10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

For the fiscal year ended December 31, 2003

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

For the transition period from              to             

Commission File No. 001-14217

ENGlobal Corporation

(Exact name of registrant as specified in its charter)

Nevada	88-0322261
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
600 Century Plaza Drive, Suite 140, Houston, Texas	77073-6033
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (281) 821-7100

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.001 par value	American Stock Exchange

Securities registered pursuant to Section 12(g) of the Exchange Act:

None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shortened period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨    No x

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 2003 was $18,461,710 (based upon the closing price for shares of common stock as reported by the American Stock Exchange on that date).

The number of shares outstanding of the registrant’s common stock on March 16, 2004 is as follows:

$0.001 Par Value Common Stock 24,034,288 shares

DOCUMENTS INCORPORATED BY REFERENCE

Responses to Items 10, 11, 12, and 13 of Part III of this report are incorporated herein by reference to certain information contained in the Company’s definitive proxy statement for its 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 2004.

Transitional Small Business Disclosure Format: Yes ¨    No x

ENGlobal Corporation

2003 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

	PART I
Item 1.	Business	2
Item 2.	Properties	16
Item 3.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
	PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	18
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 8.	Financial Statements and Supplementary Data	30
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	55
Item 9A.	Controls and Procedures	55
	PART III
Item 10.	Directors and Executive Officers of the Registrant	55
Item 11.	Executive Compensation	55
Item 12.	Security Ownership of Certain Beneficial Owners and Management	55
Item 13.	Certain Relationships and Related Transactions	55
Item 14.	Principal Accounting Fees and Services	56
	PART IV
Item 15.	Exhibits, Financial Statements, Schedules and Reports on Form 8-K	56
Signatures		62

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PART I

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (“Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as oral statements made by the Company and its officers, directors or employees, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are based on Management’s beliefs, current expectations, estimates and projections about the industries that the Company and its subsidiaries serve, the economy and the Company in general. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intended to identify such forward-looking statements; however, this Report also contains other forward-looking statements in addition to historical information. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements. The Company cautions readers that the following important factors, among others, could cause the Company’s actual results to differ materially from the forward-looking statements contained in this Report: (i) the effect of changes in laws and regulations with which the Company must comply, and the associated costs of compliance with such laws and regulations, either currently or in the future, as applicable; (ii) the effect of changes in accounting policies and practices as may be adopted by regulatory agencies, as well as by the Financial Accounting Standards Board; (iii) the effect of changes in the Company’s organization, compensation and benefit plans; (iv) the effect on the Company’s competitive position within its market area of the increasing consolidation within its services industries, including the increased competition from larger regional and out-of-state engineering services organizations; (v) the effect of increases and decreases in oil prices; (vi) the inability to get parts from vendors; (vii) our inability to renew our line of credit; (viii) our ability to identify attractive acquisition candidates, consummate acquisitions on terms that are favorable to the Company and integrate the acquired businesses into the Company’s operations; and (ix) the effect of changes in the business cycle and downturns in local, regional and national economies. The Company cautions that the foregoing list of important factors is not exclusive. We are under no duty and have no plans to update any of the forward-looking statements after the date of this Report to conform such statements to actual results.

The following summary is qualified in its entirety by, and should be read in connection with the more detailed information contained herein and in the Company’s Consolidated Financial Statements, and the Notes thereto, included elsewhere in this Report.

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Item 1.    Business

General

ENGlobal Corporation (which may be referred to as “ENGlobal,” the “Company,” “we,” “us” or “our”) is a leading provider of engineering services and systems principally to the petroleum refining, petrochemical, pipeline, production and process industries throughout the United States and internationally. The services provided by our multi-disciplined staff span the lifecycle of a project and include feasibility studies, design, procurement and construction management. We also supply automation, control, and uninterruptible electrical power systems to our clients worldwide.

The Company was incorporated as Industrial Data Systems Corporation in the State of Nevada in June 1994. In December 2001, we merged with Petrocon Engineering, Inc. and in June 2002, we changed the name of the Company from Industrial Data Systems Corporation to ENGlobal Corporation. Effective June 16, 2002, the Company’s trading symbol for its common stock, traded on the American Stock Exchange, changed from IDS to ENG.

Since 1999, our net revenue has grown by a compound annual growth rate of 192% and our net income has grown at a compound annual growth rate of 161%. We have accomplished this growth by expanding our service offerings and geographic presence through a series of strategic acquisitions and through internal growth. We now have offices strategically located in Houston, Beaumont and Freeport, Texas, Baton Rouge and Lake Charles, Louisiana and Tulsa, Oklahoma.

The Company streamlined its organizational structure and increased name recognition in 2003. As part of the restructuring, the Company sold selected assets of its manufacturing segment and reorganized the subsidiaries in its two remaining segments: the engineering segment and the systems segment. In addition, substantially all of the Company’s wholly-owned subsidiaries adopted the ENGlobal name.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). You can read and copy any materials filed with the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information about the operations of the SEC Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains information we file electronically with the SEC, that can be accessed over the Internet at www.sec.gov. Our common stock is listed on the American Stock Exchange (AMEX: ENG), and you can obtain information about ENGlobal at the offices of the American Stock Exchange, 86 Trinity Place, New York, New York 10006-1872 or at their website www.amex.com.

ENGlobal Website

You can find financial and other information about ENGlobal at the Company’s website at the URL address www.englobal.com. Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are provided free of charge through the Company’s website and are available as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

Information relating to corporate governance at ENGlobal, including our Code of Business Conduct and Ethics for all of our Directors and employees, including our Chief Executive Officer and Chief Financial Officer; and information concerning our Directors, and our Board Committees, including Committee charters, and transactions in ENGlobal securities by Directors and officers, is available on our website at www.englobal.com under the Investor Relations caption. We will provide any of the foregoing information without charge upon written request to Investor Relations Officer, ENGlobal Corporation, 600 Century Plaza Drive, Building 140, Houston, Texas 77073-6033.

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Business Segments

During 2003, we operated three business segments: engineering (previously referred to as engineering services), systems (previously referred to as engineered systems) and manufacturing. The manufacturing segment was reclassified as a discontinued operation due to the December 2003 sale of certain assets of the Company’s wholly-owned subsidiary, Thermaire, Inc. d/b/a Thermal Corporation. The respective contributions to our total sales in 2003, 2002 and 2001 for the engineering segment and the systems segment are summarized below.

	Percentage of Sales
	2003		2002		2001
Segment:(1)
Engineering	87.6	%	84.1	%	79.9	%
Systems	12.4	%	15.9	%	20.1	%
	100.0	%	100.0	%	100.0	%

(1) Does not include manufacturing segment which was sold in December 2003.

Engineering

	2003		2002		2001
	(amounts in thousands)
Revenues to external customers	$	108,380	$	74,971	$	14,235
Operating profit	$	4,575	$	937	$	1,571
Total assets	$	35,531	$	30,615	$	31,163

General

Our engineering segment offers engineering consulting services to clients in the petroleum refining, petrochemical, pipeline, production and process industries for the development, management and turnkey execution of engineering projects and provides inspection services throughout the United States. The engineering segment is currently comprised of the following wholly-owned subsidiaries of ENGlobal Corporation: ENGlobal Engineering, Inc. (“EEI”), RPM Engineering, Inc. d/b/a ENGlobal Engineering, Inc. (“RPM”) and ENGlobal Construction Resources, Inc. (“ECR”). EEI and RPM focus primarily on providing services to the downstream petroleum refining and petrochemical industry, including refineries and processing plants, upstream and midstream pipeline companies and gas plants. ECR primarily provides inspection services to industrial plants throughout the United States.

The engineering segment has approximately 70 existing blanket service contracts pursuant to which it provides clients either with services on a time and materials basis or with services on a fixed fee, turnkey basis. Our engineering segment operates out of offices in Baton Rouge and Lake Charles, Louisiana; Beaumont, Houston and Freeport, Texas; and Tulsa, Oklahoma. Our engineering segment also makes unique, custom-made metering skids and other process related fabricated systems, designed to customer specifications.

During 2002 and 2003, the engineering segment continued to grow geographically throughout the United States and into international markets and increased the range of services it provides. As part of our plan to extend our geographical range to serve the downstream industries, such as the petroleum refining, petrochemical and process industries in the Freeport Texas area, ENGlobal acquired selected assets of Petro-Chem Engineering, Inc. (“Petro-Chem”). Petro-Chem has a staff of 55 engineers, designers, inspectors and support personnel who are engaged on contract projects with several Freeport area clients. This acquisition allowed us to expand into the Freeport area with experienced staff who have an established reputation for expertise. The Freeport office currently provides on-site engineering, design and support personnel to a leading chemical client that has facilities in Freeport and Port Arthur, Texas and Geismar, Louisiana.

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Our engineering segment offers its expertise to a broad range of industrial clients. We participate in projects involving both the modification of existing facilities and construction of new facilities. Our predominant type of contract is a blanket services contract that typically provides our clients with engineering, procurement and project management services on a time and materials basis. We also enter into contracts to complete capital projects on a full service, turnkey basis. The engineering staff has the capability of developing a project from the initial planning stages through the detailed design and construction management. Services that we provide include:

• conceptual studies,

• project definition,

• cost estimating,

• engineering design,

• material procurement, and

• project and construction management.

We provide services for major energy-related firms at facilities such as chemical plants, crude oil refineries, electric power generation facilities, cross-country pipelines, pipeline facilities and production processing facilities.

The engineering segment seeks to offer its clients a wide range of services from a single source provider. In addition, the segment uses an internal virtual private network so that the employees in one location can work on projects housed in other offices. This capability allows us to provide a greater depth and breadth of expertise to our clients and helps stabilize the workload in our various offices.

Competition

Our engineering segment competes with a large number of firms of various sizes, ranging from the industry’s largest firms, which operate on a worldwide basis, to much smaller regional and local firms. Typical engineering segment competitors include (in alphabetical order): CDI Engineering Group, Jacobs Engineering Group, Matrix Engineering, Mustang Engineering, S&B Engineering, SNC Lavilan GDS, Inc. and TAG. Many of our competitors are larger than we are and have significantly greater financial and other resources available to them than we do.

Competition is primarily centered on performance and the ability to provide the engineering, planning and project execution skills required to complete projects in a timely and cost efficient manner. The technical expertise of our management team and technical personnel and the timeliness and quality of our support services, are key competitive factors. Larger projects, especially international work, typically include pricing alternatives designed to shift risk to the service provider, or at least to cause the service provider to share a portion of the risks associated with cost overruns in service delivery. These alternatives include fixed-price, guaranteed maximum price, incentive fee, competitive bidding and other “value based” pricing arrangements.

Systems

	2003			2002			2001
	(amounts in thousands)
Revenues to external customers	$	15,339		$	14,151		$	3,575
Operating (loss)	$	(803	)	$	(271	)	$	(65	)
Total assets	$	3,913		$	6,186		$	2,587

General

Our systems segment designs, assembles, programs, installs, integrates and services control and instrumentation systems for specific applications in the energy and processing related industries. The systems

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segment currently consists of the following five wholly-owned subsidiaries of ENGlobal Corporation: ENGlobal Systems, Inc. (“ESI”), ENGlobal Constant Power, Inc. (“ECP”), ENGlobal Technologies, Inc. (“ETI”), Senftleber & Associates L.P. (“Senftleber”) and ENGlobal Design Group (“EDG”).

ESI’s control and instrumentation systems are custom designed and include both conventional pneumatic and hydraulic control systems, as well as electronic, microprocessor-based controls employing programmable logic. Typical applications for control and instrumentation systems include oil and gas production safety systems; refinery, petrochemical and chemical plant controls; analyzer packaging; fire and gas detection systems; pipeline facility controls; data acquisition systems; and control systems for various processing equipment. We perform all facets of control and instrumentation system design, engineering, assembly and testing in-house. Field installation and technical staff perform start-up and commissioning services, modifications to existing systems, on-site training and routine maintenance procedures for client operating personnel.

ECP operates in the industrial electrical power backup and conditioned power systems marketplace and fabricates industrial grade uninterruptible electrical power systems and battery chargers. Both standard and custom-designed products and systems are fabricated and sold in a wide array of power ranges. These products include:

• battery chargers,

• battery monitoring systems,

• DC power supplies,

• DC/AC inverters,

• uninterruptible power systems (“UPS”), and

• power distribution systems and solar photo-voltaic systems.

In addition, ECP provides field service support for installation and maintenance of the foregoing products. Most of the products are made pursuant to specifications required for a particular order. Refineries, petrochemical plants, pipeline facilities, utilities, offshore platforms and other commercial, industrial and governmental facilities across the United States utilize the products sold by ECP. ECP’s USGS Intellicharger^™ product line of microprocessor controlled battery chargers has been used as an integral component in major power systems and is now included in a majority of ECP system units that contain battery chargers.

ETI, a wholly-owned subsidiary that was not operational prior to 2003, provides products and services supporting the advanced automation and environmental technology fields. Advanced automation services provided by ETI include automation technology audits, consulting, advanced process controls and process computer services, multivariable control, optimization (on-line and off-line), neural net applications, operator training simulators, expert systems and on-site support. ETI supports the environmental technology field by providing predictive emissions monitoring (“PEMS”), continuous emissions monitoring system (“CEMS”), Flare-Mon^® (flare monitoring system) and air emissions consulting. In October 2003, ETI acquired a small software services company, Senftleber & Associates, LP, of Houston, Texas, which provides support services for the pipeline industry, primarily through provision of technical personnel with expertise in SCADA (Supervisory Control and Data Acquisition) systems.

In January 2004, ENGlobal Design Group, Inc. acquired certain assets of Engineering Design Group, Inc. (“EDG”) in Tulsa, Oklahoma. EDG provides design, installation and maintenance of various government and public sector facilities, the most active sector being Automated Fuel Handling Systems serving the U.S. military.

Competition

The systems segment has been impacted by an increased emphasis on pricing by our clients and competitors and the fact that prices are subject to variations attributable to cyclical conditions in the oil and gas, petroleum and processing industries. ESI’s control systems and modular facilities compete with similar systems built by

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other companies, most of which compete primarily on the basis of pricing. Typical systems competitors include (in alphabetical order): Aspen Technologies, ICS/Triplex, Puffer Sweiven, PasTech, Scallon Controls, Honeywell and Siemens.

ECP’s market is characterized by a small number of larger companies that dominate the market and a large number of similarly sized companies that compete for a limited share of the market. Companies that compete in the power systems arena are Custom Power, Gutor, LaMarche Mfg., Powerware, SCI and Toshiba.

ETI competes directly with large companies such as Honeywell Hyspec for advanced control consulting. Smaller independent contractors provide low prices but generally do not provide long-term support and backup. Aspen Technologies and James/Magnum Associates are also competitors of ETI. We believe that pricing, technical competence and ability to provide superior service are the primary bases of competition.

Manufacturing

In December 2003, we sold selected assets of our only manufacturing operation, Thermaire, Inc., which was engaged in designing, manufacturing and selling air handling equipment under the Thermal brand name. The 38,000 square foot office and manufacturing facility owned by Thermaire was not included in the sale. The operations formerly conducted by this subsidiary are reflected in this Report as discontinued operations.

Acquisitions and Sales

We have grown our business over the past several years through both internal initiatives and strategic mergers and acquisitions. These mergers and acquisitions have allowed us to (i) expand our client base and the range of services that we provide to our clients; and (ii) gain access to new geographic areas. We expect to continue evaluating and assessing acquisition opportunities to further complement our existing business base. We believe that strategic acquisitions will enable us to more efficiently serve the technical needs of national and international clients and strengthen our financial performance. We will also continue to evaluate and assess current operations and from time to time, sell assets when strategic conditions warrant.

Two acquisitions of operating companies were completed during fiscal 2003. Petro-Chem Engineering, Inc. (“Petro-Chem”), acquired by EEI and Senftleber & Associates, L.P. (“Senftleber”), acquired by ETI, were acquired during the third and fourth quarters, respectively. Petro-Chem operates primarily in the Freeport, Texas and surrounding area. This acquisition primarily provides on-site engineering, design and support personnel to an existing client that has facilities in Freeport and Port Arthur, Texas and Geismar, Louisiana. Senftleber is a Houston-based provider of technical personnel with expertise in software systems such as the SCADA system, a service we believe a number of our clients will be interested in. In January 2004, ENGlobal Design Group, Inc. acquired certain assets of Engineering Design Group, Inc. (“EDG”) in Tulsa, Oklahoma. EDG provides design, installation and maintenance of various government and public sector facilities, the most active sector being Automated Fuel Handling Systems serving the U.S. military. EDG produced revenues of $14.4 million (unaudited) in 2003. The acquisition of these assets expands our capabilities into government-related engineering and significantly increases our operations in the Tulsa market.

In December 2003, we completed the sale of certain assets of our subsidiary, Thermaire, Inc., d/b/a Thermal Corporation, which comprised our manufacturing segment, to Nailor Industries of Texas, Inc., a medium sized HVAC equipment manufacturer. The disposition had been actively pursued since November 2001 in order to permit us to strategically focus on our core operations. The sale resulted in a $26,000 gain, net of tax. The 38,000 square foot office and manufacturing facility owned by Thermaire was not included in the transaction. The Company plans to sell this facility. Information relating to all prior periods throughout this Report treats the manufacturing segment as discontinued and excludes it from continuing operations.

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Business Strategy

Our objective is to strengthen the Company’s position as a leading engineering and consulting services provider while enhancing the services we offer and expanding our geographic presence. To achieve this objective, we have developed a strategy comprised of the following key elements:

• Increase Name Recognition.    To present a more cohesive image and increase name recognition, in January 2003 virtually all of ENGlobal’s operating subsidiaries adopted “ENGlobal” as part of their name.

• Enhance and Strengthen Our Ability to Perform Engineering, Procurement and Construction Projects.    We rely heavily on repeat business and referrals from existing customers, industry members and manufacturing representatives. The engineering segment’s strategy is to increase revenues by developing and marketing its ability to perform full service turnkey projects, also called EPC (Engineering, Procurement and Construction) projects. The engineering segment has traditionally been responsible only for the engineering portion of its projects, which usually represents between five to fifteen percent of a project’s total installed cost.

• Expand and Enhance Technical Capabilities.    We believe that it is important to develop our capabilities in three-dimensional computer-aided design and drafting (“3D CADD”). To achieve this objective, we purchased computer hardware and software during 2003 to implement Integraph’s SmartPlant 3D software, which is the next generation to plant design system. This initiative should enhance our marketing position strategically with many customers along the Texas Gulf Coast. We are also developing and using 3D CADD software tools from other suppliers.

• Improve Utilization of Resources.    We have developed a work-sharing program through the use of an internal virtual private network that gives our clients access to technical resources located in any of our offices and allows for higher utilization of our resources. We believe that the work-sharing program should reduce employee turnover and provide for a more stable work environment. We are also moving toward standardization of engineering processes and procedures among our offices, which we believe will enhance our work-sharing ability and provide our clients with more consistent and higher quality services.

• Pursue Foreign Technical Resources.    Our Beaumont engineering office has been testing the use of offshore technical resources to enable it to access professional engineering and design work in lower cost countries such as Mexico, India and the Far East. If these tests are ultimately successful, it will allow us to lower our contract bid prices and enhance our competitive position.

• Acquire Complementary Businesses.    We intend to grow in market segments where we currently have a strong competitive position by acquiring complementary businesses that will permit us to expand or enhance our existing services. The Company hopes to acquire businesses with higher profit margins, such as the Senftleber acquisition, or allows us to provide additional services to our existing client base, or when synergies are likely to result in cost savings. We will also pursue acquisitions that provide entry into industries that we don’t currently serve. For example, in 2003 we acquired Senftleber and selected assets of Petro-Chem, both of which enabled us to expand the services we offer our existing clients. Similarly, the acquisition in January 2004 of the assets of Engineering Design Services, Inc. provides a platform to perform governmental and military projects, a new industry for ENGlobal.

• Maintain High Quality Service.    To maintain high quality service, we focus on being responsive to our customers, working diligently and responsibly and maintaining schedules and budgets. The Company has a quality control and assurance program to maintain standards and procedures for performance and documentation and to audit and monitor compliance with procedures and quality standards.

• Continue to Recruit and Retain Qualified Personnel.    We believe recruiting and retaining qualified, skilled professionals is crucial to our success and growth. As a result, we have dedicated staff focused on recruiting personnel with experience in the petrochemical industry. We have used inter-company recruiting to retain key personnel.

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• Improve the Strategic Focus by Selling Thermaire.    In December 2003, we sold most of the assets used by our subsidiary, Thermaire, Inc. The sale is part of an on-going effort to dispose of assets that we believe detract from our primary area of focus. We are in the process of seeking a buyer for the real property used by Thermaire, which is not currently occupied.

Sales and Marketing

Our various subsidiaries derive revenues primarily from three sources: (1) in-house direct sales; (2) sales generated by our network of sales representatives; and (3) referrals from existing customers, industry members and manufacturing representatives. Our sales representatives are teamed with in-house sales managers and are assigned to industry segments in the United States. Management believes that this method of selling should result in increased account penetration and enhanced customer service, which should, in turn, create and maintain the foundation for long-term customer relationships. Our growth depends in large measure on our ability to attract and retain qualified sales representatives and sales management personnel. Management believes that in-house marketing and sales of our products allows for more accountability and control, thus increasing profitability.

Products and services are also promoted through general and trade advertising, participation in trade shows and through on-line Internet communication via our corporate home page at www.englobal.com. The ENGlobal site provides information about both of our operating segments. We currently use a third-party service provider to maintain and update our website and those of our subsidiaries on an ongoing basis. Through the ENGlobal website, we seek to provide visitors with a single point of contact for obtaining information on the services and products offered by the ENGlobal family of companies.

Our business development department focuses on building long-term relationships with customers and providing customers with product application, engineering and after-the-sale services. Additionally, we seek to capitalize on cross-selling opportunities existing between our various subsidiaries. Sales leads are often jointly developed and pursued by the sales personnel from a number of these subsidiaries.

Much of our business is repeat business and we are introduced to new customers in most cases by referrals from existing customers and industry members, such as manufacturers’ representatives. Further, we anticipate that our existing customer base and the potential for business development activities will be expanded with each new acquisition.

We currently employ 13 full-time professional in-house marketers in our business development department who concentrate on the engineering services segment, and three full-time professional in-house marketers in our systems segment. We have retained business development agents in the Middle East and the United Kingdom. We have also formed alliances with other engineering and construction firms in Mexico City and South America.

Customers

Our customer base consists primarily of Fortune 500 companies representing numerous industries within the United States. While we do not have continuing dependence on any single client or a limited group of clients, one or a few clients may contribute a substantial portion of our revenues in any given year or over a period of several consecutive years due to major engineering projects. For example, during 2003, 36% of our total revenues were attributable to work done by our engineering segment and our systems segment for one major refining and petrochemical client, ExxonMobil, through multiple client subsidiaries and plant locations. The majority of this work was performed through the Beaumont location of our engineering segment on a large EPC project.

We have had success undertaking new projects for prior clients and providing ongoing services to clients following the completion of the projects. Nevertheless, in order to generate revenues in future years, we must continue efforts to obtain new engineering projects. Historically, we have not generated significant revenues from government clients, but we hope to further penetrate the government market as a result of the EDG acquisition.

In recent years, the continuing trend among engineering clients and their industry counterparts has been toward outsourcing and sole sourcing. This trend has fostered the development of ongoing, longer-term

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arrangements with clients, rather than one-time limited engagements. These arrangements, often referred to as partnering relationships, alliances, or sole source contracts, vary in scope, duration and degree of commitment. For example, engagements may provide for:

• a minimum number of work man-hours over a specified period;

• the provision of at least a designated percentage of the client’s requirements;

• the designation of the Company as the client’s sole source of engineering at a specific location or locations; or

• a non-binding preference or intent, or a general contractual framework for what the parties expect will be an ongoing relationship.

Despite their variety, the Company believes that these partnering relationships have a stabilizing influence on our service revenues. At present, we maintain some form of partnering or alliance arrangement with approximately 50 major oil and chemical companies. Most of our projects are specific in nature and we generally have multiple projects with the same clients. If we were to lose one or more of our significant clients and are unable to replace them with other customers or other projects, our business would be materially adversely affected.

In the systems segment, our clients include end-users and operators of facilities relating to oil and gas products, pipelines, refineries, chemical companies and processing plants. Other clients include equipment manufacturers, construction contractors and other engineering firms that incorporate our control systems into facilities and products they design, construct and manufacture. As in the engineering segment, in any given year, a small number of clients may account for a large percentage of the systems segment’s revenues for that year, depending on the number of major projects undertaken. Though the systems segment frequently receives work from repeat clients, its client list may vary significantly from year to year.

Our ten largest customers, which vary from one period to the next, accounted for 69% and 60% of our total revenue in 2003 and 2002, respectively. For 2003, our largest clients, in alphabetical order include:

• Engineering: Atofina, BASF, Chevron Phillips, ExxonMobil, Frontier Refining, Motiva Enterprises and Premcor Refining Group

• Systems: Enterprise Products, Fluor Daniels, Honeywell, Inc. and Yokogawa Corp of America,

We do not have any long-term commitments from these clients and sales of products from the systems segment are typically made according to the client’s specifications on a purchase order basis. Our potential revenues are, therefore, dependent on continuing relationships with these customers.

Contracts

We generally enter into two principal types of contracts with our clients: time and materials contracts and fixed-price contracts. In fiscal 2003, 85% and 15% of our net revenue was derived from time and materials and fixed-price contracts, respectively. Our various clients determine which type of contract we will enter into for a particular engagement.

• Time and Materials.    Under our time and materials contracts, we are paid for labor at either negotiated hourly billing rates or reimbursed for allowable hourly rates and for other expenses. Profitability on these contracts is driven by billable headcount and cost control. Some of these contracts may have upper limits, referred to as “not to exceed.” If our costs generate billings that exceed the contract ceiling or are not allowable, we may not be able to obtain full reimbursement. Further, the continuation of each contract partially depends upon the customer’s discretionary periodic assessment of our performance on that contract.

• Fixed-Price.    Under a fixed-price contract, we provide the customer a total project for an agreed-upon price, subject to project circumstances and changes in scope. Fixed-price contracts carry certain inherent

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risks, including risks of losses from underestimating costs, delays in project completion, problems with new technologies and economic and other changes that may occur over the contract period. Another risk includes our ability to secure written change orders prior to commencing work on such orders, which may prevent our getting paid for work performed. Consequently, the profitability of fixed-price contracts may vary substantially.

Backlog

Backlog represents the total value of all awarded contracts that have not been completed and will be recognized as revenues over the life of the project. At February 29, 2004, our gross revenue backlog was approximately $67.5 million, compared to $54.4 million at December 31, 2002. We estimate that approximately 75% of the gross revenue backlog at February 29, 2004 will be recognized during fiscal 2004.

Gross revenue includes backlog under two types of contracts: (1) contracts for which work authorizations have been received on a fixed-price basis and not-to-exceed projects that are well defined and (2) time and material evergreen contracts at an assumed 12 month run-rate, where we place employees at our clients’ site to perform day-to-day project efforts.

Although backlog reflects business that we consider to be firm, cancellations or scope adjustments may occur. Further, most contracts with clients may be terminated at will, in which case the client would only be obligated to us for services provided through the termination date. We have adjusted backlog to reflect project cancellations, deferrals and revisions in scope and cost (both upward and downward) known at the reporting date; however, future contract modifications or cancellations may increase or reduce backlog and future revenues. As a result, no assurances can be given that the amounts included in backlog will ultimately be realized.

Customer Service and Support

We provide service and technical support to our customers in varying degrees depending upon the business line and on customer contractual arrangements. The Company’s technical support staff provides initial telephone support services for end-user customers and distributors. These services include isolating and verifying reported product failures and authorizing repair services in support of customer requirements. We also provide on-site engineering support if a technical issue cannot be resolved over the telephone. On projects for which we have provided engineering systems, we provide worldwide start-up and commissioning services. We also provide the manufacturers’ limited warranty coverage for products we sell.

Dependence Upon Suppliers

Our ability to provide clients with services and products in a timely and competitive manner depends on the availability of products and parts from our suppliers at competitive prices and on reasonable terms. Our suppliers are not obligated to have products on hand for timely delivery nor can they guarantee product availability in sufficient quantities to meet our demands. There can be no assurance that we will be able to obtain necessary supplies at prices or on terms we find acceptable. However, in an effort to maximize product availability and maintain quality control, we generally procure components from multiple distributors.

For example, all of the product components used by our systems segment are fabricated using components and materials that are available from numerous domestic suppliers. There are approximately 36 principal suppliers of these components, each of whom can be replaced by an equally viable competitor. No one manufacturer or vendor provides products that account for 10% or more of our revenues. Thus, we anticipate little or no difficulty in obtaining components in sufficient quantities and in a timely manner to support our manufacturing and assembly operations. Units produced through the systems segment are normally not produced for inventory and component parts are typically purchased on an as-needed basis.

Despite the foregoing, some of our subsidiaries rely on certain suppliers for necessary components and there can be no assurance that these components will continue to be available on acceptable terms. If a subsidiary terminates a long-standing supply relationship, it may be difficult to obtain alternative sources of supply without

10

a material disruption in our ability to provide products and services to our customers. While we do not believe that such a disruption is likely, if it did occur, it could have a material adverse effect on our financial condition and results of operations.

Patents, Trademarks, Licenses

Our success depends in part upon our ability to protect our proprietary technology, which we do primarily through protection of our trade secrets and confidentiality agreements. We have pending trademark applications on file with the U.S. Patent and Trademark Office for the names “ENGlobal,” “Flare-Mon” and “Purchased Data.” There can be no assurance that the protective measures we currently employ will be adequate to prevent the unauthorized use or disclosure of our technology, or the independent third party development of the same or similar technology. Although our competitive position to some extent depends on our ability to protect our proprietary and trade secret information, we believe that other factors, such as the technical expertise and knowledge-base of our management and technical personnel and the timeliness and quality of the support services we provide, will also help us to maintain our competitive position.

Government Regulations

The Company and certain of our subsidiaries are subject to various foreign, federal, state, and local laws and regulations relating to our business and operations, and various health and safety regulations as established by the Occupational Safety and Health Administration. The Company and members of its professional staff are subject to a variety of state, local, and foreign licensing, registration and other regulatory requirements governing the practice of engineering. Many of our engineering professionals are licensed or registered in several states and foreign jurisdictions. Currently, we are not aware of any situation or condition relating to the regulation of the Company, its subsidiaries, or personnel that we believe is likely to have a material adverse effect on our results of operations or financial condition.

Employees

As of December 31, 2003, the Company and its subsidiaries employed 1,023 individuals. Of these employees, 16 were employed in sales and marketing; 606 were employed in engineering and related positions; 116 were employed in technical production positions; 30 were employed as inspectors; 220 were employed as project support staff; and 35 were employed in administration, finance and management information systems. We believe that our ability to recruit and retain highly skilled and experienced technical, sales and management personnel has been and will continue to be, critical to our ability to execute our business plan. None of our employees are represented by a labor union or are subject to a collective bargaining agreement. We believe that relations with our employees are good.

2003 Restructure

To streamline our operations, in December 2003, we dissolved a number of inactive subsidiaries, merged certain subsidiaries out of existence and transferred ownership of other subsidiaries in order to more clearly delineate, in terms of corporate structure, between our engineering segment and our systems segment. Also in December 2003, we sold assets of our manufacturing segment, which had been owned by Thermaire, Inc. d/b/a Thermal Corporation. We no longer operate a manufacturing segment. In addition, to increase our name recognition, all of our active subsidiaries, except for Senftleber & Associates, L.P., adopted “ENGlobal” as part of their names. Currently, the subsidiaries in our segments are:

Engineering segment: ENGlobal Engineering, Inc., RPM Engineering, Inc. d/b/a ENGlobal Engineering, Inc. and ENGlobal Construction Resources, Inc.

Systems segment: ENGlobal Systems, Inc., ENGlobal Constant Power, Inc., ENGlobal Technologies, Inc., Senftleber & Associates, L.P. and ENGlobal Design Group, Inc.

ENGlobal is also the parent of ENGlobal Corporate Services, Inc., which serves as an administrative and financing subsidiary.

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Risk Factors

Set forth below and elsewhere in this Report and in other documents we file with the SEC are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Report. You should be aware that the occurrence of any of the events described in these risk factors and elsewhere in this Report could have a material adverse effect on our business, financial condition and results of operations and that upon the occurrence of any of these events, the trading price of our common stock could decline.

We are engaged in highly competitive businesses and must typically bid against competitors to obtain engineering and service contracts.

We are engaged in highly competitive businesses in which customer contracts are typically awarded through competitive bidding processes. We compete with other general and specialty contractors, both foreign and domestic, including large international contractors and small local contractors. Some competitors have greater financial and other resources than we do, which, in some instances, could give them a competitive advantage over us.

Our business and operating results could be adversely affected by our inability to accurately estimate the overall risks, revenue or costs on a contract.

We generally enter into two principal types of contracts with our clients: time and materials contracts and fixed-price contracts. Under our fixed-price contracts, we receive a fixed-price irrespective of the actual costs we incur and, consequently, we are exposed to a number of risks. These risks include underestimation of costs, problems with new technologies, unforeseen expenditures or difficulties, delays beyond our control and economic and other changes that may occur during the contract period. Our ability to secure change orders on scope changes and our ability to invoice for such changes poses an additional risk. In fiscal 2003, approximately 15% of our net revenue was derived from fixed-price contracts.

Under our time and materials contracts, we are paid for labor at negotiated hourly billing rates or reimbursement at specified mark-up hourly rates and negotiated rates for other expenses. Profitability on these contracts is driven by billable headcount and cost control. Some time and materials contracts are subject to contract ceiling amounts, which may be fixed or performance-based. If our costs generate billings that exceed the contract ceiling or are not allowable under the provisions of the contract or any applicable regulations, we may not be able to obtain reimbursement for all of our costs.

Revenue recognition for a contract requires judgment relative to assessing the contract’s estimated risks, revenue and costs and on making judgments on other technical issues. Due to the size and nature of many of our contracts, the estimation of overall risk, revenue and cost at completion is complicated and subject to many variables. Changes in underlying assumptions, circumstances or estimates may also adversely affect future period financial performance.

Economic downturns could have a negative impact on our businesses.

Demand for the services offered by us has been and is expected to continue to be, subject to significant fluctuations due to a variety of factors beyond our control, including economic conditions. During economic downturns, the ability of both private and governmental entities to make expenditures may decline significantly. We cannot be certain that economic or political conditions will be generally favorable or that there will not be significant fluctuations adversely affecting our industry as a whole or key markets targeted by us.

Our dependence on one or a few customers could adversely affect us.

One or a few clients have in the past and may in the future contribute a significant portion of our consolidated revenues in any one year or over a period of several consecutive years. In 2003, approximately 36%

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of our revenues were from ten subsidiaries of ExxonMobil and approximately 20% of our revenues were from Chevron Phillips. As our backlog frequently reflects multiple projects for individual clients, one major customer may comprise a significant percentage of our backlog at any point in time. Because these significant customers generally contract with us for specific projects, we may lose these customers from year to year as their projects with us are completed. If we do not replace them with other customers or other projects, our business could be materially adversely affected. Additionally, we have long-standing relationships with many of our significant customers. Our contracts with these customers, however, are on a project-by-project basis and the customers may unilaterally reduce or discontinue their purchases at any time. The loss of business from any one of such customers could have a material adverse effect on our business or results of operations.

Our loan agreement also specifies limits in concentration of receivables to any one client (other than ExxonMobil) to 20% of all trade account balances, thereby reducing our ability to borrow. The limit on the ExxonMobil balance is set at 30% of all trade receivables.

Additional acquisitions may adversely affect our ability to manage our business.

Our growth has been, in large part, the result of acquisitions of companies. We plan to continue making acquisitions in the future on terms management considers favorable to us. The successful acquisition of other companies involves an assessment of future revenue opportunities, operating costs, economies and earnings after the acquisition is complete, potential industry and business risks and liabilities beyond our control. This assessment is necessarily inexact and its accuracy is inherently uncertain. In connection with our assessments, we perform reviews of the subject acquisitions we believe to be generally consistent with industry practices. These reviews, however, may not reveal all existing or potential problems, nor will they permit a buyer to become sufficiently familiar with the target companies to assess fully their deficiencies and capabilities. We cannot assure you that we will identify, finance and complete additional suitable acquisitions on acceptable terms. We may not successfully integrate future acquisitions. Any acquisitions may require substantial attention from our management, which may limit the amount of time that management can devote to day-to-day operations. Our inability to find additional attractive acquisition candidates or to effectively manage the integration of any businesses acquired in the future could adversely affect our ability to grow profitably or at all.

Seasonality of our industry may cause our revenues to fluctuate.

Holidays and employee vacations during our fourth quarter exert downward pressure on revenues for that quarter, which is only partially offset by the year-end efforts on the part of many clients to spend any remaining funds budgeted for engineering services or capital expenditures during the year. The annual budgeting and approval process under which these clients operate is normally not completed until after the beginning of each new year, which can depress results for the first quarter. Principally due to these factors, our revenues during the first and fourth quarters generally tend to be lower than in the second and third quarters.

The failure to attract and retain key professional personnel could adversely affect the Company.

Our success depends on attracting and retaining qualified personnel in a competitive environment. We are dependent upon our ability to attract and retain highly qualified managerial, technical and business development personnel. Competition for key personnel is intense. We cannot be certain that we will retain our key managerial, technical and business development personnel or that we will attract or assimilate key personnel in the future. Failure to retain or attract such personnel could materially adversely affect our businesses, financial position, results of operations and cash flows.

Liability claims could result in losses.

