provided necessary consents are obtained), or the compliance by Seller with any of the provisions thereof will (i) conflict with, or result in the breach of, any provision of the certificate of incorporation, or comparable organizational documents of the Seller’s business; (ii) except for rights of contract parties upon Seller’s assignment of that contract and possible breach resulting from the assignment, conflict with, violate, result in the breach or termination of, or constitute a default under any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which Seller or the Business is a party or by which any of them or any of their respective properties or assets is bound; (iii) violate any statute, rule, regulation, order or decree of any governmental body or authority by which Seller or the Business is bound; or (iv) result in the creation of any lien upon the properties or assets of Seller or the Business except, in case of clauses (ii), (iii) and (iv), for such violations, breaches, terminations, defaults or creations of liens as would not, individually or in the aggregate, have a material adverse effect.

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(ii)           Compliance.  All laws, rules, regulations and restrictions affecting the Purchased Assets or the conduct of the Business as actually conducted in the past or currently, have been complied with in all material respects and all returns, reports and other information with respect to the Purchased Assets have been filed as appropriate with any governmental authority or any other person, as required by law, course of practice or custom.

(iii)          Third Party Consent.  Except as set forth in Schedule 3.1(p)(iii), Seller is not required to obtain the consent of, or give notice to, any third party by reasons of the transactions contemplated by the Seller documents.

(q)           No Litigation.  Except as described in Schedule 3.1(r) (each matter listed on Schedule 3.1(q) is herein referred to as a “Litigation Matter” and collectively as the “Litigation Matters”), there is no litigation, proceeding, action, claim, or governmental investigation pending or to Seller’s knowledge threatened against or relating to the Purchased Assets which would, individually or in the aggregate, have a material or adverse effect on the Business, and Seller does not have knowledge of any facts or circumstances which could give rise to any such litigation, proceeding or investigation.  Seller is not subject to any notice, writ, injunction, order, or decree of any court, agency, or other governmental authority which would materially or adversely affect the Business or the consummation of the transaction contemplated hereby.

(r)           Restrictions on Business Activities.  There is no agreement, judgment, order, writ, injunction or decree binding upon, or governmental or regulatory action taken against or involving the Business or any of its assets, properties or, to the knowledge of Seller, the employees of the Business, which has had or could reasonably be expected to have the effect of prohibiting or impairing any current or future business practice of the Business or Purchaser, any acquisition of property by the Business or Purchaser, or the conduct of business by the Business or Purchaser as currently conducted.

(s)           True and Complete Copies.  To the best of Seller’s knowledge, Seller has delivered or made available to Purchaser materially true, complete and accurate copies of all executory contracts, agreements, Financial Information, Books and Records and other documents deliverable to Purchaser under this Agreement or related to the Business, together with all modifications thereof and amendments thereto.

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(t)           Guaranties.  The Business is not a guarantor or otherwise liable for any liability or obligation (including indebtedness) of any other person.

(u)           Real Property.

(i)            Schedule 3.1(u)(i) sets forth a complete list of all real property and interests in real property leased by the Business as tenants (individually, a “Real Property Lease” and a “Leased Property”).  The Business does not own in fee any real property or other interest in real property.

(ii)           The Leased Property constitutes all interests in real property currently used or currently held for use in connection with the Business and which is necessary for the continued operation of the Business as the business is currently conducted.  Seller has a valid and enforceable leasehold interest under the Real Property Lease, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity), and the Seller has not received any written notice if any default or event that with notice or lapse of time, or both, would constitute a default by the Business under the Real Property Lease.  All of the Leased Property, buildings, fixtures and improvements thereon leased by the Seller are provided AS IS.  Seller has delivered or otherwise made available to Purchaser a true, correct and complete copy of the Real Property Lease, together with all amendments, modifications or supplements, if any, thereto.

(iii)          The Business has all material certificates of occupancy and material permits necessary for the current use and operation of the Leased Property, and the Business has fully complied with all material conditions of such permits which are applicable.  No default or violation, or event that with the lapse of time or giving of notice or both would become a default or violation, has occurred in the due observance of any material permit.  No dispute currently exists with any governmental body having jurisdiction over the Leased Property with respect to any real property law or the application thereof to the Leased Property.

(iv)          To the knowledge of the Seller, there does not exist any actual or threatened or contemplated condemnation or eminent domain proceedings that affect the Leased Property or any part thereof, and Seller has not received any notice, oral or written, of the intention of any governmental body or other person to take or use all or any part thereof.

(v)           Seller has not received any written notice from any insurance company that has issued a policy with respect to the Leased Property requiring performance of any structural or other repairs or alterations to such Leased Property.

(vi)          Except for amounts as shown in Seller’s accounts payable, Seller does not owe any money to any architect, contractor, subcontractor or materialman for labor or materials performed, rendered or supplied to or in connection with the Leased Property within the past nine months.

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(v)           Disclosure.  Neither any representation or warranty contained herein, nor any information contained in any Schedule or Exhibit to this Agreement, contain or shall contain an untrue statement of a material fact, nor do the Financial Information, representations, warranties and other information omit to state, nor will they omit to state, any material fact necessary in order to make the statements made not misleading in light of the circumstances in which they were made.

(w)           Accounts Receivable.  All accounts receivable reflected in the Financial Information are, and all accounts and notes receivable arising from or otherwise relating to the Business at the Closing Date will be, valid and genuine.  No offsetting claims with respect to such accounts are pending or, to Sellers Knowledge, threatened.  All accounts receivable arising out of or relating to the Business as of the date of the Financial Information have been included in the Financial Information, and all accounts receivable arising out of or relating to the Business as of the Closing Date will be included in the Final Net Working Capital, in accordance with sound accounting practices.

3.2           Purchaser’s Representations and Warranties.  Purchaser hereby, to the best of its knowledge, represents and warrants to Seller that, both as of the date hereof and as of the time of Closing:

(a)           Organization and Existence.  Purchaser is a Delaware limited partnership and is duly organized, validly existing, and in good standing under the laws of the State of Delaware.  Purchaser will use commercially reasonable efforts to obtain necessary authorizations to conduct business in the states listed on Schedule 3.2(a) prior to the Closing Date.

(b)           Power and Authority.  Purchaser has full corporate power and authority to execute, deliver, and perform this Agreement.

(c)           Authorization.  The execution, delivery, and performance of this Agreement has been duly authorized by all requisite corporate action on the part of Purchaser.

(d)           Binding Effect.  This Agreement is a valid, binding and legal obligation of Purchaser, enforceable in accordance with its terms, except as limited by Debtor Relief Laws.

(e)           No Default.  Neither the execution and delivery of this Agreement nor Purchaser’s performance of any of its obligations hereunder will violate or breach, or otherwise give rise to a default under, the terms or provisions of Purchaser’s governing documents, or any material contract, commitment, instrument, notice, writ, injunction, order or decree of any court, agency, or other governmental authority or other obligation binding on, applicable to or enforceable against Purchaser.  Purchaser has no knowledge of any event or circumstance which would make any representation or warranty of Seller as made herein untrue in any material respect.

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(f)           Finders.  Except as disclosed in Section 11.3, Purchaser has not engaged, nor is it directly or indirectly obligated to, anyone acting as a broker, finder, or in any other similar capacity in connection with the purchase of the Purchased Assets or any other transaction contemplated by this Agreement.

(g)           Source of Financing.  Purchaser has cash on hand and will have a fully committed line of credit with more than adequate capacity to complete the transactions contemplated in this Agreement prior to Closing.

(h)           Purchaser’s Knowledge.  Purchaser has no knowledge of any inaccuracy or breach of any representation or warranty or violation of any covenant by Seller contained in this Agreement or any of the documents herein contemplated.

Article 4

Actions Before Closing

4.1           General Inspection.  Between the Effective Date and the Closing Date, unless this Agreement is sooner terminated, Seller will afford Purchaser and Purchaser’s representatives full and free access, during normal business hours, to all of Seller’s assets, properties, books, records, financial statements, corporate documents, accountants’ work papers, contracts and insurance policies related to the Business, to Seller’s personnel, accountants, customers, clients, contractors and suppliers in connection with the Business, provided that any such access must be used by Purchaser in a manner that does not unreasonably disrupt the operation of the Business, and will furnish Purchaser during such period with all such information concerning the Business as Purchaser may reasonably request.  Access to Seller’s customers and clients will be done in conjunction with Seller and with Seller’s input.  Seller will use its commercially reasonable best efforts to arrange introductions to such customers and clients as Purchaser specifies.

4.2           Interim Conduct of the Business.  From the date of this Agreement to the Closing, Seller shall conduct the Business only in the ordinary and usual course, using reasonable efforts to preserve intact business relationships with suppliers, customers, employees, creditors and others having business dealings with the Business in a manner consistent with the historical practice of Seller in the conduct of the Business, preserving, protecting and maintaining the Purchased Assets in a manner consistent with the historical practice of Seller in the conduct of the Business, and continuing performance in the ordinary course of its obligations under the contracts described or referred to in Section 1.1(e).  Pending Closing Seller shall not agree to any material changes in the compensation of employees or officers, enter into any transactions with affiliates of Seller or enter into any other material contract without first consulting Purchaser. Pending Closing, Seller will not solicit from any other person, firm or corporation any inquiries or proposals related to the disposition of all or any significant portion of the Purchased Assets or the Business or pursue or engage in discussions with respect thereto.  During this period, Seller will also assist Purchaser as and to the extent (and only as and to the extent) requested by Purchaser in negotiating agreements acceptable to Purchaser with any customer of the Business.  As and to the extent that any Contract is not assigned as a result of the same not being assignable, Seller shall work with Purchaser following Closing to attempt to obtain all such approvals and upon obtaining the same will immediately assign Purchaser.  Pending such assignment, at Purchaser’s written election, Purchaser shall perform and discharge fully all the obligations of Seller thereunder from and after the date of Closing and indemnify Seller for all costs, expenses, and liabilities arising out of such performance by Purchaser.  In such instances, Seller shall, without further consideration therefor, pay, assign, and remit to Purchaser promptly all monies, rights, and other considerations received in respect of such performance.  In such instances, Seller shall promptly exercise or exploit its rights and options under all such contracts, agreements, and commitments only as reasonably directed by Purchaser and at Purchaser’s expense, and if and when any such consent shall be obtained or such contract shall otherwise become assignable, Seller shall promptly assign all its rights and obligations thereunder to Purchaser and Purchaser shall, without the payment of any further consideration therefor, assume such rights and obligations.

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4.3           Liens.  The Purchased Assets shall be subject to no liens or encumbrances other than Permitted Encumbrances.  Any other liens and encumbrances against the Purchased Assets shall be satisfied and Seller shall, prior to Closing, file or cause to be filed with the applicable Secretary of State’s office and any applicable local County Clerk, a termination statement for any lien or encumbrance affecting any of the Purchased Assets not consented to by Purchaser other than Permitted Encumbrances.

4.4           Notices of Certain Events.  Each of Purchaser and Seller shall give prompt notice to the other of (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the purchase of the assets of the Business; (ii) any notice or other communication from any governmental body in connection with the purchase of the assets of the Business; (iii) any actions, suits, claims, investigations or proceedings commenced or, to their knowledge, threatened against, relating to or involving or otherwise affecting Purchaser, Seller or the Business, or that relate to the consummation of the purchase of the assets of the Business; (iv) the occurrence of a default or event that, with the giving of notice or lapse of time or both, will become a default under any Contracts and would likely result in a material adverse effect on the Business; and (v) any change that would have a material adverse effect for Purchaser or Seller, or otherwise delay or impede the ability of Purchaser, Seller or the Business to perform their respective obligations pursuant to this Agreement and to effect the consummation of the purchase of the assets of the Business.

4.5           Lease Consent.  Seller shall use reasonable commercial efforts to obtain the consent of landlord to assign or sublease the Real Property to Purchaser.  Purchaser shall cooperate with Seller as is reasonably necessary to assist Seller in obtaining the consent.

Article 5

Additional Agreements

5.1           Covenant Not to Compete and Non-Solicitation.  As further consideration for the covenants and agreements herein contained, Seller agrees not to compete with the Business anywhere within the Continental United States.  Seller further agrees that it will not, directly or indirectly, solicit for employment, hire, or engage as a consultant or independent contractor any employee of the Business unless (i) such person is no longer employed or engaged by the Business, and has not been so employed or engaged for a period of at least six months or (ii) Purchaser otherwise consents to such hiring or engagement in writing.  The obligations of Seller in this Section 5.1 shall be effective for a period of three (3) years following the date of Closing.  In the event that any provision of this Section shall be determined to be invalid, ineffective or unenforceable, the remaining provisions of this Section shall remain in full force and effect and the invalid, ineffective or unenforceable provision shall, without further action, be automatically amended to effect the original purpose and intent of the invalid, ineffective, or unenforceable provision; provided, however, that such amendment shall only apply with respect to the operation of such provision in the particular jurisdiction in which such provision has been declared invalid, ineffective or unenforceable.  In the event Seller experiences a change of control with a non-affiliated third-party entity that at the time of the change of control has competed with the Business for a period of one (1) year prior to such change of control, the non-competition provisions contained in this Section shall not apply to the successor entity; however, the non-solicitation provisions contained in this Section will remain in full force and effect.

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5.2           Confidentiality.

(a)           Each of the parties shall, and shall cause their representatives to, treat and hold as such all of the Confidential Information (as defined below) of the other parties, and refrain from using such Confidential Information except in connection with this Agreement and the transactions contemplated herein.  In the event that any party or its representatives are requested or required (by oral questions or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process, or pursuant to applicable stock exchange rules and regulations) to disclose any Confidential Information, that party will notify the party providing such Confidential Information (the “Providing Party”) promptly of the request or requirement so that the Providing Party may seek an appropriate protective order or waive compliance with the provisions of this Section 5.2(a).  If, in the absence of a protective order or the receipt of a waiver hereunder, any of the parties or their respective representatives are, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or stock exchange or else stand liable for contempt; provided, however, that the disclosing party shall, and shall cause its representatives to, use its commercially reasonable best efforts to obtain an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed.

(b)           For purposes of this Agreement, “Confidential Information” means any written or oral information and data of a confidential nature disclosed by one party to the other(s), including but not limited to proprietary, developmental, technical, marketing, sales, operating, performance, cost, know-how, policy, business, and process information, computer programming techniques, samples, models and prototypes, or parts thereof and any information of a technical nature concerning research and development and engineering activity disclosed by the disclosing party, without limitation, software or firmware code, semiconductor or printed circuit board payout diagrams, product designs or specifications, manufacturing know-how, and patent applications.  Confidential Information shall also expressly include the terms and conditions (but not the existence) of this Agreement.  Notwithstanding the foregoing, the parties agree that Confidential Information shall expressly exclude any information which (a) is already in the public domain through no breach of this Agreement or any prior confidentiality agreement, provided, however, that Confidential Information shall not be deemed to be in the public domain merely because any part of the Confidential Information is embodied in general disclosures or because individual features, components or combinations thereof are now or become known to the public; (b) was lawfully in the possession of the receiving party prior to receipt from the disclosing party; (c) is received independently from a third party free to lawfully disclose such information to the receiving party; or (d) is subsequently independently developed by the receiving party, without use of the information received from the receiving party, provided that the receiving party shall have the burden to show such independent development.

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(c)           In the event that this Agreement is terminated in accordance with its terms, each party shall, and shall cause their respective representatives to, promptly redeliver to the other or destroy (and confirm such destruction in writing) all written Confidential Information and not retain any copies, extracts or other reproductions in whole or in part of such written material.  In such event all documents, memoranda, notes and other writings or media prepared by Purchaser or any of its representatives or by Seller, the Business or any of their representatives, based on the information in such material shall, at the request of the other party, be destroyed, and such destruction shall be confirmed in writing.

(d)           Notwithstanding anything to the contrary herein, the receiving party may disclose such Confidential Information as is reasonably necessary to comply with any applicable federal and state securities or tax laws.  Public disclosures required by any applicable federal or state securities laws shall be made as contemplated in Section 5.3.

