SecProbe.io

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<TYPE>CORRESP
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<FILENAME>filename1.txt
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VIA EDGAR - CORRESPONDENCE FILING
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0510

     Re:  ENGlobal Corporation - Form 10-K for the Fiscal Year ended December
          31, 2004 SEC File No. 1-14217

Ladies and Gentlemen:

On June 28, 2005 we received your letter from Rufus Decker dated May 31, 2005
requesting that we provide the Securities and Exchange Commission (the
"Commission") with certain responses to items disclosed in the Form 10-K filed
with the Commission by ENGlobal Corporation (the "Company") for the year ended
December 31, 2004. This letter sets forth the information requested in that
letter. For your convenience, the paragraphs included in this letter are
numbered to correspond with the comments in your letter.

General
-------

1. Where a comment below requests additional disclosures or other revisions,
please show us in your supplemental response what the revisions will look like.
These revisions should be included in your future filings, including interim
filings where applicable.

Our responses herein indicate, where applicable, the revisions to be included in
future filings, which revisions are, in each case, subject to such changes as
are dictated by future changes in the Company's business.

2. Please quantify each of the expected sources and uses of cash. For example,
disclose the amount of planned capital expenditures. Refer to Item 303(a) of
Regulation S-K and SEC Release 33-8350.

We will revise our Liquidity and Capital Resources discussion in future filings
to include the expected sources and uses of cash.

Proposed Revision (noted in capitals):
Cash Flow
Operating activities required the use of $2.4 million in NET cash for the fiscal
year ended December 31, 2004. During the fiscal years ended December 31, 2003
and 2002, operating activities provided net cash totaling $6.6 million and $1.3
million, respectively. Much of the decrease in our cash flow from operating
activities IN 2004 occurred early in the fourth quarter of 2004 due to the
acquisition of CIS WHICH WAS completed in October 2004. Subsequently, cash flow
returned to a positive position in January 2005 as the integration of the CIS
acquisition was substantially completed. THOUGH A DECLINE IN REVENUES WOULD BE
LIKELY TO ADVERSELY IMPACT OUR CASH FLOW FROM OPERATIONS, WE BELIEVE THAT FUTURE
CASH FLOWS, OUR ABILITY TO MANAGE THE TIMING OF ACQUISITIONS, AND OUR BORROWING
CAPACITY UNDER OUR LINE OF CREDIT WILL ALLOW US TO MEET CASH REQUIREMENTS IN
2005 AND BEYOND. FUTURE USES OF CASH IN OPERATIONS WILL CONTINUE TO BE PRIMARILY
FOR LABOR AND MATERIAL COSTS REQUIRED IN CONNECTION WITH CONTRACT PERFORMANCE.

Investing activities used cash totaling $1.8 million in 2004, compared to
$471,000 in 2003 and $1.3 million in 2002. In 2004, our investing activities
consisted of capital additions of $1.2 million primarily for computers and
leasehold improvements to our Beaumont office. We used $625,000 in the fourth
quarter of 2004 to COMPLETE the acquisitions of EDGI, AmTech, Cleveland

Page 1 of 1

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Inspection Services, Inc., and InfoTech. FUTURE INVESTING ACTIVITIES ARE
ANTICIPATED TO REMAIN CONSISTENT WITH PRIOR YEARS AND INCLUDE CAPITAL ADDITIONS
FOR LEASEHOLD IMPROVEMENTS, TECHNICAL APPLICATIONS SOFTWARE, AND EQUIPMENT, SUCH
AS UPGRADES TO COMPUTERS. CAPITAL EXPENDITURES ARE LIMITED TO $1.2 MILLION UNDER
THE LINE OF CREDIT AGREEMENT.

Financing activities provided cash totaling $4.2 million in 2004 and used cash
totaling $6.1 million and $1.2 million during 2003 and 2002, respectively. Our
primary financing mechanism is our revolving line of credit. The line of credit
has been used principally to finance accounts receivable. During 2004, our
borrowings, net of payments, on the line of credit were $8.0 million, and we
repaid an aggregate of $3.8 million on our short-term and long-term BANK AND
OTHER debt. FUTURE CASH FLOWS FROM FINANCING ACTIVITIES ARE ANTICIPATED TO BE
BORROWINGS, PAYMENTS ON THE LINE OF CREDIT AND PAYMENTS ON LONG-TERM DEBT
INSTRUMENTS. LINE OF CREDIT FLUCTUATIONS ARE A FUNCTION OF TIMING RELATED TO
OPERATIONS OBLIGATIONS AND PAYMENTS RECEIVED ON ACCOUNTS RECEIVABLE. PAYMENTS ON
LONG-TERM DEBT, INCLUDING INTEREST FOR THE COMING YEAR, ARE ESTIMATED TO BE
$1,346,000.

3. Please revise your table of contractual cash obligations to include estimated
interest payments on your debt. Because the table is aimed at increasing
transparency of cash flow, we believe these payments should be included in the
table. Please also disclose any assumptions you made to derive these amounts.

