Form 10Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kqe1Ef6Ur0GoiXcPsJANjV1jwpmGuOpj4GD9jcbE9eSzOX+scZQ+zHPYd46UIU3W VuEK1XIPA+259vevlPmiKQ== 0001193125-03-004787.txt : 20030513 0001193125-03-004787.hdr.sgml : 20030513 20030513173151 ACCESSION NUMBER: 0001193125-03-004787 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENGLOBAL CORP CENTRAL INDEX KEY: 0000933738 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 880322261 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14217 FILM NUMBER: 03696479 BUSINESS ADDRESS: STREET 1: 600 CENTURY PLZ STREET 2: BLDG 140 CITY: HOUSTON STATE: TX ZIP: 77073-6033 BUSINESS PHONE: 2818213200 MAIL ADDRESS: STREET 1: 600 CENTURY PLAZA DR STREET 2: BLDG 140 CITY: HOUSTON STATE: TX ZIP: 77073-6033 FORMER COMPANY: FORMER CONFORMED NAME: INDUSTRIAL DATA SYSTEMS CORP DATE OF NAME CHANGE: 19970123 10-Q 1 d10q.htm FORM 10Q Form 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2003

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

Commission File Number: 001-14217

ENGlobal Corporation

(Exact name of registrant as specified in its charter)

Nevada

(State or, other Jurisdiction of

corporation or organization)

88-0322261

(I.R.S. Employer Identification Number)

600 Century Plaza Drive, Suite 140, Houston, Texas

(Address of Principal Executive Offices)

77073-6033

(Zip Code)

(281) 821-3200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the issuer (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 shorter 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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the close of business of May 5, 2003.

$0.001 Par Value Common Stock

22,861,199 shares

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED MARCH 31, 2003

TABLE OF CONTENTS

		Page Number

Part I.	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income for the Three Months ended March 31, 2003 and March 31, 2002	1

	Condensed Consolidated Balance Sheets at March 31, 2003 and December 31, 2002	2

	Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2003 and March 31, 2002	3

	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	11

Item 4.	Controls and Procedures	11

Part II.	Other Information

Item 1.	Legal Proceedings	11

Item 2.	Changes in Securities and Use of Proceeds	12

Item 3.	Defaults Upon Senior Securities	12

Item 4.	Submission of Matters to a Vote of Security Holders	12

Item 5.	Other Information	12

Item 6.	Exhibits and Reports on Form 8-K	12

	Signature	13

Part I. Financial Information

Item 1. Financial Statements

ENGlobal Corporation

Condensed Consolidated Statements Of Income

(Unaudited)

	For The Three Months Ended March 31,
	2003			2002
OPERATING REVENUES	$	23,603,480		$	20,702,727
OPERATING EXPENSES:
Direct costs		19,484,451			17,478,606
Selling, general and administrative		2,842,414			2,444,228
Depreciation and amortization		246,130			220,390

		22,572,995			20,143,224

Operating income		1,030,485			559,503

OTHER INCOME (EXPENSE):
Other income (expense)		(29,681	)		117,073
Interest income (expense)		(201,658	)		(233,340	)

Total other income (expense)		(231,339	)		(116,267	)


INCOME BEFORE PROVISION FOR INCOME TAXES		799,146			443,236

PROVISION FOR INCOME TAXES		291,492			177,294

NET INCOME		507,654			265,942

PREFERRED DIVIDENDS		51,759			50,000

EARNINGS AVAILABLE TO COMMON SHAREHOLDERS	$	455,895		$	215,942

EARNINGS PER COMMON SHARE (BASIC)	$	0.02		$	0.01

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (BASIC)		22,861,199			22,861,199

EARNINGS PER COMMON SHARE (DILUTED)	$	0.02		$	0.01

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (DILUTED)		23,289,661			22,861,199

See accompanying notes to interim condensed consolidated financial statements.

ENGlobal Corporation

Condensed Consolidated Balance Sheets

ASSETS	March 31, 2003		December 31, 2002
	(unaudited)
CURRENT ASSETS:
Cash	$	35,193	$	75,095
Accounts receivable—trade, less allowance for doubtful accounts of approximately $207,000 for 2003 and $209,000 for 2002		15,321,357		16,491,847
Inventory		495,652		531,575
Cost and estimated earnings in excess of billings on uncompleted contracts		2,168,619		2,043,603
Prepaid and other		672,881		759,330
Deferred tax asset		461,000		461,000

Total current assets		19,154,702		20,362,450
GOODWILL		13,211,628		13,211,628
PROPERTY AND EQUIPMENT, net		5,726,378		5,758,386
DEFERRED TAX ASSET		152,000		402,000
OTHER ASSETS		292,250		333,552

Total assets	$	38,536,958	$	40,068,016


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,576,667	$	4,039,818
Accrued compensation and benefits		4,840,131		3,900,499
Billings and estimated earnings in excess of cost on uncompleted contracts		980,705		811,845
Other liabilities		892,383		932,934
Current portion—long term debt		728,680		743,039
Notes payable		278,566		485,850
Dividends payable		172,533		120,773
Current portion—capital lease payable		54,700		53,392
Income taxes payable		348,929		319,228

Total current liabilities		11,873,294		11,407,378
Long term debt, net of current portion		10,140,114		12,579,702
Capital lease payable, net of current portion		90,874		104,155

Total liabilities		22,104,282		24,091,235

PREFERRED STOCK:
Series A Redeemable convertible preferred stock; 5,000,000 shares authorized, 2,588,000 shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively		2,588,000		2,588,000

STOCKHOLDERS’ EQUITY:
Common stock, $.001 par value; 75,000,000 shares authorized; 22,861,199 issued and outstanding at March 31, 2003 and December 31, 2002, respectively		22,862		22,862
Additional paid-in capital		9,335,471		9,335,471
Retained earnings		4,486,343		4,030,448

Total stockholders’ equity		13,844,676		13,388,781

Total liabilities and stockholders’ equity	$	38,536,958	$	40,068,016

See accompanying notes to interim condensed consolidated financial statements.

ENGlobal Corporation

Condensed Consolidated Statements Of Cash Flows

(Unaudited)

	For the Three Months Ended March 31,
	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	507,654		$	265,942
Adjustment for non-cash items		246,130			220,390
Changes in working capital, net		2,057,270			2,238,502

Net cash provided by operating activities		2,811,054			2,724,834

CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment acquired		(170,601	)		(112,883	)
Proceeds from sale of property		—			42,523

Net cash used by investing activities		(170,601	)		(70,360	)


CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings under line of credit		23,537,173			24,179,355
Payments on line of credit		(25,814,281	)		(26,955,906	)
Short-term note repayments		(207,285	)		—
Lease repayments		(11,972	)		(15,065	)
Long-term debt repayments		(183,990	)		(736,881	)

Net cash used by financing activities		(2,680,355	)		(3,528,497	)

NET CHANGE IN CASH		(39,902	)		(874,023	)

CASH, at beginning of period		75,095			1,244,907

CASH, at end of period	$	35,193		$	370,884

SUPPLEMENTAL DISCLOSURES:
Interest paid	$	191,540		$	153,044

NON-CASH:
Accrual of preferred dividends		51,759			—

See accompanying notes to interim condensed consolidated financial statements.