5.3           Public Disclosure.  Unless otherwise permitted by this Agreement, Purchaser and Seller shall consult with each other before issuing any release or otherwise making any public statement or making any other public (or non-confidential) announcement or disclosure (whether or not in response to an inquiry) regarding the terms of this Agreement and the transactions contemplated hereby, and neither shall issue any such press release or make any such statement or disclosure without the prior approval of the other (which approval shall be unreasonably withheld or delayed); provided, however, that any party may make any public disclosure it believes in good faith is required by applicable law and, in the case of Seller, any listing or trading agreement concerning the publicly-traded securities of ENGlobal Corporation (in which case the disclosing party will use its reasonable best efforts to advise the other party prior to making the disclosure).

5.4           Further Assurances.

(a)           Prior to the Closing, each of the parties to this Agreement shall use its commercially reasonable efforts to effectuate the transactions contemplated hereby and to fulfill and cause to be fulfilled the conditions to Closing under this Agreement; provided, however, that Purchaser shall not be obligated to consent to or accept any divestiture or operational limitation imposed by any governmental agency or court in connection with the purchase of the assets of the Business or to make any payment or commercial concession to any third party as a condition to obtaining any required consent or approval of any third party.  Each party hereto, at the reasonable request of another party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby.

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(b)           The Business shall use its commercially reasonable efforts to cause any and all employees who develop or create intellectual property rights in the course of performing activities for the Business to execute and deliver a proprietary information and inventions agreement assigning any such intellectual property rights to the Business.

5.5           Notification of Certain Matters.  Each of the Purchaser and Seller agrees to give prompt notice to each other of, and to use their respective commercially reasonable efforts to prevent or promptly remedy, (i) the occurrence or failure to occur or the impending or threatened occurrence or failure to occur, of any event which occurrence or failure to occur would be likely to cause any of the representations or warranties in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Closing Date, and (ii) any material failure on its part to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.5 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.

5.6           Business Disclosure Schedule.  Seller will make available to Purchaser a reasonable time prior to the Closing, copies of all items set forth on the Disclosure Schedules and any and all other consents, documents or agreements to be delivered hereunder which have not previously been delivered to purchaser, which such other consents, documents or agreements shall be in form and substance reasonable satisfactory to Purchaser.

5.7           Preservation of Records.  Seller and Purchaser agree that each of them shall preserve and keep the records held by them relating to the Business for a period of six years from the Closing Date and shall make such records available to the other as may be reasonably required by such party in connection with, among other things, any insurance claims by, legal proceedings against or governmental investigations of Seller or Purchaser or in order to enable Seller and Purchaser to comply with their respective obligations under this Agreement and each other agreement, document or instrument contemplated hereby or thereby.  In the event Seller or Purchaser wishes to destroy such records after that time, such party shall first give ninety (90) days prior written notice to the other and such other party shall have the right at its option and expense, upon prior written notice given to such party within that ninety (90) day period, to take possession of the records within one hundred and eighty (180) days after the date of such notice.

5.8           Exclusive Dealing.  During the period prior to Closing, the Seller shall not directly or indirectly through any director, officer, employee, agent, or representative (including, without limitation, investment bankers, attorneys and accountants), (i) solicit, initiate or encourage submission of proposals or offers from any third party, relating to the Purchased Assets of the Business or (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any person to do or seek any of the foregoing.

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Article 6

Conditions

6.1           Conditions Precedent to Purchaser’s Obligations and Closing.  The following obligations and deliveries from Seller are express conditions precedent to the obligation of Purchaser to consummate the transactions and payments at Closing contemplated by this Agreement and are subject to the satisfaction of the following conditions at or prior to the Closing:

(a)           The representations and warranties of Seller contained in this Agreement shall be certified by Seller as true, accurate and complete in all material respects as of the date of this Agreement and shall be deemed to have been remade as of the Closing Date to be true, accurate and complete in all material respects as of the Closing Date.  If Seller provides updated Disclosure Schedules as of the Closing Date, changes to the Disclosure Schedules must be reasonably acceptable to Purchaser.

(b)           Seller shall have delivered all instruments and documents and performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by Seller prior to or at the Closing and shall have delivered to Purchaser all documents of conveyance and transfer, business records of account, documents, certificates and instruments required to be delivered under the terms of this Agreement.

(c)           Except for (i) customer and client consents, (ii) landlord consents, and (iii) those waived by Purchaser in a writing signed by its agent with authority to do so, Seller or Purchaser shall have obtained of all of the consents, approvals, modifications or effective waivers thereof, reasonably requested by Purchaser, including without limitation those referred to on Schedule 3.1(p)(iii).

(d)           There shall not have been issued and in effect any injunction or similar legal order prohibiting or restraining consummation of any of the transactions contemplated by this Agreement and no legal action or governmental investigation which might reasonably be expected to result in any such injunction or order shall be pending or threatened.

(e)           There shall not have occurred, in Purchaser’s reasonable good faith judgment, any material adverse change, or any event or circumstance which could result in a material adverse change in the Business, its prospects, the Purchased Assets or their value, or any development which materially and adversely affects, or which could materially and adversely affect, as a result of the consummation by Purchaser of the transactions contemplated hereby or otherwise, the Purchased Assets, their value, the Business or its prospects.

(f)           Seller shall have provided to Purchaser an opinion of counsel that no approval of the shareholders of any entity affiliated with Seller is necessary to consummate the transactions contemplated by this Agreement.

(g)           Purchaser must have completed all of its due diligence investigation of Seller and the Business, and must be satisfied, in its reasonable discretion, with the results of the investigation.

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(h)           The Parties must have reached agreement on a mutually acceptable staffing agreement whereby the employees of the Business will be assigned to Purchaser temporarily on a contract basis for a period not to exceed sixty days from the Closing Date.  The employees will remain employed by Seller, with their existing employment benefits intact, during the term of said staffing agreement.

6.2           Conditions to Seller’s Obligations and Payments at Closing.  The obligation of Seller to consummate the transactions contemplated by this Agreement at Closing is subject to satisfaction of the following conditions at or prior to Closing:

(a)           Each representation and warranty of Purchaser contained in this Agreement shall be true, accurate, and complete in all material respects as of the date hereof and as of the Closing.

(b)           Purchaser shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by Purchaser prior to or at the Closing, and Purchaser shall have delivered all documents, certificates, and instruments required to be delivered by Purchaser under the terms of this Agreement.

(c)           There shall not have been issued and in effect any injunction or similar legal order prohibiting or restraining consummation of any of the transactions contemplated by this Agreement and no legal action or governmental investigation which might reasonably be expected to result in any such injunction or order shall be pending.

(d)           Seller shall have used all commercially reasonable efforts to obtain and secure the written consent of its senior Lender, and obtained such consent and any necessary release of collateral as it pertains to the Purchased Assets.

Article 7

Closing

7.1           The Closing.  As used in this Agreement, the term “Closing” means the time at which the transactions contemplated hereby will be consummated after satisfaction or waiver of the conditions set forth in Section 4.

7.2           Time, Date, and Place of Closing.  The Closing shall occur at the office of Seller at 654 N. Sam Houston Parkway E., Suite 400, Houston, Texas 77060 on September 30, 2012, to be effective for all purposes as of 12:01 a.m. on September 30, 2010 or at such other time and date as the parties may mutually agree upon in writing (the “Closing Date”).

7.3           Purchaser’s Obligations.  Provided and subject to Seller satisfying all of its obligations and deliveries under Article 6, then and in that event at the Closing:

(a)           Cash Payment at Closing.  Purchaser shall deliver to Seller a wire transfer in the amount of the Estimated Net Working Capital as set forth in Section 2.1(a) hereof.

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(b)           Purchaser shall adjust the Cash Payment to include its pro rata share of the Personal Property taxes for the tax year ending December 31, 2012, by an amount which will be provided prior to Closing.

(c)           Purchaser shall deliver the Promissory Note described in Section 2.1(b).

(d)           Purchaser shall deliver such other documents, certificates, and other items as may be reasonably required to be delivered by Purchaser pursuant to the terms of this Agreement or as may be reasonably requested by Seller to effectuate the transaction herein described.

7.4           Seller’s Obligations.  At the Closing:

(a)           Seller shall execute and deliver to Purchaser a Bill of Sale and an Assignment, Assumption Consent and Release of Liability, each in a form reasonably acceptable to both Parties; (ii) a Certificate, including certification of the existence and good standing of Seller, verifying the accuracy of all representations and warranties of Seller, and the adoption of resolutions authorizing and approving the transaction; and (iii) the sublease described on Schedule 3.1(t)(iii) for space in Broomfield, CO.

(b)           Seller shall deliver to Purchaser physical possession, instruments of title where necessary, and a Bill of Sale transferring ownership of and title to the Purchased Assets, free and clear of any and all liens, claims and encumbrances.

(c)           Provide any lien terminations contemplated by Section 4.3.

(d)           Approval by Seller’s landlords of the transfer of Seller’s leases to Purchaser.

(e)           Seller shall supply updated Disclosure Schedules, if required, to reflect changes between the date hereof and the Closing Date.

(f)           Seller further agrees to deliver such other documents, certificates, and other items as may be required to be delivered pursuant to the terms of this Agreement or as may be reasonably requested by Purchaser to effectuate the transaction herein described.

7.5           Termination of Existing Employment Agreements.  Effective as of the Closing Date, Seller shall take such actions as may be necessary to terminate without liability to Purchaser any existing employment agreements currently in effect with Seller (other than accrued payroll owed at and as of the time of the Closing Date).

7.6           Employees.  Purchaser shall not be obligated to offer employment to any of Seller’s employees, but may at its option offer to employ such of Seller’s employees on such terms as Purchaser may determine in its sole discretion, except that compensation levels will be at least equivalent to those now in place as disclosed to Purchaser.  Any offer of employment which Purchaser extends to Seller’s employees is conditioned upon the Closing.  Balances for accrued compensated absences will be assumed by Seller as part of Net Working Capital and will be carried forward and credited to each employee’s account.  Pursuant to Section 7.7 below, the balances for Key Employees will not be included in the Net Working Capital calculation. Purchaser shall be responsible for any accrued compensated absences which accrue and remain unused between the Closing Date and date the employees are hired by the Purchaser and Purchaser shall reimburse Seller for any accrued compensated absences which are paid during this period.

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7.7           Key Employees.  Purchaser has determined that the employees listed on Schedule 7.7 are vital to the viability and success of the Business as a Key Employee of Seller (“Key Employees”) in which event such Key Employees shall be offered an Employment Agreement on terms and conditions acceptable to Purchaser to be signed prior to Closing, but which shall become effective only upon Closing. Seller shall pay the Key Employees for their accrued compensated absences and any retention bonuses on or within five days of the Closing Date.

7.8           Prorations and Adjustments.  At the Closing, the parties will additionally prorate ad valorem taxes based on prior years’ taxes and will make adjustments for deposits and other similar items as they may agree.

Article 8

Actions After Closing

8.1           Further Action.  After Closing, Seller will, without further cost or expense to Purchaser, execute and deliver to Purchaser (or cause to be executed and delivered to Purchaser) such additional instruments of conveyance and transfer and take such other and further actions as Purchaser may reasonably request to assign, transfer to and vest in Purchaser, and to put Purchaser in possession and operating control of, all or any part of the Purchased Assets and the Business.  No such instrument shall contain any representation, warranty, or covenant not contained in this Agreement or any document delivered pursuant to this Agreement or the transactions contemplated hereby.  No such instrument or action may increase in any way the liability of Seller.

8.2           Further Consents to Assignment.  As and to the extent the parties shall have failed to obtain prior to Closing the consent or approval (or an acceptable effective waiver thereof) of any person or persons in respect of any item from whom such consent is required pursuant to the terms hereof, or shall have failed to obtain any other consent to the assumption of any contract included as a part of the Purchased Assets, if Purchaser shall nonetheless have elected to proceed to purchase the Purchased Assets, at the written request of Purchaser, Seller and Purchaser shall continue to use reasonable efforts to obtain from such person or persons the consents or approvals (or effective waivers thereof).  Purchaser shall use reasonable efforts to obtain the consents required by the Sales Contracts and Seller shall use reasonable efforts to assist Purchaser in obtaining consents.

8.3           Confidential Information.  Seller hereby acknowledges that the Purchaser would be irreparably damaged if any proprietary or confidential information concerning the Business or the Purchased Assets (except for information that is or becomes generally known to the public, otherwise than through a breach of this Agreement) were disclosed to or used by any person engaged in competition with Purchaser.  Seller hereby covenant and agree that they shall not use or disclose any such confidential or proprietary information, except as expressly permitted hereunder or under any other agreement between Seller and Purchaser.  If Seller is requested or required by any governmental authority to disclose any of such proprietary or confidential information, then Seller shall provide Purchaser with prompt written notice of such request or requirement unless prohibited by law.  Purchaser may then either seek appropriate protective relief from all or part of such request or requirement or waive Seller’s compliance with the provisions of this Section with respect to all or part of such request or requirement.  Seller shall cooperate with Purchaser, at Purchaser’s reasonable expense, in attempting to obtain any reasonable protective relief that Purchaser chooses to seek.  If, after Purchaser has had a reasonable opportunity to seek such relief, Purchaser fails to obtain such relief, then Seller may disclose only that portion of such proprietary or confidential information which legal counsel advises it is compelled to disclose.  Notwithstanding the foregoing, the parties agree that such proprietary or confidential information shall expressly exclude any information which in the public domain through no breach of this Agreement or any prior confidentiality agreement, provided, however, that proprietary or confidential information shall not be deemed to be in the public domain merely because any part of the proprietary or confidential information is embodied in general disclosures or because individual features, components or combinations thereof are now or become known to the public.

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8.4           Accounts Receivable. In the event that Seller shall receive remittance from or on behalf of any account debtor with respect to the accounts receivable created after the Closing Date, Seller shall endorse without recourse such remittance to the order of Purchaser and forward such remittance to Purchaser within two (2) business days following receipt thereof.To the extent any Accounts Receivable transferred at Closing from Seller to Purchaser are not collected within 180 days after the later of (i) the date when due or (ii) the Closing Date (and Purchaser has made commercially reasonable efforts to collect the Accounts Receivable), any such sums shall be deemed uncollectible (“Uncollectible Accounts Receivable”).  In such event, but no later than 210 days after the later of (i) the date when due or (ii) the Closing Date, Purchaser may, at its option, return ownership of any such Uncollectible Accounts Receivable to Seller, and the Promissory Note shall be reduced dollar-for-dollar in accordance with and subject to the limitations set forth in Section 9.5 below.  In no event may Purchaser return ownership of more than twenty-five percent of the “accounts receivable-trade” amount identified in the Final Net Working Capital statement.  Purchaser agrees to provide Seller a monthly AR aging report and other information reasonably requested until such time as the obligations in this section have expired.

Article 9

Indemnification

9.1           Indemnification of Purchaser.

(a)           From and after the Closing Date, Seller hereby agrees, to indemnify, defend, and hold harmless Purchaser and its partners, officers, employees, advisors, affiliates, agents, representatives and assigns (the “Purchaser Indemnitees”) from and against any and all liabilities, penalties, damages, losses, demands, suits, causes of action, claims, assessments, judgments, costs, and expenses (including reasonable attorney’s fees and expenses both for the defense of any claim which, if proved, would give rise to an obligation of indemnity hereunder, notwithstanding that such claim may be settled prior to final judgment, and those incurred in connection with the enforcement of this provision), whether accrued, absolute, contingent, known, unknown or otherwise, and whether or not involving a third party claim by reason of or resulting from (directly or indirectly), arising out of, based upon or otherwise in respect of (i) breach, falsity, or inaccuracy of any warranty, representation or covenant by Seller contained in this Agreement; (ii) failure of Seller to fully to pay, satisfy, perform or discharge, or cause to be paid, satisfied, performed or discharged, any liabilities not expressly assumed by Purchaser pursuant to the terms hereof; (iii) nonperformance of any obligations or covenants on the part of Seller under this Agreement; (iv) the presence of any Hazardous Material or Hazardous Material Contamination which was caused by Seller upon or about the real property upon which the Business has heretofore been operated; (v) the conduct of the Business or of Seller’s employees, agents, or contractors prior to the Closing Date (other than liabilities expressly assumed by Purchaser pursuant to the terms hereof), including, without limitation, any violation of laws occurring or alleged to have occurred prior to the Closing Date or arising from, related to, or connected with the Business prior to the Closing Date; or (vi) any claim related to the Litigation Matters listed on Schedule 3.1(q) (a “Litigation Matter Claim”) (each hereafter a “Purchaser Claim”).