Providing engineering and design services involves the risk of contract, professional errors and omissions and other liability claims, as well as adverse publicity. Further, many of our contracts will require us to indemnify our

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clients not only for our negligence, if any, but also for the concurrent negligence of our clients. We currently maintain liability insurance coverage, including coverage for professional errors and omissions. However, claims outside of or exceeding our insurance coverage may be made. A significant claim could result in unexpected liabilities, take management time away from operations and have a material adverse impact on our cash flow.

If the operating result of either segment is adversely affected, an impairment of goodwill could result in a write down.

Based on factors and circumstances impacting ENGlobal and the business climate in which it operates, the Company may determine that it is necessary to re-evaluate the carrying value of its goodwill by conducting an impairment test in accordance with SFAS No. 142. The Company has assigned goodwill to the two segments based on estimates of the relative fair value of each segment. If changes in the industry, market conditions, or government regulation negatively impact either of the Company’s segments resulting in lower operating income, if assets are harmed, if anticipated synergies or cost savings are not realized with newly acquired entities, or if any circumstance occurs which result in the fair value of either segment reducing below its carrying value, an impairment to goodwill could be created. In accordance with SFAS No. 142, the Company would be required to write down the carrying value of goodwill.

Our Board of Directors may authorize future sales of ENGlobal common stock, which could result in a decrease in value to existing stockholders of the shares they hold.

Our Articles of Incorporation authorize our board of directors to issue up to an additional 49,912,621 shares of common stock and an additional 2,265,167 shares of preferred stock. These shares may be issued without stockholder approval unless the issuance is 20% or more of our outstanding common stock, in which case the American Stock Exchange requires stockholder approval. We may issue shares of stock in the future in connection with acquisitions or financings. In addition, we may issue shares in connection with our Employee Stock Purchase Plan and we may issue options as incentives under our Option Plan. Future issuances of substantial amounts of common stock, or the perception that these sales could occur, may affect the market price of our common stock. In addition, the ability of the board of directors to issue additional stock may discourage transactions involving actual or potential changes of control of the Company, including transactions that otherwise could involve payment of a premium over prevailing market prices to holders of our common stock.

Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future earnings.

As of February 29, 2004, our backlog was approximately $67.5 million. We cannot assure investors that the revenues projected in our backlog will be realized or, if realized, will result in profits. Projects 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 termination, suspensions or reductions in scope may occur from time to time with respect to contracts reflected in our backlog. Such backlog reductions would reduce 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 revenues and profits that we actually earn.

Our dependence on subcontractors and equipment manufacturers could adversely affect us.

We rely on third-party subcontractors as well as third-party suppliers and manufacturers to complete our projects. To the extent that we cannot engage subcontractors or acquire supplies or materials, our ability to complete a project in a timely fashion or at a profit may be impaired. If the amount we are required to pay for these goods and services exceeds the amount we have estimated in bidding for fixed-price or cost-plus contracts, we could experience losses in the performance of these contracts. In addition, if a subcontractor or supplier is unable to deliver its services or materials according to the negotiated terms for any reason, including the

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deterioration of its financial condition, we may be required to purchase the services or materials from another source at a higher price. This may reduce the profit to be realized or result in a loss on a project for which the services or materials were needed.

Our quarterly operating results may fluctuate significantly, which could have a negative effect on the price of our common stock.

Our quarterly revenue, expenses and operating results may fluctuate significantly because of a number of factors, including:

• Unanticipated changes in contract performance that may effect profitability, particularly with contracts that have funding limits;

• The seasonality of the spending cycle of our clients;

• Acquisitions or the integration of acquired companies;

• Employee hiring and utilization rates;

• The number and significance of client engagements commenced and completed during a quarter;

• Credit worthiness and solvency of clients;

• The ability of our clients to terminate engagements without penalties;

• Delays incurred in connection with an engagement;

• The size and scope of engagements;

• The timing of expenses incurred for corporate initiatives;

• Reductions in the prices of services offered by our competitors;

• Changes in accounting rules; and

• General economic or political conditions.

Variations in any of these factors could cause significant fluctuations in our operating results from quarter to quarter and could result in net losses. These fluctuations could result in downward pressure on the market price of our common stock.

If we are not able to successfully manage our growth strategy, our business and results of operations may be adversely affected.

We have grown rapidly over the last several years. Our growth presents numerous managerial, administrative, operational and other challenges. Our ability to manage the growth of our operations will require us to continue to improve our management information systems and maintain discipline in our internal systems and controls. In addition, our growth will increase our need to attract, develop, motivate and retain both our management and professional employees. The inability of our management to effectively manage our growth or the inability of our employees to achieve anticipated performance could have a material adverse effect on our business.

The price of our common stock may be volatile.

Our common stock may be subject to substantial price volatility. The stock market has experienced extreme price and volume fluctuations that have affected the market price of many companies and that have often been unrelated to the operating performance of these companies. The overall market and the price of our common stock may continue to fluctuate greatly. The trading price of our common stock may be significantly affected by various factors, including:

• Quarter to quarter variations in our financial results, including revenue, profits and other measures of financial performance or financial condition;

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• Announcements by us or our competitors of significant acquisitions;

• Threatened or pending litigation;

• Changes in investors’ and analysts’ perceptions of our business, our competitors’ businesses, or the businesses we serve;

• Investors’ and analysts’ assessments of reports prepared or conclusions reached by third parties;

• Broader market fluctuations; and

• General economic or political conditions.

Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, many of whom are granted stock options, the value of which are dependent on the performance of our stock price.

A small number of stockholders own a significant portion of our outstanding common stock, thus limiting the extent to which other stockholders can effect decisions subject to stockholder vote.

Directors, executive officers and principal stockholders of ENGlobal and their affiliates, beneficially own approximately 62% of our outstanding common stock on a fully diluted basis. Accordingly, these stockholders, as a group, are able to control the outcome of stockholder votes, including votes concerning the adoption or amendment of provisions in our Articles of Incorporation or bylaws and the approval of mergers and other significant corporate transactions. The existence of these levels of ownership concentrated in a few persons makes it unlikely that any other holder of common stock will be able to affect the management or direction of the Company. These factors may also have the effect of delaying or preventing a change in management or voting control of the Company.

Nominees for the board of directors are designated by a voting agreement so stockholders who are not parties to the voting agreement may not have a meaningful vote in the election of directors.

In connection with our merger with Petrocon Engineering, Inc, holders of approximately 56% of the outstanding shares of the Company entered into a voting agreement agreeing to vote their shares in the election of directors in favor of three nominees of Alliance 2000, Ltd. (“Alliance”), two nominees of certain former shareholders of Petrocon, one nominee of Equus II Incorporated (“Equus”) (the Equus nominee becoming a nominee of certain former shareholders of Petrocon once the Equus debt is paid) and one nominee selected by the mutual agreement of Alliance and certain former shareholders of Petrocon. In 2003, Equus forfeited its right to have a nominee on the board of directors. As a result, under the terms of the voting agreement, certain former shareholders of Petrocon are entitled to the additional nominee made available through the Equus forfeiture.

Item 2.    Properties

Facilities

We lease eleven buildings in the U.S. totaling approximately 250,000 square feet and we own an office building in Baton Rouge, Louisiana with 27,500 square feet. The leases have remaining terms ranging from monthly to seven years and are at what we consider to be commercially reasonable rental rates. Our principal office locations are in Houston and Beaumont, Texas, with other offices in Freeport, Texas, Baton Rouge and Lake Charles, Louisiana, and Tulsa, Oklahoma. Approximately 199,000 square feet of our total office space is designated for use by our professional, technical and administrative personnel. We believe that our office and other facilities are well maintained and adequate for existing and planned operations at each operating location. Our systems segment performs fabrication assembly at two shop facilities in Houston, Texas with approximately 46,800 square feet of warehouse space.

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We lease approximately 14,000 square feet of office space in Beaumont, Texas with an expiration date of June, 2005 from a joint venture owned one-third by each of: ENGlobal Engineering, Inc., Michael L. Burrow (the Company’s CEO), and a stockholder of the Company who owns less than 1% of the Company’s stock. We believe that this lease is at a commercially reasonable rental rate.

The building formerly occupied by Thermaire, totaling approximately 38,000 square feet, is vacant and on the market for sale. This space has not been included in the office or warehouse statistics.

One leased facility, formerly occupied by ECP, has been vacated and an early termination notice has been sent to the landlord. ECP relocated effective January 1, 2004 to a site that ESI occupies to reduce overhead expenses. The lease on the vacant space will terminate in June 2004 unless a subleasee can be found.

In Tulsa, we are utilizing approximately 60% of our available space. In Houston, we have approximately a 90% utilization of available office space. In Beaumont, we are utilizing 100% of the available space. The Lake Charles office is approximately 50% occupied and the Baton Rouge and Freeport facilities are approximately 70% utilized. The Houston warehouse facilities are approximately 70% utilized.

Below is a complete listing of the space leased and owned with the expiration dates of the leases.

Location	Square Feet	Lease Expiration Date
Beaumont	42,880	2011
	37,798	2005
	13,590	Month to Month
Houston	51,816	2005
	40,227	2004
Lake Charles	8,178	2006
Tulsa	32,555	2005
Freeport	23,000	2007
Baton Rouge	27,500	Owned
	277,544

Item 3.    Legal Proceedings

From time to time, we are involved in various legal proceedings arising in the ordinary course of business that are incidental to our business. As of the date of this filing, we are party to several legal proceedings that have been reserved for or are covered by insurance, or that, if determined adversely to us individually or in the aggregate, would not have a material adverse effect on our results of operations or financial position.

During 2003, the Company and its subsidiaries, and more than 40 other parties were named defendants in several petitions for damages filed in various district courts in Louisiana (East Baton Rouge, Calcasieu, Iberville, Ascension, and Orleans Parishes) on behalf of former employees of Barnard and Burk, Inc. The plaintiffs, who allege exposure to asbestos during the course of their employment, were employees of Barnard and Burk, Inc. during a period covering the late 1950’s through the early 1980’s at facilities in Louisiana. In 1994, AMEC Engineering, Inc. assigned the trade name “Barnard and Burk” to RPM Engineering, Inc. along with selected assets. No liabilities were assumed by RPM. The Company’s wholly-owned subsidiary, ENGlobal Engineering, Inc., formerly known as Petrocon Engineering, Inc., acquired RPM (along with the “Barnard and Burk” trade name) in 1996 pursuant to a stock purchase agreement. Because Petrocon acquired only the “Barnard and Burk” trade name, and none of its liabilities, the Company is seeking to be extricated from the suits via summary judgment. The Company believes the lawsuits are without merit and intends to defend them vigorously.

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

Not applicable.

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PART II

Item 5.    Market for Registrant’s Common Equity and Related Stockholder Matters

Market Information and Holders

The Company’s common stock has been quoted on the American Stock Exchange (“AMEX”) since June 16, 2002, under the symbol “ENG.” From its initial listing on AMEX on June 16, 1998 to June 15, 2002, the Company’s stock was traded under the symbol “IDS.” Newspaper stock listings identify us as “ENGlobal.”

The following table sets forth the high and low sales prices of our common stock for the periods indicated.

	Year Ended December 31, 2003		Year Ended December 31, 2002
	High	Low	High	Low
First Quarter	1.980	1.000	0.920	0.600
Second Quarter	2.970	1.700	1.150	0.660
Third Quarter	3.800	2.240	0.970	0.760
Fourth Quarter	2.890	1.870	1.520	0.750

The foregoing figures, based on information published by AMEX, do not reflect retail mark-ups or markdowns and may not represent actual trades.

In connection with our December 2001 merger with Petrocon, we issued 2,500,000 shares of Series A Preferred Stock, $0.001 par value per share, to Equus II Incorporated. In 2002 and 2003, we issued dividends to Equus in the form of 88,000 shares and 146,833 shares of Series A Preferred Stock. Effective August 2003, the Company exercised its right to convert all outstanding Series A Preferred Stock to 1,149,089 shares of common stock.

As of February 28, 2004, approximately 233 stockholders of record held the Company’s common stock. This does not include individual participants in security position listings.

Equity Compensation Plan Information

The following table sets forth certain information concerning the Company’s equity compensation plans as of December 31, 2003.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities in Column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders	1,257,168	(1)	$	2.11	962,382
Equity compensation plans not approved by security holders	234,774	(2)		4.26	—
Total	1,491,942		$	2.45	962,382

(1) Includes options issued through our 1998 Incentive Plan. Also includes incentive options granted as replacement options for outstanding Petrocon incentive options pursuant to the terms of the December 2001 Merger Agreement with Petrocon. Effective with the Petrocon merger, 1,737,473 shares were placed in escrow by a group of significant Petrocon stockholders under the terms of an Option Escrow Agreement. Under this agreement, shares from the Option Escrow will replace shares issued by ENGlobal due to the

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exercise of converted Petrocon options and warrants. Thus, the Option Escrow Agreement has the effect of preventing future dilution to ENGlobal stockholders due to exercise of converted Petrocon options and warrants. The Option Escrow Agreement continues in effect until all existing replacement options and warrants have been exercised, terminated, or cancelled. During 2003, options to acquire 27,710 shares of common stock were exercised through the Option Escrow Agreement. For a brief description of the material features of the Plan, see Note 10 of the Notes to the Consolidated Financial Statements.

(2) Includes non-qualified options granted as replacement options for outstanding Petrocon options pursuant to the terms of the Merger Agreement (see Note 10 to the Consolidated Financial Statements). These options are included in the Option Indemnification Agreement discussed in footnote (1).

Dividend Policy

The Company has never declared or paid a cash dividend on its common stock. The Company intends to retain any future earnings for reinvestment in its business and does not intend to pay cash dividends in the foreseeable future. In addition, restrictions contained in our loan agreements governing our credit facility with Fleet Capital Corporation preclude us from paying any dividends on our common stock while any debt under those agreements is outstanding. The payment of dividends in the future will depend on numerous factors, including the Company’s earnings, capital requirements, operating and financial position and general business conditions.

Dividends on outstanding shares of Series A Preferred Stock were paid on the last day of May in 2002 and 2003 in shares of stock of Series A Preferred Stock at a rate of 0.08 shares for each outstanding share of Series A Preferred Stock. The Company elected to convert all shares of preferred stock to 1,149,089 shares of common stock in August 2003.

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Item 6.    Selected Financial Data

Summary Selected Historical Consolidated Financial Data

The following tables set forth our selected financial data. The data for the years ended December 31, 2003, 2002, and 2001 have been derived from the audited financial statements appearing elsewhere in this document. The data as of December 31, 2001 and for the years ended December 31, 2000 and 1999 have been derived from audited financial statements not appearing in this document. You should read the selected financial data set forth below in conjunction with our financial statements and the notes thereto included in Part IV, Item 15, and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other financial information appearing elsewhere in this document. In addition, the merger with Petrocon in December 2001 should be considered in connection with your review of this information.

Note: Due to the sale of Thermaire, all items related to the previously reported manufacturing segment have been reclassified to discontinued operations in order to provide comparative results. Previously reported amounts will not agree to the amounts presented below except net income.

	Years Ended December 31,
	2003			2002			2001		2000			1999
	(In thousands, except per share amounts)
Statement of Operations:
Revenues:
Engineering	$	108,380		$	74,971		$	14,235	$	10,740		$	5,978
Systems		15,339			14,151			3,575		2,815			3,109
Total revenues		123,719			89,122			17,810		13,555			9,087
Costs and expenses:
Cost of engineering		93,579			62,877			10,433		8,175			4,378
Cost of systems		13,167			11,840			3,107		2,156			2,459
Selling, general and administrative		12,439			10,632			2,836		2,679			1,984
Total costs and expenses		119,185			85,349			16,376		13,010			8,821
Operating income		4,534			3,773			1,434		545			266
Interest income (expense), net		(784	)		(821	)		14		49			44
Other income (expense), net		(355	)		143			14		23			100
Income from continuing operations before provision for income taxes		3,395			3,095			1,462		617			410
Provision for income taxes		1,110			1,197			595		151			199
Income from operations		2,285			1,898			867		466			211
Income (loss) from discontinued operations, net of taxes		(154	)		(146	)		115		(85	)		(53	)
Gain (loss) on disposal of discontinued operations		26			—			—		—			(481	)
Net income (loss)	$	2,157		$	1,752		$	982	$	381		$	(323	)
Per Share Data:
Basic earnings (loss) per share:
Continuing operations	$	0.092		$	0.073		$	0.065	$	0.036		$	0.016
Discontinued operations		(0.005	)		(0.006	)		0.009		(0.007	)		(0.041	)
Net income (loss) per share		0.087			0.067			0.074		0.029			(0.025	)
Weighted average common shares outstanding—Basic		23,301			22,861			13,236		12,965			13,056
Diluted earnings (loss) per share:
Continuing operations	$	0.091		$	0.073		$	0.065	$	0.036		$	0.016
Discontinued operations		(0.005	)		(0.006	)		0.009		(0.007	)		(0.041	)
Net income (loss) per share		0.086			0.067			0.074		0.029			(0.025	)
Weighted average common shares outstanding—Diluted		23,734			23,013			13,236		12,965			13,056
Cash Flow Data:
Operating activities, net	$	6,557		$	1,302		$	744	$	27		$	94
Investing activities, net		(471	)		(1,290	)		5		(468	)		(209	)
Financing activities, net		(6,122	)		(1,182	)		253		19			(197	)
Discontinued operations, net of tax		—			—			—		—			(250	)
Net change in cash and cash equivalents	$	(36	)	$	(1,170	)	$	1,002	$	(422	)	$	(562	)

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	Years Ended December 31,
	2003		2002		2001		2000		1999
	(In thousands, except per share amounts)
Balance Sheet Data
Working capital	$	6,505	$	8,416	$	5,703	$	3,217	$	3,216
Property and equipment, net		4,302		4,779		4,095		460		240
Total assets		42,530		40,068		38,286		7,052		5,914
Long-term debt		8,129		13,323		13,489		21		—
Capital leases		20		24		32		—		—
Stockholders’ equity		18,175		13,389		11,846		4,159		3,975

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion is qualified in its entirety by, and should be read in conjunction with, our Consolidated Financial Statements including the Notes thereto, included elsewhere in this Annual Report on Form 10-K. Footnote 17 to the Financial Statements contains segment information.

Forward-Looking Statements

Certain information contained in this Form 10-K Annual 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 SEC, 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, 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 that could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth in this Annual Report on Form 10-K.

Overview

We furnish engineering consulting and control system services to the petroleum refining, petrochemical, pipeline, production and processing industries. Our business consists of two segments: engineering and systems. Our engineering segment offers engineering consulting services to clients for the development, management and turnkey execution of engineering projects and inspection services. Our systems segment designs, assembles, programs, installs, integrates and services control and instrumentation systems for specific applications in the energy and processing related industries.

In 2003, the engineering segment accounted for 87.6% of our total revenues for the year, and realized a $33.4 million increase in its revenues over fiscal year 2002. This increase in revenues is primarily attributable to a large co-generation project and a large cyclohexane project, both of which originated out of our Beaumont office. We expect to complete the cyclohexane project in the first quarter of 2004 and to continue working on the cogeneration project until 2005. Our engineering segment has been successful in obtaining major projects in the petroleum refining industry along the Texas Gulf Coast, and mid-continent area. However, we do not currently have any projects that would replace the cogeneration project when it is completed.

The systems segment contributed 12.4% of our total revenues for fiscal 2003, as its revenues improved $1.2 million from $14.2 million in 2002 to $15.3 million in 2003. This growth is attributable to large fixed-price sales of remote instrument enclosures to two clients. Although the revenues for this segment improved over 2002, the gross profit declined due to cost overruns on fixed-price projects and competitive market pressures on pricing.

We formerly operated a third segment, the manufacturing segment. Certain assets of this segment were sold in December 2003 and its financial results are reported in Discontinued Operations.

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Results of Operations

The following table sets forth, for the periods indicated, certain financial data derived from our consolidated statements of operations and indicates percentage of total revenue for each item (in thousands). The manufacturing segment is in Discontinued Operations.

	Years ended December 31,
	2003					2002					2001
	Amount			%		Amount			%		Amount		%
Revenue:
Engineering	$	108,380		87.6		$	74,971		84.1		$	14,235	79.9
Systems		15,339		12.4			14,151		15.9			3,575	20.1
Total revenue		123,719		100.0			89,122		100.0			17,810	100.0
Gross profit:
Engineering		14,801		13.7			12,095		16.1			3,802	26.7
Systems		2,172		14.2			2,311		16.3			468	13.1
Total gross profit		16,973		13.7			14,406		16.2			4,270	24.0
Income from continuing operations		2,285		1.8			1,898		2.1			867	4.9
Income (loss) on discontinued operations		(128	)	(0.1	)		(146	)	(0.2	)		115	(0.6	)
Net income	$	2,157		1.7		$	1,752		2.0		$	982	5.5

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Total Revenue.    Total revenue increased by $34.6 million or 38.8% from revenues of $89.1 million in 2002 to $123.7 million in 2003. The revenue growth for 2003 compared to 2002 is primarily attributable to the engineering segment, which was awarded engineering, procurement, and construction (“EPC”) phases of major projects. The engineering segment realized an increase in its engineering revenues of $33.4 million primarily due to two large projects at the Beaumont location, a co-generation project and a cyclohexane project. These projects contributed revenues of more than $42.4 million during 2003, including materials and subcontractors’ revenues of $29.8 million. Usually the engineering segment’s revenues are derived from direct labor. Procurement activities contributed to a significant increase in revenues but at a lower mark-up on these EPC projects. The labor-based revenues for engineering were $73.9 million, $69.8 million, and $13.6 million in 2003, 2002, and 2001, respectively. By comparison, the procurement-based revenues were $34.5 million, $5.2 million, and $0.6 million in 2003, 2002, and 2001, respectively. Revenues generated from procurement activities are anticipated to be lower in 2004 than 2003 since the cyclohexane project is concluding in the first quarter of 2004. Gross profit margins are expected to increase as a percentage of revenues in 2004 because the profits on procurement activities are lower than profits on direct labor.

Performance in the other areas of the engineering segment was mixed. Significant growth occurred in the Tulsa area during 2003 with an increase in revenues of 84%, from $2.5 million in 2002 to $4.6 million in 2003. This growth was due to a concerted marketing effort to bring work to this location. The Houston area, which has traditionally serviced the pipeline industry, has had disappointing sales. The pipeline industry continues to be over leveraged, and capital expansions have been on hold for over two years while the industry focuses on debt reduction. The economy in the Baton Rouge area continued to be very disappointing during the early part of 2003, but improved in the fourth quarter. However, competition in this area resulted in lower margins. Revenues for 2003 decreased from 2002 by $5.1 million in the Baton Rouge area. Fortunately, the fourth quarter showed signs of improvement; Baton Rouge revenues improved 24% during the last quarter in 2003 as compared to the same quarter in 2002.

The systems segment’s revenues improved $1.1 million from $14.2 million in 2002 to $15.3 million in 2003. ESI’s revenues improved $2.1 million from $11.0 million in 2002 to $13.2 million in 2003. This growth was attributable to large fixed-price sales of remote instrument enclosures to two clients. Offsetting this increase

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was a decrease in revenues at ECP of $1.5 million. As of January 2004, ECP has physically moved into the Houston ESI location to help reduce its overhead expenses by sharing employees and reducing rent and utility costs. ETI, a previously dormant entity, which was reactivated in 2003, and Senftleber, a November 2003 acquisition, generated combined revenues of $0.6 million in 2003.

The manufacturing segment was discontinued when certain assets of Thermaire were sold in December 2003. Operational results of this segment are reflected in the caption “Income (loss) from discontinued operations.”

Gross Profit.    Gross profit for the Company increased by $2.6 million or 17.8% from $14.4 million in 2002 to $17.0 million in 2003. The margin as a percentage of revenue, however, decreased from 16.2% in 2002 to 13.7% in 2003. This decrease is primarily due to the increase in EPC types of projects worked in the engineering segment.

The gross profit for the engineering segment increased by $2.7 million or 22.4% from 2002 to 2003. The engineering segment’s 2003 gross profit as a percentage of revenue decreased from 16.1% in 2002 to 13.7% in 2003. EEI has many contracts pursuant to which ENGlobal employees are assigned to work at client facilities. These contracts are generally low-risk, with virtually no overhead, and therefore, low margin. Also, the engineering service segment, which normally functions as a source of professional labor, was awarded EPC jobs in 2003 and 2002 with large quantities of material and subcontract work. These jobs have traditionally had low mark-ups on the materials and subcontractors’ work, which deflates the Company’s margins. Engineering contributed 87.2% of the total gross profits in 2003. Despite its lower margins, the Company would like to obtain additional EPC contracts in 2004, but currently, no such projects are in the Company’s backlog.

The systems segment gross margin as a percentage of sales decreased from 16.3% in 2002 to 14.2% in 2003. The decline in gross profits was primarily due to cost overruns on fixed-price projects and competitive market pressures on contract pricing. The cost overruns occurred due to rapid growth in ESI’s revenues. Management has initiated stronger administrative and support services controls in response to the cost overruns.

The Company combined three employee medical insurance plans into one self-insured health plan at the beginning of 2003. Claim trends throughout the year were lower than expected levels based on past years’ experience. Adjustments to lower the insurance reserve were made in the third and fourth quarters totaling $1.6 million, which resulted in improved gross profits in both engineering and systems segment. The engineering segment received approximately 90% of the benefit, and the systems segment received approximately 10% of the benefit.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased by $1.8 million, or 17.0%, from $10.6 million in 2002 to $12.4 million in 2003 primarily due to the creation of a business development department, which substantially combined all the marketing activities of the engineering segment into one centralized group and added several new marketing representatives. We believe this centralized effort will result in better coordination of the Company’s marketing efforts.

Operating Profit.    Operating profit increased by $0.8 million or 20.1% from $3.8 million in 2002 to $4.5 million in 2003. However, operating profits decreased as a percentage of total revenue from 4.2% in 2002 to 3.7% in 2003. This decrease was the result of the overall higher revenues and lower profit margins.

In March 2004, the Company announced organizational changes intended to reduce overhead and enhance profitability. The Company eliminated four operational facilities and consolidated offices to improve efficiency. For example, ECP was moved into the same facility as ESI, effective January 2004, resulting in improved shop personnel utilization, reduction of duplicative overhead functions, and reduction of facility expenses. Additionally, senior management has been realigned to improve operational efficiencies and to better integrate the Company’s acquisitions into its operations.

Other Income (Expense).    Other income decreased from $143,000 to expense of $355,000 from 2002 to 2003, respectively. The expense in 2003 is the loss on the sale of the vacant building in Baton Rouge, as compared to the income in 2002, which resulted from a legal settlement.

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Provision for Income Taxes.    The Company received a one-time tax benefit of approximately $138,000 in 2003 from the recapture of depreciation on segregated expenditures in Company owned buildings in Baton Rouge. The one-time tax benefit decreased the 2003 effective tax rate for income taxes from 39% in 2002 to 33%. The Company does not expect the benefit to recur in future tax periods.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Total Revenue.    Total revenue increased by $71.3 million or 400% from $17.8 million in 2001 to $89.1 million in 2002. Revenue from the engineering segment, which comprised 84.1% and 79.9% of total revenue in 2002 and 2001, respectively, increased by $60.7 million or 427%. This increase was due to the Company’s merger with Petrocon (the engineering segment of which is referred to as “EEI”). Excluding the revenue from the merged company, the change in revenues was a decrease from $17.8 million in 2001 to $15.3 million in 2002. We believe that this decrease was primarily due to the depressed economics of our clients’ industries, which resulted in restraints on capital expenditures.

In 2002, the Beaumont office of EEI was awarded a large EPC contract with a significant client that generated over $5 million in revenue, net of $9 million in materials purchased as agent. Due to the depressed economy in other areas of the country, revenues in the Baton Rouge and Tulsa offices decreased from $5.8 million in 2001 to $0.8 million in 2002. Houston’s revenues also decreased from 2001 by $1.3 million as a result of poor economic conditions.

The systems segment contributed 15.9% of total revenues in 2002. Revenues increased from $3.6 million to $14.2 million in 2001 and 2002, respectively. The increase in sales was due to the acquisition of Petrocon Systems, Inc. (the systems segment of which is referred to as “ESI”). ESI contributed revenues of $11.2 million to total 2002 revenues. Without the merger, revenues would have decreased from $3.5 million to $3.0 million in 2001 and 2002, respectively. The decrease was due to the depressed market conditions in chargers and battery backup systems.

Gross Profit.    Gross profit increased by $10.1 million or 237% from $4.3 million in 2001 to $14.4 million in 2002. Gross profit from the pre-merger operations decreased in 2002 from 2001 due to the depressed markets as indicated by lower revenues. The Company decided to maintain key personnel rather than downsize at the risk of losing short-term profits. The merged operations contributed $12.4 million in gross profits. The overall margin as a percentage of revenue, however, decreased from 24.0% to 16.2% in 2001 and 2002. This decrease is primarily due to the shift in types of projects worked in the engineering services segment.

The gross profit for the engineering segment increased by $8.3 million or 218% from 2001 to 2002. The engineering’s 2002 gross profit as a percentage of revenue decreased from 26.7% to 16.1%. Many of the projects acquired in connection with the merger were client directed, whereby the employee works at the client site, under the supervision of the client. These jobs are generally low-risk, have virtually no overhead, and intense competition results in low margins. Engineering services contributed 84.0% of the total gross profits in 2002.

The systems segment gross margin as a percentage of sales increased from 13.1% in 2001 to 16.3% in 2002. This increase was attributable to the merger with Petrocon. ESI has higher profit, higher risk, fixed fee projects. ECP also experienced a write-off of inventory in 2001 that was not repeated in 2002, thereby increasing 2002 margins.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased by $7.8 million or 275% from $2.8 million in 2001 to $10.6 million in 2002. With the larger entity, expenses increased for several overhead departments, including executive, accounting, human resources, safety, information technology, and business development. Due to the increase in revenues, as a percentage of revenues, these expenses decreased by 4% from 15.9% to 11.9% in 2001 and 2002, respectively.

Interest Income (Expense).    The 2001 interest income of $14,000 resulted from interest on a receivable. In 2002, the interest expense resulted from an increase in the line of credit increase caused by the Petrocon merger.

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Liquidity and Capital Resources

Historically, we have satisfied our cash requirements through operations and borrowings under a revolving credit facility with Fleet Capital Corporation (“Fleet”). As of December 31, 2003, we had working capital of $6.5 million. Long-term debt outstanding on this same date was $8.1 million, reduced from $13.3 million as of December 31, 2002. Our long-term debt includes $5.6 million outstanding under our revolving credit facility with Fleet, and other long-term debt of $2.5 million. Under the terms and conditions of our revolving credit facility, as of December 31, 2003, we have additional borrowing capacity of approximately $4.7 million after consideration of borrowing base limitations. We are not subject to any other standby letters of credit, guarantees, repurchase obligations, or other commitments. We have no off-balance sheet arrangements.

The following table summarizes our contractual obligations as of December 31, 2003:

	Payments Due By Period
	(in thousands)
	2004		2005		2006		2007		2008 and thereafter		Total
Long-term debt	$	623	$	7,481	$	25	$	—	$	—	$	8,129
Capital leases		10		7		1		—		—		18
Operating leases		1,383		785		453		332		1,245		4,198
Total contractual cash obligations	$	2,016	$	8,273	$	479	$	332	$	1,245	$	12,345

Our revolving credit facility with Fleet is senior to all other debt and includes a line of credit that is limited to $15 million, subject to borrowing base restrictions. The line of credit is collateralized by eligible trade accounts receivable and substantially all of the other assets of the Company and its subsidiaries. Eligible trade accounts include any account arising in the ordinary course of ENGlobal’s or any of its subsidiaries’ business, which are due and unpaid no more than 90 days after the original invoice date. Our financial covenants under the senior credit facility are based on monthly senior debt to EBITDA, cumulative fixed charge ratio, and cost in excess of billings maximum amount. Negative covenants in the agreement require us to obtain Fleet’s written consent before making capital expenditures which in the aggregate exceed the 2003 limit of $1.2 million. The loan agreement also limits collateral eligibility on accounts arising out of fixed cost contracts to a total unpaid amount to $3.0 million and on performance accounts with respect to accrued time on cost reimbursable contracts to $5.0 million. The loan agreement places limits on concentration of accounts receivable balances of any one client. Our ability to borrow is effected if any client (except ExxonMobil) has 20% of the net amount of all eligible accounts. ExxonMobil’s concentration balance is limited to 30% of the net amount of all eligible accounts. The line of credit matures on June 14, 2005 at which time we intend to refinance with Fleet or another bank. The interest rate on the line of credit is one-quarter of one percent plus prime (4.25% at December 31, 2003), and the commitment fee on the unused line of credit is 0.375%.

Our credit facility with Fleet Capital Corporation requires that we report monthly to Fleet on the status of our compliance with our covenants. The breach of specific covenants, as well as other events, constitute an “Event of Default” under the terms of the agreement. Upon the occurrence and during the continuance of an Event of Default, all or any portion of the obligations under the agreement shall, at the option of Fleet, become due and payable. Also, while an Event of Default exists, the principal amount of all loans bears interest at a rate per annum equal to two percent above the current rate. The Company must meet all covenants through the maturity date of the credit facility. We believe that the Company will remain in compliance with all the loan covenants although no assurances can be given that we will be able to do so. The credit facility between Fleet and the Company was modified to increase the limit on 2003 capital expenditures to $1.2 million.

We also have three long-term notes, subordinate to the Fleet debt:

• $2.3 million note to Equus II Incorporated bearing interest at 9.5% and maturing in 2005. The Equus debt was assumed as a result of the Petrocon merger. Principal amounts of $110,000 are paid quarterly with accrued interest.

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• $151,000 note to Petrocon Arabia Limited (“PAL”) bearing interest at 8% and maturing in June 2004. The principal on the PAL debt is paid in monthly installments of $25,000 and interest is paid annually.

• $75,000 note to Petro-Chem paid in annual installments of $25,000 and maturing in 2006. The Petro-Chem note was issued as part of the acquisition of Petro-Chem.

In connection with our merger with Petrocon, we issued 2,500,000 shares of our Series A convertible preferred stock to Equus II Incorporated, entitling Equus to receive cumulative dividends at an annual rate of 8.0% payable in cash or in kind. Stock dividends of 88,000 shares of preferred stock were issued in 2002, and 146,833 shares were issued in 2003. In August 2003, the Company elected to convert all outstanding preferred stock held by Equus to 1,149,089 shares of common stock.

Cash Flow

Operating activities provided net cash totaling $6.6 million, $1.3 million, and $744,000 during fiscal years 2003, 2002, and 2001, respectively. Much of the increase in our cash flow from operating activities is attributable to the growth in our engineering segment.

Investing activities used cash totaling $471,000 in 2003, compared to $1.3 million in 2002; they provided $5,000 in 2001. In 2003, our investing activities consisted of capital additions of $1.1 million primarily for computers and leasehold improvements to our Beaumont office. We used $425,000 for the acquisitions of Senftleber and Petro-Chem. Partially offsetting these expenditures were cash proceeds from the sale of our building in Baton Rouge and from the sale of Thermaire.

Financing activities used cash totaling $6.1 million and $1.2 million, and provided cash of $253,000 during 2003, 2002, and 2001, respectively. Our primary financing mechanism is our revolving line of credit with Fleet. The line of credit has been used principally to finance accounts receivable. During 2003, our payments, net of borrowings, on the line of credit were $4.5 million, and we repaid an aggregate of $1.1 million on our long-term debt to Equus and PAL.

The merger with Petrocon in December 2001 was a $23.8 million non-cash purchase transaction made through the issuance of common and preferred stock and assumption of debt. Non-cash transactions include the issuance of stock dividends of $102,000 and $88,000 during 2003 and 2002, respectively. During 2003, our preferred stock was converted to common stock valued at $2,735,000. We also acquired insurance with notes payable of $1,085,000, $772,000, and $228,000 in 2003, 2002, and 2001, respectively.

We received tax refunds of $390,000 in 2002 from state authorities for franchise taxes related to prior years for the Petrocon companies. No such refunds were received in 2003.

The Company believes that it has available necessary cash for operations 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 accounts receivable, if such accounts are not collected within 90 days of the original invoice date, or if our project mix shifts from cost reimbursable to fixed cost contracts during significant periods of growth.

Our loan agreement places limits on our ability to borrow based on the concentration of sales to individual clients. The accounts receivable balance of any one customer (except ExxonMobil) may not exceed 20% of all net eligible accounts. ExxonMobil’s concentration balance is limited to 30% of all net eligible accounts. As of December 31, 2003, our additional borrowing capacity was reduced by $865,000 due to the concentration limit.

If losses occur, we may not be able to meet our monthly fixed charge ratio covenant under our credit facility with Fleet. In that event, if we are unable to obtain a waiver or amendment of the covenant, we may be unable to make further borrowings and may be required to repay all loans then outstanding under the credit facility.

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We do not hold any derivative financial instruments for trading purposes or otherwise. Furthermore, we have not engaged in energy or commodity trading activities and do not anticipate doing so in the future, nor do we have any transactions involving unconsolidated entities or special purpose entities.

Asset Management

We typically sell our products and services on short-term credit terms and seek to minimize our credit risk by performing credit checks and conducting our own collection efforts. Our trade accounts receivable increased to $20.2 million from $16.0 million as of December 31, 2003 and 2002, respectively, primarily due to increased sales in the Beaumont area. Some of our contract terms specify a shortened five-day payment cycle. This has reduced the number of days outstanding for trade accounts receivable from 65 days at December 31, 2002 to 54 days at December 31, 2002. Bad debt expenses have been insignificant (approximately 0.2% of revenues and 0.2% of revenues in 2003 and 2002, respectively). We have increased our allowance for doubtful accounts from $282,000 to $376,000, or 1.7% and 1.8% of the trade accounts receivable balance for 2002 and 2003, respectively.