We will revise our contractual obligations table in future filings to include
estimated interest payments on the long-term debt.

Proposed Revision (noted in capitals):
The following table summarizes our contractual obligations as of December 31,
2004:

<TABLE>
<CAPTION>

                                   Payments Due by Period
                                   ------------------------------------------------------------------
                                     2005       2006        2007       2008     2009 and     Total
                                                                                thereafter
                                   ---------- ----------  ---------  ---------- ----------  ---------
                                                            (in thousands)
                                   ------------------------------------------------------------------
<S>                                <C>        <C>           <C>      <C>        <C>         <C>
                LONG-TERM DEBT (1) $   1,346  $   1,486   $ 14,781   $     542  $     479   $ 18,634
                    Capital leases         4          -          -           -          -          4
                  Operating leases     1,551      1,221      1,333         968      2,556      7,629
                                   ---------- ----------  ---------  ---------- ----------  ---------
TOTAL CONTRACTUAL CASH OBLIGATIONS $   2,901  $   2,707   $ 16,114   $   1,510  $   3,035   $  26,267
                                   ========== ==========  =========  ========== ==========  =========

(1)LONG-TERM DEBT INCLUDES FUTURE INTEREST PAYMENTS ASSUMING THE EXISTING
LONG-TERM DEBT AND REVOLVING CREDIT FACILITY REMAIN OUTSTANDING WITH THE
INTEREST RATE IN EFFECT AT DECEMBER 31, 2004. THE COMPANY'S INTEREST RATE ON ITS
REVOLVING CREDIT FACILITY FLUCTUATES WITH THE PRIME RATE.
</TABLE>

4. Please indicate whether you have discussed your critical accounting estimates
with your audit committee. Additionally, for each critical accounting policy or
estimate, please discuss the likelihood of materially different reported results
if different assumptions or conditions were to prevail. To the extent
practicable and meaningful, you should also quantify the effect changes in
assumptions and estimates would have on your overall financial performance. See
SEC Releases 33-8040 and 33-8098.

The Company supplementally advises the Staff that the audit committee meets at
least one time a quarter with management and the Company's independent
registered public accounting firm. The Audit Committee discusses critical
accounting estimates involved in the preparation of the Company's financial
statements at each of its quarterly meetings.

Page 2 of 2

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The Company's critical accounting policies are as follows:

Revenue Recognition and Collection Risk
---------------------------------------
The majority of the Company's revenues are recognized under cost-plus contracts.
As a result, significant estimates are generally not involved with the
recognition of revenue. In addition, most of our contracts are with Fortune 500
companies. As a result, collection risk is not a significant element in the
revenue recognition process. In future filings, the Company will include the
following disclosures: first paragraph under the caption Critical Accounting
Policies-Revenue Recognition:

     BECAUSE THE MAJORITY OF THE COMPANY'S REVENUES ARE RECOGNIZED UNDER
     COST-PLUS CONTRACTS, SIGNIFICANT ESTIMATES ARE GENERALLY NOT INVOLVED IN
     DETERMINING REVENUE RECOGNITION. IN ADDITION, MOST OF OUR CONTRACTS ARE
     WITH FORTUNE 500 COMPANIES. AS A RESULT, COLLECTION RISK IS GENERALLY NOT A
     RELEVANT FACTOR IN THE RECOGNITION OF REVENUE.

Goodwill
--------
Goodwill is assessed for impairment annually or whenever events or changes in
circumstances indicate the carrying amount of goodwill may be impaired. We
determine the fair value of our Engineering and Systems segments based on a
multiple of EBITDA. Changes in assumptions and estimates in the determination of
fair value for these two segments would be unlikely to result in impairment
losses unless accompanied by a decline in the operating results of the two
segments. In future filings, the Company will include the following disclosures:
the paragraph under Critical Accounting Policies - Goodwill:

     A CHANGE IN ASSUMPTIONS IN THE ESTIMATION OF THE FAIR MARKET VALUE OF THE
     SEGMENTS WOULD UNLIKELY GIVE RISE TO AN IMPAIRMENT OF GOODWILL WITHOUT
     DETERIORATING OPERATING RESULTS IN THE SEGMENTS.

5. Given that on page 33 you mention a large foreign receivable from a client of
EDG and on page 12 you mention business development agents in foreign countries,
please disclose how you determined that you have no exposure to foreign currency
exchange rate fluctuations. Please also disclose how you account for foreign
currency transactions and provide the disclosures required by paragraph 30 of
SFAS 52.

The Company supplementally advises the Staff that receivables from foreign
sources are denominated in U.S. dollars. Therefore, there are no foreign
currency exchange gains or losses. The Company will make the following revision
in future filings.