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(b)           Notwithstanding anything herein to the contrary, the sole remedy for Purchaser under this indemnity for any Purchaser Claim, or for a breach or non-performance of a covenant contained in this Agreement or any instrument herein contemplated to be executed and delivered by the parties hereto and, shall be offset against the Promissory Note in accordance with and subject to the limitations set forth in Section 9.5, and the maximum amount that the Seller shall be obligated to pay with respect to any and all obligations of indemnity under this Section 9.1 shall be equal to One Million Five Hundred Thousand and No/100 Dollars ($1,500,000).  In the second year after the Closing Date, Seller’s indemnity obligation shall drop to the lesser of (i) Seven Hundred Fifty Thousand ($750,000), or (ii) the difference between One Million Five Hundred Thousand and No/100 Dollars ($1,500,000) and the indemnity obligations applied to the Promissory Note in Year 1.  Seller shall have no indemnity obligations after the second anniversary of the Closing Date.  Notwithstanding anything to the contrary herein, the Cap shall not apply to Litigation Matter Claims.  A Purchaser Claim shall not be brought by Purchaser under or pursuant to this Section 9.1, unless the amount of that claim exceeds One Hundred Thousand and No/100 Dollars ($100,000).

9.2           Indemnification of Seller.

(a)           From and after the Closing Date, Purchaser hereby agrees to indemnify, defend, and hold harmless Seller and it’s respective equity holders, managers, officers, employees, advisors, affiliates, agents, representatives and assigns (the “Seller Indemnitees”) from and against any and all liabilities, penalties, damages, losses, demands, suits, causes of action, claims, assessments, judgments,  costs, and expenses (including reasonable attorney’s fees and expenses both for the defense of any claim which, if proved, would give rise to an obligation of indemnity hereunder, notwithstanding that such claim may be settled prior to final judgment. and those incurred in connection with the enforcement of this provision), whether accrued, absolute, contingent, known, unknown or otherwise, and whether or not involving a third party claim by reason of or resulting from (directly or indirectly) , arising out of, based upon or otherwise in respect of (i) breach, falsity, or inaccuracy of any warranty, representation or covenant by Purchaser contained in this Agreement; (ii) nonperformance of any obligations or covenants on the part of Purchaser under this Agreement; or (iii) the conduct of Purchaser’s employees, agents or contractors, or of the Business, or any condition, event or activity relating to the Business, on or after the Closing Date, including, without limitation, any violation of laws occurring or alleged to have occurred after to the Closing Date or arising from, related to, or connected with the Business after the Closing Date; (each hereafter a “Seller Claim” and together with Purchaser Claim, each a “Claim”).

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(b)           Notwithstanding anything herein to the contrary, the sole remedy for Seller under this indemnity for any Seller Claim, or for a breach or non-performance of a covenant contained in this Agreement or any instrument herein contemplated to be executed and delivered by the parties hereto and as provided in Section 9.5, and the maximum amount that the Purchaser shall be obligated to pay with respect to any and all obligations of indemnity under this Section 9.1 shall be equal to One Million Five Hundred Thousand and No/100 Dollars ($1,500,000).  In the second year after the Closing Date, Purchaser’s indemnity obligation shall drop to the lesser of (i) Seven Hundred Fifty Thousand ($750,000) or (ii) the difference between One Million Five Hundred Thousand and No/100 Dollars ($1,500,000) and the indemnity obligations paid in Year 1.  Purchaser shall have no indemnity obligations after the second anniversary of the Closing Date.  A Seller Claim shall not be brought by Seller under or pursuant to this Section 9.2, unless the amount of that claim exceeds One Hundred Thousand and No/100 Dollars ($100,000).

9.3           Responsibility for Defense.  The following procedures shall be applicable with respect to indemnification for claims by any person that is not a party to this Agreement or an affiliate of a party to this Agreement arising in connection with any provision of this Agreement.

(a)           Promptly after receipt by a Purchaser Indemnitee or a Seller Indemnitee seeking indemnification hereunder (an “Indemnitee”) of written notice of the assertion or the commencement of any Claim by a third party, whether by legal process or otherwise, with respect to any matter within the scope of this Section, the Indemnitee shall give written notice thereof (the “Notice”) to the party from whom indemnification is sought pursuant hereto (the “Indemnitor”).

(b)           Within thirty (30) days after receipt of any notice of a Claim, Indemnitor will, by giving written notice to Indemnitee, have the right to assume responsibility for the defense of the Claim in the name of Indemnitee or otherwise as Indemnitor may elect; provided that Indemnitor also acknowledge in writing its responsibility to indemnify Indemnitee with respect to such Claim; and provided further that failure of Indemnitor to exercise its right to assume responsibility for the defense of any Claim shall not restrict the ability of Indemnitee to subsequently join Indemnitor as a party in any litigation respecting such Claim nor shall Indemnitee be obligated to permit Indemnitor to assume or to continue responsibility for the defense if Indemnitee believes its rights, including without limitation, its right to be fully protected and paid under the indemnification, are or may become impaired or jeopardized.  In such event, Indemnitee shall have the right to defend the Claim and shall be automatically deemed to have reserved all of its rights against Indemnitor.

(c)           Notwithstanding Indemnitor’s responsibility for the defense of a Claim, Indemnitee shall have the right to participate, at its own expense and with its own counsel, in the defense of a Claim and Indemnitor will consult with Indemnitee from time to time on matters relating to the defense of such Claim and will provide such information and assistance as Indemnitee deem reasonably necessary to defend the Claim.  Indemnitee will provide Indemnitor with copies of all pleadings and correspondence relating to the Claim and will keep Indemnitee appraised of proposed adjustments, compromises and settlements.  Notwithstanding anything herein to the contrary, Indemnitor shall not be entitled to compromise or settle any such action without the prior written consent of Indemnitee.

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9.4           Payment of Fees and Expenses.  If either party is entitled under this Section to indemnification for fees and expenses, such party shall be entitled to current reimbursement thereof upon the submission to the other party of a request for reimbursement setting forth in reasonable detail such costs and expenses to be reimbursed.

9.5           Right of Set-Off.  Upon written notice to Seller specifying in reasonable detail the basis for such set-off, Purchaser shall have the right, up to a total combined set-off amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00), to set off any amount to which it is entitled under Section 8.4 (Uncollectible Accounts Receivable) and under this Article 9 (Indemnity) against its payment obligations under the Promissory Note.  In the event that Seller does not agree to the proposed set-off, Seller shall within ninety (90) days of receipt of the written notice from Purchaser apply to the American Arbitration Association for the appointment of an arbitrator to be selected from a list of three (3) arbitrators supplied by the American Arbitration Association to both parties at the same time.  For a period of five (5) days after the list is delivered to it, each of Purchaser and Seller shall have the right to strike one name from the list of arbitrators, and the arbitrator not stricken shall be the arbitrator hereunder.  Any party unable or unwilling to so strike a name within the period required shall forfeit its right to participate in the selection of the arbitrator.  The arbitrator so selected shall then diligently conduct an arbitration proceeding, and the decision of the arbitrator shall be final and conclusive upon the parties hereto.  Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction.  All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding.  Notwithstanding anything to the contrary contained in this Agreement, the exercise of such right of set-off by Purchaser in good faith, whether ultimately determined to be justified, will not constitute an event of default under any Agreements between the parties.

9.6           Rights of Indemnitor and Exclusive Remedy.  Upon the payment in full of any claim, the person making payment shall be subrogated to the rights of the indemnitee against any person with respect to the subject matter of such claim.  After the Closing Date and except for claims based on fraud or failure of Seller to provide Purchaser with good title, the indemnification provided under Section 9.1 and Section 9.2, will be the exclusive remedy of the parties.  Purchaser’s right to set-off as set forth in and limited by Section 9.5 is the exclusive manner in which Purchaser may make a claim for Uncollectible Accounts Receivable or for Indemnity under this Article 9.  It is expressly understood and agreed that, except by virtue of the indemnification provisions set forth in Article 9, none of the parties are or will be entitled to any adjustment, reduction, set-off, damages, or the like in connection with the transactions contemplated by this Agreement.  Notwithstanding the above, nothing in this Agreement shall restrict or limit any equitable remedies that such indemnified parties may otherwise have, including, without limitation, any right to seek specific performance, rescission or restitution, or any right of such indemnified parties to seek the enforcement by any court or arbitrator of any of its awards, judgments or remedies.

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9.7          No Consequential Damages.  EXCEPT FOR THE INDEMNITY OBLIGATIONS RELATED TO DAMAGES TO THIRD PARTIES, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL DAMAGES, INCLUDING INCIDENTAL, PUNITIVE DAMAGES, LOST PROFITS, LOST OPPORTUNITY DAMAGES OR OTHER SIMILAR FORMS OF DAMAGES.

Article 10

Amendment, Waiver and Termination

10.1         Amendment.  This Agreement may be amended at any time only by written instrument executed by both Seller and Purchaser.

10.2         Waiver.  Either party may at any time waive compliance by the other of any covenant or condition contained in this Agreement, but only by written instrument executed by the party waiving such compliance.  No such waiver, however, shall be deemed to constitute the waiver of any such covenant or condition in any other circumstance or the waiver of any other covenant or condition.  The failure of either party to enforce at any time or for any period of time any of the provisions of this Agreement shall not constitute a waiver of such provisions.

10.3         Extension.  At any time prior to the Closing any party hereto may, to the extent legally allowed, extend the time for the performance of any of the obligations or other acts of the other parties hereto.

10.4         Termination.  This Agreement may be terminated without breach by the terminating party as follows.

(a)           Termination by Purchaser.  Purchaser may terminate this Agreement: (1) if any representation or warranty of Seller in this Agreement is untrue or inaccurate, (2) if Seller has breached, in any material respect, any of its obligations under this Agreement, or (3) if Purchaser determines, in its reasonable and good faith judgment, that any condition to its obligation to close the purchase of the Purchased Assets will not be satisfied on or before the Closing Date.

(b)           Termination by Seller.  Seller may terminate this Agreement if: (1) any representation or warranty of Purchaser in this Agreement is untrue or inaccurate, (2) Purchaser has breached, in any material respect, any of its obligations under this Agreement, or (3) Seller determines, in its reasonable and good faith judgment, that any condition to its obligation to close the sale of the Purchased Assets will not be satisfied as of Closing.

(c)           Termination by Either Party.  This Agreement may be terminated by either party if the Closing does not occur within seven (7) days of the stated Closing Date, provided that a party then in material breach of this Agreement may not exercise such right.

(d)           Termination by Agreement.  This Agreement may be terminated at any time prior to the Closing by written agreement signed by both parties.

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(e)           Termination by Order.  This Agreement may be terminated by Seller or Purchaser if there shall be in effect a final nonappealable order of a governmental body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; it being agreed that the parties hereto shall promptly appeal any adverse determination which is not nonappealable (and pursue such appeal with reasonable diligence).

10.5         Effect of Termination.  In the event of termination of this Agreement pursuant to this Section and subject to the provisions of Section 10.6, this Agreement shall terminate and there shall be no further liability on the part of Seller or Purchaser under this Agreement; provided, however, that the provisions of Section 5.2 (Confidentiality), Section 5.3 (Public Disclosure), and this Section 10.5 shall remain in full force and effect and survive any termination of this Agreement; and provided further, that nothing in this Section 10.5 shall relieve the Purchaser or Seller of any liability for an intentional breach of this Agreement.  Nothing in this Section shall relieve a breaching or defaulting party from liability arising from any intentional breach or default of this Agreement prior to termination.  If this Agreement is terminated as provided herein each party shall redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same or destroy such documents, work papers and other material and confirm such destruction in writing.

10.6         Special Remedy.  If Seller terminates this Agreement for any reason other than pursuant to Sections 10.4(b), (c), (d) or (e), and provided that Purchaser is not in material breach of this Agreement, Purchaser shall be relieved from all further obligations hereunder and shall be entitled to recover from Seller an amount equal to$500,000.00as liquidated damages.  The parties hereto acknowledge and agree that Purchaser has incurred and will incur substantial expenses in connection with the proposed transaction as well as costs related to foregone opportunities, and that it would be impracticable or extremely difficult to fix the actual damages incurred by Purchaser resulting from such a termination and, therefore, the parties have agreed upon the foregoing payment as liquidated damages, which shall not be deemed to be in the nature of a penalty.  The parties agree that the amount identified in this Section 10.6 as liquidated damages has been agreed upon by Seller and Purchaser after due deliberation and discussion, and constitutes a reasonable amount and a good faith estimate of the damages Purchaser would be entitled to pursuant to this Agreement in the event of such a termination.

Article 11

Miscellaneous

11.1         Cooperation.  Purchaser and Seller will use reasonable efforts to cooperate with each other, at the other party’s request and expense, in furnishing information, testimony, and other assistance in connection with any litigation, collections, actions, proceedings, arrangements, public filings, and disputes with other persons, or governmental inquiries or investigations involving Seller or Purchaser’s conduct of the Business or the transactions contemplated hereby.  Seller shall provide reasonable assistance to Purchaser during the period leading up to the Closing Date and following the Closing Date so that Purchaser can maintain business continuity.  Such assistance may include accounting and IT support as well as the provision of required reports and billing information.  Following the Closing, upon request of Seller, Purchaser shall, at no cost to Seller, as promptly as reasonably practicable (but in all events within ten (10) days following the request of Seller) (i) timely make their representatives available to Seller, on a mutually convenient basis and (ii) timely furnish to Seller such information requested by Seller (including providing Seller access to books and records of Purchaser) relating to the Business that is necessary for the preparation and filing by Seller of all financial statements, reports, returns and other filings relating to the Business that are required by law.

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11.2         Severability.  If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the extent permitted by law.

11.3         Brokers: Expenses.  Each party agrees to hold the other harmless from any claims by a broker or finder claiming by, through or under the indemnifying party.  Each party will bear its own expenses incurred in connection with this Agreement and the transaction contemplated hereby, whether or not such transaction shall be consummated except as otherwise expressly provided in this Agreement.

11.4         Taxes.  Seller will bear any state, federal or foreign transfer, sales or use taxes, if any, which may result from the transfer of the Acquired Assets from Seller to Purchaser.

11.5         Notices.  All notices required or permitted to be given under this Agreement shall be in writing and may be delivered by personal delivery, by nationally recognized private courier, by PDF/email, or by United States mail. Notices delivered by mail shall be deemed given five business days after deposit in the United States mail, postage prepaid, registered or certified mail, return receipt requested. Notices delivered by personal delivery, PDF/email, or by nationally recognized private courier shall be deemed given on the first business day following receipt. However, a notice delivered by PDF/email shall only be effective upon electronic confirmation of receipt and must be confirmed by a mailed copy of the notice using United States mail, postage prepaid, registered or certified mail, return receipt requested, mailed either on the same day or the first business day after the PDF/email is sent.  All notices shall be addressed as follows:

if to the Purchaser, to:	Steele Group
	ATTN: General Counsel
	999 ESE Loop 323, Suite 777
	Tyler, Texas 75701
	Email address: mfreeman@kpengineering.com

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if to the Seller, to:	ENGlobal U.S., Inc..
	ATTN: General Counsel
	654 N. Sam Houston Parkway E., Suite 400
	Houston, Texas 77060
	Email address: tami.walker@englobal.com

Either party may change its address for notice hereunder by notice to the other party.

11.6         Assignment.  This Agreement and the rights, obligations and liabilities hereunder shall be binding upon and inure to the benefit of the successors and assignees of each of the parties hereto, but no rights, obligations or liabilities hereunder shall be assignable or delegable by any party without the prior written consent of the other party hereto, which consent shall not be unreasonably withheld.

11.7         No Third Parties.  This Agreement is not intended to, and shall not, create any rights in or confer any benefits upon any person other than the parties hereto and the Purchaser Indemnitees and the Seller Indemnitees.

11.8         Incorporation by Reference.  All Schedules and Exhibits to this Agreement constitute integral parts of this Agreement and are incorporated herein by this reference for all relevant purposes.  The Schedules have been separately compiled, and initialed by the undersigned representatives of Seller and Purchaser.

11.9         Counterparts, Faxes and Electronic Signatures.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart.  A signature transmitted by facsimile or electronically shall have the same force and effect as an original signature.

