3. ACQUISITION

Acquisition Summary – On March 5, 2025, ENGlobal Corporation (“Englobal”) filed for chapter 11 bankruptcy relief (the “Englobal Chapter 11”) in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”). In connection therewith, we entered into a senior secured, super-priority debtors-in-possession credit agreement effective March 5, 2025, as amended May 12, 2025 (the “DIP Credit Agreement”), as lender, with Englobal, as debtor-in-possession, and certain of its subsidiaries, as guarantors. The DIP Credit Agreement provided for potential loan amounts to Englobal of up to $3.5 million in the aggregate, bearing interest at 12.0% per annum (plus a 4.0% default rate per annum, if applicable) and was secured by all assets of Englobal. Pursuant to the DIP Credit Agreement, during the first quarter 2025, we loaned Englobal $1.2 million (which included the roll-up of a prepetition secured bridge loan), and during the second quarter 2025, we loaned Englobal $2.3 million, for a total loan amount of $3.5 million (the “DIP Loan”).

In addition, we entered into a loan sale and assignment agreement effective April 10, 2025 with Alliance 2000, Ltd. (“Alliance”), a creditor of Englobal, pursuant to which we assumed Alliance’s senior secured loan of $2.4 million (the “Alliance Loan”) due from Englobal in exchange for a cash payment of $1.5 million to Alliance (the “Alliance Payment”) during the second quarter 2025.

We entered into the DIP Loan and Alliance Loan with the right to “credit bid” any amounts then-owed under the agreements in any offer by us to purchase all or a portion of Englobal’s assets. On April 18, 2025, we were named as the successful bidder in the Bankruptcy Court-supervised auction process for certain assets of Englobal, which consisted of certain assets of Englobal’s automation business (“Automation Business”), engineering business (“Engineering Business”) and government business (“Government Business” and together with the Automation Business and Engineering Business, the “Englobal Business”). Accordingly, pursuant to an asset purchase agreement effective April 15, 2025, as amended May 19, 2025 (the “Asset Purchase Agreement”), we acquired the Automation Business effective May 12, 2025, and we acquired the Engineering Business and Government Business effective June 16, 2025 (collectively, the “Acquisition Date”), the consideration for which was the assumption of certain liabilities and a “credit bid” of the full amount of the DIP Loan (collectively, the “Englobal Acquisition”). We did not “credit bid” any portion of the Alliance Loan, and accordingly, it continues to be a senior secured obligation of Englobal owed to us.

Preliminary Purchase Price Allocation – We considered the DIP Loan amount of $3.5 million to represent the purchase price (“Purchase Price”) of the Englobal Business given such amount was “credit bid” in connection with the Englobal Acquisition. The Purchase Price is reflected within investing activities on our Statement of Cash Flows. However, because the Alliance Loan was not “credit bid” and we currently do not believe that recovery from Englobal of the Alliance Payment is probable, we recorded a reserve against the full amount of the Alliance Payment, resulting in a charge of $1.5 million for each of the three and six months ended June 30, 2025. In addition, for the three and six months ended June 30, 2025, we incurred transaction costs of $0.3 million and $0.5 million, respectively, associated with the Englobal Acquisition. The aforementioned charge and transaction costs are reflected within other (income) expense, net on our Statement of Operations for our Corporate Division. The Alliance Payment is reflected within investing activities, and the charge is reflected within operating activities, on our Statement of Cash Flows.

The Purchase Price was allocated to the major categories of assets and liabilities acquired based upon estimates of their fair values at the Acquisition Date, which were based, in part, upon outside appraisals for certain assets, including machinery and equipment and specifically-identifiable intangible assets. The excess of the Purchase Price over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The factors contributing to the goodwill (which is all deductible for tax purposes) include the acquired established workforce, estimated future cost savings and potential revenue synergies associated with the Englobal Business. The following table summarizes our preliminary allocation of the Purchase Price as of the Acquisition Date (in thousands):

The allocation of the Purchase Price and related amortization periods are based on preliminary information and are subject to change when additional information concerning final asset and liability valuations is obtained. We have not completed our final assessment of the fair value of the intangible assets and machinery and equipment. Our final purchase price allocation may result in adjustments to certain assets and liabilities, including working capital assets and liabilities associated with variable consideration for certain contracts, and the residual amount allocated to goodwill.

Supplemental Pro Forma Financial Information – The following unaudited pro forma condensed combined financial information (“Pro Forma Information”) gives effect to the Englobal Acquisition, accounted for as a business combination using the purchase method of accounting. The Pro Forma Information reflects the Englobal Acquisition and related events as if they occurred during the period beginning on January 1, 2024 (the earliest period presented in this Report), and gives effect to pro forma events that are directly attributable to the Englobal Acquisition, factually supportable and expected to have a continuing impact on the combined results of the Company and the Englobal Business following the Englobal Acquisition. The Pro Forma Information includes adjustments to: (1) remove transaction costs associated with the Englobal Acquisition of $0.3 million and $0.5 million for the three and six months ended June 30, 2025, respectively, and include such amounts in the six months ended June 30, 2024, (2) include incremental intangibles amortization, and reflect an increase or decrease in depreciation expense as applicable, for the three and six months ended June 30, 2025 and 2024, related to fair value adjustments associated with the Englobal Acquisition, and (3) include the historical results of the Englobal Business for the three and six months ended June 30, 2025 and 2024.

The Pro Forma Information has been presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on the dates indicated. Further, the Pro Forma Information does not purport to project the future operating results of the combined company following the Englobal Acquisition. The following table presents the Pro Forma Information for the three and six months ended June 30, 2025 and 2024 (in thousands, except per share data):