Related Party Transactions

ENGlobal Engineering leases office space from PEI Investments, a joint venture in which ENGlobal Engineering has a one-third interest, Michael L. Burrow (the Company’s CEO) has a one-third interest, and a stockholder who owns less than 1% of the Company’s common stock has a one-third interest. Rentals paid under the lease were $100,000 for each of 2003, 2002 and 2001. The lease expires in 2005. We believe that this lease is at a commercially reasonable rental rate.

Risk Management

In performing services for our clients, we could potentially be liable for breach of contract, personal injury, property damage, or negligence, including professional errors and omissions. We often agree to indemnify our clients for losses and expenses incurred as a result of our negligence and, in certain cases, the concurrent negligence of the clients. Our quality control and assurance program includes a control function to establish standards and procedures for performance and for documentation of project tasks, and an assurance function to audit and to monitor compliance with procedures and quality standards. We maintain liability insurance for bodily injury and third-party property damage, professional errors and omissions, and workers compensation coverage, which we consider sufficient to insure against these risks, subject to self-insured amounts.

Holidays and employee vacations during our fourth quarter exert downward pressure on revenues for that quarter, which is only partially offset by the year-end efforts on the part of many clients to spend any remaining funds budgeted for engineering services or capital expenditures during the year. The annual budgeting and approval process under which these clients operate is normally not completed until after the beginning of each new year, which can depress results for the first quarter. Principally due to these factors, our revenues during the first and fourth quarters generally tend to be lower than in the second and third quarters.

Critical Accounting Policies

Revenue Recognition—Our revenues are largely composed of engineering service revenue and product sales. We recognize service revenue as soon as such services are performed and we recognize revenue from the sales of products upon shipment to the customer. The majority of our services are provided through time-and-material contracts (also referred to as cost-plus contracts), many of which have not-to-exceed provisions that place a cap on the revenue that we may receive under a particular contract. These time and material billings are produced every two weeks.

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On occasion, we serve as purchasing agent, procuring subcontractors, material, and equipment on behalf of a client and passing the cost on to the client with no mark-up or profit. In accordance with Statement of Position (“SOP”) 81-1, revenues and costs for these type purchases are not included in total revenues and costs. For financial reporting this “pass-through” type of transaction is reported net.

Profits and losses on fixed-fee contracts are recorded on the percentage-of-completion method of accounting, measured by the percentage-of-contract costs incurred to date to estimated total contract costs for each contract. Contract costs include amounts paid to subcontractors. Anticipated losses on uncompleted construction contracts are charged to operations as soon as such losses can be estimated. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

The asset, “costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed on fixed-fee contracts. The liability “billings in excess of costs and estimated profits on uncompleted contracts” represents amounts billed in excess of revenues recognized on fixed-fee contracts.

Use of Estimates—The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying results. Actual results could differ from these estimates. One example includes the estimates of uncollectability of our accounts receivable. Management specifically analyzes the accounts receivable balances, historical bad debts, customer credit-worthiness, and changes in our customers’ payment trends when evaluating the provisions for bad debts.

Goodwill—In conjunction with each acquisition, we must allocate the cost of the acquired entity to the assets and liabilities assumed based on their estimated fair values at the date of acquisition. As additional information becomes available, adjustments may be made to the original estimates within a short time subsequent to the acquisition. Goodwill is not amortized but instead is periodically assessed for impairment. The impairment testing entails estimating current market value of the segments, based on management’s estimate of market conditions including pricing, demand, competition, operating costs and other factors. Determining the fair value of assets and liabilities acquired involves professional judgment and is ultimately based on management’s assessment of the value of the assets acquired. We believe our estimates for these items are reasonable, but there is no assurance that actual amounts will not vary significantly from estimated amounts. Consistent with SFAS 142, we have not amortized goodwill related to the merger with Petrocon, but instead tested the balance for impairment.

Litigation—We are subject to legal proceedings and claims that have arisen in the ordinary course of its business. Based on legal analysis and advice from our attorneys, allowances have been made for any litigation that management believes could have a material adverse effect on our financial condition or results of operations.

Principles of Consolidation—The consolidated financial statements include the accounts of ENGlobal and all wholly owned subsidiaries. ENGlobal owns 100% of all of its affiliates. All intercompany transactions and accounts are eliminated in the consolidation.

Recent Accounting Pronouncements

SFAS No. 150, issued in May 2003, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, establishes standards for the measurement and classification of such financial instruments. If the instrument has characteristics of liability, it is to be classified as a debt instrument. The effective date of the statement is June 15, 2003. We have adopted the statement; however, management does not believe the effect of adopting this statement will have a material impact on our financial position, results of operations, or cash flows.

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In January 2003, the Financial Accounting Standard Board (“FASB”) issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” and addresses consolidation by business enterprises of variable interest entities (more commonly known as “Special Purpose Entities” or “SPE’s”). In December 2003, FASB issued FIN No. 46R which replaced FIN 46 and clarified ARB 51. This interpretation provides guidance on how to identify a variable interest entity and determine when the assets, liabilities, non-controlling interests and results of operations of a variable interest entity should be consolidated by the primary beneficiary. The primary beneficiary is the enterprise that will absorb a majority of the variable interest entity’s expected losses or receive a majority of the expected residual returns as a result of holding variable interests. This FIN requires the consolidation of results of variable interest entities in which the Company is the primary beneficiary of the variable interest entity. As of December 31, 2003, the Company did not own an interest in a variable interest entity that met the consolidation requirements and as such the adoption of FIN No. 46R did not have any effect on the financial condition, results of operations, or liquidity of the Company. Interests in entities acquired or created after December 31, 2003 will be evaluated based on FIN No. 46R criteria and consolidated, if required.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

As of December 31, 2003 and 2002, the Company did not participate in any derivative financial instruments or other financial and commodity instruments for which fair value disclosure would be required under SFAS No 107. There are no investments at December 31, 2003. Accordingly, the Company has no quantitative information concerning the market risk of participating in such investments.

As of December 31, 2003 and 2002, the Company did not participate in any derivative financial instruments or other financial and commodity instruments for which fair value disclosure would be required under SFAS No. 133.

The Company has no market risk exposure in the areas of interest rate risk because there is no investment portfolio as of December 31, 2003. Currently, the Company does not engage in foreign currency hedging activities nor is the Company exposed to currency exchange rate fluctuation.

29

Item 8.    Financial Statements and Supplementary Data

The audited consolidated balance sheets for ENGlobal Corporation, as of December 31, 2003 and 2002 and statements of income, cash flows, and stockholders’ equity for the three-year period ended December 31, 2003, are attached hereto and made part hereof.

INDEX

	Page
INDEPENDENT AUDITOR’S REPORT	31
CONSOLIDATED BALANCE SHEETS December 31, 2003 and 2002	32
CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2003, 2002 and 2001	33
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY Years Ended December 31, 2003, 2002 and 2001	34
CONSOLIDATED STATEMENTS OF CASH FLOW Years Ended December 31, 2003, 2002 and 2001	35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	36

30

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Stockholders

ENGlobal Corporation

We have audited the accompanying consolidated balance sheets of ENGlobal Corporation as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ENGlobal Corporation and Subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/ Hein & Associates LLP

Hein & Associates LLP

Houston, Texas

March 12, 2004

31

ENGLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002

ASSETS	2003		2002
Current Assets:
Cash	$	39,439	$	75,095
Trade receivables, net		20,244,172		16,025,280
Prepaid expenses and other current assets		1,260,296		753,662
Cost and estimated earnings in excess of billings on uncompleted contracts		1,022,726		2,043,603
Deferred tax asset		477,000		461,000
Inventories		118,340		228,396
Total current assets		23,161,973		19,587,036
Property And Equipment, net		4,302,430		4,779,575
Net Assets of Discontinued Operations		860,728		1,756,475
Goodwill		13,752,564		13,209,378
Deferred Tax Asset		—		402,000
Other Assets		452,695		333,552
Total assets	$	42,530,390	$	40,068,016
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	9,821,030	$	3,880,021
Accrued compensation and benefits		4,302,136		3,898,413
Notes payable		771,225		485,850
Current portion of long-term debt		623,230		743,039
Billings and estimated earnings in excess of costs on uncompleted contracts		374,339		811,845
Federal income taxes payable		103,609		319,228
Dividends payable		—		120,773
Other liabilities		661,699		911,607
Total current liabilities		16,657,268		11,170,776
Net Liabilities of Discontinued Operation		24,164		324,055
Long-term Debt, Net of Current Portion		7,506,062		12,579,702
Long-term leases, Net of Current Portion		12,042		16,702
Deferred Tax liability		156,000		—
Total liabilities		24,355,536		24,091,235
Commitments And Contingencies (Notes 8, 9, 10 and 18)
Redeemable Preferred Stock:
Series A redeemable convertible preferred stock: 2,265,167 shares and 5,000,000 shares authorized 2003 and 2002, respectively ; 0 (at 2003) and 2,588,000 (at 2002) issued and outstanding; stated at redemption value, $1.00 per share		—		2,588,000
Stockholders’ Equity:
Common stock; $0.001 par value; 75,000,000 shares authorized; 24,034,288 and 22,861,199 shares issued and outstanding at December 31, 2003 and 2002, respectively		24,034		22,862
Paid-in capital		12,094,382		9,335,471
Retained earnings		6,056,438		4,030,448
Total stockholders’ equity		18,174,854		13,388,781
Total liabilities and stockholders’ equity	$	42,530,390	$	40,068,016

See accompanying notes to these consolidated financial statements.

32

ENGLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Years Ended December 31,
	2003			2002			2001
Operating Revenues:
Engineering	$	108,380,100		$	74,971,506		$	14,235,042
Systems		15,339,002			14,151,089			3,574,591
Total revenue		123,719,102			89,122,595			17,809,633
Direct Costs:
Engineering		93,578,716			62,876,626			10,432,512
Systems		13,166,811			11,839,820			3,107,085
Total direct costs		106,745,527			74,716,446			13,539,597
Gross Profit		16,973,575			14,406,149			4,270,036
Selling, General, and Administrative Expenses		12,439,408			10,632,357			2,835,769
Operating Income		4,534,167			3,773,792			1,434,267
Interest expense		(784,227	)		(820,976	)		13,516
Other income and expenses		(355,174	)		142,559			13,695
Income from Continuing Operations Before Provisions for Income Taxes		3,394,766			3,095,375			1,461,478
Provision for Income Taxes		1,109,496			1,197,067			594,695
Income from Continuing Operations		2,285,269			1,898,308			866,783
Loss from Discontinued Operations:
Income/(loss) from operations of discontinued segment, net of tax ($75,066, $92,373 benefit and $78,934 expense, respectively)		(154,615	)		(146,485	)		115,049
Gain from sale of discontinued segment, net of tax of ($12,834)		26,434			—			—
Net Income		2,157,088			1,751,823			981,832
Preferred Dividends		131,100			208,992			—
Net Income Available for Common Stock	$	2,025,988		$	1,542,831		$	981,832
Basic Earnings per Share from Continuing Operations	$	0.092		$	0.073		$	0.065
Basic Earnings per Share from Discontinued Operations	$	(0.005	)	$	(0.006	)	$	0.009
Basic Earnings per Share from Net Income Available to Common Stock	$	0.087		$	0.067		$	0.074
Weighted Average Common Shares Outstanding for Basic		23,300,600			22,861,199			13,236,049
Diluted Earnings per Share from Continued Operations		0.091			0.073			0.065
Diluted Earnings per Share from Discontinued Operations		(0.005	)		(0.006	)		0.009
Diluted Earnings per Share from Income Available to Common Stock		0.086			0.067			0.074
Weighted Average Common Shares Outstanding for Diluted		23,733,807			23,013,016			13,236,049

See accompanying notes to these consolidated financial statements.

33

ENGLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended December 31, 2003, 2002 and 2001

	Common Stock			Additional Paid-In Capital		Retained Earnings			Note Receivable Shareholder			Total Stockholders’ Equity
	Shares	Amount
Balances, January 1, 2001	12,964,918	$	12,965	$	2,640,154	$	1,702,285		$	(196,500	)	$	4,158,904
Acquisition: Issued stock for purchase of Petrocon Engineering, Inc. net of registration costs	9,800,000		9,800		6,627,054		—			—			6,636,854
Acquisition: Issued stock for investment advisor and 8% preferred stock issued to Equus for forgiveness of debt	96,281		97		68,263								68,360
Forgiveness of Note Receivable—Stockholder for purchase option to acquire Company stock	—		—		—		(196,500	)		196,500			—
Net income	—		—		—		981,832			—			981,832
Balances, December 31, 2001	22,861,199		22,862		9,335,471		2,487,617			—			11,845,950
Preferred stock dividends							(208,992	)					(208,992	)
Net income	—		—		—		1,751,823			—			1,751,823
Balances, December 31, 2002	22,861,199		22,862		9,335,471		4,030,448			—			13,388,781
Preferred stock dividend							(131,099	)					(131,099	)
Conversion of preferred stock 2.38 preferred shares to each common share	1,149,089		1,148		2,733,685								2,734,833
Exercise of stock options	24,000		24		25,226								25,250
Net income	—		—		—		2,157,088			—			2,157,088
Balances, December 31, 2003	24,034,288	$	24,034	$	12,094,382	$	6,056,438		$	—		$	18,174,854

See accompanying notes to these consolidated financial statements.

34

ENGLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2003			2002			2001
Cash Flows from Operating Activities:
Net income	$	2,157,088		$	1,751,823		$	981,832
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		824,476			712,991			172,926
Deferred income tax expense		542,000			437,000			319,154
Gain on sale of investments		—			—			(64,223	)
Loss on disposal of property, plant and equipment		312,307			—			—
Changes in current assets and liabilities, net of acquisitions:
Trade receivables		(3,947,817	)		(1,117,211	)		(1,010,414	)
Inventory		110,056			462,652			174,292
Costs and estimated earnings in excess of billings		1,020,877			(1,313,096	)		71,472
Prepaid expenses and other assets		372,419			251,530			495,286
Accounts payable		5,695,662			(1,265,601	)		(533,121	)
Accrued compensation and benefits		403,724			1,198,724			—
Billings in excess of costs and estimated earnings		(437,506	)		34,133			—
Other liabilities		(280,166	)		(169,822	)		240,656
Income taxes receivable (payable)		(215,619	)		319,228			(104,151	)
Net cash provided by operating activities		6,557,501			1,302,351			743,709
Cash Flows from Investing Activities:
Purchase of property and equipment		(1,146,351	)		(423,344	)		(459,068	)
Software upgrade		—			(909,627	)		—
Proceeds from sale of Baton Rouge building		554,866			42,523			—
Acquisition of Senftleber		(399,900	)		—			—
Acquisition of Petro-Chem		(25,000	)		—			—
Redemption of bonds		—			—			464,223
Proceeds from Sale of Thermaire		545,198			—			—
Net cash provided by (used in) investing activities		(471,187	)		(1,290,448	)		5,155
Cash Flows from Financing Activities:
Borrowings on line of credit		127,650,133			111,764,457			1,114,300
Payments on line of credit		(132,178,422	)		(110,574,665	)		(361,617	)
Exercise of options to common stock		25,250			—			—
Short-term borrowings (repayments)		(484,023	)		(684,626	)		—
Preferred dividends accrual		—			(120,773	)		—
Capital lease repayments		(4,365	)		(50,661	)		(40,514	)
Long-term debt repayments		(1,130,544	)		(1,515,447	)		(458,718	)
Net cash provided by (used in) financing activities		(6,121,970	)		(1,181,715	)		253,451
Net Change in Cash and Cash Equivalents		(35,656	)		(1,169,812	)		1,002,315
Cash and Cash Equivalents, at Beginning of Year		75,095			1,244,907			242,592
Cash and Cash Equivalents, at End of Year	$	39,439		$	75,095		$	1,244,907
Non-Cash Transactions:
Acquisition of Petrocon with issuance of common and preferred stock and assumption of debt	$	—		$	—		$	23,805,675
Stock issued for preferred dividend		146,833			88,000			—
Insurance acquired with notes payable		1,085,363			771,502			228,254
Property and equipment acquired under capital lease		—			—			53,393
Conversion of preferred stock to common stock		2,734,834			—			—
Supplemental Cash Flow Information
Cash paid during the year for—
Interest		771,793			744,103			83,213
State and federal income taxes		734,615			486,697			263,780
Dividend payment		105,040			—			—
Refunds from state franchise taxes		—			389,714			—

See accompanying notes to these consolidated financial statements.

35

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Background and Basis of Presentation

Basis of Presentation

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Our Company consolidates all of its wholly-owned subsidiaries and all significant intercompany accounts and transactions have been eliminated in the consolidation.

Organization—Brief descriptions of the active companies included in the consolidated group follow:

ENGlobal Corporation (“ENGlobal”)—a Nevada holding company.

ENGlobal Corporate Services, Inc. (“ECS”)—provides the corporate oversight function.

ENGlobal Engineering, Inc. (“EEI”)—provides general engineering for industrial customers primarily along the Texas Gulf Coast and Oklahoma with specialties in the areas of distributive control systems, power distribution, process design and process safety management.

ENGlobal Construction Resources, Inc. (“ECR”)—provides technical and inspection personnel within client facilities for the petrochemical industry.

RPM Engineering, Inc. d/b/a ENGlobal Engineering, Inc. (“RPM”)—provides engineering services in southeast Louisiana.

ENGlobal Systems, Inc. (“ESI”)—provides design, fabrication, installation, start-up, checkout and maintenance of specialized systems such as programmable logic controller (PLC) systems integration, supervisory controls and data acquisition (SCADA) and triple modular redundancy (TMR) systems, distribution control system (DCS), and analyzer systems.

ENGlobal Constant Power, Inc. (“ECP”)—fabricates industrial grade uninterruptible electrical power systems, battery chargers and microprocessor systems for service in the high-end industrial market.

ENGlobal Technologies, Inc. (“ETI”)—reactivated in January 2003; provides advanced automation controls such as software analyzers and intelligent optimization software for the power and processing industries.

Senftleber & Associates, L.P. (“Senftleber”)—provides pipeline support and consulting along the Gulf Coast.

2.    Summary of Significant Accounting Policies

Cash and Cash Equivalents—Cash and cash equivalents include cash in bank at December 31, 2003. The Company’s banking system provides for daily replenishment of major bank accounts for check-clearing requirements. Accordingly, there were negative book balances of $0.9 million on December 31, 2003 and $1.4 million on December 31, 2002. Such balances result from outstanding checks that have not yet been paid by the bank and are reclassified to accounts payable in the accompanying consolidated balance sheets. The Company has no cash equivalents at December 31, 2003 or 2002.

Inventories—Inventories are composed primarily of raw materials and component parts (enclosures, electronics, PC boards and wire) and are carried at the lower of cost or market value, with cost determined on the first-in, first-out (“FIFO”) method of accounting.

Revenue Recognition—The Company’s revenues are composed of engineering service revenue and product sales. The Company recognizes service revenue as soon as such services are performed and product sales upon shipment to the customer. The majority of the Company’s services are provided through cost-plus contracts.

36

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On occasion, the Company, serving as purchasing agent on behalf of the client, procures material and equipment whereby the cost is reimbursed by the client with no mark-up or profit. In accordance with Statement of Position (SOP) 81-1, revenues and costs for these type purchases are not included in total revenues and costs. For financial reporting this “pass-through” type of transaction is reported net. During 2003 and 2002, pass-through transactions totaled $5.6 million and $9.5 million, respectively.

Profits and losses on fixed-fee contracts are recorded on the percentage-of-completion method of accounting, measured by the percentage-of-contract costs incurred to date relative to estimated total contract costs. Contract costs include total labor material, subcontractors, and supplies. Anticipated losses on uncompleted construction contracts are charged to operations as soon as such losses can be estimated. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

The asset, “costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed on fixed-fee contracts. The liability “billings in excess of costs and estimated profits on uncompleted contracts” represents amounts billed in excess of revenues recognized on fixed-fee contracts.

Property and Equipment—All property and equipment is stated at cost, adjusted for accumulated depreciation. Depreciation is calculated using a straight-line method over the estimated useful lives of the related assets. The useful life is estimated to be three years for computers and autos, five years for software, furniture and fixtures, 10 years for machinery and equipment, and 39 years for buildings. Leasehold improvements are amortized over the term of the related lease.

Goodwill—In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. SFAS 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

The Company adopted SFAS 142 effective January 1, 2002. Upon adoption, the Company tested goodwill for impairment at January 1, 2002 according to the provisions of SFAS 142, which resulted in no impairment required as a cumulative effect of accounting change. The Company tested goodwill for impairment at December 31, 2002 and 2003 resulting in no impairment of goodwill.

Prior to adoption of SFAS 142, the Company recorded $16,000 of amortization expense related to goodwill during the year ended December 31, 2001. As a result of adopting SFAS 142, the Company did not recognize any goodwill amortization during the year ended December 31, 2003 and 2002.

37

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table reconciles previously reported net income and earnings per share as if the provisions of SFAS 142 were in effect in 2001.

	2003		2002		2001
Reported net income	$	2,157,088	$	1,751,823	$	981,832
Add back goodwill amortization		—		—		16,200
Adjusted net income	$	2,157,088	$	1,751,823	$	998,032
Earnings per Share:
Basic—as reported	$	0.087	$	0.068	$	0.074
Basic—pro forma		0.087		0.068		0.075
Diluted—as reported		0.086		0.068		0.074
Diluted—pro forma		0.086		0.068		0.075

The Petro-Chem acquisition resulted in an increase of $115,000 in goodwill. The Senftleber acquisition resulted in an increase of $428,000 in goodwill. With the sale of Thermaire, an adjustment to write off $2,000 in goodwill was made.

Long-lived Assets—The Company reviews long-lived assets and certain identifiable intangible assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The Company has not identified any such impairment losses.

Software Development Costs—Under the provisions of SOP-98-1 ENGlobal capitalizes costs associated with software developed or obtained for internal use when both the preliminary project stage is completed and when management authorizes funding for the project which is deemed probable of completion. Costs include 1) external direct costs of materials and services incurred in obtaining and developing the software, and 2) payroll and payroll related costs for employees who are directly associated with and devote time to the project. Capitalization of these costs ceases no later than the point at which the project is substantially complete and ready for its intended use. At that time, the costs are reclassified to fixed assets. The accounting system upgrade was completed at the end of 2002 and depreciation began in January 2003.

Dispositions—Assets Held for Sale and Discontinued Operations—In management’s ongoing strategic efforts to increase the Company’s focus on core engineering consulting services, the Company sold its Thermaire manufacturing operations. During 2001, ENGlobal decided to seek a buyer for Thermaire, the only company in the manufacturing segment. Thermaire manufactured air-handling equipment for commercial heating, ventilation, and cooling systems. The sale benefits the Company by improving its strategic focus on engineering services and systems.

Effective November 2001, the Board of Directors authorized the sale of Thermaire. A significant portion of Thermaire’s assets was sold to Nailor Industries on December 15, 2003. This business has been included in “Discontinued operations” and the assets and liabilities have been separately identified on the Balance Sheet for all periods presented. The sales from discontinued operations for the years ended December 31, 2003, 2002 and 2001 were $2.0 million, $2.4 million, and $4.2 million, respectively. These sales were excluded from revenues from continuing operations reported on the income statement. Thermaire experienced pre-tax losses during 2003 and 2002 of $230,000 and $239,000, respectively, and pre-tax income of $194,000 in 2001. The income (loss) from discontinued operations does not include any charges to reduce the book value of the business held for sale to its fair market value less cost to sell, since the fair value of the business exceeded book value.

38

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The major classes of assets and liabilities “held for sale” included in the Consolidated Balance Sheets as of December 31 are as follows (in thousands):

	2003		2002
Assets
Accounts receivable, net	$	183	$	466
Inventories		—		303
Other current assets		—		6
Goodwill		—		2
Property, plant and equipment, net, held for sale		678		979
Total assets “held for sale”	$	861	$	1,756
Liabilities
Accounts Payable	$	2	$	160
Other current liabilities		22		77
Long-term leases		—		87
Total liabilities associated with assets “held for sale”	$	24	$	324

Income Taxes—The Company accounts for deferred income taxes in accordance with the asset and liability method, whereby deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement and tax bases of its existing assets and liabilities. The provision for income taxes represents the current tax payable or refundable for the period plus or minus the tax effect of the net change in the deferred tax assets and liabilities during the period.

Stock Based Compensation—The Company applies SFAS No. 123, Accounting for Stock-Based Compensation, which encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based on fair value. The Company has elected to record compensation expense in accordance with Accounting Principles Board (APB) Opinion No. 25, which calculates compensation as the difference between an option’s exercise price and the current price of the underlying stock. (For equity instruments issued to employees, see Note 10 that contains required pro forma disclosure of the impact of adopting SFAS No. 123)

39

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Earnings Per Share—Basic earnings per share was computed as follows:

Reconciliation of Earnings per share calculation

	2003				2002				2001
	Basic		Diluted		Basic		Diluted		Basic	Diluted
Income from continuing operations	2,285,269		2,285,269		1,898,308		1,898,308		866,783	866,783
Preferred dividends	131,100		131,100		208,992		208,992		—	—
Income available to common stockholders from continuing operations	2,154,169		2,154,169		1,689,316		1,689,316		866,783	866,783
Income (loss) from discontinued operations	(128,181	)	(128,181	)	(146,485	)	(146,485	)	115,049	115,049
Net income available to common shareholders	2,025,988		2,025,988		1,542,831		1,542,831		981,832	981,832
Weighted average number of shares outstanding for basic	23,300,600				22,861,199				13,236,049
Weighted average number of shares outstanding for diluted			23,733,807				23,013,016			13,236,049
Income (loss) per share available from common stock:
Income from continuing operations	0.092		0.091		0.073		0.073		0.065	0.065
Income (loss) from discontinued operations	(0.005	)	(0.005	)	(0.006	)	(0.006	)	0.009	0.009
Income available to common stock	0.087		0.086		0.067		0.067		0.074	0.074

Diluted earnings per share are computed including the impact of all potentially dilutive securities. Potentially dilutive securities that have not been included in the computation of earnings per share include 560,031 options exercisable from $2.32 to $6.24, issued from 1995 through 2003. These options were not included because the exercise prices were greater than the market price of the common shares and, therefore, the effect would be anti-dilutive. The following table sets forth the shares outstanding for the earnings per share calculations for the years ended December 31, 2003, 2002 and 2001.

	2003	2002	2001
Common stock issued, beginning of year	22,861,199	22,861,199	12,964,918
Weighted average common stock issued	439,401	—	271,131
Shares used in computing basic earnings per share	22,300,600	22,861,199	13,236,049
Assumed conversion of dilutive stock options	1,433,207	151,817	—
Shares used in computing diluted earnings per share	23,733,807	23,013,016	13,236,049

Use of Estimates—The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying results. Actual results could differ from these estimates.

Fair Value of Financial Instruments—The fair value of financial instruments, primarily accounts receivable, notes receivable, accounts payable and notes payable, closely approximate the carrying values of the instruments due to the short-term maturities of such instruments.

40

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Comprehensive Income—Comprehensive income is defined as all changes in stockholders’ equity, exclusive of transactions with owners, such as capital investments. Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity, such as translation adjustments on investments in foreign subsidiaries and certain changes in minimum pension liabilities. The Company’s comprehensive income is equal to its net income for all periods presented in these financial statements.

Reclassifications—Amounts in prior years’ financial statements are reclassified as necessary to conform to the current year’s presentation. Such reclassifications had no effect on net income.

3.    Recent Accounting Pronouncements

SFAS No. 150, issued in May 2003, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, establishes standards for the measurement and classification of such financial instruments. If the instrument has characteristics of liability, it is to be classified as a debt instrument. The effective date of the statement is June 15, 2003. Adoption of this statement had no impact on the Company.

In January 2003, the Financial Accounting Standard Board (“FASB”) issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” and addresses consolidation by business enterprises of variable interest entities (more commonly known as Special Purpose Entities or SPE’s). In December 2003, FASB issued FIN No. 46R which replaced FIN 46 and clarified ARB 51. This interpretation provides guidance on how to identify a variable interest entity and determine when the assets, liabilities, non-controlling interests and results of operations of a variable interest entity should be consolidated by the primary beneficiary. The primary beneficiary is the enterprise that will absorb a majority of the variable interest entity’s expected losses or receive a majority of the expected residual returns as a result of holding variable interests. This FIN requires the consolidation of results of variable interest entities in which the Company is the primary beneficiary of the variable interest entity. As of December 31, 2003, the Company did not own an interest in a variable interest entity that met the consolidation requirements and as such the adoption of FIN No. 46R did not have any effect on the financial condition, results of operations, or liquidity of the Company. Interests in entities acquired or created after December 31, 2003 will be evaluated based on FIN No. 46R criteria and consolidated, if required.

4.    Property and Equipment

Property and equipment consisted of the following at December 31, 2003 and 2002 (in thousands):

	2003			2002
Land	$	202		$	500
Building		1,357			1,952
Computer equipment and software		2,855			1,610
Shop equipment		362			336
Furniture and fixtures		121			92
Building and leasehold improvements		671			191
Autos and trucks		79			75
		5,647			4,756
Accumulated depreciation and amortization		(1,642	)		(887	)
		4,005			3,869
Software upgrade in process		297			910
Property and equipment, net	$	4,302		$	4,779

41

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Depreciation expense was $781,000, $601,000, and $157,000 in 2003, 2002 and 2001, respectively.

The Company owned an office building in Baton Rouge, which was vacant. The Company sold the building in September 2003 resulting in cash proceeds of $555,000 and a loss of $312,000. The Company used the proceeds from the sale of the building to reduce long-term debt.

The office and manufacturing facility owned by Thermaire has been reclassified to Assets of Discontinued Operations for 2003 and 2002. (See Note 16)

5.    Detail of Certain Balance Sheet Accounts

The components of trade receivables as of December 31, 2003 and 2002 are as follows (in thousands):

	2003			2002
Amounts billed at December 31	$	14,133		$	13,498
Amounts billable at December 31, billed January of the following year		6,093			2,617
Retainage		394			192
Less—Allowance for uncollectible accounts		(376	)		(282	)
Trade receivables, net	$	20,244		$	16,025

The components of other liabilities as of December 31, 2003 and 2002 are as follows (in thousands):

	2003		2002
Reserve for known contingencies (Note 18)		478		715
Accrued interest		48		75
State taxes		39		15
Other		97		107
Other liabilities	$	662	$	912

During 2001, ENGlobal decided to seek a buyer for Thermaire, the only company in the manufacturing segment, which manufactured air-handling equipment for commercial heating, ventilation, and cooling systems. On December 15, 2003, the sale of certain assets to Nailor Industries was completed.

6.    Fixed-Fee Contracts

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

	2003			2002
Costs incurred on uncompleted contracts	$	14,333		$	18,629
Estimated earnings on uncompleted contracts		1,862			3,096
Earned revenues		16,195			21,725
Less billings to date		(15,546	)		(20,493	)
Net cost and estimated earnings in excess of billings on uncompleted contracts	$	649		$	1,232
Costs and estimated earnings in excess of billings on uncompleted contracts	$	1,023		$	2,044
Billings in excess of costs and estimated earnings on uncompleted contracts		(374	)		(812	)
Net cost and estimated earnings in excess of billings uncompleted contracts	$	649		$	1,232

42

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7.    Line of Credit and Debt

ENGlobal has a financing arrangement with Fleet Capital Corporation in the form of a credit facility that includes a line of credit limited to $15.0 million, subject to borrowing base restrictions. The credit facility is senior to all other debt and is collateralized by substantially all the assets of the Company. At December 31, 2003, $5.6 million was outstanding on the line of credit. The line of credit matures on June 14, 2005. The interest rate on the line of credit is one quarter of one percent plus prime (4.25 percent at December 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 December 31, 2003, were $4.7 million after consideration of the borrowing base limitations. The Company’s credit facility contains covenants that require the maintenance of certain ratios, including cumulative fixed charge coverage and specified levels of certain other items. Amounts outstanding under this line of credit are carried in long-term liabilities in the accompanying consolidated balance sheet due to the maturity date extending into 2005.

Long-term debt consisted of the following at December 31, 2003 and 2002 (in thousands):

	2003			2002
Fleet—Line of credit, prime plus 0.25% (4.25% at December 31, 2003), maturing in 2005	$	5,556		$	10,084
The following notes are subordinate to the Fleet credit facility and are unsecured:
Equus—Note payable, interest at 9.5%, principal and interest due quarterly in installments of $110,000, maturing through 2005		2,340			2,780
Petrocon Arabia Limited—Note payable, interest at 8%, principal due in monthly payments of $25,000 and interest due annually, maturing in June 2004		151			451
Petro-Chem—Note payable, principal due in annual installments of $25,000, maturing in 2006		75			—
Miscellaneous		7			8
Total long-term debt		8,129			13,323
Less—current maturities		(623	)		(743	)
Long-term debt, net of current portion	$	7,506		$	12,580

Maturities of long-term debt as of December 31, 2003, are as follows (in thousands):

Years Ending December 31,
2004		623
2005		7,481
2006		25
Total long-term debt	$	8,129

Current notes payable include a note which finances commercial insurance on a short-term basis, with a balance of $721,000 and $485,000 as of December 31, 2003 and 2002, respectively. The notes which bear interest at 7.25%, and are payable in monthly installments of principal and interest totaling $108,000 through July 24, 2004. Also, notes to Mrs. Senftleber and the Senftleber Family Trust for the acquisition of Senftleber & Associates, L.P. have a balance of $50,000 at December 31, 2003 and mature in October 2004.

43

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8.    Operating Leases

The Company leases equipment and office space under long-term operating lease agreements.

The future minimum rental payments on operating leases (with initial or remaining non-cancelable terms in excess of one year) as of December 31, 2003 follows (in thousands):

Years Ending December 31,	Operating
2004	$	1,383
2005		785
2006		453
2007		332
2008		1,245
Total minimum lease payments	$	4,198

Rental expense for all operating leases, including those with terms less than one year, amounted to approximately $1.4 million, $1.3 million and $364,000 for the years ended December 31, 2003, 2002, and 2001, respectively.

9.    Profit Sharing Plan

The Company consolidated two 401(k) profit sharing plans at the end of 2003 covering substantially all employees. For eligible employees, the Company makes mandatory matching contributions equal to 50% of employee contributions up to 4% of employee compensation, as defined. Other discretionary contributions made by the Company are determined by the Board of Directors. The employees may elect to make contributions pursuant to a salary reduction agreement upon meeting age and length-of-service requirements. The Company made contributions of approximately $144,000, $172,000, and $194,000, respectively, for the years ended December 31, 2003, 2002, and 2001.

10.    Stock Option Plan

The Company has an incentive plan that provides for the issuance of options to acquire up to 2,200,000 shares of common stock. The incentive plan (“Option Plan”) provides for grants of non-statutory options, incentive stock options, restricted stock awards and stock appreciation rights. No compensation cost has been recognized for grants under the Option Plan because the exercise price of the options granted to employees equals or exceeds the market price of the stock on the date of the grants. Had the method prescribed by SFAS No. 123 been applied, the Company’s December 31, 2003 and 2002, net income available to common stockholders would have been changed to the pro forma amount indicated below:

	2003		2002		2001
Net income available to common stock—as reported	$	2,025,988	$	1,542,831	$	981,832
Compensation expenses if the fair value method had been applied to the grants		64,492		233,361		27,091
Net income available to common stock—pro forma	$	1,961,496	$	1,309,470	$	954,741
Net income per share—as reported
Basic		0.087		0.067		0.074
Diluted		0.086		0.067		0.074
Net income available per share—pro forma
Basic		0.084		0.057		0.072
Diluted		0.083		0.057		0.072

Effective with the Petrocon merger, a group of significant stockholders placed 1,737,473 shares of common stock in escrow under an Option Escrow Agreement. Under the terms of this agreement, shares issued by

44

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ENGlobal, upon exercise of converted Petrocon options, will be replaced by shares from the escrow account. The Option Escrow Agreement has the effect of preventing dilution to the original ENGlobal stockholders upon the exercise of converted Petrocon options. The Option Escrow Agreement stays in effect until all existing options have been exercised, terminated, or cancelled. During 2003, 27,710 converted Petrocon options were exercised using shares from the Option Escrow Pool.

The Company applies the intrinsic value method of accounting prescribed by APB Opinion No. 25 and related interpretations in accounting for stock-based compensation plans. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of grant over the amount an employee must pay to acquire the stock. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2003, 2002, and 2001: dividend yield of 0%, expected volatility of 93%, 93%, and 94%, risk-free interest rates of 5%, and expected lives of two years.

Each option granted in 2003 has an exercise price of $1.87 or $2.32 per share, and vests over 12 months. The Petrocon converted options granted in 2001 effective with the Merger have exercise prices ranging from $0.96 to $6.24. Other options have exercise prices of $1.00 and $1.25 per share. The maximum term of the options is ten years. Substantially all of the options were granted at the market price of the stock.

The following table summarizes stock option activity for the periods indicated:

	Options at Exercise Prices
	$0.96-1.25		$4.26		$6.24		Total
Outstanding, January 1, 2001	226,000		—		—			226,000
Granted	10,000		—		—			10,000
Granted in connection with a merger	733,030		129,082		202,131			1,064,243
Canceled or expired	(27,500	)	—		—			(27,500	)
Exercised	—		—		—			—
Outstanding, December 31, 2001	941,530		129,082		202,131			1,272,743
Granted	20,000		—		—			20,000
Canceled or expired	(35,000	)	(2,085	)	(729	)		(37,814	)
Exercised	—		—		—			—
Outstanding, December 31, 2002	926,530		126,997		201,402			1,254,929
Granted	120,000		—		—			120,000
Canceled or expired	(2,909	)	(63,142	)	—			(66,051	)
Exercised	(51,710	)	—		—			(51,710	)
Outstanding, December 31, 2003	991,911		63,855		201,402			1,257,168
Exercisable at December 31, 2003	918,285		63,855		153,291			1,135,431
Available for grant at December 31, 2003								822,257
Weighted-average fair value of options at grant date, granted in 2003							$	2.10
Weighted-average fair value of options, granted in 2001 and 2002							$	2.34
Weighted-average exercise price all outstanding options at December 31, 2003							$	2.11
Weighted-average remaining vesting life of all options outstanding at December 31, 2003								3.27 yrs

The summary above does not include 234,774 non-qualified options issued at the time of the Merger to replace existing options issued by Petrocon in consideration for services. Such options have an exercise price of $4.26 per share and expire in September 2006.

