englobal10q032914.htm

	For the Three Months Ended
	March 29, 2014			March 30, 2013
Operating revenues	$	26,898		$	49,763
Operating costs		20,814			43,964
Gross profit		6,084			5,799

Selling, general and administrative expenses		4,119			6,212
Operating income (loss)		1,965			(413	)

Other income (expense):
Other income (expense), net		(41	)		122
Interest expense, net		(32	)		(614	)
Income (loss) from continuing operations before income taxes		1,892			(905	)

Provision for federal and state income taxes		75			93

Income (loss) from continuing operations		1,817			(998	)

Income from discontinued operations, net of taxes		—			2,935

Net income and comprehensive income	$	1,817		$	1,937

Basic and diluted Income (loss) per common share:
Income (loss) from continuing operations	$	0.07		$	(0.04	)
Income from discontinued operations	$	—		$	0.11
Net income (loss)	$	0.07		$	0.07
Weighted average shares used in computing earnings per share:
Basic		27,083			27,041
Diluted		27,177			27,151

ASSETS	March 29, 2014			December 28, 2013
Current Assets:
Cash and cash equivalents	$	5,530		$	3,955
Trade receivables, net of allowances of $1,068 and $1,738		27,411			26,846
Prepaid expenses and other current assets		723			1,049
Notes receivable		2,774			1,241
Costs and estimated earnings in excess of billings on uncompleted contracts		2,103			1,206
Total Current Assets	$	38,541			34,297
Property and equipment, net		2,260			2,655
Goodwill		2,806			2,806
Other intangible assets, net		835			970
Long-term trade and notes receivable, net of current portion and allowances		2,663			4,682
Other assets		360			391
Total Assets	$	47,465			45,801

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable	$	10,430		$	9,070
Accrued compensation and benefits		4,333			2,876
Billings in excess of costs and estimated earnings on uncompleted contracts		4,962			7,054
Other current liabilities		3,178			4,318
Total Current Liabilities		22,903			23,318
Long Term Leases		168			—
Total Liabilities		23,071			23,318
Commitments and Contingencies (Note 9)
Stockholders' Equity:
Common stock - $0.001 par value; 75,000,000 shares authorized; 27,660,611 and 27,114,339 shares outstanding and 28,641,710 and 28,095,438 shares issued at March 29, 2014 and December 28, 2013, respectively		28			28
Additional paid-in capital		38,750			38,655
Accumulated deficit		(11,952	))))		(13,768	))))
Treasury stock at cost - 981,099 shares at March 29, 2014 and December 28, 2013		(2,362	))))		(2,362	))))
Accumulated other comprehensive loss		(70	))))		(70	))))
Total Stockholders' Equity		24,394			22,483
Total Liabilities and Stockholders' Equity	$	47,465		$	45,801

	For the Three Months Ended
	March 29, 2014			March 30, 2013
Cash Flows from Operating Activities:
Net income	$	1,817		$	1,937
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		598			511
Share-based compensation expense		92			44
Gain on disposal of assets		—			(2,938	)
Changes in current assets and liabilities, net of acquisitions:
Trade accounts receivable		(566	)		6,699
Notes receivable		(49	)		(82	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(897	)		2,189
Prepaid expenses and other assets		349			719
Accounts payable		1,894			(5,373	)
Accrued compensation and benefits		1,458			3,087
Billings in excess of costs and estimated earnings on uncompleted contracts		(2,092	)		(392	)
Other liabilities		(549	)		(507	)
Net cash provided by operating activities	$	2,055		$	5,894
Cash Flows from Investing Activities:
Property and equipment acquired		(60	)		(20	)
Proceeds from sale of division		—			1,000
Net cash provided by (used in) investing activities	$	(60	)	$	980
Cash Flows from Financing Activities:
Borrowings on line of credit		—			44,607
Payments on line of credit		—			(51,194	)
Payments on capitalized leases		(420	)		—
Net cash used in financing activities	$	(420	)	$	(6,587	)
Net change in cash		1,575			287
Cash and cash equivalents, at beginning of period		3,955			738
Cash and cash equivalents, at end of period	$	5,530		$	1,025

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 month periods ended March 29, 2014 and March 30, 2013, 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 28, 2013, 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 28, 2013, included in the Company's 2013 Annual Report on Form 10-K 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 2013 condensed consolidated financial statements to conform the presentation to report discontinued operations. Refer to Note 2.