11.10        Entire Agreement; Time is of the Essence.  This Agreement, together with the Schedules and Exhibits attached hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes any contemporaneous or prior oral or written agreement or understanding, including the letter of intent, which shall terminate immediately, and be of no further force and effect, upon execution and delivery of this Agreement by the parties hereto.  Time is of the essence of this Agreement.

11.11        Interpretation.  The headings in this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof.  All pronouns shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons referred to may require.  Each defined term identified herein with initial capital letters shall have the meaning ascribed to such term herein.  Each party agrees that the language and all parts of this Agreement shall be construed as a whole according to its fair meaning, and irrespective of any party or its counsel’s role in drafting this Agreement shall not be strictly construed for or against any party.  The parties acknowledge that each has reviewed this Agreement and has had the opportunity to have it reviewed by its attorney and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement or any part thereof or attachment thereto.

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11.12        Survival of Representations and Covenants. All representations, warranties, covenants and agreements made in this Agreement shall survive the execution and delivery of this Agreement and the Closing of the transaction herein described until the expiration of two years following the date of Closing.  All statements contained in any certificate or other instrument delivered by or on behalf of Seller pursuant to this Agreement or in connection with the transactions contemplated hereby shall be deemed representations and warranties by Seller hereunder.

11.13        GOVERNING LAW.  All disputes relating to the execution, interpretation, construction, performance or enforcement of this Agreement and the rights and obligations of the parties hereto shall governed by the laws of the State of Texas, excluding it conflicts of laws provisions, and resolved in the State and Federal courts in Harris County, Texas.  Seller and Purchaser hereby consent to and waive any objections to venue and jurisdiction in such courts.

[Signature pages follow.]

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EXECUTED by the duly authorized representatives of the parties to be effective as of the date first set forth above.

SELLER:

ENGlobal U.S., Inc.

By:  /s/ William A. Coskey                         

William A. Coskey

President and CEO

PURCHASER:

STEELE AND COMPANY LP

By:  Steele and Company GP, LLC, its

       general partner

By:  /s/ Brandon Steele                              

       Brandon T. Steele

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EX-10.5

EXHIBIT 10.5

AMENDMENT 1

to ASSET PURCHASE AGREEMENT

THIS AMENDMENT (“Amendment 1”) is made effective as of November 2, 2012 to the Asset Purchase Agreement dated September 7, 2012 (the “Agreement”) by and between Steele Land and Inspection, LLC, successor-by-assignment to Steele and Company, LP (“Steele”) and ENGlobal U.S., Inc. (“ENGlobal”).

WHEREAS, the parties wish to redefine the assets that Purchaser desires to purchase from ENGlobal as the assets of ENGlobal related to the operation of the Land Division of the “Field Solutions” business segment (the “Business”) and modify the Purchase Price; and

WHEREAS, the parties wish to update certain disclosure schedules; and

WHEREAS, the parties wish to delete or modify certain terms related to entering into a Staffing Agreement; and

WHEREAS, the parties wish to specify that an affiliate of Steele will be the Assignee under certain of the closing documents.

NOW THEREFORE, in consideration of the covenants and agreements hereinafter contained, the parties do hereby agree as follows:

1.    The term “Business”, as defined in the Background Section shall be modified to mean the assets of Seller related to the operation of Seller’s land division of the Field Solutions business segment, including land acquisition.  The term shall not include Seller’s mid-stream inspection services business.

2.   Schedule 1.1(b) shall be replaced with the attached, revised Schedule 1.1(b).

3.   Schedule 1.1(d) shall be replaced with the attached, revised Schedule 1.1(d).

4.   Schedule 1.1(e)(i) shall be replaced with the attached revised Schedule 1.1(e)(i).

5.   Schedule 1.1(e)(ii) shall be replaced with the attached revised Schedule 1.1(e)(ii).

6.   Schedule 1.1(e)(iii) shall be replaced with the attached revised Schedule 1.1(e)(iii).

7.   Schedule 1.1(g) shall be replaced with the attached revised Schedule 1.1(g).

8.   Section 1.1(i) shall be deleted in its entirety.

9.   Schedule 1.2 shall be replaced with the attached revised Schedule 1.2.

10.   Section 2.1 Purchase Price. shall be replaced in its entirety with the following language:

“2.1 Purchase Price.  The Purchase Price for the Purchased Assets shall be two million nine hundred twenty-five thousand five hundred fifty-nine dollars and 60 cents ($2,925,559.60), paid with a Promissory Note as described in Section 2.1 (a) below and with a cash payment, as described in Section 2.1(b) below.

(a) Promissory Note. The Purchaser shall execute and deliver to Seller a two million nine hundred seventeen thousand nine hundred nine dollars and 60 cents dollar ($2,917,909.60) promissory note made payable to the order of Seller (the “Promissory Note”).  The Promissory Note shall (1) be secured by a second lien position on the Purchased Assets of the Business operation, (2) bear interest at 8% per annum, and (3) be payable in four (4) installments, with 25% of the remaining principal balance and interest paid at the end of year one following the Closing Date, 33% of the remaining principal balance and interest paid at the end of year two, 50% of the remaining principal balance and interest paid at the end of year three, and the remaining principal and interest paid at the end of year four.  Seller agrees to take all reasonable steps necessary, if any, to subordinate its claims to the Purchased Assets of the Business or assets later acquired by Steele in the operation of the Business, to any senior lender, and agrees to execute a subordination agreement substantially in the form of the attached Schedule 2.1 if requested by Purchaser.  The amount of the Promissory Note was established at three million dollars, less the Accrued Compensated Absences shown on Schedule 2.2 and the property tax accrual shown on Schedule 2.2.

(b) Cash.  The Purchaser shall pay cash on the Closing Date for the prepaid accounts in the amount set forth on Schedule 1.1(g) for such accounts.”

11.   Schedule 2.2 shall be replaced with the attached revised Schedule 2.2.

12.   Section 2.3 Allocation of Purchase Price shall be amended as follows: Purchaser and Seller agree that the Purchase Price of the Business is allocated between fixed assets and intangible assets as follows:

Fixed Assets--$20,718.92

Goodwill--$2,904,840.70

13.   Schedule 3.1 (c)(1) shall be replaced with the attached revised Schedule 3.1(c)(1).

14.   Section 3.1(g)(iii) shall be replaced with the following language:

“(iii)           As of the Effective Date, Seller has made a commercially reasonable effort to list all of the General Contracts to be acquired by Purchaser.  As of the Closing Date, Schedule 1.1(e)(iii) will be, to the best of Seller’s knowledge, a complete and accurate list of the General Contracts to be acquired by Purchaser under this Agreement.”

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15.   Schedule 3.1(p)(iii) shall be replaced with the attached revised Schedule 3.1(p)(iii).

16.   Schedule 3.1(t)(iii) shall be replaced with the attached revised Schedule 3.1(u)(i).

17.   Section 3.1(w) shall be deleted in its entirety.

18.   Section 4.3 shall be replaced with the following language:

“4.3           Liens.  The Purchased Assets shall be subject to no liens or encumbrances other than Permitted Encumbrances.  Any other liens and encumbrances against the Purchased Assets shall be satisfied and Seller shall, immediately after Closing, file or cause to be filed with the applicable Secretary of State’s office and any applicable local County Clerk, a termination statement for any lien or encumbrance affecting any of the Purchased Assets not consented to by Purchaser other than Permitted Encumbrances.”

19.   Section 6.2 (d) shall be replaced with the following:

“Seller shall have used all commercially reasonable efforts to obtain and secure the written consent of its senior Lender, and obtained such consent and any necessary release of collateral as it pertains to the Purchased Assets.  Seller’s obligation to close is conditioned on obtaining the approval and consent of its Board of Directors and senior lender of these amended terms.”

20.   Section 6.1 (h) shall be replaced with the following language:

“The Parties must have reached agreement on a mutually acceptable Shared Use and Services Agreement whereby Seller provides office space, payroll, billing and IT support and infrastructure to Purchaser post-closing in exchange for certain monetary consideration.”

21.   Section 7.2 shall be replaced with the following:

“7.2           Time, Date, and Place of Closing.  The Closing shall occur at the office of  Seller at 654 N. Sam Houston Parkway E., Suite 400, Houston, Texas 77060 on November 2, 2012, or at such other time and date as the parties may mutually agree upon in writing (the “Closing Date”).

22.   Section 7.3 (a) shall be replaced with the following:

“7.3            Cash Payment at Closing.  Purchaser shall deliver to Seller, in certified funds, a check for the prepayments and prepaid accounts set forth on revised Schedule 1.1(g).”

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23.   Section 7.3 (b) is deleted in its entirety.

24.   Section 7.6  Employees shall be replaced in its entirety with the following:

“Purchaser shall not be obligated to offer employment to any of Seller’s employees, but may at its option offer to employ such of Seller’s employees on such terms as Purchaser may determine in its sole discretion, except that compensation levels will be at least equivalent to those now in place as disclosed to Purchaser.  Any offer of employment which Purchaser extends to Seller’s employees is conditioned upon the Closing.  Balances for accrued compensated absences will be assumed by Seller and will be carried forward and credited to each employee’s account.”

25.   Section 7.7. Key Employees shall be replaced in its entirety with the following language:

“Purchaser has determined that the employees listed on Schedule 7.7 are vital to the viability and success of the Business as a Key Employee of Seller (“Key Employees”) in which event such Key Employees shall be offered an Employment Agreement on terms and conditions acceptable to Purchaser to be signed prior to Closing, but which shall become effective only upon Closing.”

Schedule 7.7 shall be replaced with the attached Schedule 7.7.

26.   Section 8.4 Accounts Receivable shall be replaced in its entirety with the following:

“In the event that Seller shall receive remittance from or on behalf of any account debtor with respect to the accounts receivable created after the Closing Date, Seller shall endorse without recourse such remittance to the order of Purchaser and forward such remittance to Purchaser within two (2) business days following receipt thereof.  Purchaser shall provide assistance to Seller to bill any unbilled amounts and to collect Accounts Receivable accruing prior to the Closing Date.

27.   Section 9.5  Right of Set-Off.  The first sentence of the section shall be replaced in its entirety with the following:

“Upon written notice to Seller specifying in reasonable detail the basis for such set-off, Purchaser shall have the right to set off any amount to which it is entitled under Article 9 (Indemnity) against its payment obligations under the Promissory Note.”

28.   Section 9.6    Rights of Indemnitor and Exclusive Remedy. The third sentence of the section shall be replaced in its entirety with the following:

“Purchaser’s right to set-off as set forth in and limited by Section 9.5 is the exclusive manner in which the Purchaser may make a claim for Indemnity under this Article 9.”

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Steele:                                                                                      Steele Land and Inspection, LLC                                                      By:  /s/ Brandon Steele                                                                         
Brandon Steele_________________                                                                                                                                 Chief Executive Officer                                                                                                                                          Title ____________________________ Date  ENGlobal ENGlobal U.S., Inc.     By:  /s/ William A. Coskey William A. Coskey, P.E                                     Chief Executive Officer                                  Title Date       

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, William A. Coskey, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for the quarter ended September 29, 2012 of ENGlobal Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)		Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)		Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 19, 2012	By:	/s/  William A. Coskey
			William A. Coskey, P.E.
			Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Mark A. Hess, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for the quarter ended September 29, 2012 of ENGlobal Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)		Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)		Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 19, 2012	By:	/s/  Mark A. Hess
			Mark A. Hess
			Chief Financial Officer

EX-32.0

Exhibit 32.0

CERTIFICATION

Each of the undersigned hereby certifies, for the purposes of section 1350 of chapter 63 of title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of ENGlobal Corporation (“ENGlobal”), that, to his knowledge, the Quarterly Report of ENGlobal on Form 10-Q for the period ended September 29, 2012, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of ENGlobal. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Form 10-Q. A signed original of this statement has been provided to ENGlobal and will be retained by ENGlobal and furnished to the Securities and Exchange Commission or its staff upon request.

Date:	November 19, 2012	By:	/s/  William A. Coskey
			William A. Coskey, P.E.
			Chairman and Chief Executive Officer

Date:	November 19, 2012	By:	/s/  Mark A. Hess
			Mark A. Hess
			Chief Financial Officer

XML

NOTE 9 - FEDERAL AND STATE INCOME TAXES (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Sep. 30, 2011	Sep. 29, 2012	Sep. 30, 2011
Effective Income Tax Rate Description, Continuing Operations	not meaningful		not meaningful
Effective Income Tax Rate, Continuing Operations		25.60%		26.10%
Valuation Allowance, Deferred Tax Asset, Change in Amount (in Dollars)			$ 10.4

XML

NOTE 6 - CONTRACTS (Detail) (USD $) In Millions, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Deferred Revenue, Current	$ 0.1	$ 0.3

XML

NOTE 2 - LIQUIDITY (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Sep. 30, 2011	Sep. 29, 2012	Sep. 30, 2011
Net Income (Loss) Attributable to Parent	$ (22,330,000)	$ (1,273,000)	$ (32,324,000)	$ (3,104,000)
Goodwill and Intangible Asset Impairment			16,965,000	0
Deferred Income Tax Expense (Benefit)			6,166,000	(1,047,000)
Line of Credit Facility, Current Borrowing Capacity	$ 13,000,000		$ 13,000,000

XML

NOTE 12 - SUBSEQUENT EVENTS (Detail)	1 Months Ended
	Oct. 31, 2012
Subsequent Event, Description	Company is not in compliance with the $1.00 minimum bid price requirement for continued listing on the NASDAQ Global Select Market. The Company has a grace period of 180 calendar days, or until April1, 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 April1, 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

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NOTE 8 - SEGMENT INFORMATION (Detail) - Schedule of Asset Reconciliation from Segment to Consolidated (USD $) In Thousands, unless otherwise specified	Sep. 29, 2012		Dec. 31, 2011
Assets	$ 86,493		$ 104,179
Engineering and construction [Member]
Assets	37,033		52,108
Automation [Member]
Assets	28,009		24,080
Field Solutions [Member]
Assets	13,103	[1]	15,297	[1]
Electrical Services [Member]
Assets	710	[1]	3,757	[1]
Corporate [Member]
Assets	$ 7,638		$ 8,937

[1] All of these assets are included in assets held for sale from discontinued operations as of September 29, 2012 andDecember 31, 2011.