Replacement warrants of 305,102 (not included in the table above) with an exercise price of $6.24 expired in October 2003.

45

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11.    Related-Party Transactions

ENGlobal Engineering leases office space from PEI Investments, a joint venture in which ENGlobal Engineering has a one-third interest, Michael L. Burrow (the Company’s CEO) has a one-third interest, and a stockholder who owns less than 1% of the Company’s common stock has a one-third interest. Rentals paid under these leases were $100,000 for 2003, 2002 and 2001. The lease expires in 2005.

12.    Concentration of Credit Risk and Major Customers

The Company provides engineering and fabricated systems and services primarily to major integrated oil and gas companies throughout the world. It also fabricates power systems and battery chargers. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Management reviews all trade receivable balances that exceed 30 days past due and based on its assessment of current credit worthiness, estimate what portion, if any seems doubtful for collection. A valuation allowance that reflects management’s best estimate of the amounts that will not be collected is established.

Financial instruments that potentially subject the Company to concentration of credit risk are accounts receivable. The Company performs ongoing credit evaluations as to the financial condition of its customers. Generally, no collateral is required.

For the years ended December 31, 2003, 2002, and 2001, the Company had sales in the engineering segment totaling approximately $45.2 million, $30.6 million, and $5.4 million attributable to a single customer. During 2003, sales to one major customer represented over 36% of total sales. During 2002 and 2001, a single customer represented approximately 30% and 25% of total sales, respectively. At December 31, 2003, the Company had amounts due from one customer totaling $5.1 million; no other customer exceeded 10% of trade receivables at that date. At December 31, 2002, three customers had amounts in excess of 10% of trade receivables, totaling $1.6 million. Due to the limits imposed by our loan agreement on concentration of receivables with a single client, our available borrowings under the line of credit were reduced by $865,000 at December 31, 2003.

13.    Redeemable Preferred Stock

ENGlobal has a class of preferred stock with 5,000,000 shares originally authorized for issuance. The Company issued to Equus 2,500,000 shares of preferred stock in 2001 and stock dividends totaling 88,000 shares in 2002 and 146,833 shares in 2003. Par value for the preferred stock was $0.001 with a fair value of $1.00 per share. The preferred shares outstanding were converted into 1,149,089 shares of common stock in August 2003. Following the conversion, the Company reduced the authorized shares of preferred stock to 2,265,167.

14.    Federal Income Taxes

The components of income tax expense (benefit) from continuing operations were as follows (in thousands):

	Years Ended December 31,
	2003		2002			2001
Current:
Federal	$	536	$	800		$	120
State		30		(40	)		135
		566		760			255
Deferred		543		437			319
Tax provision	$	1,109	$	1,197		$	574

46

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The components of the Company’s deferred tax asset (liability) consisted of the following at December 31, 2003 and 2002 (in thousands):

	2003			2002
Deferred tax asset:
Allowance for doubtful accounts	$	128		$	96
Net operating loss from prior ownership change		135			535
Accruals not yet deductible for tax purposes		349			365
Net deferred tax assets		612			996
Deferred tax liabilities—
Depreciation		(291	)		(133	)
Deferred tax asset, net	$	321		$	863

During the year ended December 31, 2002, the Company resolved certain issues related to a net operating loss carryforward (“NOL”). Upon such resolution, the Company recorded a purchase price adjustment from goodwill to a deferred tax asset totaling approximately $1.3 million and decreased the valuation allowance accordingly.

The following is a reconciliation of expected to actual income tax expense from continuing operations (in thousands):

	2003			2002			2001
Federal income tax expense at 34%	$	1,154		$	1,052		$	497
State and foreign taxes, net of tax effect		2			(26	)		—
Nondeductible expenses		31			15			28
Other		(78	)		156			70
	$	1,109			1,197		$	595

The Company has a net operating loss carryforward of approximately $1,000,000 utilized in the calculation of tax expense for 2003 and 2002. The Company has an additional net operating loss carryforward of approximately $500,000 that is subject to limitations on utilization due to prior ownership changes.

15.    Acquisitions

The Company has a near-term strategy to develop breadth and depth within the organization through acquisitions. In December 2001, ENGlobal acquired Petrocon Engineering, Inc., a privately held Texas corporation. The consummation of the merger was accounted for as a purchase transaction for accounting purposes with an effective date of December 31, 2001. Accordingly, the results of operations including the newly acquired company are included in the consolidated statement of income for the years ended December 31, 2003 and 2002.

Two acquisitions were completed in 2003, Senftleber & Associates, L.P. and Petro-Chem Engineering, Inc. Through the Petro-Chem transaction, selected assets were acquired expanding the Company’s presence in Freeport, Texas and surrounding area. Senftleber, a limited partnership, provides support in the pipeline industry in Houston. The new Freeport operations began in June as a part of EEI. The Senftleber acquisition occurred in November. Senftleber is a subsidiary of ETI.

47

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The acquisitions had an aggregate cost of $425,000. There is no earnout provision in either transaction. Goodwill was created with both transactions: $115,000 for Petro-Chem and $428,000 for Senftleber. The Senftleber goodwill will be deductible for tax purposes. Since these acquisitions are accounted for as a purchase transaction, the accounting is prospective and the operations are combined as of the date of the purchase.

The unaudited pro forma combined historical results, as if the acquisitions had taken place at the beginning of the fiscal 2003, 2002, and 2001, respectively are estimated to be:

	2003		2002
Net sales as reported	$	123,719	$	89,123
Pro forma sales of acquired companies		2,967		6,092
Pro forma net sales		126,686		95,215
Net income as reported		2,157		1,751
Pro forma income of acquired companies		211		493
		2,367		2,244
Basic per share data as reported		0.087		0.067
Pro forma per share data of acquired companies		0.009		0.022
Pro forma basic per share data		0.096		0.089
Diluted per share data as reported		0.086		0.067
Pro forma per share data of acquired companies		0.009		0.021
Pro forma diluted per share data		0.095		0.088

16.    Sale of Thermaire

The Company completed its sale of assets of its subsidiary, Thermaire, Inc., d/b/a Thermal Corporation, the only company in the manufacturing segment, to a medium-sized HVAC equipment manufacturer in December 2003. The disposition had been actively pursued since November 2001 in order to permit the Company to strategically focus on its core operations. This discontinued segment has reported losses from operations of $154,000 and $146,000 in 2003 and 2002, respectively, and income of $115,000 in 2001. The sale resulted in the receipt of $545,000 in cash and a $26,000 gain, net of tax. The proceeds were used to reduce long-term debt. The 37,000 square foot office and manufacturing facility owned by Thermaire was not included in the transaction and has been separately listed for sale.

17.    Segment Information

With the sale of the manufacturing segment, the Company now operates in two business segments: engineering and systems. The engineering segment provides services primarily to major integrated oil and gas companies. The systems segment operates primarily full-service systems/controls engineering and integration with some uninterruptible power systems and battery chargers. Sales, operating income, identifiable assets, capital expenditures and depreciation for each segment are set forth in the following table. The amount in the corporate segment includes those activities that are not allocated to the operating segments.

48

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Segment information for 2003, 2002, and 2001 was as follows (in thousands):

2003
	Engineering		Systems			Corporate			Total
Net sales from external customers	$	108,380	$	15,339		$	—		$	123,719
Operating profit (loss)		4,575		(803	)		762			4,534
Depreciation and amortization		375		89			360			824
Tangible assets		22,642		3,049			3,048			28,762
Goodwill		12,889		864			—			13,753
Capital expenditures		902		105			139			1,146
2002
	Engineering		Systems			Corporate			Total
Net sales from external customers	$	74,971	$	14,151		$	—		$	89,122
Operating profit (loss)		937		(271	)		3,108			3,774
Depreciation and amortization		376		49			288			713
Tangible assets		17,841		5,751			3,267			26,859
Goodwill		12,774		435			—			13,209
Capital expenditures		156		56			1,121			1,333
2001
	Engineering		Systems			Corporate			Total
Net sales from external customers	$	14,235	$	3,575		$	—		$	17,810
Operating profit (loss)		1,571		(65	)		(71	)		1,435
Depreciation and amortization		116		4			53			173
Tangible assets		18,389		2,152			932			21,473
Goodwill		12,774		435			—			13,209
Capital expenditures		324		70			65			459

18.    Contingencies

Employment Agreements

The Company has employment agreements with its executive officers and certain other officers, the terms of which expire between December 2004 and December 2006. Such agreements provide for minimum salary levels. The aggregate commitment for future salaries at December 31, 2003, excluding bonuses, was approximately $3.0 million. If the Company terminates the employment of the employee for any reason other than 1) termination for cause, 2) voluntary resignation, or 3) employee’s death, the Company is obligated to provide a severance benefit equal to four or six months of the employee’s salary, and, at its option, an additional four months at 50% of the employee’s salary. These agreements are renewable for one year at the Company’s option.

Litigation

The Company is subject to legal proceedings and claims that have arisen in the ordinary course of its business. Based on legal analysis and advice from its attorneys, allowances have been made for any litigation that management of the Company believes could have a material adverse effect on its financial condition or results of operations.

A claim of failure of contractual performance has been levied against the Company and is covered by insurance. The Company is aggressively defending itself against this claim. In another matter, a claim regarding the calculation of an earnout payment has been asserted against the Company. The Company vigorously disputes

49

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the claim. The Company cannot determine the exposure amount, if any, on these two claims but estimates the cost could range from $0 to $300,000. Reserves have been established to cover this contingency.

During 2003, the Company and its subsidiaries, and more than 40 other parties were named defendants in several petitions for damages filed in various district courts in Louisiana (East Baton Rouge, Calcasieu, Iberville, Ascension, and Orleans Parishes) on behalf of former employees of Barnard and Burk, Inc. The plaintiffs, who allege exposure to asbestos during the course of their employment, were employees of Barnard and Burk, Inc. during a period covering the late 1950’s through the early 1980’s at facilities located in Louisiana. In 1994, AMEC Engineering, Inc. assigned the trade name “Barnard and Burk” to RPM Engineering, Inc. along with selected assets. No liabilities were assumed by RPM. The Company’s wholly owned subsidiary, ENGlobal Engineering, Inc., formerly known as Petrocon Engineering, Inc., acquired RPM (along with the “Barnard and Burk” trade name) in 1996 pursuant to a stock purchase agreement. Because Petrocon acquired only the “Barnard and Burk” trade name, and none of its liabilities, the Company is seeking to be extricated from the suits via summary judgment. The Company believes the lawsuits are without merit and intends to defend them vigorously.

Insurance

The Company carries a broad range of insurance coverage, including general and business automobile liability, commercial property, professional errors and omissions, workers’ compensation insurance and a general umbrella policy. The Company has not incurred significant 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 $100,000 per occurrence and approximately $3.5 million in aggregate in each policy year being covered by a separate insurance policy.

401(k)

The Company amended the Petrocon 401(k) Plan (now referred to as the ENGlobal Plan) effective January 1, 2004 and dissolved the former IDS 401(k) Plan. Employees who participated in the IDS Plan were allowed to rollover their 401(k) balance into the ENGlobal Plan. Employees are eligible to participate at the beginning of each calendar quarter after 60 days of employment. The Company makes mandatory matching contributions to certain eligible employees equal to 50% of the employee contribution up to a maximum of 4% of the employee’s compensation as defined in the Plan Document. The Company made contributions of $144,000, $172,000 and $194,000, respectively in 2003, 2002, and 2001. Additional discretionary contributions may be made as directed by the Board of Directors. No discretionary contributions were made in 2003, 2002, or 2001.

19.    Subsequent Events

ENGlobal announced in January that a subsidiary, ENGlobal Design Group, Inc. completed the acquisition of certain assets of Tulsa-based Engineering Design Group, Inc. (“EDG”). With this acquisition, ENGlobal expects to gain additional capabilities related to the design, installation and maintenance of various government and public sector facilities. EDG’s most active sector is the Automated Fuel Handling Systems that serve the U.S. military. In connection with the acquisition, the Company issued two $150,000 notes bearing interest at 5%, maturing in 2008 and a $2.5 million five-year contingent promissory note together with an earnout structure based on revenues of the EDG operations over the next five years. There was no cash or stock consideration paid, or EDG debt assumed, as a result of the transaction.

Effective April 1, 2004 the Company is making available an Employee Stock Purchase Plan, whereby employees may have a portion of their payroll deducted for the purpose of purchasing shares of ENGlobal Common Stock at the lower of the price of stock at the beginning of each quarterly offering period or 90% of the price at the end of such offering period.

50

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company remains in active negotiations with several other acquisition candidates. The Company’s goal is to complete these transactions on terms that will be accretive to earnings per share and will not substantially impact loan covenants. There can be no assurance that these acquisitions will be completed, or if completed, that the operations of the acquired companies will be successfully integrated into the Company’s operations.

20.    Quarterly Financial Information (unaudited)

All quarterly periods and the annual data have been restated to reflect the discontinued operations separate from continuing operations. The quarterly data will not agree to previously issued quarterly statements as a result of this restatement.

	For the quarters ended-2003
	March			June			September			December
	(In thousands, except per share amounts)
Revenues
Engineering	$	18,315		$	25,257		$	32,376		$	32,432
Systems		4,691			4,015			3,059			3,574
Total	$	23,006		$	29,272		$	35,435		$	36,006
Gross Profit
Engineering	$	3,123		$	3,782		$	3,941		$	3,955
Systems		804			441			400			527
Total	$	3,927		$	4,223		$	4,341		$	4,482
Percentage of Sales
Engineering		17.1	%		15.0	%		12.2	%		12.2	%
Systems		17.1	%		11.0	%		13.1	%		14.7	%
Total		17.1	%		14.4	%		12.3	%		12.4	%
Income from continuing operations	$	514		$	563		$	393		$	815
Loss on discontinued segment		(6	)		(29	)		(11	)		(108	)
Gain on disposal of discontinued segment		—			—			—			26
Net income	$	508		$	534		$	382		$	732
Earnings per share—basic
Income from continuing operations		0.020			0.022			0.016			0.034
Loss from discontinued operations		—			(0.001	)		(0.001	)		(0.003	)
Net income		0.020			0.021			0.015			0.031
Earnings per share—diluted
Income from continuing operations		0.020			0.022			0.016			0.033
Loss from discontinued operations		—			(0.001	)		(0.001	)		(0.003	)
Net income		0.020			0.021			0.015			0.030

51

ENGLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	For the quarters ended—2002
	March			June			September			December
	(In thousands, except per share amounts)
Revenues
Engineering	$	17,874		$	18,625		$	19,440		$	19,032
Systems		2,287			3,441			3,130			5,293
Total	$	20,161		$	22,066		$	22,570		$	24,325
Gross Profit
Engineering	$	2,596		$	3,090		$	3,071		$	3,338
Systems		492			653			29			838
Total	$	3,088		$	3,743		$	3,100		$	4,176
Percentage of Sales
Engineering		14.5	%		16.6	%		15.8	%		17.5	%
Systems		21.5	%		19.0	%		0.9	%		15.8	%
Total		15.3	%		17.0	%		13.7	%		17.2	%
Income from continuing operations	$	307		$	489		$	488		$	614
Income/loss on discontinued segment		(41	)		10			(26	)		(89	)
Gain on disposal of discontinued segment		—			—			—			—
Net income	$	266		$	499		$	462		$	525
Earnings per share—basic and diluted
Income from continuing operations		0.011			0.020			0.019			0.023
Loss from discontinued operations		(0.002	)		—			(0.001	)		(0.003	)
Net income		0.009			0.020			0.018			0.020

52

INDEPENDENT AUDITOR’S REPORT

ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders

ENGlobal Corporation

We have audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated financial statements of ENGlobal Corporation and Subsidiaries included in this Form 10-K and have issued our report thereon dated March 12, 2004. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule listed in Item 16(b) herein (Schedule II – Valuation and Qualifying Accounts) is the responsibility of the Company’s management and is presented for the purpose of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. The financial statement schedule has been subjected to the auditing procedures applied to the audits of the basic financial statements and in our opinion, is fairly stated in all material respects with the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

/s/ Hein & Associates LLP

Hein & Associates LLP

Houston, Texas

March 12, 2004

53

SCHEDULE II

ENGLOBAL CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

(A) Description	(B) Balance at Beginning of the Period		(C) Additions		(D) Deductions- Write offs		(E) Balance at End of Period
December 31, 2003
Allowance for doubtful accounts	$	282	$	282	$	188	$	376
December 31, 2002
Allowance for doubtful accounts	$	271	$	215	$	204	$	282
December 31, 2001
Allowance for doubtful accounts	$	17	$	254	$	—	$	271

Note:    Column C (2) has been omitted, as all answers would be “none.”

54

Item 9.    Changes in and Disagreements with Accountants On Accounting and Financial Disclosure

There are no changes in or disagreements with the Company’s accountants on accounting and financial disclosure.

Item 9A.    Controls and Procedures

(a)    Evaluation of Disclosure Controls and Procedures.    We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the periodic reports we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. We carried out an evaluation as of December 31, 2003, under the supervision and the participation of our management, including our chief executive officer and chief financial officer, of the design and operation of the disclosure controls and procedures pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to the Company that is required to be included in our periodic SEC filings.

(b)    Changes in internal controls over financial reporting.    There have been no significant changes in internal controls over financial reporting or other factors subsequent to December 31, 2003.

PART III

Item 10.     Directors and Executive Officers of the Registrant

Information about our executive officers and Directors is incorporated by reference from the discussion in our proxy statement for the 2004 Annual Meeting of Stockholders under the heading “Directors and Executive Officers of the Registrant.” Information about compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference from the discussion under the heading Section 16(a) Beneficial Ownership Reporting Compliance in our proxy statement for the 2004 Annual Meeting of Stockholders. Information about our Audit Committee, including the members of the committee, and our Audit Committee financial experts is incorporated by reference from the discussion under the headings The Audit Committee and Audit Committee Financial Experts in our proxy statement for the 2004 Annual Meeting of Stockholders. Information about our Code of Ethics governing our directors and employees, including our Chief Executive Officer and Chief Financial, is incorporated by reference from the discussion under the heading ENGlobal Policies on Business Ethics and Conduct in our proxy statement for the 2004 Annual Meeting of Stockholders

Item 11.    Executive Compensation

The information under the caption Executive Compensation contained in our proxy statement for the 2004 Annual Meeting of Stockholders is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management

The information under the caption Security Ownership of Certain Beneficial Owners and Management contained in our Proxy Statement for the 2004 Annual Meeting of Stockholders is incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions

The information under the caption Certain Relationships and Related Transactions contained our proxy statement for the 2004 Annual Meeting of Stockholders is incorporated herein by reference.

55

Item 14.    Principal Accounting Fees and Services

Information about the fees for 2003 and 2002 for professional services rendered by our independent auditors is incorporated by reference from the discussion under the heading Audit and Non-Audit Fees in Item 2 of our proxy statement for the 2004 Annual Meeting of Stockholders. Our Audit Committee’s policy on pre-approval of audit and permissible non-audit services of our independent auditors is incorporated by reference from the section captioned Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor in Item 2 of our proxy statement for the 2004 Annual Meeting of Stockholders.

PART IV

Item 15.    Exhibits, Financial Statements, Schedules and Reports On Form 8-k

(a)   1.     Financial Statements: The consolidated financial statements are contained herein as listed on the “Index” on page 35 hereof.

2.    Schedules: All schedules have been omitted since the information required by the schedule is not applicable, or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Financial Statements and notes thereto.

3.    Exhibits. The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.

(b)     Reports on Form 8-K. Three reports on Form 8-K were filed by the Company during the quarter ended December 31, 2003.

1.    On October 20, 2003, ENGlobal filed a current report on Form 8-K containing a press release relating to its award of a contract with ExxonMobil Corporation.

2.    On November 3, 2003, ENGlobal filed a current report on Form 8-K disclosing its acquisition of Senftleber & Associates, L.P.

3.    On November 12, 2003, ENGlobal filed a current report on Form 8-K disclosing its earnings for the third quarter of 2003.

56

INDEX OF EXHIBITS

Number	Description
2.23.1	Agreement and Plan of Merger by and between Industrial Data Systems Corporation, IDS Engineering Management, LC, PEI Acquisition, Inc. and Petrocon Engineering, Inc., incorporated by reference to the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001 filed with the Securities and Exchange Commission on August 14, 2001.
2.24	First Amendment of the Agreement and Plan of Merger, incorporated by reference to Amendment One of the Company’s Form S-4 filed with the Securities and Exchange Commission on October 19, 2001.
2.25	Letter Agreement of the Agreement and Plan of Merger, incorporated by reference to Amendment One of the Company’s Form S-4 filed with the Securities and Exchange Commission on October 19, 2001.
3.2	Corporate Bylaws, Industrial Data Systems Corporation dated October 15, 1997, incorporated by reference as Exhibit 3 to the Company’s Annual Report on Form 10-KSB/A for the year ended December 31, 1997 filed with the Securities and Exchange Commission on April 10, 1998.
3.16	Restated Articles of Incorporation of ENGlobal Corporation dated August 8, 2002, incorporated by reference to the Company’s Quarterly Report on Form-10Q for the quarter ended September 30, 2002 filed with the Securities and Exchange Commission on November 14, 2002.
4.1	Form of Common Stock Certificate of Industrial Data Systems Corporation, incorporated by reference to Amendment One of the Company’s Form S-4 filed with the Securities and Exchange Commission on October 19, 2001.
10.2	Blanket Service Contract – Exxon Pipeline Company, incorporated by reference as Exhibit 10.6 to the Company’s Annual Report on Form 10-KSB/A for the year ended December 31, 1996 filed with the Securities and Exchange Commission on May 14, 1997.
10.3	Blanket Service Contract – Marathon Oil Company, incorporated by reference as Exhibit 10.7 to the Company’s Annual Report on Form 10-KSB/A for the year ended December 31, 1996 filed with the Securities and Exchange Commission on May 14, 1997.
10.8	Fourth Amendment of the Lease between Industrial Data Systems, Inc. and 600 C.C. Business Park Ltd. dated September 1, 1998, incorporated by reference as Exhibit 10.24 to the Company’s Annual Report on Form 10-KSB/A for the year ended December 31, 1998.
10.32	Blanket Service Contract with Caspian Consortium-R, incorporated by reference as Exhibit 10.32 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999.
10.33	Blanket Service Contract with Caspian Consortium-K, incorporated by reference Exhibit 10.33 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999.
10.42	Standard Industrial Lease Agreement between Houston Industrial Assets, L.P. and Constant Power Manufacturing, Inc. dated May 30, 2001, incorporated by reference to the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001 filed with the Securities and Exchange Commission on August 14, 2001.
10.43	Settlement Agreement and Plan of Reorganization dated July 31, 2001 among Petrocon Engineering, Inc., Industrial Data Systems Corporation, PEI Acquisition, Inc., and Equus II Incorporated, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.44	Promissory Note between Petrocon Engineering, Inc. and Equus II Incorporated dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.

57

Number	Description
10.45	Form of Guaranty by and among Fleet Capital Corporation, Petrocon Engineering, Inc., PEI Acquisition, Inc., and Equus II Incorporated dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.46	Security Agreement among Fleet Capital Corporation, Petrocon Engineering, Inc., and Equus II Incorporated dated December 21,2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.47	Mortgage and Security Agreement among Fleet Capital Corporation, Equus II Incorporated, and Petrocon Engineering, Inc. dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.48	Option Pool Agreement between Industrial Data Systems Corporation and Alliance 2000, Ltd. Dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.49	Indemnification Escrow Agreement among Industrial Data Systems Corporation, PEI Acquisitions, the individuals listed as “Significant PEI Shareholders”, and Johnny Williams, Escrow Agent dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.50	Option Escrow Agreement among Industrial Data Systems Corporation, PEI Acquisitions, the individuals listed as “Significant PEI Shareholders”, and Johnny Williams, Escrow Agent dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.52	Voting Agreement among Industrial Data Systems Corporation, Equus II Corporation, Alliance 2000, Ltd. and individuals listed as “Significant PEI Shareholders” dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.53	Second Amended and Restated Loan and Security Agreement by and among IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc., Industrial Data Systems, Inc., IDS Engineering Management, LC, Petrocon Engineering, Inc., Triangle Engineers and Constructors, Inc., Petrocon Systems, Inc., Petrocon Engineering of Louisiana, Inc., R.P.M. Engineering, Inc., Petrocon Construction Resources, Inc., Alliance Engineering Associates, Inc., and Fleet Capital Corporation dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.54	Amended and Restated Revolving Note between Fleet Capital Corporation and IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc., Industrial Data Systems, Inc., IDS Engineering Management, LC, Petrocon Engineering, Inc., Triangle Engineers and Constructors, Inc., Petrocon Systems, Inc., Petrocon Engineering of Louisiana, Inc., R.P.M. Engineering, Inc., Petrocon Construction Resources, Inc., Alliance Engineering Associates, Inc. dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.55	Stock Pledge Agreement between Industrial Data Systems, Inc. and Fleet Capital Corporation dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.57	Amended and Restated Stock Pledge Agreement between Petrocon Engineering, Inc. and Fleet Capital Corporation dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.

58

Number	Description
10.58	Continuing Guaranty Agreement between Fleet Capital Corporation and “Borrowers” known as IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc., Industrial Data Systems, Inc., IDS Engineering Management, LC, Petrocon Engineering, Inc., Triangle Engineers and Constructors, Inc., Petrocon Systems, Inc., Petrocon Engineering of Louisiana, Inc., R.P.M. Engineering, Inc., Petrocon Construction Resources, Inc., Alliance Engineering Associates, Inc. dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.59	Amended and Restated Patent Security Agreement between Petrocon Engineering, Inc. and Fleet Capital Corporation dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.60	Amended and Restated Patent Security Agreement between Petrocon Technologies, Inc. and Fleet Capital Corporation dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.61	Amended and Restated Trademark Security Agreement between R.P.M. Engineering, Inc. and Fleet Capital Corporation dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.62	Intercreditor Agreement by and among Fleet Capital Corporation, Equus II Incorporated, Petrocon Engineering, Inc. (Borrower) together with the Loan Party (Industrial Data Systems Corporation, IDS Engineering, Inc., Thermaire, Inc., Constant Power Manufacturing, Inc., Industrial Data Systems, Inc., IDS Engineering Management, LC, Triangle Engineers and Constructors, Inc., Petrocon Systems, Inc., Petrocon Engineering of Louisiana, Inc., R.P.M. Engineering, Inc., Petrocon Construction Resources, Inc., Petrocon Technologies, Inc., and Alliance Engineering Associates, Inc. dated December 21, 2001, incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
10.63	Second Amended and Restated Lease Agreement between Corporate Property Associates 4 and Petrocon Engineering, Inc. for Beaumont office space dated February 28, 2002, incorporated by reference to the Company’s Quarterly Report on Form-10Q for the quarter ended June 30, 2002 filed with the Securities and Exchange Commission on August 12, 2002.
10.64	Guaranty and Suretyship Agreement between Industrial Data Systems Corporation and Corporate Property Associates 4 dated April 26, 2002, incorporated by reference to the Company’s Quarterly Report on Form-10Q for the quarter ended June 30, 2002 filed with the Securities and Exchange Commission on August 12, 2002.
10.65	ENGlobal Corporation Incentive Bonus Plan dated June 12, 2002, incorporated by reference to the Company’s Quarterly Report on Form-10Q for the quarter ended June 30, 2002 filed with the Securities and Exchange Commission on August 12, 2002.
10.65-A	Amendment of the 1998 Incentive Plan, incorporated by reference to the Company’s Form S-8 Registration Statement filed with the Securities and Exchange Commission on June 9, 2003.
10.65-B	Amendment No. 2 of the 1998 Incentive Plan, incorporated by reference to the Company’s Form S-8 Registration Statement filed with the Securities and Exchange Commission on June 9, 2003.
10.66	Lease Agreement between Petrocon Engineering, Inc. and Phelan Investments on July 25, 2002, incorporated by reference to the Company’s Quarterly Report on Form-10Q for the quarter ended September 30, 2002 filed with the Securities and Exchange Commission on November 14, 2002.
10.67	Second Amendment of the Second Amended and Restated Loan and Security Agreement as of July 31, 2002 between IDS Engineering and Subsidiaries and Fleet Capital Corporation, incorporated by reference to the Company’s Quarterly Report on Form-10Q for the quarter ended September 30, 2002 filed with the Securities and Exchange Commission on November 14, 2002.

59

Number		Description
10.68		Amendment of the Intercreditor Agreement between Fleet Capital Corporation, Equus II Incorporated and ENGlobal Corporation dated July 31, 2002, incorporated by reference to the Company’s Quarterly Report on Form-10Q for the quarter ended September 30, 2002 filed with the Securities and Exchange Commission on November 14, 2002.
10.69		Fifth Amendment of Lease Agreement between IDS and 600 C.C. Business Park Ltd., incorporated by reference to the Company’s Quarterly Report on Form-10Q for the quarter ended September 30, 2002 filed with the Securities and Exchange Commission on November 14, 2002.
10.70		Lease Agreement between PEI Investments and Petrocon Engineering, Inc. dated July 1, 2002, incorporated by reference to the Company’s Quarterly Report on Form-10Q for the quarter ended March 31, 2003 filed with the Securities and Exchange Commission on May 13, 2003.
10.72		Lease Agreement between Petro-Chem Engineering and ENGlobal Engineering, Inc. dated June 4, 2003, incorporated by reference to the Company’s Quarterly Report on Form-10Q for the quarter ended June 30, 2003 filed with the Securities and Exchange Commission on August 14, 2003.
10.73		Contract between BASF and ENGlobal Engineering, Inc. dated June 9, 2003, incorporated by reference to the Company’s Quarterly Report on Form-10Q for the quarter ended June 30, 2003 filed with the Securities and Exchange Commission on August 14, 2003.
10.74		Sublease Agreements between Family Connect, Inc., a tenant of CitiPlex Towers Building and IDS Engineering dated February 2, 2003, incorporated by reference to Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 filed with the Securities and Exchange Commission on November 14, 2003.
10.75		Lease Agreement between Oral Roberts University and IDS Engineering, dba ENGlobal Engineering, Inc. dated October 20, 2003, incorporated by reference to Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 filed with the Securities and Exchange Commission on November 14, 2003.
10.76		Sixth Amendment of the Second Amended and Restated Loan and Security Agreement as of June 30, 2003 between ENGlobal Corporation and Subsidiaries and Fleet Capital Corporation, incorporated by reference to Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 filed with the Securities and Exchange Commission on November 14, 2003.
10.77	*	Second Amendment of the ENGlobal Engineering, Inc. 401(k) Plan dated January 1, 2004 (formerly called the “Petrocon Engineering, Inc. 401(k) Plan”)
10.78	*	ENGlobal Corporation Employee Stock Purchase Plan dated March 2, 2004, incorporated by reference to the Company’s Form S-8 registration statement filed with the Securities and Exchange Commission on March 12, 2004.
10.79	*	Office lease between TC Meridian Tower LP and ENGlobal Design Group, Inc. dated January 24, 2004
11.1		Statement Regarding Computation of Per Share Earnings is included as Note 2 to the Notes to Consolidated Financial Statements.
21.1	*	Subsidiaries of the Registrant, incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission on March 27, 2003.

60

Number		Description
23.1	*	Consent of Hein + Associates
31.1	*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act for 2002 for the Year Ended December 31, 2003 for the Chief Executive Officer
31.2	*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act for 2002 for the Year Ended December 31, 2003 for the Chief Financial Officer
32.1	*	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act for 2002 for the Year Ended December 31, 2003 for the Chief Executive Officer
32.2	*	Certification pursuant to Section 906 of the Sarbanes-Oxley Act for 2002 for the Year Ended December 31, 2003 for the Chief Financial Officer
99.1	*	Charter of the Audit Committee of the Board of Directors of ENGlobal Corporation dated December 18, 2003
99.2	*	Charter of the Compensation Committee of the Board of Directors of ENGlobal Corporation dated March 25, 2004
99.3	*	Charter of the Nominating/ Corporate Governance Committee of the Board of Directors of ENGlobal Corporation dated March 25, 2004
99.4	*	ENGlobal Corporation Employee Complaint Procedures and Non-Retaliation Policy dated March 25, 2004
99.5	*	ENGlobal Corporation Code of Ethics for Chief Executive Officer and Senior Financial Officers dated March 25, 2004
99.6	*	ENGlobal Corporation Code of Business Conduct and Ethics dated March 25, 2004
99.7	*	ENGlobal Corporation Disclosure Policy dated March 25, 2004

* Filed herewith.

61

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

	ENGlobal CORPORATION
Dated:    March 25, 2004
	By:	/s/    MICHAEL L. BURROW
		Michael L. Burrow, P.E.,
		Chairman of the Board, Chief Executive Officer, Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

By:	/s/    MICHAEL L. BURROW
	Michael L. Burrow, P.E.,
	Chairman of the Board, Chief Executive Officer, Director
By:	/s/     WILLIAM A. COSKEY
	William A. Coskey, P.E.,
	President, Chief Operating Officer, Director
By:	/s/    ROBERT W. RAIFORD
	Robert W. Raiford,
	Chief Financial Officer, Treasurer
By:	/s/    JIMMIE N. CARPENTER
	Jimmie N. Carpenter, Director
By:	/s/    HULDA L. COSKEY
	Hulda L. Coskey, Director
By:	/s/    DAVID W. GENT
	David W. Gent, P.E., Director
By:	/s/    RANDALL B. HALE
	Randall B. Hale, Director
By:	/s/    DAVID C. ROUSSEL
	David C. Roussel, Director

62

EX-10.77

Exhibit 10.77

SECOND AMENDMENT TO THE

PETROCON ENGINEERING, INC. 401(k) PLAN

WHEREAS, Petrocon Engineering, Inc. adopted a restatement of the Petrocon Engineering, Inc. 401(k) Plan (the “Plan”) effective as of January 1, 2002 and subsequently amended;

WHEREAS, Petrocon Engineering, Inc. renamed itself ENGlobal Engineering, Inc. (the “Employer”);

WHEREAS, the Employer has the ability to amend the Plan pursuant to Section 11.2 thereof; and

WHEREAS, the Employer now desires to amend the Plan to change the Employer name and Plan name, change eligibility requirements, and make various other plan changes;

NOW, THEREFORE, the Employer hereby amends the Plan in the following respects, effective as of the various dates specified herein:

1. Effective January 1, 2004, the name of the Plan on page 1 of the Adoption Agreement is hereby amended to read as follows:

                ENGlobal 401(k) Plan

2. Effective January 1, 2004, the Employer name in Section A(1) of the Adoption Agreement is hereby amended to read as follows:

A(1) NAME OF EMPLOYER: ENGlobal Engineering, Inc.

3. Effective January 1, 2004, Section B(5) of the Adoption Agreement is hereby amended to read as follows:

B(5)	PREDECESSOR EMPLOYER SERVICE (Plan Section 1.115(c))
a.	¨	Not applicable. There is no predecessor Employer. (proceed to Section B(6))
b.	x	Years of Service with the following predecessor Employer(s) will be recognized under this Plan:
		Alliance Engineering Associates, Inc.; Triangle Engineers & Constructors, Inc.; RPM Engineering, Inc.; Petrocon Construction Resources, Inc.; Petrocon Systems, Inc.; Petrocon Technologies, Inc.; Petrocon of Louisiana, Inc.; Industrial Data Systems, Inc.; Constant Power Manufacturing, Inc.; IDS Engineering, Inc.; and Engineering Design Group, Inc.
		and such service will be recognized for the following purposes: (check whichever applies)
	1.	x	All Plan purposes
	2.	¨	Eligibility to participate only
	3.	¨	Vesting only

Exhibit 10.77

4. Effective as of the date this amendment is executed, Section C(2)(I) of the Adoption Agreement is hereby amended to read as follows:

I.      Eligibility for All Plan Purposes:
	Service Requirement:		Age Requirement:
¨	None	¨	None
¨	One (1) Year of Service	x	21
x	Other:  Sixty (60) days of service	¨	Other:                             (cannot exceed 21)
	(cannot exceed two years)

5. Effective as of the date this amendment is executed, Section C(6) of the Adoption Agreement is hereby amended to read as follows:

C(6)	ENTRY DATES (Plan Sections 1.43, 2.1)
	An Eligible Employee becomes a Participant as of:
	a.	x	The quarterly entry date immediately following the date the Employee meets the Plan’s eligibility requirements.
			Specify entry dates: January 1     April 1     July 1     October 1
	b.	¨	The earlier of the first day of the Plan Year or the first day of the seventh month of the Plan Year coinciding with or next following the date on which the Employee meets the eligibility requirements, such as January 1 and July 1 for calendar year plans.
			Specify entry dates:
	c.	¨	The first day of the month coinciding with or next following the date on which the Employee meets the eligibility requirements.
	d.	¨	The date on which the Employee meets the eligibility requirements.
	e.	¨	Other:
Note: No entry date may keep an Eligible Employee out of the Plan for longer than the earlier of (1) the first day of the Plan Year beginning after the date the age and service requirements are satisfied, or (2) six months after the age and service requirements are met assuming the maximum service requirements of section C(2) are applied. In no case will a Plan Entry Date be permitted which conflicts with Code Section 410(a).

6. Effective January 1, 2004, subsection (h) of Section D(4)(I) of the Adoption Agreement is hereby amended to read as follows:

h.	Matching Contributions will be made on behalf of
	1.	¨	All Eligible Participants.
	2.	¨	Only Non-Highly Compensated Eligible Participants.