A summary of our critical accounting policies is disclosed in Note 2 to the consolidated financial statements included in our 2013 Annual Report on Form 10-K. Our critical accounting policies are further described under the caption “Critical Accounting Policies” in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2013 Annual Report on Form 10-K.

The operations of the Field Solutions segment (and the smaller Electrical Services division) have been classified as discontinued operations and accordingly, are presented as discontinued operations in the Company's consolidated financial statements. The results of the discontinued operations are shown on the Consolidated Statements of Operations as "Income from discontinued operations, net of taxes" for the three months ended March 30, 2013. There was no impact from discontinued operations in the three months ended March 29, 2014. Summarized financial information for the discontinued operations for the three months ended March 30, 2013 is shown below (amounts in thousands):

On August 30, 2013, the Company completed the sale of substantially all of its Gulf Coast engineering and in-plant operations to a subsidiary of Furmanite Corporation. The total value of the transaction to the Company was $17 million, consisting primarily of $15 million of cash and a $3.0 million promissory note issued at 4% interest with a Furmanite Corporation guarantee. The transaction resulted in a $721,000 gain on the sale of these operations. The Company used most of the net proceeds from this transaction to repay advances under the PNC Credit Facility. As a result of this transaction, approximately 900 employees transferred from the Company to Furmanite. In conjunction with this sale, the Company reduced its corporate selling, general and administrative expenses to support ongoing continuing operations. The impact of the sale of these operations for the three months ended March 29, 2014 and the comparable period in 2013 is summarized as follows (dollars in thousands):

2014 Continuing Operations:	For the Three Months Ended March 29, 2014		Disposed Operations		Pro Forma For the Three Months Ended March 29, 2014
Operating revenues	$	26,898		—	$	26,898
Operating costs		20,814		—		20,814
Gross profit		6,084		—		6,084
Selling, general and administrative expenses		4,119		—		4,119
Operating income (loss)	$	1,965		—	$	1,965

2013 Continuing Operations:	For the Three Months Ended March 30, 2013			Disposed Operations		Pro Forma For the Three Months Ended March 30, 2013
Operating revenues	$	49,763		$	29,568	$	20,195
Operating costs		43,964			26,975		16,989
Gross profit		5,799			2,593		3,206
Selling, general and administrative expenses		6,212			1,088		5,124
Operating income (loss)	$	(413	)	$	1,505	$	(1,918	)

The Aspen note bears interest at 6% per annum, payable in three installments based upon certain events. The Company has reserved the full amount of the Aspen note due to collectability being in doubt. The Steele note is a four year note, bearing interest at 8% per annum, payable in annual installments beginning November 1, 2013 and maturing November 1, 2016. The Company has reserved the full amount of the Steele note due to collectability being in doubt. The Furmanite notes are four year notes, bearing interest at 5% and 4% per annum, payable in annual installments beginning January 4, 2014 and maturing September 1, 2017. The SLE judgment is still being held by the court pending the outcome of continuing litigation (see “Note 16 – Commitments and Contingencies” of our Annual Report on Form 10-K for 2013).