ENGlobal Corporation

Notes To Condensed Consolidated Financial Statements

1. BASIS OF PRESENTATION

The condensed consolidated financial statements of ENGlobal Corporation, formerly known as Industrial Data Systems Corporation (“ENGlobal” or the “Company”), included herein, are unaudited for the three-month period ended March 31, 2003 and 2002. These financial statements reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary to fairly depict 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. It is suggested these condensed financial statements be read in conjunction with the Company’s audited financial statements for the years ended December 31, 2002 and 2001, which are included in the Company’s annual report on Form 10-K. The Company believes that the disclosures made herein are adequate to make the information presented not misleading.

2. NAME CHANGE

On June 6, 2002, the stockholders voted on a proposal to amend the Articles of Incorporation to change the name of the Company from Industrial Data Systems Corporation to ENGlobal Corporation. The Company believes the new name reflects its broader capabilities and vision for future growth, providing a common identity, which will build name recognition and credibility among existing and potential customers.

The ENGlobal name change has been adopted by the Company’s operating subsidiaries effective January 25, 2003.

3. LINE OF CREDIT AND DEBT

The Company has a Credit Facility with Fleet Capital Corporation (“Fleet”) that consists of a line of credit. The loan agreement positions the Fleet debt as senior to all other debt. The line of credit is limited to $15,000,000, subject to borrowing base restrictions. The Credit Facility is collateralized by substantially all the assets of the Company. At March 31, 2003, $7,807,000 was outstanding on the line of credit. The line of credit matures on June 30, 2005. The interest rate on the line of credit is one-quarter of one percent plus prime (4.50 percent at March 31, 2003), and the commitment fee on the unused line of credit is 0.375 percent. The remaining borrowings available under the line of credit as of March 31, 2003, were $3,694,000 after consideration of the borrowing base limitations. The Company’s Credit Facility contains covenants which require the maintenance of certain ratios, including cumulative fixed charge coverage and debt coverages and specified levels of certain other items.

ENGlobal Corporation

Notes To Condensed Consolidated Financial Statements


	March 31, 2003			December 31, 2002
	(in thousands)
Fleet Credit Facility—
Line of credit, prime plus 0.25% (4.50% at March 31, 2003), maturing in 2005	$	7,807		$	10,084
Equus note payable, interest at 9.5%, principal payments in installments of $110,000 plus interest due quarterly maturing through 2005		2,670			2,780
Petrocon Arabia Limited uncollateralized note payable, interest at 8%, principal and interest due monthly in decreasing amounts starting at $25,000, maturing in August 2004		384			451
Miscellaneous		8			8

		10,869			13,323
Less—current maturities		(729	)		(743	)

Long-term debt, net of current portion	$	10,140		$	12,580

Current notes payable include a note which finances commercial insurance on a short-term basis, with a balance of $279,000 and $485,000 as of March 31, 2003 and December 31, 2002, respectively.

4. PREFERRED STOCK DIVIDENDS

One stockholder, Equus II Incorporated, holds the Company’s Series A Preferred Stock, $0.001 par value per share. Dividends on outstanding shares of Series A Preferred Stock are payable annually on the last day of May beginning in 2002 at a rate of 8% of the liquidation amount which is $1.00 per share plus accrued and unpaid dividends. Dividends may be paid in cash, or at the option of the Company, in shares of Series A Preferred Stock. On May 31, 2002, the Company issued 88,000 shares of Series A Preferred Stock as a stock dividend and paid $219 for fractional shares.

5. ALLOCATION OF GOODWILL

The Company’s plan to pursue potential acquisitions of complementary businesses was realized on December 21, 2001 through its Merger with Petrocon. The Company entered into a letter of intent on April 3, 2001 to acquire, through merger with a wholly owned subsidiary, Petrocon Engineering, Inc., an engineering support services company, with offices along the Texas and Louisiana gulf coast, in exchange for 9,800,000 shares of the Company, valued at $0.71 per share. The purchase price totaled $23,806,000. The transaction was financed by issuance of common stock valued at $6,637,000, net of registration costs, issuance of preferred stock with a liquidation value of $2,500,000 and assumption of debt totaling $13,737,000. The purchase resulted in the recognition of an intangible, goodwill, of $13,211,000, and deferred tax assets.

In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” goodwill is no longer amortized over its estimated useful life, but rather will be subject to at least an annual assessment for impairment. The initial test for impairment, as of January 1, 2002, was completed by the end of the second quarter of 2002 and no impairment occurred. The second annual test for impairment was completed effective January 1, 2003 and no impairment occurred.

ENGlobal Corporation

Notes To Condensed Consolidated Financial Statements

6. FIXED FEE CONTRACTS

Costs, estimated earnings and billings on uncompleted contracts consisted of the following at March 31, 2003 and December 31, 2002 (in thousands):

	March 31, 2003			December 31, 2002
Costs incurred on uncompleted contracts	$	15,186		$	18,629
Estimated earnings on uncompleted contracts		3,025			3,096

Earned revenues		18,211			21,725
Less billings to date		17,023			20,493

Net cost and estimated earnings in excess of billings on uncompleted contracts	$	1,188		$	1,232

Costs and estimated earnings in excess of billings on uncompleted contracts	$	2,169		$	2,044
Billings and estimated earnings in excess of costs on uncompleted contracts		(981	)		(812	)

Net cost and estimated earnings in excess (under) billings on uncompleted contracts	$	1,188		$	1,232

7. TAXES

The Company benefited from Petrocon’s net operating loss carryforwards at the time of the Merger. Based on the completion of the research and advice of tax counsel, the realization of an additional net operating loss carryforward asset is available to the Company. The Company has net operating loss carryforwards of approximately $1,592,000 as of December 31, 2002 with an annual limitation of $1,176,000. Current and non-current deferred tax assets representing the net operating loss carryforward and timing differences total $613,000 and $863,000 as of March 31, 2003 and December 31, 2002, respectively. The reduction in deferred tax assets during the first quarter of 2003 reflects the expected usage of net operating loss carryforwards in 2003 to offset taxable income.

8. STOCK OPTION PLANS

The Company accounts for its nonqualified incentive stock option plan under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. Accordingly, no stock-based compensation cost is reflected in the net income, as all options granted under those plans were equal to the market value of the Company’s stock on the date of grant. The following table illustrates the effect on net income and earnings per share for the three months ended March 31, 2003 and 2002, if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by FAS 148, Accounting for Stock-Based Compensation Transition and Disclosure, issued in December 2002.

	Three Months Ended March 31,
	2003			2002
	(in thousands)
Pro forma impact of fair value method (FAS 148):
Net income attributable to common stockholders, as reported	$	456		$	216
Less compensation expense determined under fair value method		(1	)		(37	)

Pro forma net income attributable to common stockholders	$	455		$	179

ENGlobal Corporation

Notes To Condensed Consolidated Financial Statements

Earnings per share (basic and diluted):
As reported	$	0.02		$	0.01
Pro forma	$	0.02		$	0.01
Weighted average Black-Scholes fair value assumptions:
Risk free interest rate		5.0	%		5-5.75	%
Expected life		7–10 years			2-10 years
Expected volatility		93	%		93	%
Expected dividend yield		0.0	%		0.0	%

9. SEGMENT INFORMATION

The Company operates in three business segments: (1) engineering services primarily to major integrated oil and gas companies; (2) engineered systems, providing design and implementation of control systems for specific applications primarily in the energy and process industries, uninterruptible power systems and battery chargers; and (3) manufacturing of air handling equipment for commercial heating, ventilation and cooling systems. Sales and operating income set forth in the following table are the results of these segments.