Exhibit 10.77

3.	x	All Eligible Participants except for Employees classified as follows (e.g., Employees of a division or department of the Employer):
		Project employees, contract employees and part-time employees
4.	¨	Not applicable.

7. Effective January 1, 2004, Section D(8) of the Adoption Agreement is hereby amended to read as follows:

D(8)	ALLOCATIONS TO ACTIVE PARTICIPANTS (Plan Section 3.2)
a.	Allocations of Employer Contributions will be made as follows:
			N/A	Annual*	Quarterly	Monthly	Each Payroll Period	Other**
	1.	Matching	¨	¨	¨	¨	x	¨
	2.	Employer Profit Sharing	x	¨	¨	¨	¨	¨
	*Complete Section D(8) b. ** Please specify when allocations of employer contributions will be made, provided that, allocations must be made at least once each calendar year:
b.	If an annual allocation is specified in Section D(8)a., is a Participant employed on the last day of the allocation period required to have a Year of Service in order to receive an allocation?
				No	Yes	N/A
		1.	Matching	¨	¨	x
		2.	Employer Profit Sharing	¨	¨	x
	Note: If you selected Section D(5) b. 2. so that the Plan is integrated with Social Security, the above election is subject to the Overall Permitted Disparity requirements, as provided in Section 3.2(d) of the Plan and, if the Plan is Top-Heavy for any Plan Year, each Participant who is not a key Employee will receive a Top-Heavy allocation in accordance with Section 12.5 of the Plan, not withstanding any election to the contrary.

8. Effective January 1, 2004, subsection (b) of Section D(9) of the Adoption Agreement is hereby amended to read as follows:

b.	With respect to the allocations of Matching Contributions and allocations of any Forfeitures, a Participant who terminated employment during the allocation period:
	1.	¨	Will not share in such allocations, regardless of service.
	2.	¨	Will share in such allocations provided such Participant completed a Year of Service.*

Exhibit 10.77

3.	¨	Will share in such allocations provided such participant completed more than 500 Hours of Service (91 days or 3 consecutive calendar months if Elapsed Time is elected).
4.	x	Will share in such allocations, regardless of service.
5.	¨	Not applicable. The Plan does not provide for such Contributions.

* This option may not be selected if contributions are allocated more frequently than annually.

9. Effective January 1, 2004, Section D(11) of the Adoption Agreement is hereby amended to read as follows:

D(11)	FORFEITURES (Plan Sections 1.51, 6.2(d))
	a.	Forfeitures of Matching Contributions will be:
		1.	¨	Not applicable (because either the Plan does not provide for Matching Contributions or Matching Contributions are fully vested when made).
		2.	¨	Used to reduce the Employer’s Matching Contribution. If the Employer makes no Matching Contribution, forfeitures may be allocated as an additional Employer Profit Sharing Contribution.
		3.	x	Used to pay reasonable Plan expenses, and any excess will be used to reduce the Employer’s Matching Contribution. If the Employer makes no Matching Contribution, remaining forfeitures may be allocated as an additional Employer Profit Sharing Contribution.
	b.	Forfeitures of Employer Profit Sharing Contributions will be:
		1.	¨	Not applicable (because either the Plan does not provide for Employer Profit Sharing Contributions or Employer Profit Sharing Contributions are fully vested when made).
		2.	x	Used to pay reasonable Plan expenses, and any excess will be used to reduce the Employer’s Matching Contributions for the next Plan Year. If no Matching Contributions are made, any remaining forfeitures will be added to the Employer’s Profit Sharing Contributions.
		3.	¨	Used to reduce the Employer’s Matching Contributions for the next Plan Year. If no Matching Contributions are made, any remaining forfeitures will be added to the Employer’s Profit Sharing Contributions.
		4.	¨	Used to reduce the Employer’s Profit Sharing Contribution. If no Employer Profit Sharing Contribution is made, any forfeiture will be allocated among all eligible Participants as if such forfeiture were an Employer Profit Sharing Contribution.
		5.	¨	Added to the Employer’s Profit Sharing Contribution and allocated in the same manner. If no Employer Profit Sharing Contribution is made, any forfeiture will be allocated among all eligible Participants as if such forfeiture were an Employer Profit Sharing Contribution.

Exhibit 10.77

10. In all other respects, the terms of this Plan are hereby ratified and confirmed.

IN WITNESS WHEREOF, the Employer has caused this Second Amendment to be executed in duplicate counterparts, each of which shall be considered as an original, as of the date indicated below.

	ENGLOBAL ENGINEERING, INC.
	By:
Witness
	Title:
	Date:

Exhibit 10.77

SUMMARY OF MATERIAL MODIFICATION

TO THE

PETROCON ENGINEERING, INC. 401(k) PLAN

Your Employer has amended the Petrocon Engineering, Inc. 401(k) Plan, effective as of the dates specified herein. This is a brief summary of the amendment. The Plan document will govern all situations concerning the provisions of the Plan. This summary is not a part of the Plan document.

Your Summary Plan Description is modified as follows:

1. Effective January 1, 2004, the Plan name shall be “ENGlobal 401(k) Plan.”

2. Effective as of the date the amendment was signed, the section titled “Eligibility Requirements” on page 2 is hereby amended to read as follows:

Eligibility Requirements

Eligible Employees may participate in the Plan after satisfying the following age and service requirements.

You will be eligible to participate in the Plan once you complete sixty (60) days of service and attain age 21.

However, you will actually enter the Plan when you reach the Entry Date as described in the next section.

3. Effective as of the date the amendment was signed, the second paragraph of the section titled “Date of Participation” on page 2 is hereby amended to read as follows:

“ Your entry date will be the first day of the Plan Year quarter coinciding with or next following the date you satisfy the eligibility requirements.”

4. Effective January 1, 2004, the second paragraph of the section titled “Counting Service with the Employer for Eligibility” on page 3 is hereby amended to read as follows:

“ In addition, if you were employed by Alliance Engineering Associates, Inc.; Triangle Engineers & Constructors, Inc.; RPM Engineering, Inc.; Petrocon Construction Resources, Inc.; Petrocon Systems, Inc.; Petrocon Technologies, Inc.; Petrocon Engineering of Louisiana, Inc.; Industrial Data Systems, Inc.; Constant Power Manufacturing, Inc.; IDS Engineering, Inc. or Engineering Design Group, Inc., you will receive credit for service completed during such employment for purposes of determining whether you are eligible to participate in the plan.”

5. Effective January 1, 2004, the section titled “Employer Matching Contributions” on page 6 is hereby amended to read as follows:

Employer Matching Contributions

On behalf of all eligible participants, the Employer may make a Matching Contribution equal to a discretionary percentage of your 401(k) elective deferrals. The exact amount or percentage of the Matching Contribution will be determined on an annual basis.

You must be a regular, full-time employee in order to share in the Matching Contribution. Contract employees, project employees and part-time employees are not eligible to share in the Matching Contribution.

Your matching contribution will be allocated with each payroll period.

Matching Contributions will be adjusted at the end of each Plan Year to match the annualized 401(k) elective deferral percentage and/or annualized compensation, as applicable.

You will share in an allocation of Matching Contributions regardless of whether you are employed on the last day of the Plan Year and regardless of the number of hours of service you have completed during the Plan Year.

6. Effective January 1, 2004, the fourth paragraph of the section titled “Crediting Years of Service for Vesting” on page 8 is hereby amended to read as follows:

“ For vesting purposes, your Years of Service with Alliance Engineering Associates, Inc.; Triangle Engineers & Constructors, Inc.; RPM Engineering, Inc.; Petrocon Construction Resources, Inc.; Petrocon Systems, Inc.; Petrocon Technologies, Inc.; Petrocon Engineering of Louisiana, Inc.; Industrial Data Systems, Inc.; Constant Power Manufacturing, Inc.; IDS Engineering, Inc. or Engineering Design Group, Inc. will be counted.”

7. Effective January 1, 2004, the section titled “Allocation of Amounts Forfeited by Terminated Participants” on page 9 is hereby amended to read as follows:

Allocation of Amounts Forfeited by Terminated Participants

The non-vested portion of a terminated participant’s account balance remains in the Plan and is called a forfeiture. Forfeitures will be used by the Plan to restore previously forfeited balances for reemployed participants who have repaid their distribution.

Any remaining forfeitures of profit sharing contributions will be used to pay reasonable plan expenses and any excess will be used to reduce the Employer’s matching contributions. If there are no Employer matching contributions or there are excess forfeitures after the match is funded, such forfeitures will be allocated as an additional profit sharing contribution.

Any remaining forfeitures of matching contributions will be used to pay reasonable plan expenses and any excess will be used to reduce the Employer’s matching contributions. If there are no Employer matching contributions, such forfeitures will be allocated as an additional profit sharing contribution.

Exhibit 10.77

8. Effective January 1, 2004, the name of the Employer on the first line of the section titled “Employer Information” on page 24 is hereby amended to read “ENGlobal Engineering, Inc.”

These summary pages should be filed with the Summary Plan Description booklet that has previously been distributed.

EX-10.78

Exhibit 10.78

[GRAPHIC APPEARS HERE]

ENGLOBAL CORPORATION

EMPLOYEE STOCK PURCHASE PLAN

2,500,000 Shares

Common Stock

Exhibit 10.78

ENGLOBAL CORPORATION

EMPLOYEE STOCK PURCHASE PLAN

2,500,000 Shares

Common Stock

Participation in the ENGlobal Corporation 2004 Employee Stock Purchase Plan (the “Plan”) is offered, as described in this prospectus, to eligible employees of ENGlobal Corporation (the “Company”) or its “Participating Affiliates” (as defined in Section 5.1(p) of the Plan). References in this prospectus to “employees” refer to employees of the Company or one of its Participating Affiliates.

The Plan was adopted by the board of directors of the Company on December 18, 2003 and will be submitted to the stockholders for approval at the next annual meeting of stockholders. The Plan will begin operation in April 2004.

The information contained in this prospectus may be updated from time to time by the Company by preparing a supplement to the prospectus, by preparing a new prospectus or by including updating information in the Company’s Annual Report on Form 10-K, the Company’s definitive proxy statement or the Company’s annual report to stockholders.

Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved these securities or determined this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This document is part of a prospectus covering securities that have been registered under the Securities Act of 1933.

The date of this prospectus is March 2, 2004.

Exhibit 10.78

TABLE OF CONTENTS

WHERE YOU CAN GET INFORMATION	4
IMPORTANT CONTACT INFORMATION	4
EMPLOYEE RETIREMENT INCOME SECURITY ACT	5
PART I - QUESTIONS AND ANSWERS ABOUT THE PLAN	5
WHAT THE PLAN MEANS TO YOU	5
1. What is the Plan?	5
2. Who is eligible to participate?	5
3. How do I become a participant?	5
4. How much can I invest in the Plan?	5
5. How is my contribution calculated?	5
6. What if I quit working for the Company?	5
7. What if I become ineligible after enrolling in the Plan?	6
HOW THE PLAN WORKS	6
8. What is the purchase price of the stock?	6
9. When will I be able to access my shares?	6
10. In whose name will my stock be held?	6
11. Can I change my payroll deduction?	6
12. What if my deductions are not accurate?	6
13. Can I withdraw from the Plan?	6
14. If I withdraw, may I participate in the Plan again?	7
15. May I assign or transfer my rights to buy stock under the Plan?	7
16. Who administers the Plan?	7
17. Are there limitations on the sale of my stock purchased under the Plan?	7
18. What are the tax considerations for Plan participants?	7
19. What kind of account statement do I receive?	7
20. What about dividends?	7
21. Will I receive information provided to stockholders?	7
22. After becoming a stockholder, do I vote my own stock?	7
23. How do I sell my stock and how much does it cost?	8
24. Can my account be used for any other transactions?	8
25. Where do I find additional details of the Plan?	8
BASIC FEDERAL INCOME TAX CONSEQUENCES	8
PART III - TEXT OF THE PLAN	10
PART IV - INFORMATION ABOUT THE COMPANY	22
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE	22

3

Exhibit 10.78

WHERE YOU CAN GET INFORMATION

The SEC allows the Company to “incorporate by reference” the information the Company files with them, which means that the Company can disclose important information to you by referring you to documents that it has filed with the SEC. The information incorporated by reference is considered to be part of this prospectus, and later information that the Company files with the SEC will automatically update and supersede this information. The Company incorporates by reference the documents listed below under Incorporation of Certain Documents By Reference in Part IV.

This document is part of a registration statement the Company filed with the SEC on Form S-8, which is incorporated by reference in this prospectus.

No person has been authorized to give any information or to make any representations other than those contained in this prospectus, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Company. Neither the delivery of this prospectus nor any sale made under this prospectus shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this prospectus. This prospectus does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is prohibited.

The Company is subject to the informational requirements of the Securities Exchange Act and therefore, files reports, proxy statements and other information with the SEC. You may read and copy reports, proxy statements and other information filed by the Company at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at 233 Broadway, New York, New York 10279, and 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604. Copies of these materials can also be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. In addition, electronic copies of the materials may be accessed on the worldwide web via the SEC’s website (http://www.sec.gov) or the Company’s website under “investor relations” (http://www.englobal.com). The shares of the Company’s common stock are listed on the American Stock Exchange, and, as a result, the periodic reports, proxy statements and other information filed by the Company with the SEC can also be inspected at the American Stock Exchange headquarters at 86 Trinity Place, New York, NY 10006.

Copies of documents incorporated in this prospectus by reference will be furnished free of charge to ENGlobal employees upon request to Natalie Hairston, the Company’s Investor Relations Officer.

This prospectus relates to 2,500,000 shares of common stock, par value $.001 per share, of the Company offered under the Company’s 2004 Employee Stock Purchase Plan. The prospectus describes the Plan in a question and answer format and gives a description of the Plan and the administration of the Plan. In addition, information about the Company, the text of the Plan and the basic federal income tax consequences of the Plan are also contained in this prospectus. Additional information about the Plan and the Company may be obtained free of charge upon request to Natalie Hairston.

IMPORTANT CONTACT INFORMATION

Natalie Hairston

Investor Relations Officer

ENGlobal Corporation

600 Century Plaza Drive, Suite 140

Houston, Texas 77073-6033

Phone: (281) 821-3200

Karla Quinn

Human Resources Manager

ENGlobal Corporation

3155 Executive Blvd., Suite 216

Beaumont, Texas 77705

Phone: (409) 840-2483

Computershare Investor Services

2 North LaSalle Street

Chicago, Illinois 60602

Phone: (312) 588-4990

4

Exhibit 10.78

EMPLOYEE RETIREMENT INCOME SECURITY ACT

The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974, and the Plan is not qualified or intended to be qualified under its applicable provisions.

PART I - QUESTIONS AND ANSWERS ABOUT THE PLAN

WHAT THE PLAN MEANS TO YOU

1. What is the Plan?

The Plan is a payroll deduction plan that permits you to purchase shares of common stock of the Company and, as a result, share in the Company’s future. As a stockholder, you become part owner in the Company and will be entitled to vote your shares for the election of directors and on other matters submitted to the stockholders. In addition, you have the potential for financial gain through dividends and growth in the value of the stock. However, there can be no guarantee that stock you purchase through the Plan will gain in value, or even retain its current value.

2. Who is eligible to participate?

You are eligible to participate in the Plan if (i) you have been on the payroll records of the Company or a Participating Affiliate for at least the three-month period preceding your enrollment date and (ii) you work more than 20 hours per week for more than five months per calendar year for the Company or one of its Participating Affiliates. Notwithstanding the foregoing, officers, non-employee directors, or persons who hold 5% or more of the issued and outstanding shares of the common stock of the Company are not eligible to participate. As of March 1, 2004, there were approximately 880 employees eligible to participate in the Plan.

3. How do I become a participant?

You may elect to participate in the Plan after you have become eligible, by completing an Enrollment Agreement that authorizes payroll deductions from your “Eligible Compensation,” as defined below and in the Plan, and returning it to the Company’s Human Resources Department. Enrollment Agreements are available from the Company’s Human Resources Department. The payroll deductions will start at the beginning of the next Offering Period as set out in the Plan. The three months from January 1 to March 31; from April 1 to June 30; from July 1 to March 31; and October 1 to December 31 are “Offering Periods.” The Enrollment Agreement form must be received by the Company’s Human Resources Department at least 10 business days before the first day of a Offering Period for participation during that Offering Period.

4. How much can I invest in the Plan?

Your authorized payroll deduction must be in whole percentages within the following range:

The minimum deduction is 1% of your Eligible Compensation.

The maximum deduction is the lesser of 15% of your Eligible Compensation or $25,000 per calendar year.

5. How is my contribution calculated?

The contribution percentage you elect is applied to your Eligible Compensation. Eligible Compensation means compensation paid to you during an Offering Period, including wages, salary, bonuses and commissions, but excluding all other extraordinary pay. In addition, the Company can make a discretionary matching contribution on each pay date, but it is not required to do so.

Note that your payroll deductions will be made on an after-tax basis.

6. What if I quit working for the Company?

You will no longer be eligible to participate in the Plan if you quit working for the Company or one of its Participating Affiliates. If your employment is terminated during the Offering Period, all amounts withheld from your Eligible Compensation that have not been used to purchase Company stock will be returned to you as soon as administratively possible. In addition, after you leave the Company, any shares of ENGlobal stock held by the Company or Computershare Investor Services, the Plan custodian, on your behalf will be distributed to you.

5

Exhibit 10.78

7. What if I become ineligible after enrolling in the Plan?

If your employment status changes such that you are not eligible to participate in the Plan (see question #2) but you continue to be an employee of the Company, you may continue to participate for the remainder of the Offering Period and stock will be purchased for you. However, you will not be permitted to enroll for any subsequent Offering Periods, unless your eligibility status changes.

HOW THE PLAN WORKS

8. What is the purchase price of the stock?

On the first business day of each Offering Period you, as a participant in the Plan, are granted an option by the Company to buy stock on the last business day of the Offering Period. The purchase price per share is 100% of the Fair Market Value (as defined below) on the first day of the Offering Period or 90% of the Fair Market Value on the last day of the Offering Period, whichever is less. After the last business day of the Offering Period, the number of full or fractional shares that can be paid for by your accumulated payroll deductions through the last month of the Offering Period will be purchased for you subject to the maximums described in Question 4 of this prospectus.

Generally, “Fair Market Value” of the Company’s stock on a particular date is defined as the stock’s closing selling price per share on the American Stock Exchange for that date as reported by the Dow Jones News/Retrieval Service of Dow Jones and Company, Inc. If no sales of the Company’s stock occurred on a particular date, the Fair Market Value is the closing price reported on the American Stock Exchange as of the last business day on which the stock was sold.

9. When will I be able to access my shares?

The total shares purchased on your behalf will be credited to your account approximately four weeks after the close of the Offering Period. You will receive quarterly statements setting forth the share purchases made on your behalf. You will be able to access your shares once they have been credited to your account.

10. In whose name will my stock be held?

The stock you purchase under the Plan will be held in an account in your name. Your stock is held for you without payment of a custody charge. You will not receive an actual stock certificate for the shares you own unless you request it, for which a fee, currently $30, will be charged. No certificates will be issued for fractional interests in shares. You may be paid cash for fractional interests in shares if you so request or the fractional interests may be accumulated in your account until they equal one whole share for which you may elect to receive a stock certificate.

11. Can I change my payroll deduction?

Yes. Your percentage deduction may be increased or decreased only at the beginning of an Offering Period. However, a new Enrollment Agreement form indicating the increase or decrease must be received by the Company’s Human Resources Department at least 10 business days before the first day of the Offering Period in order to be effective for that Offering Period.

12. What if my deductions are not accurate?

It is your responsibility to verify that your deductions are accurate. Once the Offering Period begins, this is easy to do by reviewing your pay stub(s).

13. Can I withdraw from the Plan?

Yes. You can withdraw by submitting a Withdrawal Agreement to the Company’s Human Resources Department at least 10 business days before the last day of the Offering Period. If you withdraw in a timely manner, all payroll deductions taken during the period will be refunded to you and no further payroll deductions will be taken. However, if your Withdrawal Notice is not received by the Company’s Human Resources Department at least 10 business days before the last day of the Offering Period, your deductions will be stopped as soon as possible, but your accumulated deductions during that period will be applied to the purchase of stock. You may not make a partial withdrawal.

6

Exhibit 10.78

14. If I withdraw, may I participate in the Plan again?

Yes. However, you will not be able to participate before the beginning of the next Offering Period following your withdrawal. Upon rejoining the Plan, you will be considered a new participant and a new Enrollment Agreement must be submitted.

15. May I assign or transfer my rights to buy stock under the Plan?

No. The rights granted to you under the Plan are yours alone and may not be assigned or transferred to anyone else.

16. Who administers the Plan?

The Plan is administered by the board of directors. The board has hired Computershare Investor Services to assist it as the Plan’s custodian. The board has the authority to interpret the Plan and to establish rules and regulations. Each of the directors of the Company is elected by the stockholders of the Company each year, to serve a term of one year. Directors may be removed with or without cause at any time by the affirmative vote of the holders of at least two-thirds of the voting power of the Company.

17. Are there limitations on the sale of my stock purchased under the Plan?

No. Although the Plan is intended to provide you with an ownership interest as an investment, you may sell stock purchased under the Plan at any time you choose. If you sell or otherwise dispose of your shares, including making gifts of your shares, you should consider the tax results. In addition, because of federal income tax requirements, a legend will be placed on any certificates issued to you requiring that the Company’s Human Resources Department be notified if you sell shares within two years after the date of the grant of your option to purchase the shares or within one year after the date you acquired the shares.

18. What are the tax considerations for Plan participants?

You should review the section titled “Basic Federal Income Tax Consequences” for a summary of general rules that apply when you acquire or dispose of shares under the Plan. However, that section deals only with typical transactions, and there may be state income tax consequences to consider when disposing of shares. If you have any questions, you should consult your own tax advisor.

19. What kind of account statement do I receive?

You will receive a quarterly statement summarizing all transactions in your account since the previous statement. If you move, you must notify the Company’s Human Resources Department of your new address, as this information is not forwarded automatically. Keep these statements in a safe place. You will need them for income tax purposes.

20. What about dividends?

The Company does not anticipate that it will pay any dividends. If the Company does elect to pay dividends, and if you have not requested a certificate for your shares of common stock purchased under the Plan, any dividends will automatically be reinvested for you in the common stock. Once a stock certificate is registered in your name, your dividends on that certificate will not be automatically reinvested, but will be paid directly to you. Any stock dividends or stock splits that may be declared will be handled in the same manner. If you have certificates registered in your name, the certificate representing the stock dividend or split will be sent directly to you, or the number of shares you own for which certificates have not been issued will be increased appropriately in your account and reflected in your quarterly statement.

21. Will I receive information provided to stockholders?

As a result of owning shares purchased under the Plan, you will automatically receive the annual report, proxy materials and any other materials issued by the Company for the benefit and information of its stockholders.

22. After becoming a stockholder, do I vote my own stock?

Yes. You may vote your stock in accordance with your written proxy instructions, or otherwise in accordance with applicable laws.

7

23. How do I sell my stock and how much does it cost?

If certificates have not been issued in your name, you may sell your stock by notifying Computershare Investor Services who will deliver your instructions to a clearing broker who will sell for you the amount of shares you specify. You will pay commissions at the then current rates for such sale. A special toll-free number is provided for this purpose. Sales of shares represented by certificates issued to you may be handled through any broker you may choose. Of course, you will be responsible for commissions on the sales at the commission rates being charged at the time. Normally, the shares you specify to be sold will be sold on the date following the receipt of your sell order. However, because of the mechanics associated with this type of stock purchase plan, it may not be possible to sell the shares within the first three to five days of their purchase. You should discuss all concerns and questions you have with your financial advisor prior to any sale.

24. Can my account be used for any other transactions?

The Plan only allows for the purchase and sale of Company common stock. You may sell any Company shares in your account. It is not necessary that you close your account in the event you leave the Company. If you wish to close your account, you may ask Computershare Investor Services to arrange to send you a stock certificate for the number of full shares you own, plus a check for the amount represented by any fractional interest in a share credited to you. If you do not wish to keep your shares and desire cash instead, on instructions from you, Computershare Investor Services will arrange to sell your stock and send you a check for the proceeds, less commissions and charges. All commissions and charges will be in accordance with rates from time to time in effect under the rules of the American Stock Exchange, if applicable, or at such other rates in effect at the time of the transactions.

25. Where do I find additional details of the Plan?

You should read the full text of the Plan which is contained in this prospectus as Part III. The information provided above is simply a guide to the principal provisions of the Plan.

BASIC FEDERAL INCOME TAX CONSEQUENCES

The Plan is intended to qualify as an “employee stock purchase plan” as defined in Section 423 of the Internal Revenue Code of 1986, as amended.

The general rules set forth below apply to employees for federal income tax purposes:

1. You will not recognize taxable income either at the time options are granted under the Plan, which is the first day of the Offering Period, or at the time the options are exercised under the Plan, which is the last day of the Offering Period.

2. If your shares were acquired for 90% of the fair market value on the last day of the Offering and you dispose of shares, for example through sales or gifts, two years or more after the beginning of the Offering Period in which you acquired the shares, then in the year you dispose of the shares, you will recognize as ordinary income an amount equal to the lesser of:

a. the excess of the fair market value of the shares on the date of disposition over the amount you paid for the shares, or

b. 10% of the fair market value of the shares at the end of the Offering Period in which you acquired the shares.

If, instead, you acquired the shares 100% of the fair market value on the first day of the Offering Period and you dispose of the shares two years or more after the beginning of the Offering Period, you will not recognize any ordinary income.

Note that, in addition to any ordinary income recognized, you will recognize a long-term capital gain or loss in an amount equal to the difference between the amount realized upon the sale of the stock and your basis in the stock, which is the purchase price of the stock plus the amount, if any, taxed to you as ordinary income.

3. If you dispose of the shares (including any gifts of shares) within two years of the beginning of the Offering Period in which you acquired the shares, you will recognize ordinary income in the year you dispose of the shares, equal to the fair market value of the shares on the day you purchased them less the amount you paid for the shares. In addition, you will recognize a capital gain or loss in an amount equal to the difference between the amount realized upon the sale of the stock and your basis in the stock, which is the purchase price of the stock plus the amount taxed to you as ordinary income.

8

Exhibit 10.78

4. If you satisfy the two-year holding period, the Company will not receive any deduction for federal income tax purposes with respect to the options or the shares issued to you. If you do not satisfy the two-year holding period, the Company may be entitled to a deduction in an amount equal to the amount that is considered ordinary income.

9

Exhibit 10.78

PART III - TEXT OF THE PLAN

ENGlobal Corporation

2004 Employee Stock Purchase Plan

Effective February 1, 2004

10

Exhibit 10.78

TABLE OF CONTENTS

1.	Purpose of the Plan	1
2.	Participation in the Plan	1
	2.1 Eligibility	1
	2.2 Enrollment to Buy Stock	1
	2.3 Designation of Beneficiary	1
	2.4 Contributions; Payroll Deductions; Account; No Interest	1
	2.5 Changes in Contributions	2
	2.6 Withdrawal	2
	2.7 Termination of Employment; Leave of Absence	2
	2.8 Transferability	3
3.	Purchase of Stock	3
	3.1 Offering Periods	3
	3.2 Purchase of Stock	3
	3.3 Payment for Shares	3
	3.4 Delivery of Shares; Restrictions on Transfer; Voting	3
	3.5 Periodic Reports	4
	3.6 No Rights in Shares Prior to Purchase	4
4.	Operation of the Plan	4
	4.1 Effective Date and Term of Plan	4
	4.2 Shares Authorized for Sale and Issuance Under the Plan	4
	4.3 Conditions Upon Issuance of Shares	4
	4.4 Administration; Committee	4
	4.5 Amendment or Termination	5
	4.6 Approval of the Stockholders	6
	4.7 No Liability for Good Faith Determinations	6
5.	Miscellaneous Legal Provisions	6
	5.1 Definitions	6
	5.2 Adjustments Upon Changes in Capitalization	8
	5.3 Notices; Waiver of Notice	8
	5.4 Severability	8
	5.5 Successors and Assigns	9
	5.6 Headings	9
	5.7 Governing Law; Venue	9
	5.8 No Right to Employment	9

11

Page 1 of Plan Exhibit 10.78

ENGlobal Corporation

2004 Employee Stock Purchase Plan

(Effective February 1, 2004)

1. Purpose of the Plan. ENGlobal Corporation has adopted this Plan to provide Eligible Employees with the opportunity and a convenient means to purchase Shares as an incentive to exert their maximum efforts for the success of the Company. Capitalized terms have the meanings ascribed to them in Section 5.1. ENGlobal intends that options to purchase stock granted under this Plan qualify as options granted under an “employee stock purchase plan” as defined in Section 423(b) of the Code, and this Plan will be construed and applied so as to be consistent with Section 423 of the Code, including the requirement of Section 423(b)(5) of the Code that all Participants granted options to purchase Shares under the Plan have the same rights and privileges with respect to such options.

2. Participation in the Plan.

2.1 Eligibility. Each Eligible Employee who is employed by an Employer on an Enrollment Date may participate in the Plan during the relevant Offering Period, except for employees whose customary employment is 20 hours or less per week or employees whose customary employment is for not more than 5 months in any calendar year, unless the Code prohibits his or her participation in that Offering Period because:

(a) Immediately after the grant of an option under this Plan on the Purchase Date, the Eligible Employee (together with certain individuals and entities associated with or related to the Eligible Employee as described in Section 424(d) of the Code) would be deemed to own a number of shares of stock and certain exercisable options to purchase stock that together represent 5% or more of the total combined voting power or value of all classes of stock of the ENGlobal (computed in accordance with Section 423(b)(3) of the Code); or

(b) Immediately after the grant of an option under this Plan to an Eligible Employee on the Purchase Date, the Eligible Employee’s rights to purchase Shares under all of the employee stock purchase plans described in Section 423 of the Code of ENGlobal would accrue at a rate that exceeded $25,000 (computed based on the Fair Market Value on the Purchase Date in accordance with Section 423(b)(8) of the Code) during the calendar year of that Offering Period.

2.2 Enrollment to Buy Stock. On the Purchase Date for each Offering Period, and, subject to the other provisions of this Plan, the Company shall purchase Shares for the account of each Eligible Employee who:

(a) has completed an Enrollment Agreement in the form, format, and as otherwise required by the Stock Administrator, and

(b) delivered that Enrollment Agreement to the Stock Administrator at least 10 business days before the Enrollment Date for an Offering Period.

2.3 Designation of Beneficiary. Each Participant may from time to time designate a beneficiary by filing a written beneficiary designation form with the Stock Administrator. Such beneficiary shall receive, on Participant’s death, any refunds of amounts not used to purchase Shares and any Shares purchased on Participant’s behalf but not yet issued to the Participant. If no beneficiary is designated at the time of a Participant’s death, then any cash refunds and transfers of Shares shall be made to the appropriate representative of the Participant’s estate.

2.4 Contributions; Payroll Deductions; Account; No Interest.

(a) The Company will withhold from each Participant’s paycheck the percentage of Eligible Compensation specified in his then-current Enrollment Agreement commencing on the first pay date after the Enrollment Date next following the delivery by Employee to the Company of an Enrollment Agreement. In addition, the Company may make a discretionary Matching Contribution to each Participant’s Account. The Company shall continue to withhold a like amount and to reserve the right to make a Matching Contribution on each pay date throughout that Offering Period and each future Offering Period until the Employee ceases to be a Participant or, if earlier, changes his Enrollment Agreement. Notwithstanding anything to the contrary, the Company shall not withhold or allow any Participant’s contributions to exceed the lesser of 15% of Eligible Compensation or $25,000 per calendar year.

(b) ENGlobal will hold and use the amounts withheld from each Participant’s paycheck (or otherwise contributed by Participant) together with any Matching Contributions made by ENGlobal for the benefit of each Participant until the earlier of the date those amounts are (i) used to purchase Shares, or (ii) refunded to the Participant and to ENGlobal in accordance with Sections 2.6 and 2.7. ENGlobal will not be required to segregate any of these funds from its general corporate fund, and will not pay interest on any of these funds unless otherwise required by applicable law. Under no circumstances will ENGlobal be required to pay to Participant any Matching Contribution that is not used for the purchase of Shares.

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Page 2 of Plan Exhibit 10.78

2.5 Changes in Contributions. During an Offering Period, a Participant may not change the percentage of Eligible Compensation to be withheld from his paycheck (or otherwise to be contributed), except by withdrawing from the Plan. However, a new Enrollment Agreement may be submitted for any subsequent Offering Period.

2.6 Withdrawal.

(a) A Participant may stop participating in the current Offering Period and each future Offering Period by delivering a Withdrawal Agreement to the Stock Administrator at least 10 business days before the Purchase Date for the then-current Offering Period. Delivery of a Withdrawal Agreement will:

(i) permanently and irrevocably terminate the Withdrawing Employee’s participation in the then-current Offering Period, and

(ii) suspend the Withdrawing Employee’s participation in any future Offering Periods until he delivers an Enrollment Agreement to the Stock Administrator.

An election to stop participating in one Offering Period will not prevent an Eligible Employee from participating in any future Offering Period or in any other Plan adopted by ENGlobal, provided that the Eligible Employee will not participate in any future Offering Period until he submits a new Enrollment Agreement.

(b) As soon as practical after receiving a Withdrawal Agreement, ENGlobal will:

(iii) stop withholding the applicable percentage of Eligible Compensation from the Withdrawing Employee’s paychecks or otherwise accepting contributions to the Withdrawing Employee’s Participant Account, and

(iv) refund to the Withdrawing Employee all amounts previously withheld from his paychecks or otherwise contributed to the Withdrawing Employee’s Participant Account (excluding any Matching Contributions) during the then-current Offering Period, but only if such amounts withheld or other contributions have not otherwise been used to purchase Shares for and on behalf of the Eligible Employee.

(v) refund to ENGlobal all amounts previously contributed as Matching Contributions on behalf of the Withdrawing Employee during the then-current Offering Period, but only if such contributions have not otherwise been used to purchase Shares for and on behalf of the eligible Employee.

2.7 Termination of Employment; Leave of Absence.

(a) If a Participant’s employment with the Company terminates, including by death, on or before a Purchase Date, he will be deemed to have elected to withdraw from the Plan effective as of the date that his employment terminates.

(b) As soon as practical after a Participant’s termination of employment, ENGlobal will:

(i) refund all amounts withheld from his paycheck or otherwise contributed under this Plan (excluding any Matching Contributions) that have not been used to purchase Shares from ENGlobal or otherwise refunded;

(ii) refund to ENGlobal all Matching Contributions made on behalf of the terminated Employee that have not been used to purchase Shares from ENGlobal; and

(iii) distribute, or direct the Plan Custodian to distribute, any Shares held by the Employer or the Plan Custodian on the Participant’s behalf to the Participant or his designee.

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Page 3 of Plan Exhibit 10.78

(c) A Participant on an approved leave of absence will be deemed to have elected to withdraw from the Plan on the first day of the approved leave of absence, and such deemed election to withdraw shall be effective for each such Offering Period and each subsequent Offering Period until he returns to work and submits a new Enrollment Form.

2.8 Transferability. Neither the amounts credited to a Participant Account nor any other rights of a Participant under the Plan may be assigned, transferred, pledged, or otherwise disposed of in any way (other than by will or the laws of descent and distribution) by the Participant. Shares shall be purchased under this Plan on Participant’s behalf only during Participant’s lifetime. Any attempt at assignment, transfer, pledge, or other disposition will be without effect, except that ENGlobal will treat such act as an election to withdraw funds in accordance with Section 2.6 and Section 2.7.

3. Purchase of Stock.

3.1 Offering Periods. Each calendar year, the Company shall have four Offering Periods: one beginning on January 1 and ending on March 31, one beginning on April 1 and ending on June 30, one beginning on July 1 and ending on September 30 and one beginning on October 1 and ending on December 31.

3.2 Purchase of Stock. On each Enrollment Date, ENGlobal will offer each Participant the opportunity to have Eligible Compensation withheld from his paycheck (or to contribute Eligible Compensation in a manner approved by ENGlobal) to be used to purchase Shares on the next Purchase Date. The number of Shares the Participant will purchase on each Purchase Date, using the funds accumulated since the prior Enrollment Date, will be a number of whole and fractional Shares equal to (i) the balance of his Participant Account divided by an amount equal to the lesser of (x) 100% of the Fair Market Value per Share on the first day of the Offering Period or (y) 90% of the Fair Market Value per Share on the last day of the Offering Period, minus (ii) the number of whole and fractional Shares, if any, necessary to prevent that Participant from exceeding the limits established in Section 2.4(a).

3.3 Payment for Shares. Immediately upon each purchase of shares on Participant’s account, the amount held by ENGlobal for the benefit of that Participant will be reduced by the Purchase Price per Share multiplied by the number of Shares purchased on behalf of that Participant.

3.4 Delivery of Shares; Restrictions on Transfer; Voting.

(a) As soon as practical after each Purchase Date, a stock certificate will be issued to the Plan Custodian (or if a Participant so requests, to such Participant) for the benefit of each Participant, (or if the Plan Administrator so directs, the Company’s transfer agent shall note the Participants stock ownership electronically) for the Shares purchased on that Purchase Date. Such certificate may be issued in nominee name.

(b) All Shares purchased under this Plan will be held by ENGlobal or the Plan Custodian until the earlier of (i) a request for delivery of the Shares by the Participant, or (ii) the termination of the Participant’s employment with the Company.

(c) As soon as practical after termination of a Participant’s employment with the Company, and if timely requested by that Participant in a form approved by the Plan Custodian, certificates representing Shares purchased under the Plan will be issued in the name of that Participant.

(d) All Shares purchased under this Plan shall be nontransferable and nonassignable for six months after the date such Shares are issued to the Participant (whether or not such issuance is accomplished by delivery of a share certificate or by electronic notation by the transfer agent). Any attempt to sell, gift, pledge or otherwise transfer any Shares prior to the expiration of six months from issuance shall be ineffective and void.