	March 29, 2014			December 28, 2013
	(dollars in thousands)
Costs incurred on uncompleted contracts	$	29,051		$	43,342
Estimated earnings (losses) on uncompleted contracts		13,339			12,022
Earned revenues		42,390			55,364
Less: billings to date		45,249			61,212
Net costs and estimated earnings in excess of billings on uncompleted contracts	$	(2,859	)	$	(5,848	)

Costs and estimated earnings in excess of billings on uncompleted contracts	$	2,103		$	1,206
Billings in excess of costs and estimated earnings on uncompleted contracts		(4,962	)		(7,054	)
Net costs and estimated earnings in excess of billings on uncompleted contracts	$	(2,859	)	$	(5,848	)

Revenue on fixed-price contracts is recorded primarily using the percentage-of-completion (cost-to-cost) method. Revenue and gross margin on fixed-price contracts are subject to revision throughout the lives of the contracts and any required adjustments are made in the period in which the revisions become known. To manage unknown risks, management may use contingency amounts to increase the estimated costs, therefore lowering the earned revenues until the risks are better identified and quantified or have been mitigated. We currently have $3.3 million in contingency amounts as of March 29, 2014 compared to $3.6 million as of December 28, 2013. 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 have deferred revenue recognition until we receive either a written authorization or a payment. There is no revenue deferred as of March 29, 2014 compared to $0.1 million as of December 28, 2013.

On May 29, 2012, the Company entered into the PNC Credit Facility with PNC Bank, National Association, as administrative 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"). From September 29, 2012 until August 30, 2013, the Company was not in compliance with certain financial covenants of the PNC Credit Facility.

On August 30, 2013, the Company amended the PNC Credit Facility. Under the terms of the amended PNC Credit Facility, PNC consented to the disposal of the Gulf Coast engineering and construction and in-plant operations, waived the existing events of default, ceased charging interest on outstanding indebtedness at the default rate of 7% and reduced the maximum borrowing amount from $35.0 million to $10.0 million. The amended PNC Credit Facility will mature on September 30, 2014 (see “Note 9 – Credit Facilities” of our 2013 Annual Report on Form 10-K for a description of the material terms of the amended PNC Credit Facility). The Company is currently engaged in discussions with several banks to replace the PNC Credit Facility.

The Engineering, Procurement and Construction Management (“EPCM”) segment provides services relating to the development, management and execution of projects requiring professional engineering and related project services primarily to the midstream and downstream sectors throughout the United States. Services provided by the EPCM segment include feasibility studies, engineering, design, procurement and construction management. The EPCM segment includes the government services group, which provides engineering, design, installation, operation and maintenance of various government, public sector and international facilities. Our Automation segment provides services related to the design, fabrication and implementation of process distributed control and analyzer systems, advanced automation, information technology projects to all of the oil and gas sectors throughout the United States as well as specific projects in Russia and Kazakhstan.

Sales, operating income, identifiable assets, capital expenditures and depreciation for each segment are set forth in the following table. The amount identified as Corporate includes those activities that are not allocated to the operating segments and include costs related to business development, executive functions, finance, accounting, health, safety, and environmental, human resources and information technology. The Corporate function supports both business segments and therefore cannot be specifically assigned to either segment.

For the three months ended March 29, 2014:	EPCM		Automation		Corporate			Consolidated

Revenue	$	12,763	$	14,135	$	—		$	26,898
Gross profit		2,344		3,740		—			6,084
SG&A		1,051		698		2,370			4,119
Operating income (loss)		1,293		3,042		(2,370	)		1,965
Other income									(41	)
Interest expense, net									(32	)
Tax expense									(75	)
Discontinued operations - net of taxes									—
Net income								$	1,817

For the three months ended March 30, 2013:	EPCM Operations Sold		EPCM		Automation		Corporate			Consolidated

Revenue	$	29,568	$	10,544	$	9,651	$	—		$	49,763
Gross profit		2,593		1,231		1,975		—			5,799
SG&A		1,087		723		1,021		3,381			6,212
Operating income (loss)		1,506		508		954		(3,381	)		(413	)
Other expense											122
Interest expense, net											(614	)
Tax benefit											(93	)
Discontinued operations - net of taxes											2,935
Net income										$	1,937

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 $6.8 million. 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. As of the date of this Report, the amount is still being held by the court.

The Company carries a broad range of insurance coverage, including general and business automobile liability, commercial property, professional errors and omissions, workers' compensation insurance, directors' and officers' liability insurance and a general umbrella policy. 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 $1.1 million as of March 29, 2014 and December 28, 2013, respectively.