Segment information for the three months ended March 31, 2003 and 2002, respectively, was as follows (in thousands):

2003	Engineering Services		Engineered Systems		Manufacturing			Corporate			Total
Net sales from external customers	$	18,316	$	4,690	$	597		$	—		$	23,603
Operating profit (loss)		2,236		295		(15	)		(1,486	)		1,030

2002	Engineering Services		Engineered Systems		Manufacturing			Corporate			Total
Net sales from external customers	$	17,875	$	2,287	$	541		$	—		$	20,703
Operating profit (loss)		1,461		174		(53	)		(1,023	)		559

Item 2. Management’s Discussion And Analysis And Results Of Operations

Forward-Looking Statements

Certain information contained in this Form 10-Q Quarterly Report, the Company’s Annual Report to Stockholders, 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 with the meaning of Section 21E of the Securities Exchange Act of 1934. This information includes, with 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; commitments and contingent liabilities; and 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. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “may,” and similar expressions, as they relate to the Company and its management, identify forward-looking statements. Actual results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth with this Quarterly Report on Form 10-Q.

The following discussion is qualified in its entirety by, and should be read in conjunction with, the Company’s Consolidated Financial Statements including the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Update on the Sale of Thermal

The closing of the transaction for the sale of Thermal has been impeded due to the inability of the buyer to secure adequate financing. The Company has been considering various alternatives as well as restructuring the terms of the agreement to include owner financing. The Company has contracted with the Pivot Group LLC to provide dedicated management services to Thermal through the end of the current year.

Results of Operations

The Company operates in three segments, the engineering services segment, the engineered systems segment, and the manufacturing segment. The following table sets forth, for the periods indicated, the percentage of sales generated by each of the operating segments.

	Percentage of Revenue
	For the three months ended March 31,
Operating Segment	2003		2002
Engineering services	77.6	%	86.3	%
Engineered systems	19.9	%	11.1	%
Manufacturing	2.5	%	2.6	%

Total revenue	100.0	%	100.0	%

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Total Revenue. Total revenue increased by $2,900,000 or 14% for the three months ended March 31, 2003 compared to the three months ended March 31, 2002. All segments reported an increase in sales

during the period. Engineering services segment increased from $17,875,000 in 2002 to $18,316,000 in 2003 or $441,000, a 2% increase. The revenue increase in engineering services resulted primarily from the continuation of a large EPC project (engineering, procurement, and construction) in the Beaumont office. The engineered systems segment, which represents 20% of total revenues increased by $2,403,000 or 105% from $2,287,000 for the three months, ended March 31, 2002 to $4,690,000 for the same period in 2003. This increase occurred at ENGlobal Systems resulting from large fixed price sales of process systems to two clients. The manufacturing segment increased sales for the three months ended March 31, 2003 by $56,000 or 10% from $541,000 for the three months ended March 31, 2002 to $597,000 for the same period in 2003. The revenues in 2002 were lower than normal due to the lingering effects of the September 11, 2001 terrorist attack that significantly impacted the market in which Thermal operates.

Gross Profit. The gross profit increased $895,000 or 28% for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002. Engineering services gross profit as a percentage of revenue, improved from 15% to 17%. This resulted in a $527,000 increase over 2002 due primarily to better utilization of manpower.

The engineered systems segment gross profit increased $311,000 or 63% from $492,000 to $803,000 for the three months ended March 31, 2002 and 2003, respectively. However, gross profit as a percent of revenue declined from 22% in 2002 to 17% for the same period in 2003. This decline in gross profit as a percent of revenue from 2002 to 2003 was primarily due to competitive market pressures on contract pricing and budget over-runs on three fixed price projects.

The manufacturing segment increased gross profit by $56,000 or 41% for the three months ended March 31, 2003 compared to the same period for 2002. This increase was due to Thermal reducing expenses by eliminating contract labor and decreasing accrued expenses.

Selling, General, and Administrative. Expenses related to selling, general and administrative, including depreciation and amortization increased $424,000 or 16% for the three months ended March 31, 2003 as compared to the same period in 2002. A majority of the increase resulted from the creation of a business development department in the corporate division, including the salaries and expenses of several marketing representatives. These salaries and expenses contributed approximately $300,000 to the first three months of 2003. In addition, the accounting system was upgraded and the cost of the consultants in 2003 added $90,000 and depreciation related to the software increased by $25,000.

Operating Income. Operating income increased by $471,000 to $1,030,000 for the three months ended March 31, 2003, compared to $560,000 for the same period in 2002. As a percentage of revenues, operating income increased from 3% to 4%. The increase is attributable primarily to the EPC work in the engineering services segment, which contributed $2,235,000 to operating income before deducting corporate selling, general, and administrative expenses.

Net income. Net income after taxes increased by $242,000 or 91% from $266,000 to $508,000 for the three months ended March 31, 2002 and 2003, respectively. As a percentage of total revenue, the net income percentage increased from 1% to 2%.

Liquidity and Capital Resources

The Company has a financing arrangement with Fleet Capital Corporation (“Fleet”) known as the Credit Facility, which is comprised of a line of credit. The loan agreement positions the Fleet debt as senior to all other debt with the line of credit limited to $15,000,000, subject to borrowing base restrictions. The Credit Facility is collateralized by substantially all the assets of the Company. At March 31, 2003, $7,807,000 was outstanding on the line of credit. The Credit Facility matures on June 30, 2005. The interest rate on the line of credit is one-quarter of one percent plus prime, and the commitment fee on the unused line of credit is 0.375 percent. The remaining borrowings available under the line of credit as of March 31, 2003 were $3,694,000 after consideration of the borrowing base

limitations. The Company’s Credit Facility contains covenants, which require the maintenance of certain ratios, including cumulative fixed charge coverage and debt coverages and specified levels of certain other items.

The Company must meet all covenants through the maturity date of the Credit Facility. The Company is currently in compliance and Management believes it will remain in compliance with all loan covenants, although no assurances can be given regarding such compliance.

As of March 31, 2003, Management believes the Company’s cash position was sufficient to meet its working capital requirements. EBITDA, earnings before interest, taxes, depreciation and amortization, for the three months ended March 31, 2003 was $1,277,000. Any future decrease in demand for the Company’s services or products would reduce the availability of funds through operations.

The Company benefited from Peterson’s net operating loss carryforwards at the time of the merger. Based on the completion of research and advice of tax counsel, the realization of an additional loss carryforward asset is available to the Company. The Company has net operating loss carryforwards of $1,592,000 as of December 31, 2002 with an annual limitation of $1,176,000. Current and non-current deferred tax assets representing the net operating loss carryforward and timing differences total $613,000 and $863,000 as of March 31, 2003 and December 31, 2002, respectively. The reduction in deferred tax assets during the first quarter of 2003 reflects the expected usage of net operating loss carryforwards in 2003 to offset taxable income.