XML

NOTE 4 - GOODWILL

9 Months Ended

Sep. 29, 2012

Goodwill and Intangible Assets Disclosure [Text Block]

NOTE 4 – GOODWILL

Goodwill has an indefinite useful life.  Goodwill is not amortized but, instead, tested at least annually for impairment.  Because of deteriorating market conditions, our declining financial performance and the decision to sell several of our assets, we made a decision to perform an interim assessment of the carrying value of our goodwill as of September 29, 2012. We reviewed a number of factors on a segment by segment basis, including market conditions, projected cash flows, cost of capital, growth rates and other factors which could significantly impact the reported value of our goodwill.  As a result of this review, we recorded a goodwill impairment of approximately $16.9 million as of September 29, 2012.  Of this amount, approximately $14.6 million related to continuing operations and approximately $2.4 million relating to discontinued operations.  Summarized financial information for goodwill is shown below:

Description of Segment	Balance at December 31, 2011		Impairments			Balance at   September 29, 2012
	(amounts in thousands)
Engineering and Construction	$	15,288	$	(14,568	)	$	720
Automation		2,085		—			2,085
Field Solutions*		5,241		(2,397	)		2,844
Total	$	22,614	$	(16,965	)	$	5,649
* Amounts are included in Assets held for sale and Loss from discontinued operations, net of taxes

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NOTE 4 - GOODWILL (Detail) (USD $)	9 Months Ended
	Sep. 29, 2012	Sep. 30, 2011
Goodwill and Intangible Asset Impairment	$ 16,965,000	$ 0
Disposal Group, Including Discontinued Operation, Goodwill	2,400,000
Continuing Operations [Member]
Goodwill and Intangible Asset Impairment	$ 14,600,000

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NOTE 3 - DISCONTINUED OPERATIONS (Detail) - Schedule of Discountinued Operations (USD $) In Thousands, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Assets:
Trade receivables	$ 10,929	$ 12,252
Cost and estimated earnings in excess of billings on uncompleted contracts	0	138
Deferred tax asset	0	995
Property and equipment, net	111	372
Goodwill and other assets	2,773	5,297
Total assets held for sale	13,813	19,054
Liabilities:
Accounts payable	316	477
Accrued compensation and benefits	1,818	760
Deferred rent	45	53
Billings in excess of costs and estimated earnings on uncompleted contracts	73	158
Other current liabilities	610	2,610
Total liabilities held for sale	$ 2,862	$ 4,058

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NOTE 4 - GOODWILL (Detail) - Schedule of Goodwill (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 29, 2012		Sep. 30, 2011
Goodwill at December 31, 2011	$ 22,614
Asset Impairment	(16,965)		0
Goodwill at September 29, 2012	5,649
Engineering and construction [Member]
Goodwill at December 31, 2011	15,288
Asset Impairment	(14,568)
Goodwill at September 29, 2012	720
Automation [Member]
Goodwill at December 31, 2011	2,085
Asset Impairment	0
Goodwill at September 29, 2012	2,085
Field Solutions [Member]
Goodwill at December 31, 2011	5,241	[1]
Asset Impairment	(2,397)	[1]
Goodwill at September 29, 2012	$ 2,844	[1]

[1] Amounts are included in Assets held for sale and Loss from discontinued operations, net of taxes

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NOTE 5 - STOCK COMPENSATION PLANS (Detail) (USD $)	9 Months Ended		1 Months Ended	9 Months Ended	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Sep. 30, 2011	Nov. 14, 2012 Subsequent Event [Member] 2009 Equity Incentive Plan [Member]	Sep. 29, 2012 Restricted Stock Awards [Member]	Sep. 29, 2012 2009 Equity Incentive Plan [Member]	Sep. 30, 2011 2009 Equity Incentive Plan [Member]	Sep. 29, 2012 2009 Equity Incentive Plan [Member]	Sep. 30, 2011 2009 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized (in Shares)							500,000
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares)			502,335
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number (in Shares)			133,115
Share-based Compensation	$ 177,000	$ 307,000			$ 18,000	$ 109,000	$ 177,000	$ 307,000
Share-based Compensation Arrangement by Share-based Payment Award, Terms of Award				intended to compensate and retain the directors over the one-year service period commencing July 1 of the year of service
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights				These awards vest in quarterly installments beginning September 30 of the year of service, so long as the grantee continues to serve as a director of the Company.Restricted stock awards granted to employees vest in four equal annual installments beginning December 31 in the year granted, so long as the grantee remains employed full-time with the Company as of each vesting date
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Share-based Awards Other than Options				$ 173,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition				17 months

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NOTE 3 - DISCONTINUED OPERATIONS

9 Months Ended

Sep. 29, 2012

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

NOTE 3 - DISCONTINUED OPERATIONS

During the third quarter of 2011, as part of its strategic evaluation of operations, the Company determined that the expected future profitability of the Electrical Services group was not sufficient to support maintaining it as a viable business and that it did not fit within the future strategic plan due to its operational differences.  As a result, effective July 1, 2011, the Company initiated a plan to sell the operations of its Electrical Services group. These assets and their related operations have been classified as discontinued operations and accordingly, are presented as discontinued operations in the Company's re-casted consolidated financial statements. The net assets and liabilities related to the discontinued operations are shown on the Condensed Consolidated Balance Sheet as "Assets held for sale" and "Liabilities held for sale," respectively. The results of the discontinued operations are shown on the Condensed Consolidated Statements of Operations as "Loss from discontinued operations, net of taxes".

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.

On September 10, 2012, the Company entered into a definitive agreement to sell its Field Solutions segment. The Field Solutions segment includes the Land and Right-of-Way and Inspection divisions, primarily serving pipeline and electric power companies. On November 2, 2012, the Company completed the divestiture of its Land and Right-of-Way division of its Field Solutions segment effective October 26, 2012, and retained the Inspection division pursuant to the terms of the amended definitive agreement.  The transaction was valued at approximately $7.5 million, consisting of approximately $4.5 million in working capital at closing to the Company and a $3 million promissory note payable to the Company over four years.  The Company is continuing to pursue the sale of the Inspection division and, as such, the Inspection division will continue to be classified as held-for-sale.

The assets and liabilities of the Electrical Services and Field Solutions divisions and their related operations have been classified as discontinued operations and accordingly, are presented as discontinued operations in the Company's re-cast condensed consolidated financial statements. The net assets and liabilities related to the discontinued operations are shown on the Condensed Consolidated Balance Sheet as "Assets held for sale" and "Liabilities held for sale," respectively. 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 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.  Summarized financial information for the discontinued operations is shown below:

	For the Three Months Ended						For the Nine Months Ended
Statement of Operations Data:	September 29, 2012			September 30, 2011			September 29, 2012			September 30, 2011
	(amounts in thousands)
Revenues	$	14,559		$	21,598		$	52,442		$	75,981
Operating costs		14,227			21,382			49,586			72,995
Operating income (loss)		332			216			2,856			2,986
SG&A		1,650			1,712			3,676			4,888
Goodwill impairment		2,397			—			2,397			—
Other income (expense)		(2	)		1			(5	)		2
Total income (loss) before taxes		(3,717	)		(1,495	)		(3,222	)		(1,900	)
Tax expense (benefit)		—			(577	)		1,557			(637	)
Net loss	$	(3,717	)	$	(918	)	$	(4,779	)	$	(1,263	)

Balance Sheet Data:	September 29, 2012		December 31, 2011
	(amounts in thousands)
Assets:
Trade receivables	$	10,929	$	12,252
Cost and estimated earnings in excess of billings on uncompleted contracts		—		138
Deferred tax asset		—		995
Property and equipment, net		111		372
Goodwill and other assets		2,773		5,297
Total assets held for sale	$	13,813	$	19,054
Liabilities:
Accounts payable	$	316		477
Accrued compensation and benefits		1,818		760
Deferred rent		45		53
Billings in excess of costs and estimated earnings on uncompleted contracts		73		158
Other current liabilities		610		2,610
Total liabilities held for sale	$	2,862	$	4,058

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NOTE 5 - STOCK COMPENSATION PLANS (Detail) - Schedule of Restricted Stock Awards (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 29, 2012
June 14, 2012 to Employee [Member]
Issued To	Employee
Number of Individuals	1
Number of Shares	50,336
Market Price (in Dollars per share)	$ 1.49
Fair Value (in Dollars)	$ 75,000
Grants Forfeited	0
June 14, 2012 to Director [Member]
Issued To	Director
Number of Individuals	3
Number of Shares	100,671
Market Price (in Dollars per share)	$ 1.49
Fair Value (in Dollars)	$ 150,000
Grants Forfeited	0

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NOTE 10 - EARNINGS PER SHARE (Detail)	3 Months Ended	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	593,000	0	593,000

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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Sep. 30, 2011	Sep. 29, 2012	Sep. 30, 2011
Operating revenues	$ 57,482	$ 60,482	$ 175,805	$ 162,961
Operating costs	54,212	53,706	162,455	145,767
Gross profit	3,270	6,776	13,350	17,194
Selling, general and administrative expenses	6,162	6,682	19,301	18,716
Goodwill impairment	14,568		14,568
Operating income (loss)	(17,460)	94	(20,519)	(1,522)
Other income (expense):
Other income (expense), net	(98)	(8)	(100)	(68)
Interest expense, net	(643)	(303)	(1,320)	(711)
Loss from continuing operations before income taxes	(18,201)	(217)	(21,939)	(2,301)
Provision (benefit) for federal and state income taxes	412	138	5,606	(460)
Loss from continuing operations	(18,613)	(355)	(27,545)	(1,841)
Loss from discontinued operations, net of taxes	(3,717)	(918)	(4,779)	(1,263)
Net loss	(22,330)	(1,273)	(32,324)	(3,104)
Other comprehensive income (expense)
Foreign currency translation adjustment			(1)
Comprehensive loss	$ (22,330)	$ (1,273)	$ (32,325)	$ (3,104)
Loss per common share – basic and diluted:
Net loss from continuing operations (in Dollars per share)	$ (0.69)	$ (0.01)	$ (1.02)	$ (0.07)
Net loss from discontinued operations (in Dollars per share)	$ (0.14)	$ (0.04)	$ (0.18)	$ (0.05)
Net loss (in Dollars per share)	$ (0.83)	$ (0.05)	$ (1.20)	$ (0.12)
Weighted average shares used in computing loss per common share – basic and diluted (in Shares)	26,964	26,620	26,882	26,585

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NOTE 1 - BASIS OF PRESENTATION

9 Months Ended

Sep. 29, 2012

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

NOTE 1 – BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES

The condensed consolidated financial statements of ENGlobal Corporation (which may be referred to as "ENGlobal”, "the Company," "we," "us," or "our") are prepared in accordance with accounting principles generally accepted in the United States of America.  The Company consolidates all of its subsidiaries' financial results, and significant inter-company accounts and transactions have been eliminated in the consolidation.

The condensed consolidated financial statements of the Company included herein are unaudited for the three and nine-month periods ended September 29, 2012 and September 30, 2011, have been prepared from the books and records of the Company pursuant to the rules and regulations of the Securities and Exchange Commission, and in the case of the condensed balance sheet as of December 31, 2011, have been derived from the audited financial statements of the Company. These financial statements reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary to fairly present the results for the periods presented.  Certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission.  These condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2011, included in the Company's Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission.  The Company has assessed subsequent events through the date of filing of these condensed consolidated financial statements with the Securities and Exchange Commission and believes that the disclosures made herein are adequate to make the information presented herein not misleading.  Certain reclassifications have been made to the 2011 condensed consolidated financial statements to conform the presentation to report discontinued operations. Refer to Note 3.

On January 1, 2012, we changed from a traditional month-end calendar close cycle to a 4-4-5 calendar close methodology. Under this new methodology, each quarter (formerly comprised of 3 calendar months) is comprised of 13 weeks, which includes two 4-week months and one 5-week month.  This change in accounting periods has not had a material effect on the comparability to prior periods.

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NOTE 7 - LINE OF CREDIT AND DEBT (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended			9 Months Ended	12 Months Ended		9 Months Ended
	Sep. 29, 2012	Sep. 30, 2011	Sep. 29, 2012	Sep. 30, 2011	Dec. 31, 2011	Sep. 29, 2012 PNC Credit Facility [Member]	Dec. 31, 2009 Wells Fargo Credit Facility [Member]	Aug. 01, 2011 Wells Fargo Credit Facility [Member]	Sep. 29, 2012 Ex-Im Bank Facility [Member]
Line of Credit Facility, Interest Rate at Period End	7.00%		7.00%		4.125%
Line of Credit Facility, Interest Rate Description			Effective June 20, 2012, upon defaulting on the PNC Credit Facility, the interest rate increased from 5.0% to 7.0% (the default interest rate is 2.0% higher than the applicable facility rate).			Loans will bear interest at (a) the sum of the Alternate Base Rate (defined as a fluctuating rate equal to the highest of (x) the commercial lending rate of Agent as publicly announced and in effect on such day, (y) the daily federal funds open rate as quoted by ICAP North America, Inc. in effect on such day plus 1/2 of 1%, and (z) the Daily Libor Rate plus 1% (with the Daily LIBOR Rate determined by taking the LIBOR rate published in the Wall Street Journal and dividing it by a number equal to 1 minus the reserve percentage on that day as determined by the Board of Governors of the Federal Reserve), plus the Applicable Margin (defined below) for Domestic Rate Loans or (b) the sum of the Eurodollar Rate (defined as a fluctuating rate determined by Agent by dividing the quoted LIBOR rate (as selected from a variety of sources) by a number equal to 1 minus the reserve percentage on that day as determined by the Board of Governors of the Federal Reserve), plus the Applicable Margin with respect to Eurodollar Rate Loans
Interest Expense (in Dollars)	$ 0.6	$ 0.3	$ 1.3	$ 0.7
Line of Credit, Term						3 years	28 months
Line of Credit Facility, Maximum Borrowing Capacity (in Dollars)						35.0	25.0	35.0	9.5
Line of Credit Facility, Description						Lender's Commitment Percentage of the lesser of (a) $35.0 million less the maximum undrawn amount on all outstanding letters of credit, or (b) an amount equal to the sum of: (i) up to 85% of Eligible Receivables, plus (ii) up to the lesser of (x) up to 85% of Eligible Extended Term Receivables or (y) $3.0 million, plus (iii) up to the lesser of (x) up to 85% of Eligible Government Receivables or (y) $800,000, plus (iv) up to the lesser of (x) 75% of Eligible Unbilled Receivables or (y) $8.5 million; provided, however, that no more than $800,000 of the amount resulting from the calculation of this part (iv) may be attributable to Eligible Unbilled Receivables owed by Government Customers, plus (v) up to the lesser of (x) up to 50% of Eligible Costs in Excess of Billings or (y) $4.0 million, minus (vi) the Maximum Undrawn Amount of all outstanding letters of credit, minus (vii) such reserves as Agent may deem proper and necessary in the exercise of its discretion.
Line of Credit Facility, Collateral						loan agreement are secured by a first priority perfected lien against any and all personal property assets of the Company (other than certain excluded property, including certain accounts receivable related to the Caspian Pipeline Consortium pledged under the Ex-Im Transaction Specific Credit Agreement dated as of July 13, 2011 between ENGlobal US and Wells Fargo Bank, National Association).			$2.3 million in cash
Debt Instrument, Maturity Date						May 29, 2015
Line of Credit Facility, Covenant Terms						Maintain as of the last day of each applicable period a Tangible Net Worth at least equal to the amount set forth for such period: (a) for each of the fiscal quarters ending June 30, 2012, September 29, 2012 and December 31, 2012, a minimum Tangible Net Worth of 90% of the Tangible Net Worth of the Company on a consolidated basis on the Closing Date, and (b) for the fiscal quarter ending March 31, 2013, and as of the last day of each fiscal quarter thereafter, a minimum Tangible Net Worth equal to that required on December 31 of the immediately preceding fiscal year plus (i) 75% of the Company's after tax net income for such year if such after tax net income is greater than $0, or (ii) $0, if the Company's after tax net income for such year is less than or equal to $0. Maintain a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00, measured as of (a) June 30, 2012, for the fiscal quarter then most recently ended, (b) September 29, 2012, for the two fiscal quarter period then most recently ended, (c) December 31, 2012, for the three fiscal quarter then most recently ended, (d) March 31, 2013 and as of the last day of each fiscal quarter thereafter, for the four fiscal quarter period then most recently ended. Maintain at all times Average Excess Availability of not less than $3.5 million measured monthly as of the last day of the month. Not permit the aggregate amount of all costs and expenses incurred in connection with the Company's performance of its Caspian project obligations to exceed the aggregate amount of cash receipts attributable to the Caspian Contracts by more than the following amounts: (a) for the month ending June 30, 2012, $6.5 million, (b) for the month ending September 29, 2012, $1.0 million, and (c) for the month ending December 31, 2012, $0. The Company will not be party to mergers, acquisitions, consolidations, reorganizations or similar transactions. The Company will not sell, lease, transfer or otherwise dispose of any of their properties or assets (subject to certain exceptions set forth in the Loan Agreement). The Company will not contract for, purchase or make any expenditure or commitment for capital expenditures in the fiscal year ending December 31, 2012 and in any fiscal year thereafter, in an aggregate amount in excess of $3.5 million. The Company will not declare, pay or make any dividend or distribution on any shares of common or preferred stock or use any funds, property or assets to repurchase or otherwise retire any common or preferred stock.			The Company will not be a party to mergers, acquisitions, consolidations, reorganizations or similar transactions. The Company will not contract for, purchase or make any expenditure or commitment for capital expenditures in any fiscal year, in an aggregate amount in excess of $3.5 million. The Company will not incur any indebtedness except for (a) ENGlobal's liabilities under the PNC Credit Facility, and (b) any other liabilities of ENGlobal not to exceed $1 million in indebtedness in any 12 month period for the unsecured financing of insurance premiums. The Company will not declare, pay or make any dividend or distribution on any shares of common or preferred stock or use any funds, property or assets to repurchase or otherwise retire any common or preferred stock. The Company will maintain as of the last day of each applicable period a Tangible Net Worth ratio not greater than 2.25 to 1.0. The Company will maintain a Fixed Charge Coverage Ratio of not less than 1.75 to 1.00, measured as of each fiscal quarter end commencing September 30, 2011, determined on a rolling 4-quarter basis.
Line of Credit Facility, Covenant Compliance						The Company did not provide a foreign good standing certificate for ENGlobal US issued by the Secretary of State or other appropriate official of the State Illinois within 14 days of the closing of the PNC Credit Facility.The Company filed the amended and restated franchise tax filings with the Illinois Secretary of State on July 20, 2012. Since that time, the Company has received and responded to additional information requests from the Illinois Secretary of State.As of the date of this filing, the Company was continuing to work with the Illinois Secretary of State to obtain the foreign good standing certificate. The Company did not maintain Tangible Net Worth, as of September 29, 2012, of at least 90% of the Borrowers' Tangible Net Worth as of the closing date of the PNC Credit Facility. The Company did not maintain a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00 measured as of September 29, 2012, for the two fiscal quarter periods then most recently ended. The Company did not maintain Average Excess Availability of not less than $3.5 million for the fiscal monthly period ended August 25, 2012. On September 27, 2012, the Company entered into the First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement (the "Forbearance Agreement"), with the Lenders regarding the PNC Credit Facility.Under the terms of the Forbearance Agreement, the Lenders agreed to forbear, during the Forbearance Period (as defined below), from exercising their rights and remedies, under the PNC Credit Facility, with respect to events of default, including those discussed in Note 7. The "Forbearance Period" commenced on the Effective Date and ended on October 31, 2012.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 forebearance default occur). In addition, under the terms of the Forbearance Agreement, the Company retained, for the duration of the Forbearance Period, a turnaround consultant toprovide a turnaround or exit plan, in form and substance satisfactory to the Agent, and services as are reasonably necessary to facilitate the Company's ability to operate in compliance with the terms of the loan agreement. In addition, under the terms of the Forbearance Agreement, during the Forbearance Period and subject to the other conditions set forth in the loan agreement and the Forbearance Amendment, Lenders may, in their sole and absolute discretion, make revolving advances to the Company in such portions and at the times set forth in the loan agreement, which advances will bear interest at the default rate of interest (currently 7%). 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 allrights 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.			The Company did not maintain a Tangible Net Worth ratio greater than 2.25 to 1.0. The Company did not maintain a Fixed Charge Coverage Ratio of not less than 1.75 to 1.00 measured for the rolling four quarter period ended September 29, 2012. 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.
Line of Credit Facility, Amount Outstanding (in Dollars)									$ 9.1