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 28, 2013, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

While we experienced a difficult 2012 and a number of challenges in 2013, we believe that we are in the strongest financial position in recent years and are well positioned to grow our remaining Engineering, Procurement and Construction Management (“EPCM”) and Automation operating segments while maintaining strict control over overhead costs. We believe that the overall spending of our clients will continue at its current level and that the overall economy is improving. While our services continue to be very competitive, we are maintaining a focused effort on marketing centered around our differentiated products and services and we continue to see a high level of proposal activity.

Amounts reported as continuing operations for the three months ended March 29, 2014 and the three months ended March 30, 2013 are reported for the two segments that we continue to operate - EPCM services and Automation. The Company recognizes service revenue when the services are performed. The majority of the Company's engineering services have historically been provided through time-and-material contracts while a majority of the Company's engineered automation system sales are earned on fixed-price contracts. In the course of providing our services, we routinely provide materials and equipment and may provide construction or construction management services on a subcontractor basis. Generally, these materials, equipment and subcontractor costs are passed through to our clients and reimbursed, along with handling fees, which in general 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, SG&A expense and operating income as a percentage of revenue may not be indicative of the Company's core business trends. Segment operating SG&A expense includes management, business development and staff compensation, office costs such as rents and utilities, depreciation, amortization, travel, bad debt and other expenses generally unrelated to specific client contracts, but directly related to the support of a segment's operations. Corporate SG&A expenses include finance, accounting, , human resources, legal and information technology which are unrelated to specific projects but which are incurred to support corporate activities.

Operations Data	EPCM Operations Sold			EPCM		Automation			Corporate			Consolidated
Three months ended March 29, 2014:
Revenue	$	—		$	12,763	$	14,135		$	—		$	26,898		100.0	%
Gross profit		—			2,344		3,740			—			6,084		22.6	%
SG&A		—			1,051		698			2,370			4,119		15.3	%
Operating income (loss)		—			1,293		3,042			(2,370	)		1,965		7.3	%
Other expense													(41	)	(0.2	)%
Interest expense, net													(32	)	(0.1	)%
Tax expense													(75	)	(0.3	)%
Income from continuing operations												$	1,817		6.8	%
Diluted income from continuing operations per share												$	0.07

Three months ended March 30, 2013:
Revenue	$	29,568		$	10,544	$	9,651		$	—		$	49,763		100.0	%
Gross profit		2,593			1,231		1,975			—			5,799		11.8	%
SG&A		1,087			723		1,021			3,381			6,212		12.6	%
Operating income (loss)		1,506			508		954			(3,381	)		(413	)	(0.8	)%
Other income													122		0.2	%
Interest expense, net													(614	)	(1.2	)%
Tax expense													(93	)	(0.2	)%
Net loss from continuing operations												$	(998	)	(2.0	)%
Diluted loss from continuing operations per share												$	(0.04	)

Increase (Decrease) in Operating Results:
Revenue	$	(29,568	)	$	2,219	$	4,484		$	—		$	(22,865	)	(45.9	)%
Gross profit (loss)		(2,593	)		1,113		1,765			—			285		0.6	%
SG&A		(1,087	)		328		(323	)		(1,011	)		(2,093	)	(4.2	)%
Operating income (loss)		(1,506	)		785		2,088			1,011			2,378		4.8	%
Other income (expense)													(163	)	(0.3	)%
Interest expense, net													582		1.2	%
Tax benefit (expense)													18		(0.0	)%
Income from continuing operations												$	2,815		5.7	%
Diluted income from continuing operations per share												$	.11

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 March 29, 2014, as compared to the three months ended March 30, 2013 decreased approximately $22.9 million. Of this decrease, $29.6 million was attributable to the sale of our Gulf Coast EPCM business (see “Note 3 – Disposal of Continuing Operations” of the Notes to Unaudited Interim Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q). This decrease was partially offset by increases in revenue of our remaining EPCM business of $2.3 million and our Automation business of $4.4 million. EPCM revenues were positively impacted by several projects that were awarded in the fourth quarter of last year, and Automation revenues increased as a result of the release of contingency amounts on several projects and increased orders. While our clients are continuing to perform smaller maintenance projects they are not generally undertaking new capital expansions and competition for the project work continues to be intense.