(e) ENGlobal will pay all issue or initial transfer taxes of the Company with respect to the initial purchase of Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such purchase.

(f) Subject to the restrictions of Section 3.4(d), a Participant who purchases Shares under this Plan shall have, as of the date such Shares are purchased, substantially all of the rights of ownership of such Shares in accordance with Treasury Regulations Section 1.421-1(f) as in effect on the Effective Date. Such rights of ownership shall include the right to vote, the

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Page 4 of Plan Exhibit 10.78

right to receive declared dividends, the right to share in the assets of Company in the event of liquidation, the right to inspect Company’s books (to the extent granted by applicable law), and the right to pledge or sell such Shares, subject to the restrictions on such rights in this Plan and the restrictions on such rights imposed by applicable law.

3.5 Periodic Reports. As soon as practical after each Offering Period, a statement will be sent to each person who was a Participant under this Plan during the Offering Period, which statement will include (i) the total amount of all payroll deductions or other contributions, including Matching Contributions, made during the applicable Offering Period or otherwise held under this Plan for the benefit of the Participant, (ii) the number of Shares purchased on behalf of Participant on each applicable Purchase Date, (iii) the per share and aggregate purchase price per Share for those Shares, (iv) the remaining cash balance, if any held by any Employer for the benefit of Participant, and (v) such other information as the Stock Administrator or Plan Custodian deems appropriate.

3.6 No Rights in Shares Prior to Purchase. Neither a Participant nor his beneficiaries will have any interest or voting right in Shares prior to the Purchase Date on which such Shares are purchased.

4. Operation of the Plan.

4.1 Effective Date and Term of Plan. This Plan has been adopted to be effective on February 1, 2004 and will remain effective until December 31, 2010, unless sooner terminated under Section 4.5.

4.2 Shares Authorized for Sale and Issuance Under the Plan.

(a) The maximum number of Shares that may be sold and issued under this Plan will be 1,200,000 Shares, although the stated maximum will be adjusted as provided in Section 5.2 below. The maximum number of Shares that may be sold on a Purchase Date resulting from one Offering Period will be 150,000 Shares, adjusted as provided in section 5.2. If any option to purchase Shares granted under this Plan is not exercised for any reason, the Shares subject to that option will remain available to be sold and issued under this Plan.

(b) If, for any reason, the number of Shares available for sale and issuance under this Plan under Section 4.2(a) is less than the number of Shares to be sold and issued under Section 3.3 on a Purchase Date, the Company will allocate the Shares available for sale and issuance pro rata among the Participants in as uniform a manner as it determines to be equitable. In such event, the Stock Administrator or Plan Custodian will notify each Participant of the reduction in the number of Shares and the reason for such reduction.

(c) Shares sold and issued under this Plan may, in the sole and absolute discretion of the Board, be either authorized and unissued Shares or treasury Shares that are bought or otherwise acquired in public or private transactions.

4.3 Conditions Upon Issuance of Shares.

(a) Compliance With Laws. ENGlobal will not be required to sell or issue any Shares under this Plan to any Eligible Employee unless the sale, issuance and delivery of Shares complies, in the opinion of ENGlobal’s counsel, with all applicable laws and regulations, including, but not limited to, the Securities Act of 1933 and the rules and regulations of the United States Securities and Exchange Commission, and all rules and regulations of the American Stock Exchange or other applicable stock exchange or quotation system upon which the Shares are listed or traded.

(b) Investment Intent. As a condition to participation in the Plan, ENGlobal may require a Participant to represent and warrant at the time that the Shares are being acquired that such Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.

4.4 Administration; Committee.

(a) Board of Directors. This Plan will be administered by the Board (or a duly appointed committee of the Board as set forth in this Plan). Unless otherwise provided in this Plan, the Board has the power:

(i) To determine when and how rights to purchase Shares will be granted and the provisions of each offering of such rights (which need not be identical);

(ii) To designate Participating Affiliates;

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Page 5 of Plan Exhibit 10.78

(iii) To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it deems necessary or expedient;

(iv) To amend or terminate this Plan as provided in Section 4.4;

(v) To delegate administration of this Plan to the Committee; and

(vi) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of ENGlobal.

(b) Committee. If administration of this Plan is delegated to the Committee, the Committee will have all the powers of the Board with respect to this Plan, subject to any limitations on such powers stated in the Board’s resolutions delegating administration to the Committee. Whether or not the Board delegates administration of this Plan to the Committee, the Board retains the final power to determine all questions of policy, procedure, and expediency that arise in the administration of this Plan.

(c) Participation by Members of the Board. No members of the Board may participate in this Plan.

(d) Stock Administrator. ENGlobal’s day-to-day obligations under this Plan will be managed by the Stock Administrator, subject to the Board’s final power to determine all questions of policy, procedure, and expediency that arise in the administration of this Plan. The Stock Administrator will have all of the following powers:

(vii) To manage, or to select and direct a Plan Custodian to manage, the daily operations of this Plan in accordance with its terms;

(viii) To adopt rules of procedure and regulations necessary for the operation of this Plan, provided they are consistent with the terms of this Plan;

(ix) To determine all questions with regard to rights of Eligible Employees and Participants under the Plan, including, but not limited to, the eligibility of any person to participate in the Plan;

(x) To enforce the terms, rules and regulations of this Plan;

(xi) To direct the distribution of the Shares purchased hereunder;

(xii) To furnish the Company with information which it requires for tax or other purposes;

(xiii) To engage the service of counsel (who may, if appropriate, be counsel for the Company) and a Plan Custodian or other agents it deems advisable to assist it with the performance of its duties;

(xiv) To prescribe procedures to be followed by Participants in electing to participate in this Plan;

(xv) To receive from each Company and Eligible Employee any information necessary to administer or manage this Plan;

(xvi) To maintain, or cause ENGlobal, the Employer or the Plan Custodian to maintain, an account in the name of each Participant to reflect his participation in this Plan;

(xvii) To interpret and construe the Plan; and

(xviii) To make any changes or modifications necessary to administer and implement the provisions of this Plan.

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Page 6 of Plan Exhibit 10.78

4.5 Amendment or Termination.

(a) The Board may amend or terminate this Plan without notice, provided that the Board will not, without the approval of the shareholders of the Company, (i) increase the maximum number of Shares that may be sold or issued under this Plan (except pursuant to Section 5.2), or (ii) amend the requirements as to the class of Eligible Employees eligible to purchase Shares under this Plan or if a Committee is appointed to administer this Plan, permit the members of the Committee to participate in this Plan.

(b) This Plan will automatically terminate on the Purchase Date that Participants become entitled to purchase a number of Shares greater than the number available for purchase under Section 4.2. In the event of an automatic termination, reserved Shares remaining as of such Purchase Date will be sold to Participants on a pro rata basis.

4.6 Approval of the Stockholders. Commencement of the Plan will be subject to approval by the stockholders of the Company within 12 months after the date the Plan is adopted. Notwithstanding any provision to the contrary, failure to obtain such stockholder approval will void the Plan, any options granted under the Plan, any Share purchases pursuant to the Plan, and all rights of all Participants.

4.7 No Liability for Good Faith Determinations. Neither the members of the Board, the Stock Administrator nor the Plan Custodian (nor their delegates) will be liable for any act, omission, or determination taken or made in good faith with respect to the Plan or any right to purchase Shares granted under it. Members of the Board and the Stock Administrator (and their delegates) will be entitled to indemnification and reimbursement by ENGlobal in respect of any claim, loss, damage, or expense (including attorneys’ fees, the costs of settling any suit, provided such settlement is approved by independent legal counsel selected by ENGlobal, and amounts paid in satisfaction of a judgment, except a judgment based on a finding of bad faith) arising therefrom to the full extent permitted by law and under any directors and officers’ liability or similar insurance coverage that may from time to time be in effect.

5. Miscellaneous Legal Provisions

5.1 Definitions.

(a) “Board” means the Board of Directors of ENGlobal or a duly appointed committee of the Board.

(b) “Code” means the Internal Revenue Code of 1986, as amended.

(c) “Committee” means the Compensation Committee of the Board or such other committee of the Board appointed to administer this Plan

(d) “Company” means ENGlobal and each Participating Affiliate.

(e) “Eligible Compensation” means the regular rate of compensation paid to a Participant by any Employer during an Offering Period, including wages, salary, bonuses, and commissions, but excluding all other extraordinary pay. Eligible Compensation excludes the amount of a Participant’s elective contributions that are made by the Employer on behalf of that Participant that are not includable in gross income under the Internal Revenue Code of 1986, as amended, Sections 125, 402(e)(3), 132(f)(4), 402(h), and 401(k).

(f) “Eligible Employee” means a natural person who, on an Enrollment Date, has been on the payroll records of an Employer for at least the preceding three-month period (i) as receiving wages from the Employer, and (ii) customarily employed as a common law employee of the Employer (A) on a full-time basis, or (B) for more than 20 hours per week on a regular basis by the Employer for more than five months per calendar year. Notwithstanding the foregoing, officers, non-employee directors, or persons who hold 5% or more of the issued and outstanding Shares of ENGlobal, as determined under Section 2.1(a), shall not be Eligible Employees.

(g) “Employer” means ENGlobal or the Participating Affiliate by which an Eligible Employee is employed.

(h) “ENGlobal” means ENGlobal Corporation, a Nevada corporation, or any successor in interest that adopts this Plan.

(i) “Enrollment Agreement” means the agreement submitted to the Stock Administrator pursuant to Section 2.2.

(j) “Enrollment Date” means the first day of the applicable Offering Period.

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Page 7 of Plan Exhibit 10.78

(k) “Fair Market Value” of one share of Shares on a particular date will be (i) if the Shares is listed or admitted to trading on the American Stock Exchange, then (A) if sales of Shares occurred on that date, the closing selling price per share of Shares on the American Stock Exchange (or other exchange on which the Company’s shares are then traded) for that date (1) as reported by the Dow Jones News/Retrieval Service of Dow Jones and Company, Inc., or (2) if not so reported, in a newspaper of national circulation or other authoritative source selected by the Board, or (B) if no sales of Shares occurred on that date, the closing selling price per share of Shares as of the next preceding date for which the price is reported on the American Stock Exchange (or other exchange on which the Company’s shares are then traded) on that date, or (ii) in all other cases, determined in a reasonable way selected by the Board for that purpose.

(l) “Matching Contribution” means the amount contributed by the Company prior to the Purchase Date to each Participant Account in an amount to be determined by the Company in its sole discretion, which amount may be zero dollars ($0). Under no circumstance will a Participant receive the Matching Contributions other than through the purchase of Shares as outlined in the Plan. Without limitation, Matching Contributions are refundable to the Company until and unless they are used towards the purchase of Shares pursuant to Section 3. If the Stock Administrator cannot determine whether Matching Contributions were used to purchase Shares, the Stock Administrator shall have the sole and absolute discretion to seek a refund of Matching Contributions based upon the ratio that Matching Contributions in such Participant Account immediately before the Purchase Date bear to the total amount in such Participant Account immediately before such Purchase Date (excluding any Shares in such Participant Account which had been purchased on prior Purchase Dates).

(m) “Offering Period” means each period for every year commencing on January 1 and ending on March 31, or commencing on April 1 and ending on June 30, or commencing on July 1 and ending on September 30, or commencing on October 1 and ending on December 31. The only exception is the first offering period under this Plan per Section 3.1.

(n) “Participant” means an Eligible Employee who has elected to participate in any Offering Period and continues to participate in that Offering Period through its Purchase Date.

(o) “Participant Account” means any account or accounting entry maintained by ENGlobal, the Employer, the Stock Administrator or the Plan Custodian to record the amount of Eligible Compensation that a Participant has contributed to the Plan during an Offering Period in accordance with Section 2.4 of this Plan, any Matching Contributions made on behalf of that Participant, and the Shares purchased under this Plan.

(p) “Participating Affiliate” means any corporation in an unbroken chain of corporations beginning with ENGlobal, of which ENGlobal, directly or indirectly, holds, on the applicable Purchase Date, not less than 50% of the total combined voting power of all classes of stock in one of the other corporations in such chain, whether or not such corporation now exists or is hereafter organized or acquired by ENGlobal or any Subsidiary which adopts the Plan with the consent of ENGlobal.

(q) “Plan” means this ENGlobal Corporation 2004 Employee Stock Purchase Plan, as amended from time to time.

(r) “Plan Custodian” means the third party administrator appointed by ENGlobal to manage this Plan in accordance with its terms, and in the absence of a third party administrator, the Stock Administrator shall be the Plan Custodian.

(s) “Purchase Date” means a date determined by the Stock Administrator, which date shall occur as soon as administratively practicable after the last day of each month during the applicable Offering Period.

(t) “Shares” means the common stock, $.001 par value per share, of ENGlobal.

(u) “Stock Administrator” means the chairperson of the Compensation Committee of the Board, or his designee.

(v) “Subsidiary” means any corporation of which not less than 50% of the total combined voting power of all classes of stock is held either by (i) ENGlobal or (ii) any other corporation in an unbroken chain of corporations (beginning with ENGlobal, and in which not less than 50% of the total combined voting power of all classes of stock is held by each corporation in the chain), without regard to whether such corporation now exists or is hereafter organized or acquired.

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Page 8 of Plan Exhibit 10.78

(w) “Withdrawal Agreement” means the agreement submitted to the Stock Administrator pursuant to Section 2.6.

(x) “Withdrawing Employee” means a Participant who withdraws from this Plan as provided in Section 2.6(a).

5.2 Adjustments Upon Changes in Capitalization.

(a) If any change is made in the Shares, or subject to any rights granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan and outstanding rights will be appropriately adjusted in the class(es) and maximum number of Shares subject to the Plan and the class(es) and number of Shares and price per Share of Shares subject to outstanding rights. Such adjustments will be made by the Board, the determination of which will be final, binding and conclusive. The conversion of any convertible securities of the Company will not be treated as a “transaction not involving the receipt of consideration by the Company.”

(b) If (i) a dissolution or liquidation of ENGlobal or a sale of all or substantially all of ENGlobal’s assets; (ii) a merger or consolidation in which ENGlobal is not the surviving corporation; (iii) a reverse merger in which ENGlobal is the surviving corporation but the shares of Shares outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (iv) any other capital reorganization in which more than 50% of the shares of the Company entitled to vote are exchanged, is proposed to be consummated, then, the Purchase Date for the applicable Offering Period will be accelerated to the date such transaction is consummated, and the payroll deductions of the Participants made through the Purchase Date will be used to purchase Shares immediately prior to such transaction and all further rights of the Participants will terminate, unless otherwise provided by the Board in its sole discretion.

5.3 Notices; Waiver of Notice.

(a) To a Participant. All notices or other communications relating to the Plan given to a Participant or former Participant by the Board, ENGlobal, or any Employer will be deemed delivered on the day the notice or other communication is (i) personally delivered to that person, (ii) electronically transmitted to a person who on the date of that transmission either is an Eligible Employee or has consented to receiving notices by electronic transmission to the last known electronic transmission address of that person, or (iii) placed in the United States mail in an envelope addressed to the last known address of that person, whichever is earlier.

(b) By a Participant. All notices or other communications relating to the Plan given to the Board, ENGlobal, or an Employer will be deemed delivered on the day the notice or other communication is (i) received in tangible written form by the Stock Administrator at ENGlobal’s corporate headquarters address, or (ii) electronically transmitted by an Eligible Employee to the Stock Administrator by means of ENGlobal’s internal corporate e-mail or intranet system, provided that such notice is in the form specified by ENGlobal and is acknowledged by the Stock Administrator.

(c) Consent to Electronic Delivery of Notices, Plan Documents and Prospectuses. By requesting to participate in the Plan, an Eligible Employee will be deemed to consent to receiving copies of all notices and other communications relating to the Plan by electronic transmission, including but not limited to the Prospectus relating to the Plan, all enrollment and other participation materials, and all other documents required to be delivered in connection with the Plan. Upon request, ENGlobal will provide any such documents to any Eligible Employee in tangible written form.

(d) Waiver of Notice. Any person entitled to notice under the Plan may waive the notice.

5.4 Severability. If any provision of this Plan is held by final judgment of a court of competent jurisdiction to be invalid, illegal or unenforceable, such invalid, illegal or unenforceable provision shall be severed from the remainder of this Plan, and the remainder of this Plan shall be enforced. In addition, the invalid, illegal or unenforceable provision shall be deemed to be automatically modified, and, as so modified, to be included in this Plan, such modification being made to the minimum extent necessary to render the provision valid, legal and enforceable. Notwithstanding the foregoing, however, if the severed or modified provision concerns all or a portion of the essential consideration to be delivered under this Plan by one party to the other, the remaining provisions of this Plan shall also be modified to the extent necessary to equitably adjust the parties’ respective rights and obligations hereunder.

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Page 9 of Plan Exhibit 10.78

5.5 Successors and Assigns. The Plan is binding on all Participants and their respective heirs, legatees, and legal representatives, including but not limited to their estate and the executors, any receiver, trustee in bankruptcy or representative of creditors of such person, and upon the Employer, its successors and assigns.

5.6 Headings. The titles and headings of the paragraphs are included for convenience of reference only and are not to be considered in construction of the provisions hereof. Reference to sections are to Sections of this Plan unless otherwise indicated.

5.7 Governing Law; Venue. This Plan and rights to purchase Shares that may be granted under this Plan will be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any conflicts of law rules or principles that might require the application of the laws of another jurisdiction, except to the extent this Plan or those rights are governed by the Nevada General Corporation Law, or the federal law of the United States. Any claims brought against this Plan must be brought in Harris County, Texas.

5.8 No Right to Employment. Nothing in this Plan, any amendment to this Plan, or the creation of any Participant Account, the execution or submission of any Enrollment Agreement or Withdrawal Agreement, or the issuance of any Shares of Shares, will give any Eligible Employee any right (a) to continue employment with any Employer, (b) any legal or equitable right against ENGlobal or any Employer, or any officer, director, or Employee of ENGlobal or its Participating Affiliates, in connection with his employment by the Employer, or (c) interfere in any way with the Employer’s right to terminate or otherwise modify his employment at any time, except as expressly provided by the Plan or by applicable law.

This Plan has been executed by a duly authorized officer of the Company, this          day of December, 2003, to be effective as of February 1, 2004.

ENGLOBAL CORPORATION

By:
	Mike Burrow, Chairman and CEO

20

Exhibit 10.78

PARTICIPATING AFFILIATES

The following corporations are approved by the Board as Participating Affiliates to participate in this Plan:

ENGlobal Engineering, Inc.

RPM Engineering, Inc. d/b/a ENGlobal Engineering, Inc.

ENGlobal Construction Resources, Inc. also d/b/a Total Staffing Services

ENGlobal Systems, Inc.

ENGlobal Constant Power, Inc.

ENGlobal Technologies, Inc.

ENGlobal Corporate Services, Inc.

ENGlobal Design Group, Inc.

21

Exhibit 10.78

PART IV - INFORMATION ABOUT THE COMPANY

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

For a description of the Company, its directors and officers, its equity securities, audited financial statements for its latest fiscal year and unaudited financial information for subsequent quarterly periods, reference is made to the following documents which are incorporated by reference herein:

1. the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 filed with the SEC on March 27, 2003;

2. the Company’s Schedule 14A filed with the SEC on April 30, 2003;

3. the Company’s Quarterly Report on Form 10-Q for the three-month period ended March 31, 2003 filed with the SEC on May 13, 2003;

4. the Company’s Current Report on Form 8-K filed with the SEC on May 14, 2003;

5. the Company’s Form S-8 filed with the SEC on June 10, 2003;

6. the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2003;

7. the Company’s Current Report on Form 8-K filed with the SEC on July 15, 2003;

8. the Company’s Quarterly Report on Form 10-Q for the three-month period ended June 30, 2003 filed with the SEC on August 14, 2003;

9. the Company’s Current Report on Form 8-K filed with the SEC on August 14, 2003;

10. the Company’s Current Report on Form 8-K filed with the SEC on August 19, 2003;

11. the Company’s Current Report on Form 8-K filed with the SEC on October 20, 2003;

12. the Company’s Current Report on Form 8-K filed with the SEC on November 3, 2003;

13. the Company’s Current Report on Form 8-K filed with the SEC on November 12, 2003;

14. the Company’s Quarterly Report on Form 10-Q for the three-month period ended September 30, 2003 filed with the SEC on November 13, 2003; and

15. the description of Common Stock, par value $.001 per share (the “Common Stock”), of the Company set forth in the Registration Statement on Form 8-A12B, filed with the SEC on June 11, 1998, including any amendment or report filed for the purpose of updated such description.

All documents filed with the SEC by the Company pursuant to Sections 13 and 14 of the Securities Exchange Act of 1934 subsequent to the date hereof, and prior to filing of a post-effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities remaining unsold, shall be deemed incorporated by reference herein and to be a part hereof from the date of filing such documents.

22

EX-10.79

Exhibit 10.79

MERIDIAN TOWER

TULSA, OKLAHOMA

OFFICE LEASE

BETWEEN

TC MERIDIAN TOWER LP

AND

ENGLOBAL DESIGN GROUP, INC.

TABLE OF CONTENTS

		Page
1.    The Premises		2
1.1.	Pre-Occupancy Improvements	2
1.2.	Post-Occupancy Improvements	2
1.3.	Common Areas	2
1.4.	Building Regulations	2
1.5.	Use Restrictions	2
1.6.	Relocation	3
1.7.	Surrender of Premises	3
2.    Landlord Services; Maintenance		3
2.1.	Landlord Services	3
2.2.	Interruptions ,	3
2.3.	Maintenance	4
2.4.	No Liens	4
3.    Rent and Security		4
3.1.	Base Rent	4
3.2.	Operating Expense Increases	4
3.3.	Other Occupancy Costs	4
3.4.	Late Fees	4
3.5.	Nature of Rent Obligations	5
3.7.	Tenant Review	5
4.    Insurance		5
4.1.	Building Insurance	5
4.2.	Personal Property Insurance	5
4.3.	Liability Insurance	5
4.4.	Waiver of Subrogation	5
4.5.	Insurance Criteria	5
4.6.	Evidence of Insurance	5
4.7.	Indemnity	6
4.8.	Increase in Insurance	6
5.    Loss of Premises		6
5.1.	Casualty	6
5.2.	Condemnation	7
6.    Default		7
6.1.	Events of Default	7
6.2.	Default Remedies	8
6.3.	Termination of Lease	8
6.4.	Termination of Possession	8
6.5.	Option to Perform	9
6.6.	No Waiver	9
6.7.	Security Interest	9
6.8.	Holding Over	9
7.    Assignments		9
7.1.	Landlord Transfer	9
7.2.	Tenant Restrictions	9
7.3.	Consent Standards	10
7.4.	No Release/Waiver	10
8.    Miscellaneous		10
8.1.	Force Majeure	10
8.2.	Notices	11
8.3.	Separability	11
8.4.	Amendments; Binding Effect	11
8.5.	No Offer	11

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8.6.	Entire Agreement	11
8.7.	Waiver of Jury Trial	11
8.8.	Governing Law	11
8.9.	Recording	12
8.10.	Joint and Several Liability	12
8.11.	Landlord’s Fees	12
8.12.	Limitation on Landlord’s Liability	12
8.13.	Brokerage	12
8.14.	Subordination	12

ii

EXHIBIT 10.79

OFFICE LEASE

THIS OFFICE LEASE is entered into on January 24, 2004, by the Landlord and Tenant identified below for office space located in the Meridian Tower building located in Tulsa, Oklahoma.

Subject to the terms of this Lease, and in consideration of the Tenant’s agreement to lease space in the Building, pay rent and fulfill all of its other obligations under this Lease, Landlord leases to the Tenant, and the Tenant leases from the Landlord, the Premises for the Term. The following defined terms are used in capitalized form throughout this Lease:

“Base Rent” means the sum of $30,000, payable in full upon the execution of this Lease.

“Building” means the Meridian Tower Building located at 5100 E. Skelly Drive, Tulsa, Oklahoma 74135.

“Landlord” means TC Meridian Tower LP, Landlord is a limited partnership organized under the laws of the State of Delaware. Landlord’s notice address for purposes of this Lease, is 5100 E. Skelly Drive, Suite 100, Tulsa, Oklahoma 74135, and the address where Rent should be directed, is 5100 E. Skelly Drive, Suite 100, Tulsa, Oklahoma 74135.

“Premises” means Suite 800 in the Building consisting of 10,055 rentable square feet (as depicted on the floor plan attached as Exhibit “A” to this Lease).

“Rent” means Base Rent and all other sums that Tenant is required to pay to Landlord pursuant to the terms of this Lease.

“Tenant” means ENGlobal Design Group, Inc. Tenant is a corporation organized under the laws of the State of Texas. Tenant’s notice address for purposes of this Lease is 600 Century Plaza Drive, Suite 140, Houston, Texas 77073, Attn: William Coskey, Chief Executive Officer.

“Term” means January 23, 2004 through April 23, 2004, subject to adjustment and earlier termination as provided in this Lease; provided that (a) Tenant may extend the Term through May 31, 2004 by giving Landlord written notice and paying additional Base Rent in the amount of $12,333 on or before April 23, 2004, (b) if Tenant extends under subparagraph (a) above, Tenant may extend the Term through June 30, 2004 by giving Landlord written notice and paying additional Base Rent in the amount of $10,000 on or before May 31, 2004, and (c) if Tenant extends under subparagraphs (a) and (b) above, Tenant may extend the term through July 31, 2004 by giving Landlord written notice and paying additional Base Rent in the amount of $10,000 on or before June 30, 2004.

“Work” means the improvements that will be made to the Premises in connection with this Lease as described in Section 1.1, if applicable.

All exhibits attached to this Lease are incorporated herein by this reference, as follows:

Exhibit A	-	Floor Plan
Exhibit B	-	Building Rules and Regulations

Landlord and Tenant agree as follows:

1. The Premises.

1.1. Pre-Occupancy Improvements. Landlord and Tenant have agreed that no improvements will be made to the Premises in connection with this Lease, and Tenant accepts the Premises in their current “as-is” condition.

1.2. Post-Occupancy Improvements. Except for decorative activities inside the Premises (which will not cause any material damage to the Building or building systems, and will not be visible from outside the Premises), no additional improvements, alterations or additions in or to the Premises may be made without Landlord’s prior written consent. Tenant confirms that it has inspected and accepted the Building and the Premises and has determined that the Building and the Premises are suitable for its needs. Landlord and Tenant expressly disclaim any implied warranty that the Premises are suitable for Tenant’s activities, and Tenant’s obligation to pay Rent hereunder is not dependent upon the condition of the Premises.

1.3. Common Areas. In connection with Tenant’s occupancy of the Premises, Landlord also grants Tenant a non-exclusive right to use the common areas in the Building and on the land on which the Building is located for the intended and normal purpose for such common areas. Common areas include, as applicable, elevators, sidewalks, parking areas, driveways, hallways, stairways, public bathrooms, common entrances, any lobby and other similar areas and access ways. Landlord reserves the right to change the common areas from time to time, provided that sufficient common areas exist to give Tenant reasonable access to the Premises. Tenant’s use of the parking areas associated with the Building will not exceed the use of three (3) parking spaces for each 1,000 rentable square feet located within the Premises, and the referenced limitation will apply to the aggregate use by Tenant’s employees, agents and invitees. Landlord shall be responsible for ensuring ADA compliance in the common areas, excluding compliance complications arising out of a breach by the Tenant of this Lease. Tenant will be responsible for ensuring ADA compliance in the Premises during the Term.

1.4. Building Regulations. Tenant agrees to comply with the rules and regulations for the Building as established by the Landlord from time to time. The current rules and regulations for the Building, including the current building hours, are attached as Exhibit “B” to this Lease. Landlord reserves the right to amend such rules and regulations from time to time. Tenant also agrees to cause its employees, agents and affiliates to comply with such rules and regulations.

1.5. Use Restrictions. Tenant’s use of the Premises shall be limited to general office use. Any other uses are subject to Landlord’s prior written consent, which consent can be given or withheld in Landlord’s sole discretion. Without the Landlord’s prior written approval, the Tenant shall not (a) allow any use of the Premises which involves significant fire hazards or which could reasonably be expected to increase the insurance rates associated with the Building; (b) allow the storage or handling of hazardous or potentially hazardous materials in the Premises; (c) allow activities in the Premises which could reasonably be expected to adversely impact the ability of the other tenants in the Building to use and enjoy their space, or the Landlord’s ability to operate the Building; or (d) conduct any significant portion of its business from the Premises during periods outside the building hours for the Building. Tenant shall comply with all legal requirements relating to the use, condition and occupancy of the Premises.

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1.6. Relocation. Landlord shall have the right to relocate Tenant to other space in the Building which is comparable in size, utility and condition to the Premises. To exercise such right, Landlord will give Tenant written notice. Within ten (10) days after any relocation notice is received by Tenant, the parties agree to execute and deliver an appropriate amendment to this Lease in order to (a) establish the effective date for the relocation, which will be 60 days after such notice is received by Tenant, as set forth in the notice given by Landlord; (b) obligate the Landlord to reimburse Tenant for Tenant’s reasonable out-of-pocket expenses incurred in moving Tenant’s furniture, equipment and supplies from the original space occupied to the relocation space; (c) establish the relocation space as the Premises; and (d) terminate the Tenant’s rights to the original space occupied.

1.7. Surrender of Premises. On or before the last day of the Term, Tenant shall deliver the Premises to Landlord in good repair and condition, reasonable wear and tear and condemnation and casualty damage excepted, and shall deliver to Landlord all keys to the Premises. If requested by Landlord, and to the extent requested by Landlord, Tenant will remove (at Tenant’s cost) wiring and cabling located within the Premises. Provided that no Event of Default has occurred, Tenant may remove all trade fixtures, furniture, and personal property placed in the Premises by Tenant, provided that items that are attached or affixed in any way to the Premises or Building will not be removed without Landlord’s prior written consent (and to the extent such consent is given, all damage to the Building or Premises caused by such removal will be repaired at Tenant’s cost), and (c) items that were paid for, in whole or in part, by the Landlord (including all fixtures and other improvements included in the Work) will not be removed without Landlord’s prior written consent. All items not so removed within shall, at Landlord’s option, be deemed to have been abandoned by Tenant and may be stored, sold, destroyed or otherwise disposed of by Landlord after any notices required by Oklahoma law are given. No act by Landlord shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless it is in writing and signed by Landlord. The provisions of this Section 1.7 shall survive the end of the Term.

2. Landlord Services; Maintenance.

2.1. Landlord Services. Landlord agrees to provide the following services: (a) maintenance of the common areas of the Building; (b) water at existing supply points; (c) janitorial services on weekdays (other than holidays) for all Building standard installations; (d) elevator service; (e) electrical service for normal office equipment that does not require more than 110 volts or consume electricity at levels in excess of normal office equipment; and (f) heat and air conditioning, as appropriate, as necessary to maintain reasonably comfortable temperatures within the Premises. Landlord shall have the sole right to select the utility companies or other third parties which will provide such services, and to approve any such parties providing services to the Premises pursuant to contracts or similar arrangements with Tenant, such as telecommunications providers. The services to be provided by Landlord will only be provided during normal building hours. In the event Tenant requires or desires any services at other times or in excess of the described services, Tenant will be required to make appropriate arrangements with Landlord and pay the amounts charged by Landlord from time to time for excess services.

2.2. Interruptions. If any of the referenced services are interrupted and the lack of such service materially and adversely affects the Tenant’s ability to conduct business from the Premises for ten (10) consecutive business days or longer, Tenant’s exclusive remedy shall be a reasonable abatement of Base Rent for each consecutive day (after the referenced 10-day period) that the interruption occurs. Any interruption in services will not make the Landlord liable for damages or constitute a constructive eviction or otherwise affect Tenant’s obligations under this Lease (except for the abatement of Rent described in the preceding sentence).

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2.3. Maintenance. Tenant shall maintain the Premises in a clean, safe, and operable condition, and shall not permit or allow to remain any waste or damage to any portion of the Premises. Tenant shall repair or replace, subject to Landlord’s direction and supervision, any damage to the Building caused by Tenant or an employee, agent or affiliate of the Tenant within fifteen (15) days after the occurrence of such damage. Any such work will be approved in advance in writing by Landlord, and performed only by contractors and subcontractors approved in writing by Landlord. Tenant shall cause all of its contractors and subcontractors to procure and maintain insurance coverage naming Landlord as an additional insured against such risks, in such amounts, and with such companies as Landlord may reasonably require. All such work shall be performed in a good and workmanlike manner and in accordance with all legal requirements.

2.4. No Liens. Tenant shall not permit any mechanic’s liens to be filed against the Premises or the Building for any work performed, materials furnished, or obligation incurred by or at the request of Tenant. If such a lien is filed, then Tenant shall, within ten (10) days after Landlord has delivered notice of the filing thereof to Tenant, either (a) pay the amount of the lien and cause the lien to be released of record, or (b) file a statutory bond with respect to such lien and thereby cause such lien to be released as a claim against the Building. All persons now or hereafter contracting with Tenant or any contractor or subcontractor of Tenant for the furnishing of any labor, services, materials, supplies or equipment with respect to any portion of the Premises, at any time from the date hereof until the end of the Term, are hereby charged with notice that they must look exclusively to Tenant to obtain payment for same. Nothing herein shall be deemed a consent by Landlord to any liens being placed upon the Building or Landlord’s interest therein due to any work performed by or for Tenant.

3. Rent and Security.

3.1. Base Rent. Tenant shall pay to Landlord the amount of Base Rent shown on the first page of this Lease contemporaneously with the execution of this Lease, and if any Base Rent associated with the monthly extensions described in the definition of “Term” on page 1 of this Lease is not received by the Landlord on or before the applicable deadlines, no such extension will be applicable and Section 6.8 will govern any occupancy by Tenant after the end of the Term.

3.2. Operating Expense Increases. [intentionally deleted]

3.3. Other Occupancy Costs. Except for the costs and expenses that Landlord expressly agrees to pay under the terms of this Lease, Tenant agrees to pay before delinquency any and all debts and obligations incurred in connection with its occupancy of the Premises, including any separately metered utilities and all personal property taxes assessed against the Tenant’s trade fixtures, equipment or other personal property.

3.4. Late Fees. All payments that Tenant is obligated to make under this Lease must be received by Landlord on or before the date due, time being of the essence with respect to all such payments. If any payments are late, Landlord shall be entitled to collect a late fee in the amount of five percent (5%) of the delinquent payment; provided, however, that such fee shall not be charged on Tenant’s first delinquency until five (5) days after Landlord delivers written notice of such delinquency to Tenant. In addition, any and all past due payments shall bear interest from and after the 30^th day following the applicable due date, until paid, at the rate of 1.5% per month.

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3.5. Nature of Rent Obligations. The Tenant’s obligation to pay Rent and the Landlord’s obligations under this Lease are independent obligations. All Rent payments will be required and made without notice, demand, deduction or offsets of any nature.

3.6. Tenant Review. Tenant represents and warrants that all financial and other information provided by or on behalf of Tenant to Landlord or Landlord’s agents in connection with this Lease was true and correct. If Tenant is not a publicly traded company, Tenant further agrees to furnish Landlord with updated financial information from time to time within fifteen (15) days after Landlord’s request.

4. Insurance.

4.1. Building Insurance. Landlord shall keep the Building insured against damage and destruction by fire, vandalism and other perils in an amount and under such terms and conditions as Landlord and any mortgage holder on the Building deem appropriate.

4.2. Personal Property Insurance. Tenant shall keep its personal property and trade fixtures in the Premises and Building insured with “all risks” insurance in an amount covering one hundred percent (100%) of the replacement cost of the property and fixtures. Tenant will also keep any non-Building-standard improvements made to the Premises at Tenant’s request insured to the same degree as Tenant’s personal property, and name Landlord and any mortgage holder on the Building as loss payees.

4.3. Liability Insurance. Tenant will maintain commercial general liability insurance in amounts of $2,000,000 per occurrence, insuring Tenant, Landlord and Landlord’s property management company against all liability for injury to or death of a person or persons or damage to property arising from the use and occupancy of the Premises.

4.4. Waiver of Subrogation. Landlord and Tenant each waives any claim it might have against the other for any damage to or theft, destruction, loss, or loss of use of any property, to the extent the same is insured against under any insurance policy that covers the Building, the Premises, Landlord’s or Tenant’s fixtures, personal property, leasehold improvements, or business, or is required to be insured against under the terms hereof, regardless of whether the negligence of the other party caused such event. Each party shall cause its insurance carrier to endorse all applicable policies waiving the carrier’s rights of recovery under subrogation or otherwise against the other party.

4.5. Insurance Criteria. Insurance policies that the Tenant is required to maintain pursuant to this Lease: (a) will be issued by insurance companies licensed to do business in the State of Oklahoma and acceptable to Landlord; (b) will name the Landlord and the property management company as additional insureds as their interest may appear; (c) will provide that the insurance cannot be canceled or materially changed in the scope or amount of coverage unless thirty (30) days’ advance notice is given to the Landlord; (d) will be primary policies, and not contributing with, or in excess of, the coverage that the Landlord may carry; (e) may be carried through a “blanket policy” or “umbrella” coverage; and (f) will be maintained during the entire Term.

4.6. Evidence of Insurance. On or before the first day of the Term, and upon each renewal of its insurance policies, Tenant will send Landlord certificates of insurance evidencing its compliance with this Section. The certificate shall specify amounts, types of coverage, the waiver of subrogation, and the insurance criteria listed in Section 4.5. The policies shall be renewed or replaced and maintained by the Tenant.