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NOTE 6 - CONTRACTS (Tables)

9 Months Ended

Sep. 29, 2012

Schedule of Costs and estimated earnings and billings on uncompleted contracts [Table Text Block]

Costs, estimated earnings and billings on uncompleted contracts consisted of the following at September 29, 2012 and December 31, 2011:

Description	September 29, 2012			December 31, 2011
	(amounts in thousands)
Costs incurred on uncompleted contracts	$	59,177		$	43,455
Estimated earnings on uncompleted contracts		8,982			5,591
Earned revenues		68,159			49,046
Less: billings to date		64,513			46,677
Net costs and estimated earnings in excess of billings on uncompleted contracts	$	3,646		$	2,369
Costs and estimated earnings in excess of billings on uncompleted contracts	$	7,632		$	6,790
Billings in excess of costs and estimated earnings on uncompleted contracts		(3,986	)		(4,421	)
Net costs and estimated earnings in excess of billings on uncompleted contracts	$	3,646		$	2,369

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NOTE 7 - LINE OF CREDIT AND DEBT (Detail) - Schedule of Lines of Credit and Debt (USD $) In Thousands, unless otherwise specified	Sep. 29, 2012	Sep. 28, 2012	Dec. 31, 2011	Dec. 30, 2011
Debt	$ 29,406	$ 29,406	$ 16,602	$ 16,602
Debt	29,406	29,406	16,602	16,602
Wells Fargo Credit Facility [Member]
Debt		0		16,352
Debt		0		16,352
PNC Credit Facility [Member]
Debt		29,406		0
Debt		29,406		0
Subordinated and Unsecured Debt [Member]
Debt		0		250
Debt		$ 0		$ 250

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NOTE 8 - SEGMENT INFORMATION (Tables)

9 Months Ended

Sep. 29, 2012

Reconciliation of Assets from Segment to Consolidated [Table Text Block]

Total Assets by Segment	As of September 29, 2012		As of December 31, 2011
	(amounts in thousands)
Engineering and Construction	$	37,033		$	52,108
Automation		28,009			24,080
Field Solutions*		13,103			15,297
Electrical Services*		710			3,757
Corporate		7,638			8,937
Total	$	86,493		$	104,179
* All of these assets are included in assets held for sale from discontinued operations as of September 29, 2012 and December 31, 2011.

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Segment information for 2012 and 2011 is as follows:

Statement of Operations Data:	Engineering and Construction			Automation		Corporate			Consolidated
	(amounts in thousands)
Three months ended September 29, 2012
Revenue	$	40,779		$	16,703	$	—		$	57,482
Gross profit (loss)		2,638			2,734		(2,102	)		3,270
SG&A		2,055			1,096		3,011			6,162
Goodwill impairment		14,568			—		—			14,568
Operating income (loss)		(13,985	)		1,638		(5,113	)		( 17,460	)
Other expense										(98	)
Interest expense, net										(643	)
Tax expense										(412	)
Discontinued operations - net of taxes										(3,717	)
Net loss										(22,330	)
Three months ended September 30, 2011
Revenue	$	46,695		$	13,787	$	—		$	60,482
Gross profit		4,659			2,117		—			6,776
SG&A		2,009			1,148		3,525			6,682
Operating income (loss)		2,650			969		(3,525	)		94
Other expense										(8	)
Interest expense, net										(303	)
Tax expense										(138	)
Discontinued operations - net of taxes										(918	)
Net loss									$	(1,273	)

Statement of Operations Data:	Engineering and Construction			Automation			Corporate			Consolidated
				(amounts in thousands)
Nine months ended September 29, 2012
Revenue	$	131,161		$	44,644		$	—		$	175,805
Gross profit (loss)		9,874			5,578			(2,102	)		13,350
SG&A		6,684			3,186			9,431			19,301
Goodwill impairment		14,568			—			—			14,568
Operating income (loss)		(11,378	)		2,392			(11,533	)		(20,519	)
Other expense											(100	)
Interest expense, net											(1,320	)
Tax expense											(5,606	)
Discontinued operations - net of taxes											(4,779	)
Net loss										$	(32,324	)
Nine months ended September 30, 2011
Revenue before eliminations	$	128,240		$	34,949		$	—		$	163,189
Inter-segment eliminations		(1	)		(227	)		—			(228	)
Revenue		128,239			34,722			—			162,961
Gross profit		12,240			4,954			—			17,194
SG&A		5,702			3,083			9,931			18,716
Operating income (loss)		6,538			1,871			(9,931	)		(1,522	)
Other expense											(68	)
Interest expense, net											(711	)
Tax benefit											460
Discontinued operations - net of taxes											(1,263	)
Net loss										$	(3,104	)

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NOTE 2 - LIQUIDITY

9 Months Ended

Sep. 29, 2012

Going Concern Disclosure [Text Block]

NOTE 2 – LIQUIDITY

The Company has been operating under difficult circumstances in 2012.  For the nine-month period ended September 29, 2012, the Company reported a net loss of approximately $32.3 million that included a non-cash charge of approximately $16.9 million relating to a goodwill impairment (see Note 4) and a non-cash charge of approximately $6.2 million relating to a valuation allowance established in connection with the Company’s deferred tax assets (see Note 9).   During 2012,  our net borrowings under our revolving credit facilities have increased approximately $13.0 million to fund our operations.  Due to challenging market conditions, our revenues and profitability have declined during 2012.  As a result, we have failed to comply with several financial covenants under our credit facilities resulting in defaults (see Note 7).  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.

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Current Assets:
Cash and cash equivalents	$ 634	$ 26
Restricted cash	6,134	2,275
Trade receivables, net of allowances of $2,299 and $1,792	46,949	44,159
Prepaid expenses and other current assets	504	846
Notes receivable	514	514
Costs and estimated earnings in excess of billings on uncompleted contracts	7,632	6,790
Assets held for sale	13,813	19,054
Federal and state income taxes receivable	389	79
Deferred tax asset	0	3,989
Total Current Assets	76,569	77,732
Property and equipment, net	3,241	3,260
Goodwill	2,805	17,373
Other intangible assets, net	2,097	2,835
Long-term trade and notes receivable, net of current portion and allowances	899	899
Deferred tax asset, non-current	0	1,206
Other assets	882	874
Total Assets	86,493	104,179
Current Liabilities:
Accounts payable	9,247	8,316
Accrued compensation and benefits	13,328	10,400
Current portion of debt	29,406	16,602
Deferred rent	606	635
Billings in excess of costs and estimated earnings on uncompleted contracts	3,986	4,421
Liabilities held for sale	2,862	4,058
Other current liabilities	706	1,247
Total Current Liabilities	60,141	45,679
Commitments and Contingencies (Note 11)	0	0
Stockholders' Equity:
Common stock - $0.001 par value; 75,000,000 shares authorized; 26,964,339 and 26,882,518 shares outstanding and 27,945,438 and 27,803,617 shares issued at September 29, 2012 and December 31, 2011, respectively	28	28
Additional paid-in capital	38,258	38,081
Retained earnings (deficit)	(9,502)	22,822
Treasury stock - 981,099 shares at September 29, 2012 and December 31, 2011	(2,362)	(2,362)
Accumulated other comprehensive loss	(70)	(69)
Total Stockholders' Equity	26,352	58,500
Total Liabilities and Stockholders' Equity	$ 86,493	$ 104,179

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NOTE 12 - SUBSEQUENT EVENTS

9 Months Ended

Sep. 29, 2012

Subsequent Events [Text Block]

NOTE 12 – SUBSEQUENT EVENTS

Notice of Delisting

On October 3, 2012, 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. 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.

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.

Extension of the Forbearance Agreement

On September 27, 2012, the Company entered into the First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement (the "Forbearance Agreement"), with the Lenders regarding the PNC Credit Facility.  Under the terms of the Forbearance Agreement, the Lenders agreed to forbear, during the Forbearance Period (as defined below), from exercising their rights and remedies, under the PNC Credit Facility, with respect to events of default, including those discussed in Note 7. The "Forbearance Period" commenced on the Effective Date and ended on October 31, 2012.  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 forebearance default occur).

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

On November 2, 2012, the Company completed the divestiture of its Land and Right-of-Way division of the Field Solutions segment (effective October 26, 2012). 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. Subject to the terms of the final 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.  This transaction will result in a loss on sale of these assets of approximately $1.1 million.

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.

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Document And Entity Information	9 Months Ended
	Sep. 29, 2012	Nov. 14, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	ENGlobal Corporation
Document Type	10-Q
Current Fiscal Year End Date	--12-29
Entity Common Stock, Shares Outstanding		26,964,339
Amendment Flag	false
Entity Central Index Key	0000933738
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Sep. 29, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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Accounting Policies, by Policy (Policies)

9 Months Ended

Sep. 29, 2012

Basis of Accounting, Policy [Policy Text Block]

The condensed consolidated financial statements of ENGlobal Corporation (which may be referred to as "ENGlobal”, "the Company," "we," "us," or "our") are prepared in accordance with accounting principles generally accepted in the United States of America.  The Company consolidates all of its subsidiaries' financial results, and significant inter-company accounts and transactions have been eliminated in the consolidation.

The condensed consolidated financial statements of the Company included herein are unaudited for the three and nine-month periods ended September 29, 2012 and September 30, 2011, have been prepared from the books and records of the Company pursuant to the rules and regulations of the Securities and Exchange Commission, and in the case of the condensed balance sheet as of December 31, 2011, have been derived from the audited financial statements of the Company. These financial statements reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary to fairly present the results for the periods presented.  Certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission.  These condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2011, included in the Company's Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission.  The Company has assessed subsequent events through the date of filing of these condensed consolidated financial statements with the Securities and Exchange Commission and believes that the disclosures made herein are adequate to make the information presented herein not misleading.  Certain reclassifications have been made to the 2011 condensed consolidated financial statements to conform the presentation to report discontinued operations. Refer to Note 3.

On January 1, 2012, we changed from a traditional month-end calendar close cycle to a 4-4-5 calendar close methodology. Under this new methodology, each quarter (formerly comprised of 3 calendar months) is comprised of 13 weeks, which includes two 4-week months and one 5-week month.  This change in accounting periods has not had a material effect on the comparability to prior periods.

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Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Allowance for doubtful accounts (in Dollars)	$ 2,299	$ 1,792
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares outstanding	26,964,339	26,882,518
Common stock, shares issued	27,945,438	27,803,617
Treasury stock, shares	981,099	981,099

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NOTE 7 - LINE OF CREDIT AND DEBT

9 Months Ended

Sep. 29, 2012

Debt Disclosure [Text Block]

NOTE 7 – LINE OF CREDIT AND DEBT

The carrying value of debt is composed of the following:

Description:	September 29, 2012		December 31, 2011
Secured debt:	(amounts in thousands)
Wells Fargo Credit Facility	$	—	$	16,352
PNC Credit Facility		29,406		—
Subordinated and unsecured debt:
Control Dynamics International, L.P.		—		250
Total debt	$	29,406	$	16,602

The rates applicable to the PNC Credit Facility line of credit and the Wells Fargo Credit Facility line of credit outstanding at September 29, 2012 and December 31, 2011 were 7.0% and 4.125%, respectively.  Effective June 20, 2012, upon defaulting on the PNC Credit Facility, the interest rate increased from 5.0% to 7.0% (the default interest rate is 2.0% higher than the applicable facility rate).  For the three-month periods ended September 29, 2012 and 2011, the Company recognized interest expense of $0.6 million and $0.3 million, respectively.  For the nine-month periods ended September 29, 2012 and 2011, the Company recognized interest expense of $1.3 million and $0.7 million, respectively.

In addition to the terms of the PNC Credit Facility described below, the PNC Credit Facility also contains a subjective acceleration clause (in the form of a material adverse effect clause) and a provision requiring the establishment and utilization of a lock-box account into which all proceeds of collateral are deposited and applied to reduce borrowings outstanding under the PNC Credit Facility.  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.

PNC Credit Facility

On May 29, 2012, the Company entered into the PNC Credit Facility with PNC Bank, National Association, as administrative agent (the "Agent") for the lenders (the "Lenders") pursuant to which the Lenders agreed to extend credit to the Company in the form of loans (each a "Loan" and collectively, the "Loans") on a revolving basis of up to $35.0 million (the "Commitment"). Capitalized terms used but not otherwise defined herein shall have the meaning given to them in the loan agreement.  Set forth below are certain of the material terms of the loan agreement:

Revolving Advances: Each Lender, severally and not jointly, will make revolving advances to the Company in aggregate amounts outstanding at any time equal to such Lender's Commitment Percentage of the lesser of (a) $35.0 million less the maximum undrawn amount on all outstanding letters of credit, or (b) an amount equal to the sum of: (i) up to 85% of Eligible Receivables, plus (ii) up to the lesser of (x) up to 85% of Eligible Extended Term Receivables or (y) $3.0 million, plus (iii) up to the lesser of (x) up to 85% of Eligible Government Receivables or (y) $800,000, plus (iv) up to the lesser of (x) 75% of Eligible Unbilled Receivables or (y) $8.5 million; provided, however, that no more than $800,000 of the amount resulting from the calculation of this part (iv) may be attributable to Eligible Unbilled Receivables owed by Government Customers, plus (v) up to the lesser of (x) up to 50% of Eligible Costs in Excess of Billings or (y) $4.0 million, minus (vi) the Maximum Undrawn Amount of all outstanding letters of credit, minus (vii) such reserves as Agent may deem proper and necessary in the exercise of its discretion. Certain of the percentages and dollar amounts discussed above may be increased or decreased by Agent at any time, so long as such increase or decrease is done is reasonable and done in good faith.

Interest: Any Loans will bear interest at (a) the sum of the Alternate Base Rate (defined as a fluctuating rate equal to the highest of (x) the commercial lending rate of Agent as publicly announced and in effect on such day, (y) the daily federal funds open rate as quoted by ICAP North America, Inc. in effect on such day plus 1/2 of 1%, and (z) the Daily Libor Rate plus 1% (with the Daily LIBOR Rate determined by taking the LIBOR rate published in the Wall Street Journal and dividing it by a number equal to 1 minus the reserve percentage on that day as determined by the Board of Governors of the Federal Reserve), plus the Applicable Margin (defined below) for Domestic Rate Loans or (b) the sum of the Eurodollar Rate (defined as a fluctuating rate determined by Agent by dividing the quoted LIBOR rate (as selected from a variety of sources) by a number equal to 1 minus the reserve percentage on that day as determined by the Board of Governors of the Federal Reserve), plus the Applicable Margin with respect to Eurodollar Rate Loans.