Gross Profit – While revenue decreased quarter over quarter, gross profit increased for the three months ended March 29, 2014, as compared to the three months ended March 30, 2013 by $.3 million. Gross profit produced from our remaining operating segments last year was $3.2 million compared to $4.1 million of gross profit this year. This increase is primarily due the profit enhancement strategy we began implementing in the fourth quarter of 2012, which included a reduction in higher risk projects, renewed focus on project execution and an emphasis on customer and project selection. As a percentage of revenue our gross profit margin from our remaining operating segments increased to 22.6% for the three months ended March 29, 2014, from 15.9% for the three months ended March 30, 2013.

Selling, General and Administrative – Overall our SG&A expenses decreased for the three months ended March 29, 2014 as compared to the three months ended March 30, 2013. Excluding the sold EPCM business, our SG&A expense for the first quarter of 2014 decreased approximately $1.0 million. As a percentage of revenue, SG&A expenses decreased to 15.3% of revenues for the three months ended March 29, 2014, versus 25.4% of revenues, excluding the sold EPCM business. We continue to look for ways to reduce our overhead expenses and believe we will be able to continue to reduce this ratio in 2014.

Tax Expense - Income tax expense for the three months ended March 29, 2014, was comparable to the three months ended March 30, 2013. The effective income tax rate for the three months ended March 29, 2014 was 4% as compared to 10% for the net loss for the three months ended March 30, 2013. Our federal income tax expense continues to be impacted by the valuations taken on prior year tax assets and the release of those valuations against current year income tax. In certain states our income tax is not calculated on our net income but rather on other revenue calculations. Therefore, we may show income tax expense even though we have a net loss.

The Company defines liquidity as its ability to pay liabilities as they become due, fund business operations and meet monetary contractual obligations. Our primary sources of liquidity are internally generated funds and up to $10 million of availability under the amended PNC Credit Facility discussed under “Line of Credit Facility” below. There were no borrowings outstanding under the facility as of March 29, 2014 and May 6, 2014 and we had cash of approximately $5.5 million and $4.6 million at March 29, 2014 and May 6, 2014, respectively. Our working capital as of March 29, 2014 was $15.6 million versus $13.2 million as of December 28, 2013. We believe our current cash on hand, availability under our credit facility and our other working capital are sufficient to fund our ongoing operations.

Cash and the availability of cash could be materially restricted if (1) outstanding invoices billed are not collected or are not collected in a timely manner, (2) circumstances prevent the timely internal processing of invoices, (3) we lose one or more of our major customers, or (4) we are unable to win new projects that we can perform on a profitable basis. Additionally, we have a significant receivable outstanding on our Caspian Pipeline Consortium project. Actions outside of our control may hinder or preclude the collection of these receivables.

Operating activities provided approximately $2.1 million in net cash during the three months ended March 29, 2014, compared with net cash provided by operations of $5.9 million during the comparable period in 2013. The primary driver of our cash provided by operations for the three months ended March 29, 2014 was our net income of $1.7 million while decreases in costs in excess of billings and in trade receivables and increases in billings in excess of billings were largely offset by increases in accounts payable and accrued compensation.

Future investing activities are anticipated to remain consistent with prior years, in principal, and include capital additions for leasehold improvements and technical applications. The Company uses vendor leasing programs as needed to keep technology up-to-date on its software and equipment, such as upgrades to computers. The amended PNC Credit Facility limits our annual capital expenditures to $3.5 million.

On May 29, 2012, the Company entered into the PNC Credit Facility with PNC Bank, National Association, as administrative 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"). From September 29, 2012 until August 30, 2013, the Company was not in compliance with the certain financial covenants of the PNC Credit Facility.