The Company’s working capital was $7,281,000 and $8,955,000 at March 31, 2003 and December 31, 2002, respectively. The decrease in working capital resulted primarily from a decrease in trade receivables, attributable to the active collection process, and an increase in first quarter accrued payroll taxes to be paid in April.

The Company had long-term debt outstanding of $10,869,000 and $13,323,000 as of March 31, 2003 and December 31, 2002, respectively. This long-term debt includes the Credit Facility of $7,807,000 on the line of credit as of March 31, 2003 that matures on June 30, 2005.

Cash Flow

Operating activities provided net cash totaling $2,811,000 and $2,725,000 for the three months ended March 31, 2003 and 2002, respectively. The increase in cash provided by operating activities primarily reflects the increase in net income for the three months ended March 31, 2003 as compared to the same period in 2002.

Investing activities used cash totaling $171,000 for the three months ended March 31, 2003 and $70,000 for the same period in 2002. The Company’s investing activities that used cash during the period ended March 31, 2003 was for the purchase of property and equipment.

Financing activities used cash totaling $2,680,000 for the three months ended March 31, 2003, as compared to $3,528,000 for the same period in 2002. The decrease in cash used for financing activities reflects lower payments on debt in 2003 as compared to 2002.

The Company believes that it has available necessary cash for the next 12 months. Cash and the availability of cash, could be materially restricted if circumstances prevent the timely internal processing of invoices into receivable accounts, if such accounts are not collected within 90 days of the original invoice date, if project mix shifts from cost reimbursable to fixed costs contracts during significant periods of growth, or if ENGlobal is not able to meet the monthly covenants of the Fleet Credit Facility. If any such events occur the Company would be forced to consider alternative financing options.

Asset Management

The Company’s cash flow from operations has been affected primarily by the timing of its collection of trade accounts receivable. The Company typically sells its products and services on short-term credit terms and seeks to minimize its credit risk by performing credit checks and conducting its own collection efforts. The Company had net trade accounts receivable of $15,321,000 and $16,492,000

at March 31, 2003 and December 31, 2002, respectively. The number of days’ sales outstanding in trade accounts receivable was 61 days and 60 days, respectively.

Item

3. Quantitative and Qualitative Disclosures About Market Risk

Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable, notes and capital leases 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. Our exposure to market risk for changes in interest rates relates primarily to our obligations under the Fleet Credit Facility. As of March 31, 2003, $7,807,000 had been borrowed under the line of credit, accruing interest at 4.5% per year, excluding amortization of prepaid financing costs. A ten percent increase in the short-term borrowing rates on the Credit Facility outstanding as of March 31, 2003 would be 45 basis points. Such an increase in interest rates would increase our annual interest expense by approximately $35,000 assuming the amount of debt outstanding remains constant.

The above sensitivity analysis for interest rate risk excludes accounts receivable, accounts payable and accrued liabilities because of the short-term maturity of such instruments. The analysis does not consider the effects this movement may have on other variables including changes in revenue volumes that could be indirectly attributed to changes in interest rates. The actions that Management would take in response to such a change are also not considered. If it were possible to quantify this impact, the results could well be different than the sensitivity effects shown above.

Item 4. Controls and Procedures

With the participation of Management, the Company’s chief executive officer and chief financial officer reviewed and evaluated the Company’s disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended as of a date within 90 days prior to the filing of this report. Based on this evaluation, the chief executive officer and chief financial officer concluded that the disclosure controls and procedures are effective in bringing to their attention on a timely basis information relating to the Company and its consolidated subsidiaries in connection with the Company’s filing of its quarterly report on Form 10-Q for the period ended March 31, 2003. There have been no significant changes in the Company’s internal controls for financial reporting or in other factors that could significantly affect these controls, including any significant deficiencies or material weaknesses of internal controls that would require corrective action. In connection with the new rules, the Company is currently in the process of further reviewing and documenting the disclosure controls and procedures, including its internal accounting controls, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.

PART II. Other Information

Item 1. Legal Proceedings

From time to time, the Company is involved in various legal proceedings arising in the ordinary course of business. The Company is currently party to legal proceedings that have been reserved for, are covered by insurance, or that, if determined adversely to us individually or in the aggregate, would not have a material affect on the Company’s results of operations.

Engineered Carbons, Inc. filed a claim in 2000 against the Company in the 60^th District Court of Jefferson County, Texas, alleging failure of contractual performance purportedly caused by faulty design. The claim is covered by the Company’s errors and omissions insurance. The Company has further reserved $100,000, the amount of its deductible under such insurance. This litigation remains pending and is in the discovery phase. Engineered Carbons has yet to specify the relief that it is seeking in the litigation.

The Company recently resolved a prior claim filed in 2000 by Arch Chemicals, Inc. in the 14^th District Court of the Parish of Calcasieu, Louisiana, alleging failure of contractual performance purportedly by faulty design. On April 26, 2003 a jury found that both Arch and the Company were concurrently negligent and required that the Company pay $17,740 to Arch, including interest. The jury verdict is subject to appeal by both the Company and Arch.

Item 2. Changes in Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

a. Exhibits


10.70		Lease Agreement between PEI Investments and Petrocon Engineering, dated July 1, 2002.

10.71		Copyright registration for PETRODOCS software.

99.9		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act for 2002 for the First Quarter 2003.

99.10		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act for 2002 for the First Quarter 2003.

b. Form 8-K

None.

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.

ENGlobal Corporation

Dated: May 13, 2003

By:

/s/ Robert W. Raiford

Robert W. Raiford, Chief Financial Officer and Treasurer

EX-10.70 3 dex1070.txt LEASE AGREEMENT EXHIBIT 10.70 LEASE AGREEMENT THE STATE OF TEXAS COUNTY OF JEFFERSON This lease, made in duplicate, this , between PEI ----------------------- Investments of Jefferson County, Texas, hereinafter called "Lessor" and Petrocon Engineering, Inc. hereinafter called "Lessee". W I T N E S S E T H : I Lessor, in consideration of the covenants and agreements to be performed by Lessee, hereinafter stated, does hereby lease and demise unto lessee certain space in the office building situated at 3155 Executive Blvd. in Beaumont, Jefferson County, Texas. That certain space described as follows, to-wit: Floor space of Suite Nos. 100(partial) 102sf $ 107.10 200 1047 1099.35 120, 210(p), 216(p) 3789 3849.45 203 552 632.00 216(partial) 1029 1080.45 215 678 711.90 219 230 241.50 222 1540 1617.00 230 898 942.90 ---- ---------- 9865sf $10,281.65 and containing approximately (plus or minus) 9865 square feet of floor space, respectively, to be used and occupied by Lessee as business offices and for no other purpose. TO HAVE AND TO HOLD the said leased premises and to the said Lessee for the term beginning the 1st day of July 2002 and ending the 30th day June 2005. This lease is conditioned upon the following agreements and covenants to be kept and performed by the parties hereto: II In consideration for the lease, Lessee promises and agrees to pay Lessor, at Lessor's office in the aforesaid building, located as aforesaid in the City of Beaumont, Jefferson County, Texas, in lawful money of the united States of America, the monthly rental of 1 TEN THOUSAND AND TWO HUNDRED AND EIGHTY ONE DOLLARS AND 65 CENTS ($10,281.65) being an annual rental of ONE HUNDRED AND TWENTY THREE THOUSAND AND THREE HUNDRED AND SEVENTY NINE DOLLARS AND 80 CENTS ($123,379.80) said monthly installments of rental to be paid in advance without demand on the 1st day of each and every calendar month during the full term hereof. III LESSOR AGREES AS FOLLOWS: For the aforesaid consideration Lessor will furnish Lessee while occupying the premises lawn maintenance, building maintenance, utilities (electric, water, sewer), janitorial service, supplies (toilet tissue, paper towels, soap, and trash liners), garbage service, and shall furnish in the manner and to the extent deemed by Lessor to be standard; but failure by Lessor to any extent to furnish, or any stoppage of, these defined services, resulting from causes beyond the control of Lessor, or from any other cause, shall not render Lessor liable in any respect for damages to either person or property, nor be construed as an eviction of Lessee, nor work and abatement of rent, nor relieve Lessee from fulfillment of any covenant or agreement hereof, should any equipment or machinery break down, or for any cause cease to function properly, Lessor shall use reasonable diligence to repair the same promptly, but Lessee shall have no claim for or rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. If Lessor is unable to furnish said services on a timely basis, Lessee may, upon three days written notice, proceed with furnishing said services to Lessor's account at Lessor's cost. IV LESSEE AGREES AS FOLLOWS: 1. To pay all rents and sums provided to be paid to Lessor hereunder at the times and in the manner herein provided. 2. Lessee will, at Lessee's own cost and expense, repair or replace any damage or injury done to the building, or any part thereof, caused by Lessee or Lessee's agents, employees, invitees or visitors. If Lessee fails to make such repairs or replacements promptly, or within fifteen (15) days of occurrence, Lessor may, at its option, make such repairs or replacements, and Lessee shall repay the cost thereof to Lessor on demand. Lessee will not commit or allow any waste or damage to be committed on any portion of the demised premises, and shall, at the termination of this lease, by lapse of time or otherwise, deliver up said premises to Lessor in as good condition as at date of possession of Lessee, ordinary wear and tear and damage by fire, windstorm or other elements alone excepted, and upon such termination of lease Lessor shall have the right to reenter and resume possession of the demised premises. 3. Lessee will not assign this lease, or allow the same to be assigned by operation of law or otherwise, or sublet the demised premises, or any part thereof, or use or permit the same to be used for any other purpose than stated herein, or make or allow to be made any alterations or physical additions in or to the demised premise without written consent of Lessor first had and obtained. Any and all such alterations, physical additions, or improvements, when made to the demised premises by Lessee, shall at once become the property of Lessor and shall be surrendered to Lessor upon the termination in any manner of this lease; but this clause shall not apply to movable fixtures or furniture of Lessee. 2 4. Lessee will not occupy or use, or permit any portion of the demised premises to be occupied or used for any business or purpose which is unlawful in part or in whole or deemed to be disreputable in any manner, or extra hazardous, or permit anything to be done which will in any way increase the rate of insurance on said building and/or it contents, and in the event that, by reason of acts of Lessee, there shall be any increase in rate of the insurance on the building or its contents created by Lessee's acts or conduct of business, then Lessee hereby agrees to pay such increase. 5. Lessee will keep and maintain the demised premises in a clean and healthful condition and comply with all laws, ordinances, orders, rules and regulations (State, Federal, municipal, and other agencies or bodies having any jurisdiction thereof) with reference to use, conditions, or occupancy of the demised premises. 6. Lessee will indemnify and save harmless Lessor of and from any and all fines, suits, claims, demands, and actions of any kind by reason of any breach, violation, or non-performance of any condition herein on the part of each party, its agents or employees. Lessee will become familiar with the demised premises, and acknowledge that the same are received by Lessee in good state of repair, accepted by Lessee in the condition in which they shall be when ready for occupancy. 7. Lessee and Lessee's agents, employees, invitees and visitors will comply fully with all requirements of rules of the building which are printed below and made a part hereof as though fully set out herein. Lessor shall at all times have the right to change such rules and regulations or to amend them in any reasonable manner as may be deemed advisable by Lessor for the safety, care and cleanliness of the demised premises and for preservation of good order therein, all of which changes and amendments will be sent by Lessor to Lessee in writing and shall be thereafter carried out and observed by Lessee. 8. Lessee will permit Lessor or its officers, agents or representatives the right to enter into and upon any and all parts of the demised premises, at all reasonable upon reasonable advance notice, hours to inspect same or clean or make repairs or alterations or additions, as Lessor may deem necessary or desirable, and Lessee shall not be entitled to any abatement or reduction of rent by reason thereof. 9. Lessee will conduct his business, and control his agents, employees, invitees and visitors in such a manner as not to create any nuisance, or interfere with, annoy, or disturb any other Lessee or Lessor in its management of the building. V LESSOR AND LESSEE MUTUALLY AGREE AS FOLLOWS: 1. If the demised premises shall be taken or condemned in whole or part for any public purpose, then the term of this lease shall, at the option of either party, forthwith cease and terminate, and Lessor shall not be liable or responsible for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition or order of governmental body or authority, or other matter beyond the control of Lessor or for any damage or inconvenience which may arise through repair or alteration of any part of the building, or failure to make any such repairs, or from any cause whatever, unless caused solely by Lessor's gross negligence. 2. In consideration of the mutual benefits arising under this contract, Lessee does hereby mortgage unto Lessor all property of Lessee hereafter placed in or upon the demised premises (except such part of any property or merchandise as may be exchanged, replaced or sold from time to time in ordinary course of operations or trade), 3 and such property is hereby subjected to a lien in favor of Lessor and shall be and remain subject to such lien of Lessor for payment of all rents and other sums agreed to be paid by Lessee herein. Said liens shall be in addition to and cumulative of the landlord's liens provided by law. 3. If the demised premises be abandoned or vacated by Lessee, Lessor shall have the right, but not the obligation, to relet same for the remainder of the period covered hereby; and if the rent received through such reletting is not at least equal to the rent provided for hereunder, Lessee shall pay and satisfy any deficiencies between the amount of the rent called for herein and that received through reletting, and all expenses incurred by any such reletting, including, but not limited to, the cost of renovating, altering, and decorating for a new occupant. Nothing herein shall be construed as in any way denying Lessor the right, in case of abandonment, vacation of premises, or other breach of this contract by Lessee, to treat the same as an entire breach and at Lessor's option immediately sue for the entire breach of this contract and any and all damages occasioned by Lessor thereby. 4. In case of holding over by Lessee after expiration or termination of this lease, Lessee will pay as liquidated damages 125% of rent for the entire holdover period. No holding over by Lessee after the term of this lease, either with or without consent and acquiescence of Lessor shall operate to extend the lease for a longer period than one (1) month; and any holding over with the consent of Lessor in writing shall thereafter constitute this lease a lease from month to month. 5. Lessee shall, in case of fire, give immediate notice thereof to Lessor. In the event of damage by fire or other causes resulting from fault or negligence of Lessee or Lessee's agents, employees, invitees or visitors, the same shall be repaired by and at the expense of Lessee under the direction and supervision of Lessor. If the demised premises, without fault or neglect of Lessee, his agent, employees, invitees or visitors, shall be partially destroyed by fire or other casualty so as to render the premises untenantable, the rental herein recited shall cease thereafter until such time as the demised premises are made tenantable by Lessor. In case of the total destruction of the demised premises without fault or neglect of Lessee, his agents, employees, invitees, or visitors, or if from such cause the same shall be so damaged that Lessor shall decide not to rebuild, then all rental due up to the time of such destruction or termination shall be paid by Lessee, and thenceforth this lease shall cease and come to an end. 6. In case Lessee makes default in the performance of any of the terms, covenants, agreements or conditions contained in this lease and Lessor places the enforcement of this lease, or any part thereof, or the collection of any rent due, or to become due hereunder, or recovery of the possession of the demised premises in the hands of an attorney, or files suit upon the same, Lessee agrees to pay Lessor reasonable attorney's fees and payment of the same shall be secured in like manner as is herein provided, as to security for rent. 7. This agreement may not be altered, changed, or amended, except by an instrument in writing, signed by both parties hereto. 8. Lessor shall have the right to transfer and assign, in whole or in part, all and every feature of its right and obligations hereunder and in building and property referred to herein. Such transfers or assignments may be made either to a corporation, trust company, individual or group of individuals, and, howsoever made, are to be in all things respected and recognized by Lessee. 9. Default on the part of Lessee in paying said rent or any installment thereof, as hereinabove provided, or default on Lessee's part in keeping or performing any other term, covenant, or condition of this lease, shall authorize Lessor, at it's option at any time after such default, and after ten (10) days' written notice thereof to Lessee, to declare this lease terminated, and upon the occurrence of any one (1) or more of such defaults Lessor immediately, or at any time thereafter, may reenter said premises and remove all persons 4 therefrom with or without legal process, and without prejudice to any of its other legal rights, and all claims for damages by reason of such reentry are expressly waived, as also are all claims for damages by reason of any distress warrant or proceedings by way of sequestration which Lessor may employ to recover said rents, or possessions of said premises; provided, that Lessor shall not have the right to declare this lease terminated if, within ten (10) after notice of any default, Lessee fully cures all defaults. 