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4.7. Indemnity. Subject to Section 4.4, and excluding claims of third parties arising from the sole or gross negligence of Landlord or its agents, Tenant shall defend, indemnify, and hold harmless Landlord and its representatives and agents from and against all claims, demands, liabilities, causes of action, suits, judgments, damages, and expenses (including attorneys’ fees) arising from (a) any injury to or death of any person or the damage to or theft, destruction, loss, or loss of use of any property or other inconvenience arising out of (a) any occurrence in the Premises, (b) the installation, operation, maintenance, repair or removal of any equipment installed by or at the request of Tenant in the Building, but outside of the Premises, or (c) Tenant’s failure to perform its obligations under this Lease. The indemnity shall survive termination or expiration of this Lease and shall not terminate or be waived, diminished or affected in any manner by any abatement or apportionment of Rent under any provision of this Lease. If any proceeding is filed for which indemnity is required hereunder, the Tenant agrees to defend the indemnified party in such proceeding at its sole cost utilizing counsel satisfactory to the indemnified party, and Tenant will maintain contractual liability insurance sufficient to cover such indemnity obligations.

4.8. Increase in Insurance. The amounts of coverage required by this Lease are subject to review at Landlord’s option at the end of each three-year period following the first day of the Term. At each review, the amounts of coverage shall be increased to the lesser of: (a) the amounts of coverage required by prudent landlords of comparable first class office buildings in the Tulsa metropolitan area; or (b) twenty-five percent (25%) higher than the previous insurance amounts. Landlord may make the review and require appropriate increases based upon this review within sixty (60) days after each three-year period ends.

5. Loss of Premises.

5.1. Casualty. If the Building is damaged by fire, tornado or other casualty, the Landlord will promptly assess the damage and notify all affected tenants of the time period necessary to complete repairs (the “Restoration Period”). If the Premises are damaged, and the damage will materially and adversely affect the Tenant’s ability to conduct business from the Premises during the Restoration Period and the Restoration Period is greater than two hundred forty (240) days, Tenant may terminate the Lease by giving notice to the Landlord. Any termination notice must be received by Landlord within fifteen (15) days after the Tenant’s receipt of Landlord’s notice specifying the Restoration Period, and will be effective on the date received by the Landlord. Landlord may also terminate the Lease by giving notice to the Tenant if (a) the Restoration Period is greater than 240 days, (b) the damage occurs within the last twenty-four (24) months of the Term, (c) the insurance proceeds available to Landlord are insufficient to pay for all necessary repairs, including situations where the mortgage holder on the Building does not make the insurance proceeds available to Landlord, or (d) the Landlord decides not to repair and restore the Building based on its current economic analysis. If the Lease is terminated, Landlord will be entitled to receive all insurance proceeds payable under policies maintained by Landlord or Tenant with respect to alterations or improvements located in the Premises. If a casualty occurs but the Lease is not terminated, (a) Landlord will promptly and diligently repair and restore the Premises to substantially the same condition as existed before the event occurred, and (b) during all periods between the date of the casualty event and substantial completion of the repairs when the Tenant is unable to conduct business from the Premises, Base Rent shall be equitably abated. Landlord’s repair obligations under this section will be limited to the extent of insurance proceeds actually received by Landlord for the applicable casualty event, and will not include an obligation to repair or replace any trade fixtures, furniture, equipment or other personal property lost or damaged, any improvements made to the Premises at Tenant’s expense (all of which will be replaced at Tenant’s expense and/or with insurance proceeds arising from coverage maintained by Tenant) or any

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improvements other than building-standard improvements. Tenant will not have any rights or receive any benefits under this section if an Event of Default exists as of the date the damage occurs, or at any time thereafter, or if the Tenant or an employee, agent or affiliate of the Tenant caused the damage.

5.2. Condemnation. Landlord will promptly notify Tenant of any eminent domain or similar proceeding that will affect the Building or the common areas. If the entire Building or Premises are taken pursuant to the exercise of eminent domain rights, or conveyed in lieu thereof, this Lease will automatically terminate on the date that the Tenant is required to vacate the Premises. If only a portion of the Building is affected, the Landlord will promptly assess the situation and notify all affected tenants of restoration alternatives and the corresponding Restoration Period. If the Premises are affected, the condemnation event will materially and adversely affect the Tenant’s ability to conduct business from the Premises during the Restoration Period and the Restoration Period is greater than two hundred forty (240) days, Tenant may terminate the Lease by giving a termination notice in accordance with Section 5.1. Landlord may also terminate the Lease by giving notice to the Tenant if (a) the Restoration Period is greater than 240 days, (b) the condemnation occurs within the last twenty-four (24) months of the Term, (c) the condemnation award received by Landlord is insufficient to pay for all necessary repairs, including situations where the mortgage holder on the Building does not make the condemnation award available to Landlord, or (d) the Landlord decides not to repair and restore the Building based on its current economic analysis. If the Premises are affected but the Lease is not terminated, (a) Landlord will promptly and diligently repair the Premises to the extent possible, and (b) during all periods between the date of the taking and substantial completion of the repairs that the Tenant is unable to conduct business in the ordinary course from the Premises, Base Rent shall be equitably abated. If a portion of the Premises is lost permanently, Base Rent shall be equitably abated. Landlord’s repair obligations under this section will be limited to the extent of condemnation proceeds actually received by Landlord. Any and all condemnation or similar awards will be paid in full to Landlord, and Tenant hereby irrevocably assigns to Landlord all of its rights, title and interest in and to such awards, except to the extent that the Tenant is able to pursue a separate claim for its moving costs, lost profits or similar claims which will not reduce or otherwise adversely affect Landlord’s award. Tenant will not have any rights or receive any benefits under this section if an Event of Default exists as of the date the condemnation occurs, or at any time thereafter.

6. Default.

6.1. Events of Default. Each of the following will constitute an “Event of Default” under this Lease: (a) a violation of Section 7.2 (which restricts the Tenant’s ability to assign its rights under this Lease), (b) a violation of Section 4 (which establishes the Tenant’s insurance requirements for this Lease), (c) Tenant’s failure to pay Base Rent within five (5) days after Landlord has delivered written notice to Tenant that the same is due, (d) Tenant’s failure to pay Landlord any sums due under this Lease (other than Base Rent) within ten (10) days after Landlord has delivered written notice to Tenant that the same is due, (e) Tenant’s failure to provide any certificate requested by Landlord pursuant to Section 4.6 within five (5) days after Landlord’s second written request, (f) Tenant’s failure to perform, comply with, or observe any other agreement or obligation under this Lease (i.e., other than the obligations described in subparagraphs (a) through (e) above) and the continuance of such failure for a period of more than thirty (30) days after Landlord has delivered written notice thereof; (g) Landlord determines that any financial or other information provided by or on behalf of Tenant in connection with this Lease was not true and correct; and (h) the filing of a petition by or against Tenant in any bankruptcy or other insolvency proceeding, or seeking any relief under any state or federal debtor relief law, including the appointment of a liquidator or receiver for all or substantially all of Tenant’s property or for Tenant’s interest in this Lease; provided,

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however, if such a petition is filed against Tenant, as opposed to by Tenant, then such filing shall not be an Event of Default unless Tenant fails to have the proceedings initiated by such petition dismissed within 90 days after the filing thereof. Notwithstanding the foregoing, an Event of Default shall occur immediately under subparagraph (c) above, and without any obligation of Landlord to give any notice, if Tenant fails to pay Base Rent when due and, during the preceding 12-month period, Landlord gave Tenant written notice of failure to pay Base Rent on one or more occasions. Landlord and Tenant agree that notices and cure periods set forth above are reasonable under the circumstances. Consequently, except for the notices described above, Tenant expressly waives any right to receive any notice of Tenant’s failure to perform or observe its obligations under this Lease, any notice to quit (including notices otherwise required by 41 Okla. Stat. § 6), any demands for payment of Rent or for possession of the Premises, and any other notices or cure periods provided by applicable law.

6.2. Default Remedies. Upon any Event of Default, Landlord may pursue any one or more of the remedies described in this Section. Any and all remedies set forth in this Lease (a) shall be in addition to any and all other remedies the Landlord may have at law or in equity, (b) shall be cumulative, and (c) may be pursued successively or concurrently as Landlord may elect. The exercise of any remedy shall not be deemed an election of remedies, or preclude Landlord from exercising any other remedies in the future. For purposes of this Section 6, “collection costs” include all costs incurred by Landlord (including court costs and reasonable attorneys’ fees and expenses) in (a) obtaining possession of the Premises, (b) removing and storing any personal property located in the Premises when Landlord takes possession thereof, (c) restoring the condition of the Premises to the condition that existed at the beginning of the Term, (d) If Tenant is dispossessed and this Lease is not terminated, reletting all or any part of the Premises (including brokerage commissions, cost of tenant improvements, and other costs incidental to such reletting), (e) performing obligations of the Tenant which Tenant failed to perform, and (f) otherwise enforcing or protecting the Landlord’s rights and remedies under this Lease.

6.3. Termination of Lease. Upon any Event of Default, Landlord may terminate this Lease by giving Tenant written notice thereof. In no event will the Lease be deemed to have been terminated unless and until the Landlord gives such notice and such notice specifically states that it is the Landlord’s intent to terminate the Lease. Upon any such termination, Tenant shall pay to Landlord all collection costs, all Rent accrued hereunder through the date of termination, and an amount equal to (a) the total Rent that Tenant would have been required to pay for the remainder of the Term discounted to present value at a per annum rate equal to the “prime rate” (as published in the Wall Street Journal on, the effective date of the termination), minus (b) the then present fair rental value of the Premises for such period, similarly discounted.

6.4. Termination of Possession. Upon any Event of Default, Landlord may terminate Tenant’s right to possess the Premises without terminating this Lease by giving written notice thereof to Tenant. Upon any such election by Landlord, Tenant shall pay to Landlord all collection costs, all Rent accrued hereunder through the date that Tenant’s right to possess the Premises is terminated, and an amount equal to (a) all Rent and other sums that Tenant is required to pay during the remainder of the Term, minus (b) any net sums thereafter received by Landlord through reletting the Premises during such period, after deducting all costs incurred by Landlord in reletting the Premises. Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be diminished because of, Landlord’s failure to relet the Premises or to collect rent due in connection with such reletting. The termination of Tenant’s right to possess the Premises shall not affect Tenant’s obligations under this Lease for the unexpired Term; rather, Landlord may, from time to time, bring an action against Tenant to collect amounts due from Tenant, without the necessity of Landlord’s waiting until the expiration of the Term. If the reletting results in the Landlord’s receipt of net consideration which exceeds the amount of the Rent, Tenant will have no claim to such excess.

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6.5. Option to Perform. Landlord may perform any act that the Tenant is obligated to perform under the terms of this Lease in Tenant’s name and on Tenant’s behalf, without being liable for any claim for damages. Tenant agrees to reimburse Landlord on demand for any expenses which Landlord may incur in thus effecting compliance with Tenant’s obligations under this Lease, together with interest thereon at the rate of 1.5% per month.

6.6. No Waiver. No waiver by Landlord of any violation or breach of any requirement under this Lease shall waive Landlord’s rights regarding any future violations. Landlord’s acceptance of Rent following an Event of Default shall not cure the Event of Default or otherwise affect the Landlord’s remedies pursuant to such Event of Default. Landlord’s acceptance of any partial payment of Rent shall not waive Landlord’s rights with regard to the remaining portion of the Rent that is due, regardless of any endorsement or other statement on the payment or in any writing delivered with the payment.

6.7. Security Interest. In order to secure the amounts due and payable to Landlord under this Lease, Tenant grants to Landlord a security interest in all of Tenant’s goods located in the Building, and its accounts and general intangibles, and all proceeds thereof. Until all of the Tenant’s obligations under this Lease have been fully performed, the goods will not be removed from the Building without the prior written consent of Landlord. Upon the occurrence of an Event of Default, Landlord may, in addition to all other remedies, exercise the rights afforded to a secured party under the Oklahoma Uniform Commercial Code.

6.8. Holding Over. If Tenant fails to surrender the Premises at the end of the Term, Tenant will be a tenant at sufferance and will be subject to all of the terms of this Lease, provided that Base Rent will be an amount equal to two (2) times the Base Rent payable during the last month of the Term, and Tenant will be obligated to protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including any claims made by any succeeding tenant founded upon such failure to surrender, and any lost profits to Landlord resulting therefrom. The provisions of this Section 6.8 will not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or under applicable law.

7. Assignments.

7.1. Landlord Transfer. Landlord may transfer any portion of the Building and assign any of its rights under this Lease at any time. If Landlord assigns its rights under this Lease, Landlord will be released from any further obligations hereunder arising after the date of the assignment, provided that the assignee assumes the obligations of the “landlord” hereunder in writing (including the obligations associated with the Security Deposit).

7.2. Tenant Restrictions. Tenant will not assign any of its rights under this Lease without the prior written consent of Landlord. This restriction will be construed to prohibit any of the following events (and all references to an “assignment” in this Section 7 will be deemed to include any of the following events): (i) any assignment or transfer (including transfers for purposes of collateral security) of this Lease or any estate or interest therein, whether directly or by operation of law, (ii) any subletting of any portion of the Premises, or the granting of any license or other right of occupancy with

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respect to any portion of the Premises, or any use of the Premises by any parties other than Tenant, (iii) any merger, consolidation, or other reorganization which results in another entity becoming the Tenant under this Lease, and (iv) if Tenant is an entity other than a corporation whose stock is publicly traded, any transfer of an ownership interest in Tenant so as to result in a change in the current control of Tenant. Notwithstanding the foregoing restriction, Tenant may assign its interest in this Lease without the written consent of Landlord to: (a) any entity that controls, is controlled by or is under common control with the Tenant, (b) any entity resulting from a merger or consolidation of Tenant, or (c) any entity that acquires all or substantially all of the Tenant’s assets, provided that any such assignee assumes in writing the Tenant’s obligations under this Lease and has a tangible net worth (calculated in accordance with GAAP standards, but excluding intangible assets) equal to or greater than the tangible net worth of Tenant as of the date of this Lease. Tenant shall promptly notify Landlord of any such assignment.

7.3. Consent Standards. When Landlord’s consent is required, Landlord’s consent to any proposed assignment will not be unreasonably withheld. Landlord will be deemed to be reasonable in withholding its consent if (i) the proposed assignee’s financial condition is determined by the Landlord to be unacceptable based on the criteria generally used by the Landlord to screen tenants of the Building, (ii) the proposed assignee’s business is not suitable for the Building considering the business of existing tenants or the criteria generally used by the Landlord to screen tenants of the Building, (iii) any terms of this Lease will be violated by the assignee’s occupancy of the Premises, including the use restrictions, (iv) Tenant proposes to retain any consideration to be received by it in connection with the assignment in excess of the amount payable to Landlord, (v) the proposed assignee is an occupant of the Building, or is a person or entity with whom Landlord is then, or has been within the six-month period prior to the time Tenant seeks to enter into such assignment, negotiating to lease space in the Building (or any affiliate of any such person or entity), or (vi) Landlord will be required to incur any costs or expenses in connection with the proposed assignment (excluding costs or expenses that Tenant pays or agrees to pay in connection with its request for consent). Landlord may, within 30 days after submission of Tenant’s request for Landlord’s consent to an assignment, cancel this Lease as of the date the proposed assignment is to be effective. Thereafter, Landlord may lease the Premises to the prospective assignee (or to any other person) without liability to Tenant.

7.4. No Release/Waiver. No assignment will release Tenant from its obligations under this Lease unless the Landlord consents to such release in writing. Unless the Landlord consents to such release in writing, from and after any such assignment, Tenant and any assignee shall be jointly and severally liable under this Lease. Landlord’s consent to any assignment shall not waive Landlord’s rights with respect to any subsequent assignments, which will remain subject to the foregoing restrictions.

8. Miscellaneous.

8.1. Force Majeure. Excluding Tenant’s obligations under this Lease that can be performed by the payment of money (such as payment of Rent and maintenance of insurance), whenever a period of time is prescribed for action to be taken by either party, such party shall not be liable or responsible for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations, or restrictions, or any other causes of any kind whatsoever which are beyond the control of such party. Otherwise, time is of the essence of the provisions of this Lease, including the exhibits attached as a part hereof.

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8.2. Notices. All notices and other communications given pursuant to this Lease will be given in writing and addressed in accordance with the addresses reflected on the first page of this Lease (provided that the parties may change their addresses by giving notice of an address change in conformity with this provision). The approved notification methods under this Lease are (a) by certified mail with return receipt requested, (b) by hand delivery, (c) by nationally recognized overnight courier service, and (d) by facsimile transmission during normal business hours followed by a confirmatory letter sent in another manner permitted hereunder. All notices shall be effective upon delivery. Upon request of Landlord, Tenant will furnish a signed certificate containing such factual matters relating to this Lease as the Landlord may reasonably request.

8.3. Separability. If any provision of this Lease is illegal, invalid, or unenforceable under present or future laws, then the remainder of this Lease will not be affected thereby and in lieu of such clause or provision, there will be added a clause or provision as similar in terms to such illegal, invalid, or unenforceable clause or provision as may be possible which is legal, valid, and enforceable.

8.4. Amendments: Binding Effect. This Lease may not be amended except by instrument in writing signed by Landlord and Tenant. No provision of this Lease shall be deemed to have been waived by Landlord unless such waiver is in written and signed by Landlord, and no custom or practice which may evolve between the parties in the administration of the terms hereof shall waive or diminish the right of Landlord to insist upon the performance by Tenant in strict accordance with the terms hereof. The terms and conditions contained in this Lease shall inure to the benefit of and be binding upon the parties hereto, and upon their respective successors in interest and legal representatives, subject to the restrictions contained in this Lease. This Lease is for the sole benefit of Landlord and Tenant, and, other than mortgage holders, no third party shall be deemed a third party beneficiary hereof.

8.5. No Offer. The submission of this Lease to Tenant shall not be construed as an offer, and Tenant shall not have any rights under this Lease unless Landlord executes a copy of this Lease and delivers it to Tenant.

8.6. Entire Agreement. This Lease constitutes the entire agreement between Landlord and Tenant regarding the subject matter hereof and supersedes all oral statements and prior writings relating thereto. Except for those set forth in this Lease, no representations, warranties, or agreements have been made by Landlord or Tenant to the other with respect to this Lease or the obligations of Landlord or Tenant in connection therewith. The normal rule of construction that any ambiguities be resolved against the drafting party shall not apply to the interpretation of this Lease or any exhibits or amendments hereto.

8.7. Waiver of Jury Trial. TO THE MAXIMUM EXTENT PERMITTED BY LAW, LANDLORD AND TENANT EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS LEASE.

8.8. Governing Law. This Lease shall be governed by and construed in accordance with the laws of the State of Oklahoma. Landlord and Tenant agree that the federal and state courts of the State of Oklahoma shall have exclusive jurisdiction over any disputes or other matters relating to this Lease.

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8.9. Recording. Tenant shall not record this Lease or any memorandum of this Lease without the prior written consent of Landlord, which consent may be withheld or denied in the sole and absolute discretion of Landlord, and any recordation by Tenant shall be a material breach of this Lease. Tenant grants to Landlord a power of attorney to execute and record a release releasing any such instrument recorded without the prior written consent of Landlord.

8.10. Joint and Several Liability. If Tenant is comprised of more than one party, each such party shall be jointly and severally liable for Tenant’s obligations under this Lease. All obligations of Tenant under this Lease which are not fully performed at the end of the Term shall survive the end of the Term.

8.11. Landlord’s Fees, Whenever Tenant requests Landlord to take any action not required of it hereunder or give any consent required or permitted under this Lease, Tenant will reimburse Landlord for Landlord’s reasonable, out-of-pocket costs payable to third parties and incurred by Landlord in reviewing the proposed action or consent.

8.12. Limitation on Landlord’s Liability. The parties expressly acknowledge and agree that the liability of Landlord (and its partners, shareholders, members or other affiliates) to Tenant, or any person or entity claiming by, through or under Tenant, for any matter relating to or arising out of the occupancy or use of the Premises and/or other areas of the Building shall be limited to the actual direct (but not consequential) damages sustained, and shall be recoverable only from the interest of Landlord in the Building. In no event will the Landlord or its partners, shareholders, members or other affiliates be personally liable in connection with any such claim.

8.13. Brokerage. Neither Landlord nor Tenant has dealt with any broker or agent in connection with the negotiation or execution of this Lease, other than Trammell Crow Services, Inc., whose commission shall be paid by Landlord pursuant to a separate written agreement. Tenant and Landlord shall each indemnify the other against all liabilities for commissions or other compensation claimed by any other broker or agent claiming the same by, through, or under the indemnifying party. Upon reasonable advance notice to Tenant, Landlord or its broker will have the right to enter the Premises at all reasonable hours to show the Premises to prospective purchasers or lenders and, during the last twelve (12) months of the Term, to prospective tenants.

8.14. Subordination. This Lease is subordinate to prior or subsequent mortgages covering the Building. If any mortgage is foreclosed, then: (a) this Lease shall continue; (b) Tenant’s possession shall not be disturbed provided that no Event of Default has occurred; (c) Tenant will attorn to and recognize the mortgagee or purchaser at foreclosure sale as Tenant’s landlord for the remaining Term; and (d) such mortgagee or purchaser shall not be bound by: (i) any payment of Rent for more than one month in advance, except the Security Deposit; (ii) any amendment, modification, or ending of this Lease without such mortgagee or purchaser’s consent after such party’s name and address is given to Tenant unless the amendment, modification, or ending is specifically authorized by this Lease and does not require Landlord’s prior agreement or consent, and (iii) any liability for any act or omission of a prior Landlord. This Section 8.14 is self-operating. However, Tenant shall promptly execute and deliver any documents needed to confirm this arrangement.

ENTERED INTO on the date set forth on the first page of this Lease.

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TC MERIDIAN TOWER LP, a Delaware limited partnership
By:	Trammell Crow Tulsa Development, Inc., a Delaware corporation, its General Partner
	By:	/s/ [ILLEGIBLE]
		Name:	[ILLEGIBLE]
		Title:	President
LNGI OBAL DESlGN GROUP, INC
By:	/s/ [ILLEGIBLE]
	Name:	Michael M. Patton
	Title:	President

-13-

EX-21.1

EXHIBIT 21.1

EXHIBIT 21.1

SUBSIDIARIES OF REGISTRANT

ENGlobal Corporate Services, Inc.	Incorporated in the State of Texas
ENGlobal Constant Power, Inc.	Incorporated in the State of Texas
ENGlobal Engineering, Inc.	Incorporated in the State of Texas
ENGlobal Systems, Inc.	Incorporated in the State of Texas
ENGlobal Construction Resources, Inc.	Incorporated in the State of Texas
RPM Engineering, Inc. dba ENGlobal Engineering, Inc.	Incorporated in the State of Louisiana
ENGlobal Technologies, Inc.	Incorporated in the State of Texas
Senftleber & Associates L.P.	Limited Partnership in the State of Texas
ENGlobal Design Group, Inc.	Incorporated in the State of Texas
Thermaire, Inc.	Incorporated in the State of Texas

EX-23.1

Exhibit 23.1

INDEPENDENT AUDITOR’S CONSENT

The Board of Directors:

We hereby consent to the incorporation by reference in the Registration Statements filed on Form S-8 of our report dated March 12, 2004, relating to the financial statements of ENGlobal Corporation appearing in the Form 10-K for the year ended December 31, 2003.

/S/ HEIN & ASSOCIATES

HEIN & ASSOCIATES LLP

Houston, Texas

March 29, 2004

EX-31.1

EXHIBIT 31.1

Exhibit 31.1

Certification by the Chief Executive Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael L. Burrow, certify that:

1. I have reviewed this report on Form 10-K of ENGlobal Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 25, 2004
	//s// Michael L. Burrow P. E.
	Michael L. Burrow
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

EXHIBIT 31.2

Certification by the Chief Financial Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert W. Raiford, certify that:

1. I have reviewed this report on Form 10-K of ENGlobal Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 25, 2004
	//s// Robert W. Raiford
	Robert W. Raiford Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Exhibit 32.1

Certification by the Chief Executive Officer Pursuant to 18 U. S. C. Section 1350, as Adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U. S. C. Section 1350, I, Michael L. Burrow, hereby certify that, to the best of my knowledge, the Annual Report on Form 10-K of ENGlobal Corporation for the fiscal year ended December 31, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ENGlobal Corporation.

/s/ Michael L. Burrow

Michael L. Burrow

Chief Executive Officer

March 25, 2004

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EX-32.2

EXHIBIT 32.2

Exhibit 32.2

Certification by the Chief Financial Officer Pursuant to 18 U. S. C. Section 1350, as Adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U. S. C. Section 1350, I, Robert W. Raiford, hereby certify that, to the best of my knowledge, the Annual Report on Form 10-K of ENGlobal Corporation for the fiscal year ended December 31, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ENGlobal Corporation.

/s/ Robert W. Raiford

Robert W. Raiford

Chief Financial Officer

March 25, 2004

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EX-99.1

Exhibit 99.1

ENGLOBAL CORPORATION

AUDIT COMMITTEE CHARTER

General

The Committee’s purpose is to oversee the accounting and financial reporting processes of the Corporation and the audits of the financial statements of the Corporation. The Committee shall oversee the audit efforts of the Corporation’s independent accountants and any internal auditors employed by the Corporation and, in that regard, shall take such actions as it may deem necessary to satisfy itself that the Corporation’s auditors are independent of management. It is the objective of the Committee to maintain free and open means of communications among the Board, the independent accountants, any internal auditors employed by the Corporation and the financial and senior management of the Corporation.

Composition

The Audit Committee shall consist of three or more directors as determined by the Board, each of whom is determined by the Board to be “independent” under Section 10A(m)(3) of the Securities Exchange Act of 1934, the rules of the American Stock Exchange, and the rules and regulations of the SEC.

All members of the Committee shall be financially literate at the time of their election to the Committee or shall become financially literate within a reasonable period of time after their appointment to the Committee. “Financial literacy” shall be determined by the Board in the exercise of its business judgment, and shall include a working familiarity with basic finance and accounting practices. At a minimum, all members of the Committee must be able to read and understand fundamental financial statements, including the Corporation’s balance sheet, income statement, and cash flow statement or become able to do so within a reasonable period of time after his or her appointment to the Committee. At least one member of the Committee must be a financial expert as such term is defined by the SEC. Committee members, are encouraged to enhance their understanding of finance and accounting by participating in educational programs conducted by the Corporation or an outside consultant or firm.

The members of the Committee are to be elected by the Board upon the recommendation of the Nominating/Corporate Governance Committee and shall serve until their successors are duly elected and qualified. Unless a Chair is elected by the full Board upon the recommendation of the Nominating/Corporate Governance Committee, the members of the Committee may designate a Chair by majority vote of the full Committee membership. The Chair will chair all regular sessions of the Audit Committee and set the agenda for Audit Committee Meetings.

Meetings

The Committee shall hold regular meetings as may be necessary, but no less than once per quarter, and special meetings as may be called by the Chairman of the Committee. As part of its job to foster open communication, the Committee should meet regularly with each of management, the principal internal auditor of the Corporation, and the independent accountants in separate executive sessions to discuss any matters that the Committee or either of these groups believe should be discussed privately. In addition, the Committee or its Chair should meet with the independent accountants and management quarterly to review the Corporation’s financial statements.

The presence in person or by telephone of a majority of the Committee’s members shall constitute a quorum for any meeting of the Committee. All actions of the Committee will require the vote of a majority of its members present at a meeting of the Committee at which a quorum is present.

ENGlobal Corporation	Exhibit 99.1
Audit Committee Charter
Page 2

The Committee Chairman should consult with management in the process of establishing agendas for Committee meetings.

The Committee shall maintain and submit to the Board copies of minutes of each meeting of the Committee, and each written consent to action taken without a meeting, reflecting the actions so authorized or taken by the Committee since the preceding meeting of the Board. A copy of the minutes of each meeting shall be placed in the Corporation’s minute book.

Relationship with Independent Accountants

The Committee shall be directly responsible, in its capacity as a committee of the Board, for the appointment, compensation, retention and oversight of the outside auditing firm. In this regard, the Audit Committee shall have the sole authority to (A) appoint and retain, (B) determine the funding for, and (C) when appropriate, terminate, the outside auditing firm, which shall report directly to the Committee. The Committee will be responsible for resolving any disputes between the independent accountants and the Corporation’s management.

Responsibilities and Duties

To fulfill its responsibilities and duties, the Audit Committee shall:

Documents/Reports Review

1. Review and assess the adequacy of this Charter at least annually, and otherwise as conditions dictate.

2. Review the results of the year-end audit of the Corporation, including (as applicable):

• the audit report, the published financial statements, the management representation letter, the “Memorandum Regarding Accounting Procedures and Internal Control” or similar memorandum prepared by the Corporation’s independent auditors, any other pertinent reports and management’s responses concerning such memorandum;

• the qualitative judgments of the independent auditors about the appropriateness, not just the acceptability, of accounting principle and financial disclosure practices used or proposed to be adopted by the Corporation and, particularly, about the degree of aggressiveness or conservatism of its accounting principles and underlying estimates;

• the methods used to account for significant unusual transactions;

• the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus;

• management’s process for formulating sensitive accounting estimates and the reasonableness of these estimates;

• significant recorded and unrecorded audit adjustments;

ENGlobal Corporation	Exhibit 99.1
Audit Committee Charter
Page 3

• any material accounting issues among management, members of the Corporation’s internal auditing department and the independent auditors; and

• other matters required to be communicated to the Committee under generally accepted auditing standards, as amended, by the independent auditors.

3. Review with financial management and the independent accountants the Corporation’s filings with the Securities and Exchange Commission on Form 10-Q and Form 10-K prior to their filing or prior to the release of earnings. The Chair of the Committee may represent the entire Committee for purposes of this review.

4. Review with management and the Corporation’s independent auditors such accounting policies (and changes therein) of the Corporation, including any financial reporting issues which could have a material impact on the Corporation’s financial statements, as are deemed appropriate for review by the Committee prior to any interim or year-end filings with the SEC or other regulatory body.

Independent Accountants

5. Approve in advance all audit, review or attest engagements required under the securities laws to be provided by the outside auditing firm, including fees and terms.

6. Establish policies and procedures for the engagement of the outside auditing firm to provide permissible non-audit services, which shall require pre-approval by the Committee (other than with respect to de minimis exceptions described in Section 10A(i)(1)(B) of the Exchange Act that are approved by the Audit Committee prior to the completion of the audit). Ensure that approval of non-audit services are disclosed to investors in periodic reports required by Section 13(a) of the Exchange Act.

7. The authority to grant pre-approval of audit and non-audit services may be delegated to one or more designated members of the Committee who are independent directors. Any such delegation shall be presented to the full Audit Committee at its next scheduled meeting.

8. Review, at least annually, a report by the outside auditor describing (i) the firm’s internal quality-control procedures, (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the last five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues, and (iii) all relationships between the independent auditor and the Corporation.

9. In connection with the report review described in the previous paragraph, review and evaluate the lead partner of the outside auditor and present to the Board Committee conclusions with respect to the qualifications and performance of the outside auditing firm.

10. Consider, at least annually, the independence of the outside auditing firm, including whether the outside auditing firm’s performance of permissible non-audit services is compatible with the auditor’s independence; obtain and review the report by the outside auditing firm describing any relationships between the outside auditing firm and the Corporation referred to in paragraph four above or any relationships between the outside auditing firm and the Corporation or any other relationships that may adversely affect the independence of the auditor; discuss with the outside auditing firm any

ENGlobal Corporation	Exhibit 99.1
Audit Committee Charter
Page 4

disclosed relationship or services that may impact the objectivity and independence of the auditor; and present to the Board the Committee’s conclusions with respect to the independence of the outside auditing firm.

11. Ensure rotation of the audit partners as required by law.

12. Establish policies for the hiring of employees and former employees of the outside auditing firm.

Financial Reporting Processes

13. Review the adequacy and effectiveness of the organization’s disclosure controls and procedures and management reports thereon.

14. Review disclosures made to the Committee by the Corporation’s Chief Executive Officer and Chief Financial Officer during their certification process for the Form 10-K and 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Corporation’s internal controls.

15. Consider the independent accountant’s judgments about the quality and appropriateness of the Corporation’s accounting principles as applied in its financial reporting.

16. Consider and approve, if appropriate, major changes to the Corporation’s auditing and accounting principles and practices as suggested by the independent accountants or management.

17. Establish regular and separate reporting to the Committee by each of management and the independent accountants regarding any significant judgments made in management’s preparation of the financial statements and the view of each as to appropriateness of such judgments.

18. Following completion of the annual audit, review separately with each of management and the independent accountants any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information.

19. Review any significant disagreement among management and the independent accountants in connection with the preparation of the financial statements.

20. Review with the independent accountants and management the extent to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented.

21. Discuss and review earnings press releases, including the type and presentation of information to be included in earnings press releases, in particular the use of “pro forma” or “adjusted” non-GAAP information.

22. Review with management and the independent auditors any reportable conditions and material weaknesses affecting internal control.

23. Receive periodic reports from the Corporation’s independent auditors and management of the Corporation to assess the impact on the Corporation of significant accounting or financial reporting developments proposed by the Financial Accounting Standards Board or the SEC or other regulatory body, or any other significant accounting or financial reporting related matters that may have a bearing on the Corporation.

ENGlobal Corporation	Exhibit 99.1
Audit Committee Charter
Page 5

24. Prepare a report annually which states, among other things, whether:

• the Committee has reviewed and discussed with management and independent auditors the audited financial statements to be included in the Corporation’s Annual Report on Form 10-K;

• the Committee has discussed with the Corporation’s independent auditors the matters that the auditors are required to discuss with the Committee by Statements on Auditing Standard No. 61, (as it may be modified or supplemented) and SEC rules;

• the Committee has determined that the Corporation’s outside auditors are “independent” under SEC and American Stock Exchange rules; and

• based on the review and discussions described in subsections (i), (ii) and (iii) above, the Committee has recommended to the Board that the audited financial statements be included in the Corporation’s Annual Report on Form 10-K for the last fiscal year for filing with the SEC.

Ethical and Legal Compliance

25. Establish, review and update periodically a Code of Conduct that applies to the Corporation’s employees and directors and ensure that management has established a system to enforce this Code. The Code must be publicly available and waivers for executive officers and directors granted and disclosed in accordance with applicable law.

26. Review with the Corporation’s counsel, any legal matter that could have a significant impact on the Corporation’s financial statements.

27. Meet annually with the general counsel, and outside counsel when appropriate, to review legal and regulatory matters, including any matters that may have a material impact on the financial statements of the Corporation.

28. Review and approve, if the duty is not delegated to a comparable body of the Board, all related party transactions in accordance with the regulations of the American Stock Exchange and other applicable law.

29. Obtain from the independent auditors any information pursuant to Section 10A of the Securities Exchange Act of 1934.

30. Establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, including procedures for confidential, anonymous submission of concerns by employees regarding accounting and auditing matters.

31. Perform any other activities consistent with this Charter, the Corporation’s bylaws and governing law, as the Committee or the Board deems necessary or appropriate.

ENGlobal Corporation	Exhibit 99.1
Audit Committee Charter
Page 6

Outside Advisors

The Audit Committee shall have the authority to retain such outside counsel, accountants, experts and other advisors as it determines appropriate to assist the Audit Committee in the performance of its duties. The Audit Committee shall have sole authority to approve related fees and retention terms.

With respect to the duties and responsibilities listed above, the Committee should:

• Report regularly to the Board on its activities, as appropriate;

• Exercise reasonable diligence in gathering and considering all material information;

• Understand and weigh alternative courses of conduct that may be available;

• Focus on weighing the benefit versus harm to the Corporation and its stockholders when considering alternative recommendations or courses of action;

• If the Committee deems it appropriate, secure independent expert advice and understand the expert’s findings and the basis for such findings, including retaining independent counsel, accountants or others to assist the Committee in fulfilling its duties and responsibilities; and

• Provide management, the Corporation’s independent auditors, and any internal auditors employed by the Corporation with appropriate opportunities to meet privately with the Committee.

* * *

While the Committee has the duties and responsibilities set forth in this charter, the Committee is not responsible for planning or conducting the audit or for determining whether the Corporation’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. These are the responsibilities of management and the outside auditor.

Adopted by Resolution of the Board of Directors

December 18, 2003

EX-99.2

Exhibit 99.2

AMENDED AND RESTATED

CHARTER OF THE COMPENSATION COMMITTEE

OF THE BOARD OF DIRECTORS OF

ENGLOBAL CORPORATION

AUTHORITY

The Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of ENGlobal Corporation, a Nevada corporation (the “Corporation”), is established pursuant to Article Tenth of the Corporation’s Articles of Incorporation and Section 78.125 of the Nevada General Corporation Law. The Committee shall be comprised of three or more non-employee directors as determined from time to time by resolution of the Board upon the recommendation of the Nominating/Corporate Governance Committee. Consistent with the appointment of other Board committees, the members of the Committee shall be elected by the Board at the annual organizational meeting of the Board or at such other time as may be determined by the Board. The Chairman of the Committee shall be designated by the Board, provided that if the Board does not designate a Chairman, the members of the Committee, by majority vote, may designate a Chairman. The presence in person or by telephone of a majority of the Committee’s members (not including vacancies) shall constitute a quorum for any meeting of the Committee. All actions of the Committee will require the vote of a majority of its members present at a meeting of the Committee at which a quorum is present. The Committee shall have the power to retain outside consultants or others to assist it in the evaluation of the Corporation’s compensation and benefits programs and agreements.

PURPOSE OF THE COMMITTEE

The Committee’s primary function is to assist the Board in fulfilling its oversight responsibilities by reviewing, approving and recommending employee and management compensation and benefit policies for the Corporation. This oversight includes the responsibility to consider and evaluate management’s recommendations and to further make recommendations to the Board as to the amount and form of compensation for directors and executive employees of the Corporation, and the administration of all annual bonus plans and the Corporation’s stock option plans in addition to any successor or replacement stock option plan.