On August 30, 2013, the Company amended the PNC Credit Facility. Under the terms of the amended PNC Credit Facility, PNC consented to the disposal of the Gulf Coast engineering and construction and in-plant operations, waived the existing events of default and ceased the charging of interest on outstanding indebtedness at the default rate of 7%. The Company also executed an Amended and Restated Revolving Credit Note with PNC which effectively reduced the maximum borrowing amount from $35.0 million to $10.0 million. The amended PNC Credit Facility will mature on September 30, 2014. Set forth below are certain of the material terms of the amended PNC Credit Facility:

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) $10.0 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) $1.5 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) $4.0 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 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 2.75% 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 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 3.75%.

•	Maintain a Fixed Charge Coverage Ratio of (a) not less than 0.80 to 1.00, measured (i) as of October 31, 2013, for the month then most recently ended; (ii) as of November 30, 2013, for the two months then most recently ended; (iii) as of December 31, 2013, for the three months then most recently ended; (iv) as of January 31, 2014, for the four months then most recently ended; (b) not less than 0.95 to 1.00, measured (i) as of February 28, 2014, for the five months then most recently ended (ii) as of March 31, 2014, for the nine months then most recently ended; (iii) as of April 30, 2014, for the seven months then most recently ended; (iv) as of May 31, 2014, for the eight months then most recently ended; (c) not less than 1.00 to 1.00, measured (i) as of June 30, 2014, for the nine months then most recently ended (ii) as of July 31, 2014, for the ten months then most recently ended; (iii) as of August 31, 2014, for the eleven months then most recently ended; and (iv) as of September 30, 2014, for the twelve months then most recently ended.
•	Maintain at all times Excess Availability of not less than the greater of $1.0 million or 10% of the maximum revolving advance measured monthly as of the last day of the month.
•	Cause the aggregate amount of cash receipts attributable to the Caspian Contracts to exceed the aggregate amount of all costs and expenses incurred in connection the Borrowers’ performance of its Caspian Project obligations by a minimum of $0.5 million measured twice per month.
•	The Company will not contract for, purchase or make any expenditure or commitment for capital expenditures in an aggregate amount in excess of $3.5 million.

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 March 29, 2014, 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 March 29, 2014, 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.

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 9 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.

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 28, 2013, 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 for the year ended December 28, 2013 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.

Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future revenue or earnings. As of March 29, 2014, our backlog was approximately $90.5 million, including $45.1 million for the CPC Project. Other than the CPC Project, substantially all of this backlog is expected to be completed in 2014. We expect to complete a majority of the CPC Project backlog in 2015. We cannot assure investors that the revenue projected in our backlog will be realized or, if realized, will result in profits. Projects currently in our backlog may be canceled or may remain in our backlog for an extended period of time prior to project execution and, once project execution begins, it may occur unevenly over the current and multiple future periods. In addition, project terminations, suspensions or reductions in scope occur from time to time with respect to contracts reflected in our backlog, reducing the revenue and profit we actually receive from contracts reflected in our backlog. Future project cancellations and scope adjustments could further reduce the dollar amount of our backlog and the revenue and profits that we actually earn. These adjustments are exacerbated by current economic conditions.

The CPC Project, which represents a significant portion of our current business, involves a pipeline expansion project in Russia and Kazakhstan along the Caspian Sea, and we may be adversely affected by operational and political risks in that geographic region that are greater than in the United States. The CPC Project is an engineering, procurement, and commissioning services agreement with the Caspian Pipeline Consortium that is expected to have a total value of approximately $93 million over the life of the contract and represents approximately $45.1 million of our backlog at March 29, 2014. This contract involves a pipeline expansion project in Russia and Kazakhstan along the Caspian Sea. This region, specifically Russia, has undergone significant political, economic and social change in recent years, and the risk of unforeseen changes in this region may be greater than in the United States. For example, Russia and the Ukraine are experiencing significant unrest, which could escalate into armed conflict and economic sanctions by the U.S., United Nations or other countries against Russia. In addition, changes in laws or regulations, including with respect to payment of service providers, taxation, transportation, information technology, data transmission and the Internet, or in the interpretation of existing laws or regulations, whether caused by a change in government or otherwise, could materially adversely affect our ability to perform under the CPC Project and, thus, our business, operating results and financial condition. While we do not believe that the possibility of any armed conflict with respect to the situation in Russia and Ukraine will affect the region in which we perform services under the CPC Project, conducting and expanding our international operations through the CPC Project subjects us to other risks that we do not generally face in the United States. These include:

	•		difficulties in managing the staffing of our international operations, including hiring and retaining qualified employees and transportation of employees to and from the region;
	•		difficulties and increased expense introducing corporate policies and controls in our international operations;
	•		increased expense to comply with foreign laws and legal standards, including laws that regulate pricing and promotion activities and the import and export of information technology, which can be difficult to monitor and are often subject to change;
	•		increased expense to comply with U.S. laws that apply to foreign operations, including the Foreign Corrupt Practices Act and Office of Foreign Assets Control regulations;
	•		longer accounts receivable payment cycles and difficulties in collecting accounts receivable; and
	•		political, social and economic instability.

The occurrence of one or more of these events could negatively affect our operations under the CPC Project and, consequently, our operating results. Further, operating in international markets requires significant management attention and financial resources, and we cannot be certain that the resources required to perform our services under the CPC Project in these other countries will produce desired levels of revenue or profitability.

		Incorporated by Reference to:

Exhibit No.	Description	Form or Schedule	Exhibit No.	Filing Date with SEC	SEC File Number

3.1	Restated Articles of Incorporation of Registrant dated 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 June 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


*31.1	Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934 for the First Quarter 2014

*31.2	Certifications Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934 for the First Quarter 2014

*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 First Quarter 2014

*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

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

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

		Page Number

Part I.	Financial Information

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 29, 2014 and March 30, 2013	3

	Unaudited Condensed Consolidated Balance Sheets at March 29, 2014 and December 28, 2013	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 29, 2014 and March 30, 2013	5

	Notes to Unaudited Interim Condensed Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4.	Controls and Procedures	17

Part II.	Other Information

Item 1.	Legal Proceedings	18

Item 1A.	Risk Factors	18

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 3.	Defaults Upon Senior Securities	19

Item 4.	Other Information	19

Item 5.	Exhibits	19

	Signatures	20

	March 29, 2014			December 28, 2013
Aspen	$	514		$	514
SLE		894			894
Steele		3,287			3,243
Furmanite		4,543			5,029
Reserve		(3,801	)		(3,757	)
Total notes receivable		5,437			5,923
Less current portion (net of reserve)		(2,774	)		(1,241	)
Notes receivable non-current	$	2,663		$	4,682

Transactions	As of March 29, 2014		As of March 30, 2013
	(dollars in thousands)
Acceptance of notes for asset sales	$	—	$	1,896
Cash paid:
Interest	$	76	$	718

Revenues	$	—
Costs		—
Operating income	$	—
SG&A		3
Other income		2,938
Total income before taxes		2,935
Tax expense (benefit)		—
Net income	$	2,935

Total Assets by Segment	As of March 29, 2014		As of December 28, 2013
	(dollars in thousands)
EPCM	$	10,580	$	12,311
Automation		12,003		23,029
Corporate		24,882		10,461
Consolidated	$	47,465	$	45,801

	Three Months Ended
	March 29, 2014		March 30, 2013
	(dollars in thousands)
Current	$	75	$	93
Deferred		—		—
Total tax expense	$	75	$	93
Discontinued operations		—		—
Total tax expense	$	75	$	93
Effective tax rate		4.4%		41.5	%

Dated:	May 8, 2014
		ENGlobal Corporation

	By:	/s/ Mark A. Hess
		Mark A. Hess
		Chief Financial Officer