10. Failure of Lessor to declare any default immediately upon occurrence thereof or delay in taking any action in correction therewith shall not waive such default, but Lessor shall have the right to declare any such default at any time and take such action as might be lawful or authorized hereunder, either in law or in equity. 11. If, for any reason, the demised premises shall not be ready for occupancy by Lessee at the time of commencement of this lease, this lease shall not be affected thereby, nor shall Lessee have any claim against Lessor by reason thereof, but no rent shall be payable for the period during which the premises shall not be ready for occupancy; and all claims for damages arising out of such delay are waived and released by Lessee. 12. If voluntary bankruptcy proceedings be instituted by Lessee, or if proceedings be instituted by anyone else to adjudge Lessee a bankrupt, or if Lessee makes an assignment, for the benefit of its creditors, or if execution be issued against it, or if the interest of Lessee in this contract pass by operation of law to any persons other than Lessee, this lease may, at the option of Lessor, be terminated by notice addressed to Lessee, and mailed in the Post Office in Beaumont, Texas. 13. This lease shall also inure to the benefit of the successors and assigns of Lessor, and with the written consent of Lessor first had and obtained, but not otherwise, which consent shall not be withheld unreasonalby, to the benefit of the heirs, executors and/or administrators, successors and assigns of Lessee. 14. When this lease contract is executed by more than one (1) person it shall be construed as though Lessee were written "Lessees" and the words in their number were changed to correspond; and pronouns of the masculine gender, whenever used herein shall include persons of the female sex, and corporations and associations of every kind and charter. VI BUILDING RULES AND REGULATIONS In further consideration of this lease the Lessee agrees to at all times comply with and be bound by the following Building Rules and Regulations. 1. The sidewalks, areas, entrances, passages and vestibules, corridors, halls, and stairways shall not be encumbered or obstructed by any of the Lessees or be used by them for any purpose other than for ingress and egress to and from their respective offices. 2. No sign, advertisement or notice shall be painted or affixed on or to any of the windows or doors, or on or to any part of the outside or inside of said building, except of such color, size and style and in such places, upon or in said buildings, as shall be first approved in writing by the Lessor or its agents. No nails, hooks or screws shall be driven or inserted in any part of the walls, ceiling, iron, stone or woodwork of said building nor shall any part thereof be defaced by said Lessee, their agents or servants. 5 Directories will be placed in conspicuous places in said building at the expense of the Lessor, whose painters must be employed by Lessee for other work, unless otherwise consented to by the Lessor in writing. In case of breakage the Lessor will not be responsible for signs lettered on doors or windows. 3. No Lessee shall do or permit anything to be done in or about said premises, or keep anything therein which will in any way increase the rate of fire insurance on said building, or on property kept therein, or obstruct or interfere with the rights of, or otherwise injure or annoy, other Lessees, or conflict with the laws relating to fires or with the regulations of the Fire Department, or with any insurance policy upon said building or any part thereof, or conflict with any of the rules and ordinances of the City of Beaumont, or any other of the Departments of the City or County of Jefferson or State of Texas. 4. Lessor shall have the power to prescribe the weight and position of iron safes admitted, and they shall in all cases stand on two-inch (2") thick plank strips to distribute the weight, and all damage done to the building by taking in or putting out a safe, or during the time it is on the premises, shall be repaired at the expense of the Lessee. Lessee must notify the Lessor when safes are to be taken out of the building; and the moving must be done under the supervision of the Lessor by permit from the owners of the building, and the persons employed to move the safes in and out of the building must be acceptable to the Lessor. No freight, furniture, packages, or bulky matter of any description will be received in the building or carried up or down the stairways except in the manner and at the time specified by the Lessor or its agents. 5. Lessees shall keep premises leased by them in reasonably neat condition and permit no uncleanliness or nuisance, and shall allow the janitor of said building to clean the said premises. The Lessor shall be in no way responsible to Lessees for any loss of property from the premises leased by them or for any damage thereto from whatsoever cause said loss or damage may arise. 6. Additional conditions: Addendum A is attached and is included as a part of this agreement. IN WITNESS WHEREOF, the said Lessor has caused these presents to be executed by its proper officer or agent, and the said Lessee has hereunto set his, or its, hand the day and year first above written. PEI Investments Petrocon Engineering, Inc. By: /s/ M. L. Burrow By: /s/ Ronald L. Blanton --------------------- ------------------------- Lessor Lessee Dated: 7/24/2002 6 AUTHORIZATION FOR SIGNATURE LEASE AGREEMENT FOR 3155 EXECUTIVE BLVD., BEAUMONT, TEXAS I hereby consent, and grant permission, for M. L. Burrow to sign the above-referenced lease agreement in which the lease will be modified to begin July 1, 2002 and last for a three-year period. By signing below, I verify my agreement to the terms and conditions of the lease and agree to the above modification. /s/ Robert W. Raiford --------------------------- Robert W. Raiford, CFO ENGlobal Corporation ADDENDUM A This agreement is modified as stated herein and this Addendum supersedes or supplements the original paragraphs. V-2 This paragraph is deleted in its entirety to provide a claim or lien on property of Lessee. This applies to equipment presently mortgaged to financial institutions, as well as any other equipment to be added or further equipment loans. Lessee shall also have the right to remove property and equipment from the building as a normal course of doing business. Added Official notice for this lease agreement shall be mailed to: PETROCON ENGINEERING, INC. P.O. Box 20397 Beaumont, Texas 77720 Attn: J. N. Carpenter PEI INVESTMENTS P.O. Box 20931 Beaumont, Texas 77720 Attn: R. L. Blanton Agreed /s/ M. L. Burrow /s/ Ronald L. Blanton ----------------------------- ----------------------------- Petrocon Engineering, Inc. PEI Investments AUTHORIZATION FOR SIGNATURE LEASE AGREEMENT FOR 3155 EXECUTIVE BLVD., BEAUMONT, TEXAS I hereby consent, and grant permission, for M. L. Burrow to sign the above-referenced lease agreement in which the lease will be modified to begin July 1, 2002 and last for a three-year period. By signing below, I verify my agreement to the terms and conditions of the lease and agree to the above modification. /s/ William A. Coskey ---------------------------- William A. Coskey, President ENGlobal Corporation 7/2/2002 EX-10.71 4 dex1071.txt COPYRIGHT REGISTRATION EXHIBIT 10.71 FORM TX [GRAPHIC] CERTIFICATE OF REGISTRATION For a Nondramatic Literary Work UNITED STATES COPYRIGHT OFFICE This Certificate issued under the seal of the Copyright ---------------------------------------------------- Office in accordance with title 17, United States Code, attests that registration has been made for the work TXu 1-075-739 identified below. The information on this certificate has ---------------------------------------------------- been made a part of the Copyright Office records. EFFECTIVE DATE OF REGISTRATION [GRAPHIC] /s/ Marybeth Peters 8 21 02 -------------------------- Month Day Year OFFICIAL SEAL REGISTER OF COPYRIGHTS ---------------------------------------------------- United States of America DO NOT WRITE ABOVE THIS LINE. IF YOU NEED MORE SPACE, USE A SEPARATE CONTINUATION SHEET. ==================================================================================================================================== 1 TITLE OF THIS WORK PETRODOCS ------------------------------------------------------------------------------------------------------------------------ PREVIOUS OR ALTERNATIVE TITLES ------------------------------------------------------------------------------------------------------------------------ PUBLICATION AS A CONTRIBUTION If this work was published as a contribution to a periodical, serial, or collection, give information about the collective work in which the contribution appeared. Title of Collective Work ------------------------------------------------------------------------------------------------------------------------ If published in a periodical or serial give: Volume Number Issue Date On Pages ==================================================================================================================================== 2 NAME OF AUTHOR DATES OF BIRTH AND DEATH Year Born Year Died a PETROCON ENGINEERING, INC. ----------------------------------------------------------------- ---------------------------------------------------- Was this contribution to the AUTHOR'S NATIONALITY OR DOMICILE WAS THIS AUTHOR'S CONTRIBUTION TO work a "work made for hire"? Name of Country THE WORK If the answer to either [X] Yes Citizen of USA Anonymous? [ ] Yes [ ] No of these questions is OR "Yes," see detailed [ ] No Domiciled in BEAUMONT, TEXAS Pseudonymous? [ ] Yes [ ] No instructions. ------------------------------------------------------------------------------------------------------------------------ NOTE NATURE OF AUTHORSHIP Briefly describe nature of material created by this author in which copyright is claimed. COMPUTER PROGRAM Under the ======================================================================================================================== law, the b NAME OF AUTHOR DATES OF BIRTH AND DEATH "author" Year Born Year Died of a "work ----------------------------------------------------------------- ---------------------------------------------------- made for Was this contribution to the AUTHOR'S NATIONALITY OR DOMICILE WAS THIS AUTHOR'S CONTRIBUTION TO hire" is work a "work made for hire"? Name of Country THE WORK If the answer to either generally [X] Yes Citizen of Anonymous? [ ] Yes [ ] No of these questions is the OR ------------------ "Yes," see detailed employer, [ ] No Domiciled in Pseudonymous? [ ] Yes [ ] No instructions. not the ---------------- employee ------------------------------------------------------------------------------------------------------------------------ (see NATURE OF AUTHORSHIP Briefly describe nature of material created by this author in which copyright is claimed. instruct- ions). ======================================================================================================================== For any c NAME OF AUTHOR DATES OF BIRTH AND DEATH part of Year Born Year Died this work ----------------------------------------------------------------- ---------------------------------------------------- that was Was this contribution to the AUTHOR'S NATIONALITY OR DOMICILE WAS THIS AUTHOR'S CONTRIBUTION TO "made for work a "work made for hire" ? Name of Country THE WORK If the answer to either hire" [X] Yes Citizen of Anonymous? [ ] Yes [ ] No of these questions is check OR ------------------ "Yes," see detailed "Yes" in [ ] No Domiciled in Pseudonymous? [ ] Yes [ ] No instructions. the space ---------------- provided, ------------------------------------------------------------------------------------------------------------------------ give the NATURE OF AUTHORSHIP Briefly describe nature of material created by this author in which copyright is claimed. employer (or other person for whom the war was prepared) as "Author" of that part and leave the space for dates of birth and death blank. ==================================================================================================================================== 3 a YEAR IN WHICH CREATION OF THIS b DATE AND NATION OF FIRST PUBLICATION OF THIS PARTICULAR WORK WORK WAS COMPLETED This information Complete this information Month Day Year 1998 Year must be given ONLY if this work ----------- -------- ------------ in all cases. has been published. Nation --------------------------------------------- ==================================================================================================================================== 4 COPYRIGHT CLAIMANT(S) Name and address must be given even if APPLICATION RECIEVED the claimant is the same as the author given in space 2. Aug 21 2002 PETROCON ENGINEERING, INC. ONE DEPOSIT RECEIVED See P.O. BOX 20397 Aug 21 2002 instruct- BEAUMONT, TX 77720 ions before ----------------------------------------------------------------- TWO DEPOSIT RECEIVED completing TRANSFER If the claimant(s) named here in space 4 is (are) this space. different from the author(s) named in space 2, give a brief statement of how the claimant(s) obtained ownership of the FUND RECEIVED copyright. DO NOT WRITE HERE OFFICE USE ONLY ==================================================================================================================================== MORE ON BACK . Complete all applicable spaces (numbers 5-9) on the reverse side of this page. DO NOT WRITE HERE