Collateral: All obligations of the Company under the loan agreement are secured by a first priority perfected lien against any and all personal property assets of the Company (other than certain excluded property, including certain accounts receivable related to the Caspian Pipeline Consortium pledged under the Ex-Im Transaction Specific Credit Agreement dated as of July 13, 2011 between ENGlobal US and Wells Fargo Bank, National Association).

Term: All Loans and all other obligations outstanding under the loan agreement shall be payable in full on May 29, 2015, unless otherwise terminated pursuant to the terms of the loan agreement.

Covenants: The loan agreement requires the Company to comply with various financial, affirmative and negative covenants affecting their businesses and operations, including:

•   Maintain as of the last day of each applicable period a Tangible Net Worth at least equal to the amount set forth for such period: (a) for each of the fiscal quarters ending June 30, 2012, September 29, 2012 and December 31, 2012, a minimum Tangible Net Worth of 90% of the Tangible Net Worth of the Company on a consolidated basis on the Closing Date, and (b) for the fiscal quarter ending March 31, 2013, and as of the last day of each fiscal quarter thereafter, a minimum Tangible Net Worth equal to that required on December 31 of the immediately preceding fiscal year plus (i) 75% of the Company’s after tax net income for such year if such after tax net income is greater than $0, or (ii) $0, if the Company’s after tax net income for such year is less than or equal to $0.

•   Maintain a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00, measured as of (a) June 30, 2012, for the fiscal quarter then most recently ended, (b) September 29, 2012, for the two fiscal quarter period then most recently ended, (c) December 31, 2012, for the three fiscal quarter then most recently ended, (d) March 31, 2013 and as of the last day of each fiscal quarter thereafter, for the four fiscal quarter period then most recently ended.

•   Maintain at all times Average Excess Availability of not less than $3.5 million measured monthly as of the last day of the month.

•   Not permit the aggregate amount of all costs and expenses incurred in connection with the Company's performance of its Caspian project obligations to exceed the aggregate amount of cash receipts attributable to the Caspian Contracts by more than the following amounts: (a) for the month ending June 30, 2012, $6.5 million, (b) for the month ending September 29, 2012, $1.0 million, and (c) for the month ending December 31, 2012, $0.

•   The Company will not be party to mergers, acquisitions, consolidations, reorganizations or similar transactions.

•   The Company will not sell, lease, transfer or otherwise dispose of any of their properties or assets (subject to certain exceptions set forth in the Loan Agreement).

•   The Company will not contract for, purchase or make any expenditure or commitment for capital expenditures in the fiscal year ending December 31, 2012 and in any fiscal year thereafter, in an aggregate amount in excess of $3.5 million.

•   The Company will not declare, pay or make any dividend or distribution on any shares of common or preferred stock or use any funds, property or assets to repurchase or otherwise retire any common or preferred stock.

Compliance with Covenants and Fulfillment of Conditions:As of September 29, 2012, the Company was not in compliance with the covenants described below:

·   The Company did not provide a foreign good standing certificate for ENGlobal US issued by the Secretary of State or other appropriate official of the State Illinois within 14 days of the closing of the PNC Credit Facility.  The Company filed the amended and restated franchise tax filings with the Illinois Secretary of State on July 20, 2012. Since that time, the Company has received and responded to additional information requests from the Illinois Secretary of State.  As of the date of this filing, the Company was continuing to work with the Illinois Secretary of State to obtain the foreign good standing certificate.

·   The Company did not maintain Tangible Net Worth, as of September 29, 2012, of at least 90% of the Borrowers' Tangible Net Worth as of the closing date of the PNC Credit Facility.

·   The Company did not maintain a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00 measured as of September 29, 2012, for the two fiscal quarter periods then most recently ended.

·    The Company did not maintain Average Excess Availability of not less than $3.5 million for the fiscal monthly period ended August 25, 2012.

On September 27, 2012, the Company entered into the First Amendment to Revolving Credit and Security Agreement and Forbearance Agreement (the "Forbearance Agreement"), with the Lenders regarding the PNC Credit Facility.  Under the terms of the Forbearance Agreement, the Lenders agreed to forbear, during the Forbearance Period (as defined below), from exercising their rights and remedies, under the PNC Credit Facility, with respect to events of default, including those discussed in Note 7. The "Forbearance Period" commenced on the Effective Date and ended on October 31, 2012.  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 forebearance default occur).

In addition, under the terms of the Forbearance Agreement, the Company retained, for the duration of the Forbearance Period, a turnaround consultant to provide a turnaround or exit plan, in form and substance satisfactory to the Agent, and services as are reasonably necessary to facilitate the Company's ability to operate in compliance with the terms of the loan agreement.

In addition, under the terms of the Forbearance Agreement, during the Forbearance Period and subject to the other conditions set forth in the loan agreement and the Forbearance Amendment, Lenders may, in their sole and absolute discretion, make revolving advances to the Company in such portions and at the times set forth in the loan agreement, which advances will bear interest at the default rate of interest (currently 7%).

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.

Wells Fargo Credit Facility

In December 2009, the Company entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”) which provided a 28-month, $25 million senior secured revolving credit facility (“Wells Fargo Credit Facility”). On September 30, 2010, the Company entered into an amendment to the Wells Fargo Credit Facility with Wells Fargo which converted our borrowings from a revolving credit facility to an asset based lending agreement. On August 1, 2011, the Company entered into an Amended and Restated Credit Agreement with Wells Fargo that allowed a maximum available principal amount of $35 million under the Wells Fargo Credit Facility.  The Wells Fargo Credit Facility, as amended and restated, terminated concurrent with the closing of the PNC Bank Facility on May 29, 2012.

Ex-Im Bank Facility

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 Company is required to collateralize letters of credit outstanding under the Ex-Im Bank Facility with cash or eligible Russian receivables resulting from the CPC project.  As of the date of this filing, there was one $9.1 million letter of credit outstanding under this facility.  This letter of credit was collateralized by $2.3 million in cash. In the near term, the Company intends to keep the Ex-Im Bank Facility with Wells Fargo until the CPC project has receivables from the Russian portion of the project that are at a sufficient level for borrowing base collateral coverage and this facility is transferred to our new senior lender.

Covenants: The Ex-Im Bank Facility requires the Company to comply with various, financial, affirmative and negative covenants affecting its businesses and operations, including:

•   The Company will not be a party to mergers, acquisitions, consolidations, reorganizations or similar transactions.

•   The Company will not contract for, purchase or make any expenditure or commitment for capital expenditures in any fiscal year, in an aggregate amount in excess of $3.5 million.

•   The Company will not incur any indebtedness except for (a) ENGlobal's liabilities under the PNC Credit Facility, and (b) any other liabilities of ENGlobal not to exceed $1 million in indebtedness in any 12 month period for the unsecured financing of insurance premiums.

•   The Company will not declare, pay or make any dividend or distribution on any shares of common or preferred stock or use any funds, property or assets to repurchase or otherwise retire any common or preferred stock.

•   The Company will maintain as of the last day of each applicable period a Tangible Net Worth ratio not greater than 2.25 to 1.0.

•   The Company will maintain a Fixed Charge Coverage Ratio of not less than 1.75 to 1.00, measured as of each fiscal quarter end commencing September 30, 2011, determined on a rolling 4-quarter basis.

Compliance with Covenants: As of September 29, 2012, the Company was not in compliance with the covenants described below:

·   The Company did not maintain a Tangible Net Worth ratio greater than 2.25 to 1.0.

·    The Company did not maintain a Fixed Charge Coverage Ratio of not less than 1.75 to 1.00 measured for the rolling four quarter period ended September 29, 2012.

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.

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NOTE 6 - CONTRACTS

9 Months Ended

Sep. 29, 2012

Costs And Estimated Earnings And Billings On Uncompleted Contracts [Text Block]

NOTE 6 – CONTRACTS

Costs, estimated earnings and billings on uncompleted contracts consisted of the following at September 29, 2012 and December 31, 2011:

Description	September 29, 2012			December 31, 2011
	(amounts in thousands)
Costs incurred on uncompleted contracts	$	59,177		$	43,455
Estimated earnings on uncompleted contracts		8,982			5,591
Earned revenues		68,159			49,046
Less: billings to date		64,513			46,677
Net costs and estimated earnings in excess of billings on uncompleted contracts	$	3,646		$	2,369
Costs and estimated earnings in excess of billings on uncompleted contracts	$	7,632		$	6,790
Billings in excess of costs and estimated earnings on uncompleted contracts		(3,986	)		(4,421	)
Net costs and estimated earnings in excess of billings on uncompleted contracts	$	3,646		$	2,369

Revenue on fixed-price contracts is recorded primarily using the percentage-of-completion (cost-to-cost) method.  Under this method, revenue is recognized in the ratio that contract costs incurred bear to total estimated contract costs.  Revenue and gross margin on fixed-price contracts are subject to revision throughout the lives of the contracts and any required adjustments are made in the period in which the revisions become known.  To manage unknown risks, management may use contingency amounts to increase the estimated costs, therefore, lowering the earned revenues until the risks are better identified and quantified or have been mitigated.  Losses on contracts are recorded in full as they are identified.

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 $0.1 million as of September 29, 2012, compared to $0.3 million as of December 31, 2011.  We expect a majority of the deferred revenue amount to be realized by year end 2012.

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NOTE 7 - LINE OF CREDIT AND DEBT (Tables)

9 Months Ended

Sep. 29, 2012

Schedule of Debt [Table Text Block]

The carrying value of debt is composed of the following:

Description:	September 29, 2012		December 31, 2011
Secured debt:	(amounts in thousands)
Wells Fargo Credit Facility	$	—	$	16,352
PNC Credit Facility		29,406		—
Subordinated and unsecured debt:
Control Dynamics International, L.P.		—		250
Total debt	$	29,406	$	16,602

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NOTE 3 - DISCONTINUED OPERATIONS (Tables)

9 Months Ended

Sep. 29, 2012

Discountinued operations, Income statement items [Member]

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures [Table Text Block]

Summarized financial information for the discontinued operations is shown below.

	For the Three Months Ended						For the Nine Months Ended
Statement of Operations Data:	September 29, 2012			September 30, 2011			September 29, 2012			September 30, 2011
	(amounts in thousands)
Revenues	$	14,559		$	21,598		$	52,442		$	75,981
Operating costs		14,227			21,382			49,586			72,995
Operating income (loss)		332			216			2,856			2,986
SG&A		1,650			1,712			3,676			4,888
Goodwill impairment		2,397			—			2,397			—
Other income (expense)		(2	)		1			(5	)		2
Total income (loss) before taxes		(3,717	)		(1,495	)		(3,222	)		(1,900	)
Tax expense (benefit)		—			(577	)		1,557			(637	)
Net loss	$	(3,717	)	$	(918	)	$	(4,779	)	$	(1,263	)

Discountinued operations, balance sheet items [Member]

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures [Table Text Block]

Summarized financial information for the discontinued operations is shown below.

Balance Sheet Data:	September 29, 2012		December 31, 2011
	(amounts in thousands)
Assets:
Trade receivables	$	10,929	$	12,252
Cost and estimated earnings in excess of billings on uncompleted contracts		—		138
Deferred tax asset		—		995
Property and equipment, net		111		372
Goodwill and other assets		2,773		5,297
Total assets held for sale	$	13,813	$	19,054
Liabilities:
Accounts payable	$	316		477
Accrued compensation and benefits		1,818		760
Deferred rent		45		53
Billings in excess of costs and estimated earnings on uncompleted contracts		73		158
Other current liabilities		610		2,610
Total liabilities held for sale	$	2,862	$	4,058

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NOTE 10 - EARNINGS PER SHARE

9 Months Ended

Sep. 29, 2012

Earnings Per Share [Text Block]

NOTE 10 – INCOME (LOSS) PER SHARE

Income (loss) per share is computed by dividing net income (loss) from operations attributable to common stock by the weighted average number of common shares outstanding during each period. Income (loss) per share is calculated for both continuing and discontinued operations.  Diluted income (loss) per share is computed by adjusting the average number of common shares outstanding for the dilutive effect, if any, of common stock equivalents such as stock options and restricted stock. Diluted net income (loss) per share is the same as basic net income (loss) per share for all periods presented because potential common stock equivalents were anti-dilutive. The Company excluded potentially issuable shares of 593,000 from the computation of diluted income (loss) per share, as the effect of including the shares would have been anti-dilutive for the three month period ended September 30, 2011, and the nine month period ended September 30, 2011.  There were no potentially issuable shares in 2012.

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NOTE 8 - SEGMENT INFORMATION

9 Months Ended

Sep. 29, 2012

Segment Reporting Disclosure [Text Block]

NOTE 8 – SEGMENT INFORMATION

The Engineering and Construction segment provides services relating to the development, management and execution of projects requiring professional engineering and related project services primarily to the midstream and downstream sectors throughout the United States. Services provided by the Engineering and Construction segment include feasibility studies, engineering, design, procurement and construction management. The Engineering and Construction segment includes the government services group, which provides engineering, design, installation and operation and maintenance of various government, public sector and international facilities. The Automation segment provides services related to the design, fabrication and implementation of process distributed control and analyzer systems, advanced automation, information technology, electrical and heat tracing projects primarily to the upstream and downstream sectors throughout the United States as well as specific projects in the Middle East and Central Asia.

Identifiable assets, revenue, gross profit and operating income for each segment are set forth in the following table. The amount identified as corporate includes those activities that are not allocated to the operating segments and include costs related to business development, executive functions, finance, accounting, health, safety, and environmental, human resources and information technology that are not specifically identifiable with the segments. The Corporate function supports all business segments and therefore cannot be specifically assigned to any specific segment. A significant portion of corporate costs are allocated to each segment based on each segment's revenue.

Total Assets by Segment	As of September 29, 2012		As of December 31, 2011
	(amounts in thousands)
Engineering and Construction	$	37,033		$	52,108
Automation		28,009			24,080
Field Solutions*		13,103			15,297
Electrical Services*		710			3,757
Corporate		7,638			8,937
Total	$	86,493		$	104,179
* All of these assets are included in assets held for sale from discontinued operations as of September 29, 2012 and December 31, 2011.

Statement of Operations Data:	Engineering and Construction			Automation		Corporate			Consolidated
	(amounts in thousands)
Three months ended September 29, 2012
Revenue	$	40,779		$	16,703	$	—		$	57,482
Gross profit (loss)		2,638			2,734		(2,102	)		3,270
SG&A		2,055			1,096		3,011			6,162
Goodwill impairment		14,568			—		—			14,568
Operating income (loss)		(13,985	)		1,638		(5,113	)		( 17,460	)
Other expense										(98	)
Interest expense, net										(643	)
Tax expense										(412	)
Discontinued operations - net of taxes										(3,717	)
Net loss										(22,330	)
Three months ended September 30, 2011
Revenue	$	46,695		$	13,787	$	—		$	60,482
Gross profit		4,659			2,117		—			6,776
SG&A		2,009			1,148		3,525			6,682
Operating income (loss)		2,650			969		(3,525	)		94
Other expense										(8	)
Interest expense, net										(303	)
Tax expense										(138	)
Discontinued operations - net of taxes										(918	)
Net loss									$	(1,273	)

Statement of Operations Data:	Engineering and Construction			Automation			Corporate			Consolidated
				(amounts in thousands)
Nine months ended September 29, 2012
Revenue	$	131,161		$	44,644		$	—		$	175,805
Gross profit (loss)		9,874			5,578			(2,102	)		13,350
SG&A		6,684			3,186			9,431			19,301
Goodwill impairment		14,568			—			—			14,568
Operating income (loss)		(11,378	)		2,392			(11,533	)		(20,519	)
Other expense											(100	)
Interest expense, net											(1,320	)
Tax expense											(5,606	)
Discontinued operations - net of taxes											(4,779	)
Net loss										$	(32,324	)
Nine months ended September 30, 2011
Revenue before eliminations	$	128,240		$	34,949		$	—		$	163,189
Inter-segment eliminations		(1	)		(227	)		—			(228	)
Revenue		128,239			34,722			—			162,961
Gross profit		12,240			4,954			—			17,194
SG&A		5,702			3,083			9,931			18,716
Operating income (loss)		6,538			1,871			(9,931	)		(1,522	)
Other expense											(68	)
Interest expense, net											(711	)
Tax benefit											460
Discontinued operations - net of taxes											(1,263	)
Net loss										$	(3,104	)

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NOTE 9 - FEDERAL AND STATE INCOME TAXES

9 Months Ended

Sep. 29, 2012

Income Tax Disclosure [Text Block]

NOTE 9 – FEDERAL AND STATE INCOME TAXES

As a result of the valuation allowance recorded against our deferred tax assets as of September 29, 2012, the effective income tax rates for the three and nine month periods ended September 29, 2012 were not meaningful. The effective income tax rates for the three and nine month periods ended September 30, 2011 were 25.6% and 26.1%, respectively.