COMPOSITION OF THE COMMITTEE

The Committee shall consist of three or more members of the Board of Directors, each of whom is determined by the Board of Directors to be “independent” under the rules of the American Stock Exchange and the SEC. Additionally, no director may serve unless that director (1) is a “non-employee director” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and (2) satisfies the requirements of an “outside director” for purposes of Section 162(m) of the Internal Revenue Code.

MEETINGS OF THE COMMITTEE

The Committee shall meet with such frequency and at such intervals as it shall determine is necessary to carry out its duties and responsibilities, but in any case, at least twice a year. The Committee shall meet at least annually with management to discuss general compensation strategy.

Each member of the Committee shall have one vote. A quorum of the Committee shall consist of a majority of the Committee’s members (not including vacancies). The Committee shall be authorized to take any permitted action only by the affirmative vote of a majority of the Committee members present at any meeting at which a quorum of its members is present, or by the unanimous written consent of all of the Committee members.

ENGlobal Corporation	Exhibit 99.2
Amended and Restated Charter of the Compensation Committee
Page 2

The Committee shall maintain and submit to the Board copies of minutes of each meeting of the Committee, and each written consent to action taken without a meeting, reflecting the actions so authorized or taken by the Committee since the preceding meeting of the Board. A copy of the minutes of each meeting and all consents shall be placed in the Corporation’s minute book.

DUTIES AND RESPONSIBILITIES OF THE COMMITTEE

• Review and approve on an annual basis the corporate goals and objectives relevant to the compensation of the Chief Executive Officer, evaluate the Chief Executive Officer’s performance in light of these goals and objectives, and, either as a committee or together with other independent directors (as directed by the Board), determine and approve the Chief Executive Officer’s compensation based on this evaluation (including salary, bonus, incentive and equity compensation).

• Review and approve on an annual basis the evaluation process and compensation structure for the Corporation’s officers.

• Evaluate the performance of the Corporation’s senior executive officers and approve annual compensation (including salary, bonus, incentive and equity compensation).

• Review director compensation levels and practices, and recommend, from time to time, changes in such compensation levels and practices to the Board of Directors.

• Review the Corporation’s compensation, incentive compensation and equity-based plans and recommend changes in such plans to the Board of Directors as needed.

• Prepare and publish an annual executive compensation report in the Corporation’s proxy statement.

• Make grants of options under the Corporation’s stock option plans, establish the market price of the Corporation’s common stock for purposes of such grants, and approve and modify any and all stock option award agreements.

• Perform any other activities consistent with this Charter, the Corporation’s Bylaws and governing law as the Committee or the Board of Directors deem appropriate.

DISCLOSURE OF CHARTER

This Charter will be made available in accordance with applicable rules and regulations.

Adopted by Resolution of the Board of Directors

March 25, 2004

EX-99.3

Exhibit 99.3

ENGLOBAL CORPORATION

NOMINATING/CORPORATE GOVERNANCE COMMITTEE CHARTER

Purpose

The function of the Nominating/Corporate Governance Committee (the “Committee”) is to identify individuals qualified to become board members and to select, or to recommend that the Board of Directors select, the director nominees for the next annual meeting of stockholders, to oversee the selection and composition of committees of the Board of Directors, and to oversee management continuity planning processes.

Composition

The Committee shall consist of two or more members of the Board of Directors, each of whom is determined by the Board of Directors to be “independent” in accordance with the rules of the American Stock Exchange and the SEC.

Appointment and Removal

The members of the Committee shall be appointed by the Board of Directors and shall serve until such member’s successor is duly elected and qualified or until such member’s earlier resignation or removal. The members of the Committee may be removed, with or without cause, by a majority vote of the Board of Directors.

Chairperson

Unless a Chairperson is elected by the full Board of Directors, the members of the Committee shall designate a Chairperson by majority vote of the full Committee membership. The Chairperson will chair all regular sessions of the Committee and set the agendas for Committee meetings.

Meetings

The Committee shall meet as frequently as circumstances dictate. The Chairman of the Board or any member of the Committee may call meetings of the Committee. The Committee may invite to its meetings any director, member of management of the Company, and such other persons as it deems appropriate in order to carry out its responsibilities.

Duties and Responsibilities

The Committee shall have the following duties and responsibilities:

• Establish criteria for the selection of new directors to serve on the Board of Directors, taking into account at a minimum all applicable laws, rules, regulations and listing standards, a potential candidate’s experience, areas of expertise and other factors relative to the overall composition of the Board of Directors.

• Identify individuals believed to be qualified as candidates to serve on the Board of Directors and select, or recommend that the Board of Directors select, the candidates for all directorships to be filled by the Board of Directors or by the shareholders at an annual or special meeting.

• Monitor the orientation and continuing education program for directors.

ENGlobal Corporation	Exhibit 99.3
Nominating/ Corporate Governance Committee Charter
Page 2

• Review the Board of Director’s committee structure and recommend to the Board of Directors directors to serve on the committees of the Board, giving consideration to the criteria for service on each committee as set forth in the charter for such committee, as well as to any other factors the Committee deems relevant, and when appropriate, make recommendations regarding the removal of any member of any committee.

• Recommend members of the Board of Directors to serve as the Chair of the committees of the Board of Directors.

• Oversee and approve the management continuity planning process. Annually review and evaluate the succession plans relating to the CEO and other executive officer positions and make recommendations to the Board of Directors with respect to the selection of individuals to occupy these positions.

• Develop and recommend to the Board of Directors for its approval an annual self-evaluation process of the Board of Directors and its committees. Based on the results of the annual evaluation, as well as on any other matters the Committee shall deem relevant, the Committee shall make such recommendations to the Board of Directors regarding board processes and other items deemed appropriate to improve or ensure the effective functioning of the Board of Directors as the Committee shall from time to time deem advisable or appropriate.

• Develop and recommend to the Board of Directors for its approval a set of Corporate Governance Guidelines. The Committee shall review the Guidelines on an annual basis, or more frequently if appropriate, and recommend changes as necessary.

• Perform any other activities consistent with this Charter, the Company’s Bylaws and governing law as the Committee or the Board of Directors deem appropriate.

Advisors

The Committee shall have the authority to retain a search firm to assist in identifying director candidates, and retain outside counsel and other advisors as the Committee may deem appropriate in its sole discretion. The Committee shall have sole authority to approve related fees and retention terms.

Reports and Performance Review

The Committee shall report its actions and any recommendations to the Board of Directors after each Committee meeting and shall conduct and present to the Board of Directors an annual performance evaluation of the Committee. The Committee shall review at least annually the adequacy of this Charter and recommend any proposed changes to the Board of Directors for approval.

Disclosure of Charter

This Charter will be made available in accordance with applicable rules and regulations.

Adopted by Resolution of the Board of Directors

March 25, 2004

EX-99.4

Exhibit 99.4

ENGLOBAL CORPORATION

EMPLOYEE COMPLAINT PROCEDURES AND

NON-RETALIATION POLICY

ENGlobal Corporation (the “Company”) is committed to ensuring that it provides a safe workplace for its employees, and that its business practices are ethical and comply with federal and state law. Any employee that has a complaint that involves imminent danger or physical injury should report the matter immediately to the Human Resources Manager and the Safety Manager, as well as to proper authorities. Any employee that has a concern relating to any other matter may submit the concerns regarding the Company’s business practices to the Management of the Company. Employees who submit their concerns may do so without fear of dismissal or retaliation of any kind. Employees should report any unethical or dishonest conduct, or potential violation of federal or state law, including, but not limited to, the following:

• violations of federal or state criminal law relating to securities fraud, mail fraud, bank fraud, wire, radio and television fraud, or fraud against shareholders;

• violations of any rule or regulation of the Securities and Exchange Commission;

• fraud or deliberate error in the preparation, evaluation, review or audit of any financial statement of the Company;

• fraud or deliberate error in the recording and maintaining of financial records of the Company;

• deficiencies in or noncompliance with the Company’s internal accounting controls;

• misrepresentations or false statements to or by a senior officer or accountant regarding a matter contained in the financial records, financial reports or audit reports of the Company;

• deviations from full and fair reporting of the Company’s financial condition;

• conflicts of interest; and

• violations of the Company’s Codes of Ethics.

The Company’s Audit Committee will oversee treatment of employee complaints. To facilitate the reporting of complaints, the Company’s Audit Committee has established the following procedures for (1) the receipt, retention and treatment of complaints and (2) the confidential, anonymous submission by employees of concerns regarding the Company’s business practices.

Submission of Employee Complaints

Employees may report their concerns on a confidential, anonymous basis using the Company’s telephone complaint hotline (the “Telephone Hotline”) or its email complaint submission system (the “Email System”). The Telephone Hotline and Email System are not suited for complaints that involve imminent danger or physical injury, which should be immediately reported to the Human Resources Manager and Safety Manager.

For all other complaints, to use the Telephone Hotline, simply call 281-821-3254, extension 583 and describe your complaint. It is not necessary to leave your name unless you want the Company to respond to you with the action taken. The phone system will not record the phone number from which your call was made. Access to the message retrieval system on this telephone extension is password protected and is limited to the Chief Governance Officer and the Chair of the Audit Committee.

ENGlobal Corporation	Exhibit 99.4
Employee Complaint Procedures and Non-Retaliation Policy
Page 2

The Telephone Hotline will be reviewed weekly on Fridays of each week by the Company’s Chief Governance Officer, who will log the date the complaint was received, assign a complaint number, and determine whether the complaint is an accounting complaint or another type of complaint. She will then send all accounting complaints to the Chief Financial Officer and to the Chair of the Audit Committee. She will send all non-accounting complaints to the Chair of the Audit Committee. Any action taken on the complaint will be reported back to the Chief Governance Officer who will record the action taken.

To use the Email System, go to the Company Intranet and do the following:

    1. Click on “Employees”

    2. Click on “Administration”

    3. Enter your user name and password at the employee log-in prompt

    4. Click on “Employee Feedback System”

    5. Complete the form and click on “submit.”

If your complaint is delivered through the Email System, it will be anonymous unless you identify yourself. The Company’s web service provider has taken and will continue to take such measures as are necessary to ensure that complaints submitted using the web-based system are anonymous before they are forwarded to the Company. The email will be received by the Chair of the Audit Committee and the Chief Governance Officer.

Treatment of Employee Complaints

The Chair of the Audit Committee shall be responsible for reviewing the complaints and determining, with the assistance of the Audit Committee, whether further investigation is appropriate. An investigation and further corrective action will be initiated when warranted in the judgment of the Audit Committee. Confidentiality will be maintained to the fullest extent possible, consistent with the need to conduct an adequate review.

In addition, the Chief Governance Officer will maintain a log of all complaints, tracking their receipt, investigation and resolution and shall prepare a periodic summary report thereof for the Audit Committee. Copies of complaints and the complaint log will be maintained in accordance with the Company’s document retention policy.

Non-Retaliation Policy

The Company will not discharge, demote, suspend, threaten, harass or in any manner discriminate against any employee in the terms and conditions of employment based upon any lawful actions of such employee with respect to good faith reporting of complaints or as otherwise specified in Section 806 of the Sarbanes-Oxley Act of 2002.

If an employee believes he or she has been subjected to any action that violates this policy, he or she should file a complaint with his or her supervisor, the Chief Governance Officer or the Company’s Director of Human Resources. If it is determined that an employee has experienced any improper employment action in violation of this policy, the employee will be entitled to appropriate corrective action.

Adopted by Resolution of the Board of Directors

March 25, 2004

EX-99.5

Exhibit 99.5

ENGLOBAL CORPORATION CODE OF ETHICS

FOR CEO AND SENIOR FINANCIAL OFFICERS

ENGlobal Corporation (the “Corporation”) has a Code of Business Conduct and Ethics applicable to all directors and employees of the Corporation. The CEO and all senior financial officers, including the CFO and principal accounting officer, are bound by the provisions set forth therein relating to ethical conduct, conflicts of interest and compliance with law. In addition to the Code of Business Conduct and Ethics, the CEO and senior financial officers are subject to the following additional specific policies:

1. The CEO and all senior financial officers are responsible for full, fair, accurate, timely and understandable disclosure in the periodic reports required to be filed by the Corporation with the SEC. Accordingly, it is the responsibility of the CEO and each senior financial officer promptly to bring to the attention of the Audit Committee any material information of which he or she may become aware that affects the disclosures made by the Corporation in its public filings.

2. The CEO and each senior financial officer shall promptly bring to the attention of the Audit Committee any information he or she may have concerning (a) significant deficiencies in the design or operation of internal controls which could adversely affect the Corporation’s ability to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Corporation’s financial reporting, disclosures or internal controls.

3. The CEO and each senior financial officer shall promptly bring to the attention of the CEO and to the Audit Committee any information he or she may have concerning any violation of the Corporation’s Code of Business Conduct and Ethics, including any actual or apparent conflicts of interest between personal and professional relationships, involving any management or other employees who have a significant role in the Corporation’s financial reporting, disclosures or internal controls.

4. The CEO and each senior financial officer shall promptly bring to the attention of the CEO and to the Audit Committee any information he or she may have concerning evidence of a material violation of the securities or other laws, rules or regulations applicable to the Corporation and the operation of its business, by the Corporation or any agent thereof, or of violation of the Code of Business Conduct and Ethics or of these additional procedures.

5. The Board of Directors shall determine, or designate appropriate persons to determine, appropriate actions to be taken in the event of violations of the Code of Business Conduct and Ethics or of these additional procedures by the CEO and the Corporation’s senior financial officers. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to the Code of Business Conduct and Ethics and to these additional procedures, and shall include written notices to the individual involved that the Board has determined that there has been a violation, censure by the Board, demotion or re-assignment of the individual involved, suspension with or without pay or benefits (as determined by the Board) and termination of the individual’s employment. In determining what action is appropriate in a particular case, the Board of Directors or such designee shall take into account all relevant information, including the nature and severity of the violation, whether the violation was a single occurrence or repeated occurrences, whether the violation appears to have been intentional or inadvertent, whether the individual in question had been advised prior to the violation as to the proper course of action and whether or not the individual in question had committed other violations in the past.

EX-99.6

Exhibit 99.6

ENGLOBAL CORPORATION

CODE OF BUSINESS CONDUCT AND ETHICS

Introduction

Our Corporation’s reputation for honesty and integrity is the sum of the personal reputations of our directors, officers and employees. To protect this reputation and to promote compliance with laws, rules and regulations, this Code of Business Conduct and Ethics has been adopted by our Board of Directors. This Code of Conduct is only one aspect of our commitment, and should be read in conjunction with the policies contained in our Employee Handbook (the “Employee Handbook”).

This Code sets out the basic standards of ethics and conduct to which all of our directors, officers and employees are held. These standards are designed to deter wrongdoing and to promote honest and ethical conduct, but will not cover all situations. If a law conflicts with a policy in this Code, you must comply with the law; however, if a local custom or policy conflicts with this Code, you must comply with the Code. If you feel that a provision of the Code conflicts with policies contained in the Employee Handbook, you should direct your concern immediately to the Corporation’s Legal Compliance Officer (currently, William A. Coskey).

If you have any doubts whatsoever as to the propriety of a particular situation, you should follow the anonymous reporting procedure set forth in the Employee Complaint Procedures and Non-Retaliation Policy, a copy of which is on the employee portion of the Corporation’s web site. The designated Corporation official will then review the situation and take appropriate action in keeping with this Code, the Employee Handbook, and our other corporate policies and the applicable law. If your concern relates to that individual, you should submit your concern, in writing, to the Legal Compliance Officer of the Corporation or to the Corporation’s outside general counsel. The mailing address of each of those individuals is included at the end of this Code.

Those who violate the standards set out in this Code will be subject to disciplinary action.

1. Scope

If you are a director, officer or employee of the Corporation or any of its subsidiaries or controlled entities, you are subject to this Code.

2. Honest and Ethical Conduct

We, as a Corporation, require honest and ethical conduct from everyone subject to this Code. Each of you has a responsibility to all other directors, officers and employees of our Corporation, and to our Corporation itself, to act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing your independent judgment to be subordinated and otherwise to conduct yourself in a manner that meets with our ethical and legal standards.

3. Compliance with Laws, Rules and Regulations

You are required to comply with all applicable governmental laws, rules and regulations, both in letter and in spirit. Although you are not expected to know the details of all the applicable laws, rules and regulations, we expect you to seek advice from our Corporation’s Legal Compliance Officer (or if for any reason that is not practical, from our Corporation’s Chief Governance Officer) if you have any questions about whether the requirement applies to the situation or what conduct may be required to comply with any law, rule or regulation. The Employee Handbook addresses in further detail the Corporation’s policies and reporting procedures for specific types of violations (e.g., Equal Employment, Sexual and other Unlawful Harassment).

ENGlobal Corporation	Exhibit 99.6
Code of Business Conduct and Ethics
Page 2

4. Conflicts of Interest

You must handle in an ethical manner any actual or apparent conflict of interest between your personal and business relationships. Conflicts of interest are prohibited as a matter of policy. A “conflict of interest” exists when a person’s private interest interferes in any way with the interests of our Corporation. For example, a conflict situation arises if you take actions or have interests that interfere with your ability to perform your work for our Corporation objectively and effectively. Conflicts of interest also may arise if you, or a member of your family, receive an improper personal benefit as a result of your position with our Corporation.

The Employee Handbook contains policies addressing specific types of conflicts of interest, including, but not limited to, gifts, financial interests in other organizations. If you become aware of any material transaction or relationship that reasonably could be expected to give rise to a conflict of interest, you should report it promptly pursuant to the procedure set forth in the Employee Handbook.

5. Corporate Opportunities

You are prohibited from taking for yourself, personally, opportunities that are discovered through the use of corporate property, information or position, unless the Board of Directors has declined to pursue the opportunity. You may not use corporate property, information, or position for personal gain, or to compete with our Corporation directly. You owe a duty to our Corporation to advance its legitimate interests whenever the opportunity to do so arises.

6. Fair Dealing

You should endeavor to deal fairly with our Corporation’s suppliers, competitors and employees and with other persons with whom our Corporation does business. You should not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair-dealing practice.

7. Public Disclosures

It is our Corporation’s policy to provide full, fair, accurate, timely, and understandable disclosure in all reports and documents that we file with, or submit to, the Securities and Exchange Commission and in all other public communications made by our Corporation.

8. Confidentiality

You should maintain the confidentiality of all confidential information entrusted to you by our Corporation or by persons with whom our Corporation does business, except when disclosure is authorized or legally mandated. Confidential information includes all non-public information that might be of use to competitors of, or harmful to, our Corporation or persons with whom our Corporation does business, if disclosed. The Corporation’s policy regarding confidentiality is further addressed in the Employee Handbook, which also contains specific reporting procedures to be followed in the event of a breach of such policy.

ENGlobal Corporation	Exhibit 99.6
Code of Business Conduct and Ethics
Page 3

9. Insider Trading

If you have access to material, non-public information concerning our Corporation, you are not permitted to use or share that information for stock trading purposes, or for any other purpose except the conduct of our Corporation’s business. All non-public information about our Corporation should be considered confidential information. Insider trading, which is the use of material, non-public information for personal financial benefit or to “tip” others who might make an investment decision on the basis of this information, is not only unethical but also illegal. The prohibition on insider trading applies not only to our Corporation’s securities, but also to securities of other companies if you learn of material non-public information about these companies in the course of your duties to the Corporation. Violations of this prohibition against “insider trading” may subject you to criminal or civil liability, in addition to disciplinary action by our Corporation. The Employee Handbook and Insider Trading Policy provide further information regarding the Corporation’s insider trading policy.

10. Protection and Proper Use of Corporation Assets

You should protect our Corporation’s assets and promote their efficient use. Theft, carelessness, and waste have a direct impact on our Corporation’s profitability. All corporate assets should be used for legitimate business purposes. The obligation of employees to protect the Corporation’s assets includes its proprietary information. Proprietary information includes intellectual property such as trade secrets, patents, trademarks, and copyrights, as well as business, marketing and service plans, engineering and manufacturing ideas, designs, databases, records, salary information and any unpublished financial data and reports. Unauthorized use or distribution of this information would violate Corporation policy. It could also be illegal and result in civil or even criminal penalties. The Employee Handbook contains specific policies and procedures employees must following regarding the protection of Corporation resources.

11. Interpretations and Waivers of the Code of Business Conduct and Ethics

If you are uncertain whether a particular activity or relationship is improper under this Code or requires a waiver of this Code, you should disclose it to our Legal Compliance Officer (or to the Chair of the Audit Committee if you are a director), who will make a determination first, whether a waiver of this Code is required and second, if required, whether a waiver will be granted. You may be required to agree to conditions before a waiver or a continuing waiver is granted. However, any waiver of this Code for an executive officer or director may be made only by the Corporation’s Board of Directors and will be promptly disclosed to the extent required by applicable law, rule (including any rule of any applicable stock exchange) or regulation.

12. Reporting any Illegal or Unethical Behavior

Our Corporation desires to promote ethical behavior. Employees are encouraged to talk to supervisors, managers or other appropriate personnel when in doubt about the best course of action in a particular situation. Additionally, employees should promptly report violations of laws, rules, regulations or this Code pursuant to the procedures set forth in the Employee Manual. Any report or allegation of a violation of applicable laws, rules, regulations or this Code need not be signed and may be sent anonymously. All reports of violations of this Code, including reports sent anonymously, will be promptly investigated and, if found to be accurate, acted upon in a timely manner. If any report of wrongdoing relates to accounting or financial reporting matters, or relates to persons involved in the development or implementation of our Corporation’s system of internal controls or disclosure controls, a copy of the report will be promptly provided to the Chair of the Audit Committee of the Board of Directors, which may participate in the investigation and resolution of the matter. It is the policy of our

ENGlobal Corporation	Exhibit 99.6
Code of Business Conduct and Ethics
Page 4

Corporation not to allow actual or threatened retaliation, harassment or discrimination due to reports of misconduct by others made in good faith by employees. Employees are expected to cooperate in internal investigations of misconduct. Please see the Employee Complaint Procedures and Non-Retaliation Policy for details on reporting illegal or unethical conduct and the protections our Corporation provides.

13. Compliance Standards and Procedures

This Code is intended as a statement of basic principles and standards and does not include specific rules that apply to every situation. Its contents have to be viewed within the framework of our Corporation’s other policies, practices, instructions and the requirements of the law. This Code is in addition to other policies, practices or instructions of our Corporation that must be observed. Moreover, the absence of a specific corporate policy, practice or instruction covering a particular situation does not relieve you of the responsibility for exercising the highest ethical standards applicable to the circumstances.

In some situations, it is difficult to know right from wrong. Because this Code does not anticipate every situation that will arise, it is important that each of you approach a new question or problem in a deliberate fashion:

(a) Determine if you know all the facts.

(b) Identify exactly what it is that concerns you.

(c) Discuss the problem with a supervisor or, if you are a director, with the Chair of the Corporation’s Audit Committee.

(d) Seek help from other resources such as other management personnel or our Corporation’s outside general counsel.

(e) Seek guidance before taking any action that you believe may be unethical or dishonest.

You will be governed by the following compliance standards:

• You are personally responsible for your own conduct and for complying with all provisions of this Code and for properly reporting known or suspected violations;

• If you are a supervisor, manager, director or officer, you must use your best efforts to ensure that employees understand and comply with this Code;

• No one has the authority or right to order, request or even influence you to violate this Code or the law; a request or order from another person will not be an excuse for your violation of this Code;

• Any attempt by you to induce another director, officer or employee of our Corporation to violate this Code, whether successful or not, is itself a violation of this Code and may be a violation of law;

• Any retaliation or threat of retaliation against any director, officer or employee of our Corporation for refusing to violate this Code, or for reporting in good faith the violation or suspected violation of this Code, is itself a violation of this Code and our Whistleblower Policy and may be a violation of law; and

• Our Corporation expects that every reported violation of this Code will be investigated.

ENGlobal Corporation	Exhibit 99.6
Code of Business Conduct and Ethics
Page 5

Violation of any of the standards contained in this Code, or in any other policy, practice or instruction of our Corporation, can result in disciplinary actions, including dismissal and civil or criminal action against the violator. This Code should not be construed as a contract of employment and does not change any person’s status as an at-will employee.

This Code is for the benefit of our Corporation, and no other person is entitled to enforce this Code. This Code does not, and should not be construed to, create any private cause of action or remedy in any other person for a violation of the Code.

The names, addresses, telephone numbers, facsimile numbers and e-mail addresses of the Corporation’s Legal Compliance Officer, the Chair of the Audit Committee and the Corporation’s outside general counsel are set forth on the following page:

ENGlobal Corporation	Exhibit 99.6
Code of Business Conduct and Ethics
Page 6

Legal Compliance Officer	Audit Committee Chair	Outside General Counsel
William A. Coskey 600 Century Plaza Drive Suite 140 Houston, Texas 77073 281.821.7100, X523 bill.coskey@englobal.com	Randall B. Hale Container Care P.O. Box 72 Galena Park, Texas 77547 713.353.2820 rhale@containercare.com	Jenkens & Gilchrist, P.C. 2200 One American Center 600 Congress Avenue Austin, Texas 78701 Attn: J. Rowland Cook or Kathryn K. Lindauer 512.499.3800 rcook@jenkens.com or klindauer@jenkens.com

Adopted by Resolution of the Board of Directors

March 25, 2004

EX-99.7

Exhibit 99.7

ENGLOBAL CORPORATION

DISCLOSURE POLICY

ISSUED:	May 2001
REVISED:	March 2002
	March 2003

Exhibit 99.7

TABLE OF CONTENTS

Commitment to a consistent disclosure policy	3
Scope: Who and what disclosures the policy covers	3
Designation of a Disclosure Policy Committee and its role and responsibilities	3
Designation of those authorized to speak on behalf of the ENGlobal Corporation and their responsibilities	4
Instruction of employees who are not authorized spokespersons to refer inquiries to the authorized spokespersons	4
Method for relaying material information to Disclosure Policy Committee	4
Policy on news releases	4
Policy on responding to market rumors	5
Policy on projections that are identified as forward-looking	5
Policy on providing analysts guidance with respect to earnings estimates and reviewing analysts’ draft models or reports	6
Policy on conducting analyst meetings and conference calls	6
Other Policy issues	7
Monitoring Meetings with Analysts and Investors	7
Monitoring corporate advertising and marketing materials	7
Responsibility for Monitoring the Company’s Website	8
Referring to or Distributing Analyst Reports on the Company	8
Questions regarding the policy	8

Exhibit 99.7

ENGLOBAL

CORPORATION

DISCLOSURE POLICY

Commitment to a consistent disclosure policy

ENGlobal Corporation (the “Company”) is committed to providing timely, orderly, accurate and credible information consistent with applicable legal and regulatory requirements, to enable orderly trading of its shares in the public market. It is imperative that disclosure be accomplished evenly during good times and bad and that all parties in the investment community have fair access to this information.

This disclosure policy confirms in writing our existing policy. Its goal is to develop and maintain realistic investor expectations by making all required disclosures on a broadly disseminated basis and being realistic on prospects for future Company performance.

The Company will comply with Regulation FD and other Securities and Exchange Commission (“SEC”) and American Stock Exchange (“AMEX”) rules and regulations at all times.

Scope: Who and what disclosures the policy covers

This policy covers all employees of the Company and the Board of Directors. It covers disclosures in SEC-filed documents and written statements made in the Company’s annual and quarterly reports, news and earnings releases, letters to shareholders, speeches by top management and information contained in the Company’s website and those of its subsidiaries. It covers oral statements made in group and individual meetings with analysts and investors, phone calls with analysts and investors, and interviews with the media as well as press conferences.

Designation of a Disclosure Policy Committee and its role and responsibilities

The Board of Directors has authorized the establishment of a Disclosure Policy Committee (the “Committee”) consisting of Chief Governance Officer (“CGO”), Investor Relations Officer (“IRO”), and Chief Legal Officer. The Committee is not a committee of the Board, but will report to the Board of Directors from time to time as the Board or the Committee may request. The Committee will consult with the Company’s outside general counsel, as needed.

The Committee will decide when material developments justify public release, will make recommendations to the Chief Executive Officer (“CEO”) and President on disclosure policy, and will meet as conditions dictate. The role of the Committee is not to conduct normal investor relations activities by committee. Rather, the Committee will systematically review ENGlobal Corporation’s prior material disclosures in SEC filings and other public statements to determine whether any updating or correcting is appropriate. The Committee will review and update, if necessary, this Disclosure Policy on an annual basis.

Designation of those authorized to speak on behalf of the ENGlobal Corporation and their responsibilities

The CEO, President, and IRO are designated as the primary spokespersons for the Company. Others within ENGlobal Corporation or its operating units may, from time to time, be designated by the CEO or the other spokespersons named above to speak on behalf of ENGlobal Corporation or to respond to specific inquiries from the investment community or the media. The IRO is integrally involved in

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Exhibit 99.7

scheduling and developing presentations for all meetings and communications with the investment community and the media. After public dissemination, all of ENGlobal Corporation’s disclosure will be monitored to ensure accurate reporting and take corrective measures, if necessary. All new material disclosures will be incorporated into the ENGlobal Corporation’s disclosure record.

Instruction of employees who are not authorized spokespersons to refer inquiries to the authorized spokespersons

Employees, other than the authorized spokespersons, will be instructed that they are not to respond under any circumstances to inquiries from the investment community or the media unless specifically asked to do so by an authorized spokesperson. All employees will be informed in writing who the authorized spokespersons are, and employees (other than those authorized to do so) are not to respond to inquiries from or discuss matters related to the Company with representatives of the investment community or media. They will be instructed to refer all such queries to an authorized spokesperson, designated above.

Method for relaying material information to Disclosure Policy Committee

It is essential that the Committee be fully apprised of all material Company developments in order to evaluate and discuss those events to determine the appropriateness and timing for public release of information or whether the information should remain confidential, and if so, how that inside information is controlled. These developments include the status of any merger discussions or activities, material operational developments, extraordinary transactions and major management changes.

Recent corporate reforms have significantly shortened the time frame in which a public company must report material company developments. Therefore, it is imperative that any material event be reported to the IRO immediately. Such information will be confirmed and disclosed in accordance with SEC requirements.

Policy on news releases

A news release will be issued on new material developments, unless the Committee determines that such developments must remain confidential for the time being and appropriate control of the related insider information is instituted. Should a material oral statement be made in a selective forum (e.g., an analyst meeting or phone call with an analyst or investor), ENGlobal Corporation will immediately issue a news release pursuant to Reg FD in order to fully publicly disclose that information.

Under normal circumstances (an exception may be made in the case of an inadvertent disclosure of new material information in a selective forum, in which case the need for immediate release would require that the normal review and approval process be circumvented), a news release containing new material information will be reviewed and approved by the Committee and retained as part of ENGlobal Corporation’s record of disclosures. A news release containing earnings estimates or disclosing merger and acquisition activity will be provided to the members of the Company’s Board of Directors prior to release.

The news release will be transmitted to the wire services and will be monitored to determine when the news has crossed at least one of these wire services and is considered fully released. Meanwhile, a copy of the release will be faxed to the American Stock Exchange at least 20 minutes prior to transmitting it to the wire service so the exchange has an opportunity to determine whether a trading halt is necessary. This is particularly important for releases transmitted during normal trading hours. Additionally, the news release may be transmitted directly to the New York Times, the Wall Street Journal, USA Today, Investor’s Business Daily and the media in the areas where ENGlobal Corporation has its headquarters and operations.

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Normally, news releases will be transmitted during nontrading hours.

Policy on responding to market rumors

So long as it is clear that the ENGlobal Corporation is not the source of the market rumor, ENGlobal Corporation’s spokespersons will respond consistently to those rumors, saying, “It is our policy not to comment on market rumors or speculation.” Should the AMEX request ENGlobal Corporation make a definitive statement in response to a market rumor that is causing significant volatility in the stock, the Committee shall consider the matter and make a recommendation to the CEO on whether to make a policy exception.

Policy on projections that are identified as forward-looking

ENGlobal Corporation will not release exact earnings estimates, but from time to time may provide an expected range. It will not provide guidance to analysts in their efforts to develop earnings estimates. ENGlobal Corporation will provide forward-looking information to enable the investment community to better evaluate ENGlobal Corporation and its prospects for performance. ENGlobal Corporation may provide analysts and investors with forecast information with respect to expected income growth or loss, pricing and profit margins, significant new product developments and projected demand or market potential products for its products and services on a quarterly or annual basis.

A forward-looking statement made in ENGlobal Corporation’s written documents will be identified as such and accompanied with meaningful cautionary language that warns investors that there is a risk that the statement could change materially. In the case of oral forward-looking statements, the statement will be identified as such and, if the cautionary language is not included in a previously released, readily available written document, it will immediately accompany the statement. Otherwise, the spokesperson can refer to a readily available written document (news release, the MD&A in a Form 10-K or 10-Q) for the cautionary language.

The Company will evaluate its ability to forecast such information and the reliability of such forecasts before making a determination to make this kind of information part of its disclosure regimen. If there is likely to be a lot of volatility in these forecasts, the Company may chose to avoid such forecasts, even though the safe harbor, when properly used, provides some legal protection when forecasts are not realized.

Policy on providing analysts guidance with respect to earnings estimates and reviewing analysts’ draft models or reports

It is the Company’s policy, when analysts inquire with respect to their earnings estimates: (1) to acknowledge what the current range of analysts’ estimates is, and (2) to question an analyst’s assumptions if his estimate is out of the current range of Street estimates. The Company’s spokesperson (normally the CGO or the IRO) may comment in a general way on analysts’ projections and will correct factual errors in analysts’ reports or models.

It is the Company’s policy to review, upon request, analysts’ models or reports. However, the spokesperson will comment only on historical information contained in the report or model and will not comment on analysts’ conclusions on such information contained in their report or model.

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Exhibit 99.7

Should analysts send copies of their reports or models for review, the CGO or the IRO will review the report the analyst orally under the above guidelines and will not retain any copies of those reports. If the Company retains draft analyst reports or models on which it has commented, it should cover such a report with a disclaimer statement that the report was reviewed for factual information only and no comment was made with regard to the soft information or conclusions contained in the report or model.

If the Company determines during the course of a quarter that its earnings will most likely fall below the consensus of analysts’ estimates, the Committee will determine the need and timing of a news release acknowledging that possibility, giving the reasons why to the best of its knowledge and, if possible, what is being done about the situation. Only after the news release has been issued will the Company hold any discussions with analysts on this matter.

Policy on conducting analyst meetings and conference calls

The Company may chose to conduct one major analyst meeting a year. It will meet with analysts and portfolio managers on an individual or small group basis as needed and will initiate contacts or respond to analyst and investor calls in a timely manner.

The Company may chose to conduct interactive conference calls with analysts and investors on a quarterly basis, usually the morning after the quarterly earnings news release has been issued. In the event of a preemptive earnings release (one made prior to a normal announcement because of an expected shortfall below the Street’s estimates) or a special new announcement, a conference call will normally be held during non-trading hours after the release has been publicly transmitted.

The Company will announce the date and time of the conference call in its earnings release and on its website. The media may call an “800” number and listen to the call on a real-time basis but may not ask questions during the call. A replay of the conference call will be made available following the call on the Company’s website for anyone interested in listening to a replay.

The CGO or the IRO (and other members of the Committee, as appropriate) will listen to the call to determine if new material information may have been released to determine whether a news release is called for to fully disclose the information. A transcript of the call will be reviewed and edited by the CGO and the IRO and, if they determine it to be appropriate, by the Company’s outside general counsel. It will be retained as part of the ENGlobal Corporation’s disclosure record, along with the tape of the call, and will be made available to analysts or investors on a request only basis.

At the beginning of the call, a Company spokesperson introducing the call or the person actually conducting the call will make a statement that forward-looking information may be discussed during the course of the call, and, if so, it will be identified as such with words such as “we expect,” “we believe,” we predict,” etc., and will be followed by appropriate cautionary language or reference to cautionary statements contained in readily available (publicly released) documents. Any excerpts from the conference call placed on ENGlobal Corporation’s website containing forward-looking statements will have the cautionary language as part of the transcribed statement (even if it means editing the cautionary language into the statement that may have been referred to orally during the call as being contained in another written document).

NOTE: Editing cautionary language into the conference call transcript is necessary because it becomes a written document when circulated beyond ENGlobal Corporation or placed on the website.

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Exhibit 99.7

Other Policy issues

Monitoring Meetings with Analysts and Investors

When possible, the CGO or the IRO will accompany the CEO or CFO when meeting with analysts one-on-one or in group meetings. The CGO or the IRO will ordinarily pre-brief Company spokespersons before such meetings or before they conduct conference calls with analysts and investors. The purpose of the pre-briefing is to ensure consistency of the message or matters the Company wants to get across to the analysts. It is also held to review the disclosure record so the spokesperson is familiar with the material issues that are already on the public record, as well as to guard against inadvertent disclosure of those material matters that have not been publicly released.

Monitoring corporate advertising and marketing materials

The CGO and the IRO will be responsible for monitoring corporate advertising and marketing materials to ensure that claims are truthful and that any forward-looking statements (e.g., anticipated dates for new product releases, etc.) are monitored to make certain these are publicly updated should they change materially.

Responsibility for Monitoring the Company’s Website

The CGO and the IRO are primarily responsible for placing investor-related information on ENGlobal Corporation’s website and are responsible for monitoring all Company information placed on the website to ensure its accuracy and completeness. Any material changes in information must be updated immediately.

NOTE: The Company website should be viewed as a 24-hour updating obligation given the fact that it can be accessed any time, day or night, and material changes in information must be updated as quickly as possible.

Referring to or Distributing Analyst Reports on the Company

The Company regards analyst reports as proprietary information belonging to the analyst’s firm and will not provide such reports on its website or through any other means to persons outside of the Company. All analyst reports on the Company and industry reports available will be provided periodically to the Board of Directors and to senior management.

Questions regarding the policy

Questions regarding the ENGlobal Disclosure policy should be directed to the CGO or the IRO.

ENGlobal Corporation

Corporate Office

600 Century Plaza Drive, Suite 140

Houston, Texas 77073-6033

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