Proposed Revision (noted in capitals):
The Company has no market risk exposure in the areas of interest rate risk from
investments because the Company did not have an investment portfolio as of
December 31, 2004. Currently, the Company does not engage in foreign currency
hedging activities nor is the Company exposed to currency exchange rate
fluctuation. ALL FOREIGN RECEIVABLES ARE DENOMINATED IN U.S. DOLLARS.
ACCORDINGLY, THERE ARE NO FOREIGN EXCHANGE GAINS OR LOSSES.

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6. You are required to separately present product revenues from service revenues
unless either is less than 10% of total revenues. Please confirm that you are in
compliance with this requirement; otherwise please revise your presentation of
revenues and corresponding cost of revenues. Refer to Rule 5-03(b)(1) and (2) of
Regulation S-X.

The Company supplementally advises the Staff that substantially all our revenues
are from service contracts. The Company does not consider revenues from
procurement services to be product revenues. Only 1.2% of total revenues is
attributable to product revenues. As a result, the Company is not required to
separately present product revenues.

7. Please disclose the types of expenses that you include in the direct costs
line items and the types of expenses that you include in the selling, general,
and administrative expenses line items. Please also disclose whether you include
inbound freight charges, purchasing and receiving costs, inspection costs,
warehousing costs, internal transfer costs, and the other costs of your
distribution network in the direct costs line items. With the exception of
warehousing costs, if you currently exclude a portion of these costs from direct
costs, please disclose:

     o    In a footnote the line items that these excluded costs are included in
          and the amounts included in each line item for each period presented,
          and
     o    In MD&A that your gross margins may not be comparable to those of
          other entities, since some entities include all of the costs related
          to their distribution network in direct costs and others like you
          exclude a portion of them from gross margin, including them instead in
          a line item, such as selling, general, and administrative expenses.

The Company supplementally advises the Staff that our direct costs include
professional compensation and related benefits, materials, subcontractor
services and other direct costs of projects. Our direct costs also include
variable costs such as travel, repairs and maintenance and supplies directly
related to producing revenues. Any freight charges, inspection costs, etc. are
directly charged to the project to which the charges relate. Selling, general
and administration costs include management and staff compensation, office costs
such as rents and utilities, depreciation, amortization, travel and other
expenses that are unrelated to specific client contracts, but directly related
to the support of each segment's operations. A summarized version of these costs
is included in MD&A on page 25. The Company will include the following
disclosure in its Form 10-Q for the period ended June 30, 2005, and in all
future Form 10-Ks.

Proposed Revision (noted in capitals):
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 direct
contract costs. DIRECT CONTRACT COSTS INCLUDE PROFESSIONAL COMPENSATION AND
RELATED BENEFITS, MATERIALS, SUBCONTRACTOR SERVICES AND OTHER DIRECT COSTS OF
PROJECTS. DIRECT CONTRACT COSTS ALSO INCLUDE VARIABLE COSTS SUCH AS TRAVEL,
REPAIRS AND MAINTENANCE AND SUPPLIES DIRECTLY RELATED TO PRODUCING REVENUES. ANY
FREIGHT CHARGES AND INSPECTION COSTS ARE DIRECTLY CHARGED TO THE PROJECT TO
WHICH THE CHARGES RELATE. Anticipated losses on uncompleted 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.

SELLING, GENERAL AND ADMINISTRATION COSTS INCLUDE MANAGEMENT AND STAFF
COMPENSATION, OFFICE COSTS SUCH AS RENTS AND UTILITIES, DEPRECIATION,
AMORTIZATION, TRAVEL AND OTHER EXPENSES THAT ARE UNRELATED TO SPECIFIC CLIENT
CONTRACTS, BUT DIRECTLY RELATED TO THE SUPPORT OF EACH SEGMENT'S OPERATIONS.

Page 4 of 4

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8. Please expand your discussion to address how your revenue recognition policy
for each type of revenue complies with the provisions of SAB Topic 13:A.
Specifically, please address customer acceptance and inspection provisions as
well as contract termination provisions, including customers' rights to
terminate most contracts at will. Please also disclose whether you enter into
revenue arrangements with multiple deliverables as well as how you account for
these arrangements pursuant to EITF 00-21.

We will revise our discussion on revenue recognition in our 10-Q for the period
ended June 30, 2005 and in future Form 10-Ks as follows:

Proposed Revision (noted in capitals):
Revenue Recognition
-------------------
The Company's revenues are composed of engineering service revenues and product
sales. The Company recognizes service revenues as soon as the services are
performed. The majority of the Company's ENGINEERING services HAVE HISTORICALLY
BEEN provided through cost-plus contracts WHEREAS A MAJORITY OF THE COMPANY'S
PRODUCT SALES ARE EARNED ON FIXED FEE CONTRACTS.

On occasion, the Company, serving as an agent for the client, procures materials
and equipment on behalf of the client and the cost of such materials and
equipment is reimbursed with no mark-up or profit. In accordance with Statement
of Position (SOP) 81-1, revenues and costs for these types of purchases are not
included in total revenues and costs. For financial reporting, this
"pas