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 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 September 29, 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 $10.4 million has been provided against deferred tax assets as of September 29, 2012.

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NOTE 11 - COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 29, 2012

Commitments and Contingencies Disclosure [Text Block]

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Litigation

In June 2008, ENGlobal filed an action in the United States District Court for the Eastern District of Louisiana; Case Number 08-3601, against South Louisiana Ethanol LLC (“SLE”) entitled ENGlobal Engineering, Inc. and ENGlobal Construction Resources, Inc. vs. South Louisiana Ethanol, LLC. The lawsuit seeks to enforce collection of $15.8 million owed to ENGlobal and its affiliates for services performed on an ethanol plant in Louisiana. In August 2009, SLE filed for Chapter 11 protection in the United States Bankruptcy Court for the Eastern District of Louisiana, Case Number 09-12676. Pursuant to the bankruptcy, the plant assets were sold for $6,802,000. On December 6, 2011, the court issued an order allocating proceeds from the sale and authorizing their distribution.  Of the total amount, $1,054,418 was allocated to ENGlobal.  Of that amount, $845,529 is still being held by the court pending the outcome of continuing litigation regarding the claims of one subcontractor. We estimate the court will render a final decision regarding this matter in the fourth quarter of 2012.

In June 2012, a Contractor filed an action in the United States District Court for Tulsa County, Oklahoma against ENGlobal Construction Resources, Inc dba. ENGlobal Inspection Services.  The Contractor alleges that ENGlobal Inspection failed to properly inspect and verify that the nondestructive testing of girth welds on portions of the pipeline system was completed in accordance with state and federal regulations and contract specifications.  The Contractor further alleges that ENGlobal Engineering failed to properly manage the work of ENGlobal Inspection to ensure that the work was properly performed, causing the Contractor to incur in excess of $2,500,000 in damages.  ENGlobal maintains that the Contractor managed and failed to properly staff the project.  The work at issue was not under ENGlobal’s scope of work and ENGlobal was not authorized by the Contractor to perform such work.  The case is still in discovery.  At this time, we express no opinion with respect to the likelihood of an unfavorable outcome, because we have not formed a judgment that an unfavorable outcome is either probable or remote and we express no opinion with respect to an estimate of the amount or range of potential loss if the outcome should be unfavorable. We are still gathering facts on our exposure, discussing coverage with our carriers and have accrued a $600,000 liability associated with this claim.  Because this liability was incurred in the Field Solutions segment, it is included in Liabilities held for sale on the Condensed Consolidated Balance Sheets and Income (Loss) from Discontinued Operations on the Condensed Consolidated Statement of Operations.

From time to time, ENGlobal or one or more of its subsidiaries is involved in various legal proceedings or are subject to claims that arise in the ordinary course of business alleging, among other things, claims of breach of contract or negligence in connection with the performance or delivery of goods and/or services. The outcome of any such claims or proceedings cannot be predicted with certainty. We believe, as of the date of this filing, all such active proceedings and claims of substance that have been raised against any subsidiary business entity have been adequately allowed for, or are covered by insurance, such that, if determined adversely to the Company, individually or in the aggregate, they would not have a material adverse effect on our results of operations or financial position.

Insurance

The Company carries a broad range of insurance coverage, including general and business automobile liability, commercial property, professional errors and omissions, workers' compensation insurance, director's and officer's liability insurance and a general umbrella policy.  The Company is not aware of any claims in excess of insurance recoveries.  ENGlobal is partially self-funded for health insurance claims.  Provisions for expected future payments are accrued based on the Company's experience.  Specific stop loss levels provide protection for the Company with $200,000 per occurrence.  The self-insurance liability, which is included in the Accrued Compensation and Benefits line of the balance sheet, was $1.6 million as of September 29, 2012 and $1.2 million as of December 31, 2011.

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NOTE 6 - CONTRACTS (Detail) - Schedule of Costs, Estimated Earnings and Billings on Uncompleted Contracts (USD $) In Thousands, unless otherwise specified	Sep. 29, 2012	Dec. 31, 2011
Costs incurred on uncompleted contracts	$ 59,177	$ 43,455
Estimated earnings on uncompleted contracts	8,982	5,591
Earned revenues	68,159	49,046
Less: billings to date	64,513	46,677
Net costs and estimated earnings in excess of billings on uncompleted contracts	3,646	2,369
Costs and estimated earnings in excess of billings on uncompleted contracts	7,632	6,790
Billings in excess of costs and estimated earnings on uncompleted contracts	(3,986)	(4,421)
Net costs and estimated earnings in excess of billings on uncompleted contracts	$ 3,646	$ 2,369

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NOTE 5 - STOCK COMPENSATION PLANS (Tables)

9 Months Ended

Sep. 29, 2012

Schedule of Share-based Compensation Arrangement by Share-based Payment Award, Restricted Stock Units, Vested and Expected to Vest [Table Text Block]

During 2012, the Company granted restricted stock awards per the following table:

Date Issued	Issued to	Number of Individuals	Number of Shares	Market Price		Fair Value		Grants Forfeited
June 14, 2012	Employee	1	50,336	$	1.49	$	75,000	—
June 14, 2012	Director	3	100,671	$	1.49	$	150,000	—

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NOTE 3 - DISCONTINUED OPERATIONS (Detail) (USD $)	3 Months Ended		9 Months Ended		1 Months Ended
	Sep. 29, 2012	Sep. 30, 2011	Sep. 29, 2012	Sep. 30, 2011	Nov. 02, 2012 Subsequent Event [Member] Field Solutions [Member]	Nov. 02, 2012 Land and Right-of-Way Division [Member]
Discontinued Operation, Amounts of Material Contingent Liabilities Remaining	$ 500,000		$ 500,000
Assets Held-for-sale, at Carrying Value					7,500,000
Amount of Working Capital at Closing of Sale					4,500,000
Note Receivable Payable to Company for Sale of Asset					3,000,000
Term of Note Receivable					4 years
Discontinued Operation, Intercompany Amounts with Discontinued Operation before Disposal Transaction, Costs	3,600,000
Discontinued Operation, Income (Loss) from Discontinued Operation During Phase-out Period, Net of Tax	$ (3,717,000)	$ (918,000)	$ (4,779,000)	$ (1,263,000)		$ 1,100,000

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NOTE 11 - COMMITMENTS AND CONTINGENCIES (Detail) (USD $)	12 Months Ended		9 Months Ended
	Dec. 31, 2011	Sep. 29, 2012	Sep. 29, 2012 Contractor [Member]	Sep. 29, 2012 Insurance [Member]	Dec. 31, 2011 Insurance [Member]
Loss Contingency, Damages Sought, Value	$ 15,800,000		$ 2,500,000
Loss Contingency, Settlement Agreement, Terms	Pursuant to the bankruptcy, the plant assets were sold for $6,802,000. On December 6, 2011, the court issued an order allocating proceeds from the sale and authorizing their distribution.Of the total amount, $1,054,418 was allocated to ENGlobal.Of that amount, $845,529 is still being held by the court pending the outcome of continuing litigation regarding the claims of one subcontractor. We estimate the court will render a final decision regarding this matter in the fourth quarter of 2012
Loss Contingency, Damages Awarded, Value	1,054,418
Other Liabilities, Current	1,247,000	706,000	600,000
Insurance Stop Loss, Per Occurrence				200,000
Employee-related Liabilities, Current	$ 10,400,000	$ 13,328,000		$ 1,600,000	$ 1,200,000

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 29, 2012	Sep. 30, 2011
Cash Flows from Operating Activities:
Net loss	$ (32,324)	$ (3,104)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization	1,452	2,730
Share-based compensation expense	177	307
Deferred income tax expense (benefit)	6,166	(1,047)
Impairment of goodwill	16,965	0
(Gain) loss on disposal of property, plant and equipment	47	(18)
Changes in current assets and liabilities, net of acquisitions:
Trade accounts and other receivables	(1,467)	(3,300)
Costs and estimated earnings in excess of billings on uncompleted contracts	(704)	(1,693)
Prepaid expenses and other assets	16	482
Accounts payable	770	(210)
Accrued compensation and benefits	3,986	4,289
Billings in excess of costs and estimated earnings on uncompleted contracts	(520)	1,163
Other liabilities	(2,578)	1,876
Income taxes receivable	(264)	(425)
Net cash provided by (used in) operating activities	(8,278)	1,050
Cash Flows from Investing Activities:
Property and equipment acquired	(228)	(452)
Restricted cash	(3,859)	0
Proceeds from sale of other assets	170	65
Net cash used in investing activities	(3,917)	(387)
Cash Flows from Financing Activities:
Borrowings on line of credit	149,872	118,947
Payments on line of credit	(136,818)	(116,358)
Repayments under capital lease	0	(51)
Other long-term debt repayments	(250)	(941)
Net cash provided by financing activities	12,804	1,597
Effect of Exchange Rate Changes on Cash	(1)	0
Net change in cash	608	2,260
Cash and cash equivalents, at beginning of period	26	49
Cash and cash equivalents, at end of period	$ 634	$ 2,309

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NOTE 5 - STOCK COMPENSATION PLANS

9 Months Ended

Sep. 29, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 5 – STOCK COMPENSATION PLANS

In April 2012, the Compensation Committee of the Board of Directors approved an increase of 500,000 shares under our 2009 Equity Incentive Plan (the “Equity Plan”), which was subsequently approved by our shareholders. As of November 14, 2012, 502,335 shares of restricted stock have been granted under the Equity Plan, of which 133,115 remain subject to outstanding awards.  Unvested restricted stock awards and restricted stock units are included in diluted earnings per share until the shares have been vested.  The vested shares are then included in basic earnings per share.

Total share-based compensation expense of approximately $18,000 and $109,000 was recognized during the three-months ended September 29, 2012 and September 30, 2011, respectively. Total share-based compensation expense in the amount of $177,000 and $307,000 was recognized during the nine months ended September 29, 2012 and September 30, 2011, respectively. Share-based compensation expense is reported in selling, general and administrative expense.

Restricted Stock Awards

Restricted stock awards granted to directors are intended to compensate and retain the directors over the one-year service period commencing July 1 of the year of service.  These awards vest in quarterly installments beginning September 30 of the year of service, so long as the grantee continues to serve as a director of the Company.  Restricted stock awards granted to employees vest in four equal annual installments beginning December 31 in the year granted, so long as the grantee remains employed full-time with the Company as of each vesting date.  During 2012, the Company granted restricted stock awards per the following table:

Date Issued	Issued to	Number of Individuals	Number of Shares	Market Price		Fair Value		Grants Forfeited
June 14, 2012	Employee	1	50,336	$	1.49	$	75,000	—
June 14, 2012	Director	3	100,671	$	1.49	$	150,000	—

The amount of compensation expense related to all restricted stock awards that had not been recognized at September 29, 2012, totaled $173,000.  This compensation expense is expected to be recognized over a weighted-average period of approximately 17 months.

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NOTE 3 - DISCONTINUED OPERATIONS (Detail) - Schedule of Discountinued Operations (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Sep. 30, 2011	Sep. 29, 2012	Sep. 30, 2011
Revenues	$ 14,559	$ 21,598	$ 52,442	$ 75,981
Operating costs	14,227	21,382	49,586	72,995
Operating income (loss)	332	216	2,856	2,986
SG&A	1,650	1,712	3,676	4,888
Goodwill impairment	2,397		2,397
Other income (expense)	(2)	1	(5)	2
Total income (loss) before taxes	(3,717)	(1,495)	(3,222)	(1,900)
Tax expense (benefit)		(577)	1,557	(637)
Net loss	$ (3,717)	$ (918)	$ (4,779)	$ (1,263)

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NOTE 8 - SEGMENT INFORMATION (Detail) - Schedule of Segment Information (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 29, 2012	Sep. 30, 2011	Sep. 29, 2012	Sep. 30, 2011
Revenue	$ 57,482	$ 60,482	$ 175,805	$ 162,961
Gross profit	3,270	6,776	13,350	17,194
SG&A	6,162	6,682	19,301	18,716
Goodwill impairment	14,568		14,568
Operating income (loss)	(17,460)	94	(20,519)	(1,522)
Other income	(98)	(8)	(100)	(68)
Interest expense, net	(643)	(303)	(1,320)	(711)
Tax expense (benefit)	(412)	(138)	(5,606)	460
Discontinued operations - net of taxes	(3,717)	(918)	(4,779)	(1,263)
Net (income) loss	(22,330)	(1,273)	(32,324)	(3,104)
Engineering and construction [Member]
Revenue	40,779	46,695	131,161	128,239
Gross profit	2,638	4,659	9,874	12,240
SG&A	2,055	2,009	6,684	5,702
Goodwill impairment	14,568		14,568
Operating income (loss)	(13,985)	2,650	(11,378)	6,538
Other income	0	0	0	0
Interest expense, net	0	0	0	0
Tax expense (benefit)	0	0	0	0
Discontinued operations - net of taxes	0	0	0	0
Net (income) loss	0	0	0	0
Revenue before eliminations				128,240
Inter-segment eliminations				(1)
Automation [Member]
Revenue	16,703	13,787	44,644	34,722
Gross profit	2,734	2,117	5,578	4,954
SG&A	1,096	1,148	3,186	3,083
Goodwill impairment	0		0
Operating income (loss)	1,638	969	2,392	1,871
Other income	0	0	0	0
Interest expense, net	0	0	0	0
Tax expense (benefit)	0	0	0	0
Discontinued operations - net of taxes	0	0	0	0
Net (income) loss	0	0	0	0
Revenue before eliminations				34,949
Inter-segment eliminations				(227)
Corporate [Member]
Revenue	0	0	0	0
Gross profit	(2,102)	0	(2,102)	0
SG&A	3,011	3,525	9,431	9,931
Goodwill impairment	0		0
Operating income (loss)	(5,113)	(3,525)	(11,533)	(9,931)
Other income	0	0	0	0
Interest expense, net	0	0	0	0
Tax expense (benefit)	0	0	0	0
Discontinued operations - net of taxes	0	0	0	0
Net (income) loss	0	0	0	0
Revenue before eliminations				0
Inter-segment eliminations				0
Consolidated [Member]
Revenue	57,482	60,482	175,805	162,961
Gross profit	3,270	6,776	13,350	17,194
SG&A	6,162	6,682	19,301	18,716
Goodwill impairment	14,568		14,568
Operating income (loss)	(17,460)	94	(20,519)	(1,522)
Other income	(98)	(8)	(100)	(68)
Interest expense, net	(643)	(303)	(1,320)	(711)
Tax expense (benefit)	(412)	(138)	(5,606)	460
Discontinued operations - net of taxes	(3,717)	(918)	(4,779)	(1,263)
Net (income) loss	(22,330)	(1,273)	(32,324)	(3,104)
Revenue before eliminations				163,189
Inter-segment eliminations				$ (228)

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NOTE 4 - GOODWILL (Tables)

9 Months Ended

Sep. 29, 2012

Schedule of Goodwill [Table Text Block]

Summarized financial information for goodwill is shown below:

Description of Segment	Balance at December 31, 2011		Impairments			Balance at   September 29, 2012
	(amounts in thousands)
Engineering and Construction	$	15,288	$	(14,568	)	$	720
Automation		2,085		—			2,085
Field Solutions*		5,241		(2,397	)		2,844
Total	$	22,614	$	(16,965	)	$	5,649
* Amounts are included in Assets held for sale and Loss from discontinued operations, net of taxes