==================================================== EXAMINED BY FORM TX /s/ Illegible ---------------------------------------------------- CHECKED BY ======================================= FOR CORRESPONDENCE COPYRIGHT OFFICE [X] USE Yes ONLY ==================================================== DO NOT WRITE ABOVE THIS LINE. IF YOU NEED MORE SPACE, USE A SEPARATE CONTINUATION SHEET. ==================================================================================================================================== PREVIOUS REGISTRATION Has registration for this work, or for an earlier version of this work, already been made in the 5 Copyright Office? [ ] Yes [X] No If your answer is "Yes," why is another registration being sought? (Check appropriate box). a. [ ] This is the first published edition of a work previously registrated in unpublished form. b. [ ] This is the first application submitted by this author as copyright claimant. c. [ ] This is the changed version of the work, as shown by space 6 on this application. If your answer is "Yes," give: Previous Registration number Year of Registration ==================================================================================================================================== DERIVATIVE WORK OR COMPILATION 6 Preexisting Material Indentify any preexisting work or works that this work is based on or incorporates. a FOXPRO See ======================================================================================================================= instructions Material Added to This Work Give a brief, general statement of the material that has been added to this work and in before which copyright is claimed. completing this space. b ==================================================================================================================================== DEPOSIT ACCOUNT If the registration fee is to be charged to a Deposit Account established in the Copyright Office, 7 give name and number of Account. Name Account Number a - ----------------------------------------------------------- ---------------------------------------------------------- ======================================================================================================================= CORRESPONDENCE Give name and address to which correspondence about this application should be sent. Name/Address/Apt/ City/State/ZIP b OLAN B. WEEKS, P.E. P.O. BOX 20397 BEAUMONT, TX 77720 Area code and daytime telephone number Fax number Email ==================================================================================================================================== CERTIFICATION* I, the undersigned, hereby certify that I am the [ ] author 8 [ ] other copyright claimant Check only one [ ] owner of exclusive right(s) [X] authorized agent of PETROCON ENGINEERING, INC. -------------------------- Name of author or other copyright claimant, or owner of exclusive right(s) - ----------------------------------------------------------------------------------------------------------------------- Typed or printed name and date If this application gives a date of publication in space 3, do not sign and submit it before that date. OLAN B. WEEKS Date 07/25/2002 - ----------------------------------------------------------------------------------------------------------------------- Handwritten signature (X) X /s/ Olan B. Weeks ------------------------- ==================================================================================================================================== YOU MUST: 9 ------------------------------------------------------------------- . Complete all necessary spaces Certificate Name . Sign your application in space 8 will be OLAN B. WEEKS mailed in ------------------------------------------------------------------- SEND ALL 3 ELEMENTS window Number/Street/Apt IN THE SAME PACKAGE: envelope P.O. BOX 20397 1. Application form to this ------------------------------------------------------------------- 2. Nonrefundable filing fee in check As of address: City/State/ZIP or money order payable to July 1, BEAUMONT, TX 77720 Register of Copyrights 1999, the ------------------------------------------------------------------- 3. Deposit material filing fee MAIL TO: for Form TX Library of Congress is $30. Copyright Office 101 Independence Avenue.S.E. Washington, D.C. 20559-6000 ______________ Any person who knowingly makes a false representation of a material fact in the application for copyright registration provided for by section 409, or in any written statement filed in connection _________________________________________

EX-99.9 5 dex999.txt CERTIFICATION - SECTION 906 EXHIBIT 99.9 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with quarterly report on Form 10-Q for ENGlobal Corporation (the "Company") for the period ending March 31, 2003 as filed with the Securities and Exchange Commission, the undersigned certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Michael L. Burrow -------------------------------- Michael L. Burrow, P. E. Chief Executive Officer /s/ Robert W. Raiford -------------------------------- Robert W. Raiford Chief Financial Officer EX-99.10 6 dex9910.txt CERTIFICATION - SECTION 302 EXHIBIT 99.10 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Michael L. Burrow, certify that: 1. I have reviewed this quarterly report on Form 10-Q of ENGlobal Corporation for the three months ended March 31, 2003; 2. Based on my knowledge, this report does not contain any untrue statement of 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 that financial condition, results of operations and cash flows of the ENGlobal as of, and for, the periods presented in this report; 4. ENGlobal's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures and internal controls and procedures for financial reporting (as defined in Exchange Act Rules 13a-14 and 15d-14) for ENGlobal and we have: o 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 issuer, including in consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; o Designed such internal controls and procedures for financial reporting, or caused such internal controls and procedures for financial reporting to be designed under their supervision, to provide reasonable assurances that ENGlobal's financial statements are fairly presented in conformity with generally accepted accounting principles; o Evaluated the effectiveness of ENGlobal's disclosure controls and procedures and internal controls and procedures for financial reporting as of the end of the period covered by this report ("Evaluation Date"); o Presented in this report our conclusions about the effectiveness of the disclosure controls and procedures and the internal controls and procedures for financial reporting based on our evaluation as of the Evaluation Date; o Disclosed to ENGlobal's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal controls and procedures for financial reporting which could adversely affect ENGlobal's ability to record, process, summarize and report financial information required to be disclosed by ENGlobal in the reports that it files or submits under the Act (15 U. S. C. 78a et seq.), within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in ENGlobal's internal controls and procedures for financial reporting; and o Indicated in this report any significant changes in ENGlobal's internal control and procedures for financial reporting or in other factors that could significantly affect internal controls and procedures for financial reporting made during the period covered by this report, including any actions taken to correct significant deficiencies and material weaknesses in ENGlobal's internal controls and procedures for financial reporting. Date: May 8, 2003 /s/ Michael L. Burrow - --------------------------- Michael L. Burrow Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Robert W. Raiford, certify that: 5. I have reviewed this quarterly report on Form 10-Q for the three months ended March 31, 2003 of ENGlobal Corporation; 6. Based on my knowledge, this report does not contain any untrue statement of 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; 7. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects that financial condition, results of operations and cash flows of the ENGlobal as of, and for, the periods presented in this report; 8. ENGlobal's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures and internal controls and procedures for financial reporting (as defined in Exchange Act Rules 13a-14 and 15d-14) for ENGlobal and we have: o 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 issuer, including in consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; o Designed such internal controls and procedures for financial reporting, or caused such internal controls and procedures for financial reporting to be designed under their supervision, to provide reasonable assurances that ENGlobal's financial statements are fairly presented in conformity with generally accepted accounting principles; o Evaluated the effectiveness of ENGlobal's disclosure controls and procedures and internal controls and procedures for financial reporting as of the end of the period covered by this report ("Evaluation Date"); o Presented in this report our conclusions about the effectiveness of the disclosure controls and procedures and the internal controls and procedures for financial reporting based on our evaluation as of the Evaluation Date; o Disclosed to ENGlobal's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal controls and procedures for financial reporting which could adversely affect ENGlobal's ability to record, process, summarize and report financial information required to be disclosed by ENGlobal in the reports that it files or submits under the Act (15 U. S. C. 78a et seq.), within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in ENGlobal's internal controls and procedures for financial reporting; and o Indicated in this report any significant changes in ENGlobal's internal control and procedures for financial reporting or in other factors that could significantly affect internal controls and procedures for financial reporting made during the period covered by this report, including any actions taken to correct significant deficiencies and material weaknesses in ENGlobal's internal controls and procedures for financial reporting. Date: May 8, 2003 /s/ Robert W. Raiford - --------------------------------------- Robert W. Raiford Chief Financial Officer and Treasurer ~~-----END PRIVACY-ENHANCED MESSAGE-----~~

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents