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Item 7. Management’s Discussion and Analysis

2022-03-10 compared with 2021-03-11 · 105 added, 117 removed, 287 unchanged (44% of the section changed)

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

The following discussion and analysis of our financial condition and results of operations, our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements.

The following discussion and analysis of our financial condition and results of operations from continuing operations, our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements.

See “Forward-Looking Statements” in this Annual Report on Form 10-K.

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Risk Factors” of this Annual Report on Form 10-K.

Our actual results may differ materially from those contained in any forward-looking statements.

Our actual results of operations may differ materially from those contained in any forward-looking statements.

You should read the following discussion together with our audited consolidated financial statements and related notes thereto and other financial information included in this Annual Report on Form 10-K.

Financial information provided is based on the results of our continuing operations.

Please refer to “Note 4 — Discontinued Operations” of our audited consolidated financial statements for information regarding our discontinued operations.

Our historical financial information may not be indicative of our future performance.

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in December 2012, InStaff in June 2013, D&W in March 2015, VTS in October 2015, Zycron in April 2017, Smart in September 2017, and LJK in December 2019, 100% of the equity of EdgeRock in February 2020, and substantially all of the assets of Momentum Solutionz in February 2021.

We operate within three industry segments:

Real Estate, Professional, and Light Industrial.

We have continuing operations in two industry segments Real Estate and Professional, and discontinued operations in the Light Industrial segment.

We provide workforce solutions to client partners primarily within the United States of America.

We now operate across 46 states and D.C., as well as 13 on-site locations.

We now operate across 46 states and D.C.

On February 28, 2022, we signed a definitive agreement to sell substantially all our Light Industrial segment, (“InStaff”) assets to Jobandtalent (“J&T”), through their wholly-owned subsidiary, Sentech Engineering Services, Inc.

We will receive approximately $30.3 million at the closing of the sale, and, subject to the terms of the Asset Purchase Agreement, receive an additional $2 million on the first anniversary of the closing of the transaction.

The Company anticipates that the transaction will close during the first fiscal quarter of 2022, and anticipates using the proceeds from the transaction to, among other things, deploy additional capital into managed services and high-end consulting solutions, drive geographic expansion in the Company’s Real Estate segment, pursue potential acquisition opportunities, reduce outstanding indebtedness, and for general corporate purposes.

The Light Industrial segment provides field talent primarily to manufacturing, distribution, logistics, and call center client partners needing a flexible workforce currently out of 11 locations and 13 on-sites in 11 states.

We have classified the related assets and liabilities associated with our Light Industrial segment, InStaff, as discontinued operations in our Consolidated Balance Sheets.

The results of InStaff business have been presented as discontinued operations in our Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows for all periods presented.

The sale represents a strategic shift in our business that will have a major effect on our operations and financial results.

See “Note 4 — Discontinued Operations” of our audited consolidated financial statements for information regarding our discontinued operations.

InStaff’s historical financial results have been reflected in our Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows as discontinued operations.

Additionally, the related assets and liabilities associated with the discontinued operations in the prior periods have been classified as discontinued operations in our Consolidated Balance Sheets.

The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 35 states and D.C., via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.

Our Real Estate segment operates through two divisions, BG Multifamily and BG Talent.

The Professional segment provides skilled field talent on a nationwide basis for information technology (“IT”) and finance, accounting, legal and human resource client partner projects on a national basis.

Our Professional segment operates through various divisions including Extrinsic, American Partners, Donovan & Watkins, Vision Technology Services, Zycron, Smart Resources, L.J.

Kushner & Associates, EdgeRock Technology Partners, and beginning in 2021, Momentum Solutionz.

The Light Industrial segment provides field talent primarily to manufacturing, distribution, logistics, and call center client partners needing a flexible workforce in 7 states.

Our Light Industrial segment operates through our InStaff division.

The Professional segment provides skilled field talent on a nationwide basis for information technology (“IT”) and finance, accounting, legal and human resource client partner projects.

The Professional segment operates through three divisions, IT Consulting, IT Infrastructure & Development, and Finance and Accounting under various trade names including Extrinsic, American Partners, Donovan & Watkins, Vision Technology Services, Zycron, Smart Resources, L.J.

Kushner & Associates, EdgeRock Technology Partners, and Momentum Solutionz.

Impact of COVID-19

We continue to observe the impact of the COVID-19 outbreak on our consolidated operating results, our candidate and field talent supply chain, and our client partners demand in all segments.

We expect that the social distancing measures, the changing operational status of our client partners, production levels at client partners facilities, and general business uncertainty will continue to effect demand in all our segments.

During this uncertain time, our critical priorities are the health and safety of our team members, field talent, candidates and client partners.

Starting in March 2020, we took several cost containment and liquidity actions, which we do not believe have materially adversely impacted our internal controls, financial reporting systems or our operations.

Our business, results of operations, and financial condition have been, and may continue to be, adversely impacted in material respects by COVID-19 and by related government actions, non-governmental organization recommendations, and public perceptions, all of which have led and may continue to lead to disruption in global economic and labor markets.

These effects have had a significant impact on our business, including reduced demand for our workforce solutions, early terminations or reductions in projects, and hiring freezes, and a shift of a majority of our workforce to remote operations, all of which have contributed to a decline in revenues and other significant adverse impacts on our financial results.

Other potential impacts of COVID-19 may include continued or expanded closures or reductions of operations with respect to our client partners’ operations or facilities, the possibility our client partners will not be able to pay for our workforce solutions, or that they will attempt to defer payments owed to us, either of which could materially impact our liquidity, the possibility that the uncertain nature of the pandemic may not yield the increase in certain of our workforce solutions that we have historically observed during periods of economic downturn, and the possibility that various government-sponsored programs to provide economic relief may be inadequate.

Further, we may continue to experience adverse financial impacts, some of which may be material, if we cannot offset revenue declines with cost savings through expense-related initiatives, human capital management initiatives, or otherwise.

As a result of these observed and potential developments, we expect our business, results of operations, and financial condition to continue to be negatively affected.

Real Estate was strongly affected by COVID-19 when client partners immediately stopped non-emergency maintenance, which is our largest revenue source.

Additional, during our high volume season, many client partners were forced into a virtual leasing model verses using onsite touring options.

With many government actions requiring eviction moratoriums, our client partners’ response was to tighten all expenses.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local authorities, or that we determine are in the best interests of our team members, field talent, client partners, and stockholders.

The potential effects are not clear for any such alterations or modifications on our business, our client partners, candidates, vendors, or on our financial results.

We continue to observe the impact of the COVID-19 on our consolidated operating results, our candidate and field talent supply chain, and our client partners demand in all segments.

We will continue to monitor the situation and may find it necessary, in the future, to take further actions that alter our business operations as may be required by federal, state, local authorities, or that we determine are in the best interests of our team members, field talent, client partners, and stockholders.

Results of Operations

The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of revenues, and have been derived from our consolidated financial statements.

The following tables summarize key components of our results from continuing operations for the periods indicated, both in dollars and as a percentage of revenues, and have been derived from our consolidated financial statements.

Fiscal Year Ended

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Depreciation and amortization 3,698 4,861 4,718

Operating income 3,538 19,662 24,260

Operating income (loss) 14,531 (1,229) 14,886

Loss on extinguishment of debt — — 541

Interest expense, net 1,433 1,584 1,569

Income before income tax 1,954 17,552 21,410

Income tax expense 513 4,305 3,860

Income (loss) from continuing operations before income taxes 13,098 (2,813) 12,776

Income tax expense (benefit) from continuing operations 2,640 (741) 3,135

Income (loss) from continuing operations 10,458 (2,072) 9,641

Income from discontinued operations, net of tax 3,652 3,513 3,606

Net income $ 14,109 $ 1,441 $ 13,247

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Depreciation and amortization 1.5 2.3 2.1

Operating income 1.3 6.7 8.5

Operating income (loss) 6.1 (0.6) 6.8

Loss on extinguishment of debt — — 0.2

Interest expense, net 0.6 0.8 0.7

Income before income tax 0.7 6.0 7.5

Income tax expense 0.2 1.5 1.3

Net income 0.5 % 4.5 % 6.1 %

Income (loss) from continuing operations before income taxes 5.5 (1.4) 5.8

Income tax expense (benefit) from continuing operations 1.1 (0.4) 1.4

Income (loss) from continuing operations 4.4 % (1.0) % 4.4 %

Fifty-two Week Fiscal Year Ended December 26, 2021 (Fiscal 2021) Compared with Fifty-two Week Fiscal Year Ended December 27, 2020 (Fiscal 2020)

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Professional 147,009 61.5 % 138,370 66.8 %

Light Industrial 70,765 25.5 % 74,549 25.3 %

Total Revenues $ 239,027 100.0 % $ 207,125 100.0 %

Real Estate Revenues :

Real Estate revenues decreased approximately $27.7 million (28.7%) due to the effects of the COVID-19 pandemic discussed above.

The decrease was due to a 31.7% decrease in billed hours partially offset by a 4.1% increase in average bill rate.

Revenue from new offices was $0.8 million.

Real Estate revenues increased approximately $23.3 million (33.8%).

The increase was due to a 20.1% increase in billed hours and a 11.0% increase in average bill rate.

Professional Revenues :

Professional revenues increased approximately $15.1 million (12.2%), primarily from LJK and EdgeRock acquisitions, which contributed $36.1 million of new revenues.

The remaining professional group decreased $21.1 million.

Even with the overall increase, billed hours decreased 5.0% offsets by an increase of 17.7% in average bill rate and an increase in permanent placements of $1.2 million.

Light Industrial Revenues :

Light Industrial revenues decreased approximately $3.8 million (5.1%) due to the effects of the COVID-19 pandemic.

The decrease was due to a 11.8% decrease in billed hours partially offset by a 7.6% increase in average bill rate.

Professional revenues increased approximately $8.6 million (6.2%), primarily due to the 2020 EdgeRock acquisition which contributed fifty-two weeks of revenue in Fiscal 2021 vs.

forty-seven weeks in Fiscal 2020, the 2021 Momentum acquisition which contributed $3.5 million of new revenues, an increase in permanent placements revenue of $1.2 million, and billed hours increased 5.5%.

These increases were partially offset by a decrease in the IT Infrastructure & Development division of approximately $11.6 million in revenue and a decrease of 0.2% in average bill rate.

Gross Profit:

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Professional 45,972 56.8 % 40,227 60.9 %

Light Industrial 10,181 13.4 % 10,855 13.4 %

Total Gross Profit $ 80,941 100.0 % $ 66,040 100.0 %

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Professional 31.3 % 29.1 %

Light Industrial 14.4 % 14.6 %

Company Gross Profit Percentage 33.9 % 31.9 %

Overall, our gross profit decreased approximately $4.5 million (5.5%).

As a percentage of revenue, gross profit has remained consistent at 27.4%, primarily due to higher gross profits across our Professional segment.

Overall, our gross profit increased approximately $14.9 million (22.6%).

As a percentage of revenue, gross profit has increased to 33.9% from 31.9%, primarily due to higher gross profits across all our segments.

We determine spread as the difference between bill rate and pay rate.

Real Estate Gross Profit:

Real Estate gross profit decreased approximately $11.1 million (30.1%) consistent with the decrease in revenue, which was partially offset by a 2.2% increase in average spread.

Real Estate gross profit increased approximately $9.1 million (35.5%) consistent with the increase in revenue, and an 11.6% increase in average spread.

Professional Gross Profit:

Professional gross profit increased approximately $7.3 million (22.3%) consistent with the increase in revenue, primarily from LJK and EdgeRock acquisitions, which contributed $12.2 million of gross profit and an overall increase of 19.5% in average spread.

Light Industrial Gross Profit:

Light Industrial gross profit decreased approximately $0.7 million (6.2%) in line with the decreased revenue, which was partially offset by an increase of 6.0% in the average spread.

Professional gross profit increased approximately $5.8 million (14.3%) from the 2020 EdgeRock acquisition which contributed fifty-two weeks of gross profit in Fiscal 2021 vs.

forty-seven weeks in Fiscal 2020, the Momentum acquisition which provided gross profit of $1.7 million, and an overall increase of 1.4% in average spread.

These increases were partially offset by a decrease in the IT Infrastructure & Development division of approximately $2.4 million in gross profit.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses increased approximately $4.4 million (7.8%), primarily related from LJK and EdgeRock acquisitions, which contributed $9.5 million of new expense that was partially offset by reduced compensation costs from the decline in gross profit and by many of our actions taken starting in March related to the COVID-19 pandemic to reduce actual and planned operating costs as detailed in the following table.

Selling, general and administrative expenses increased approximately $9.9 million (17.9%), primarily due to additional compensation generated from increased overall gross profit, from the EdgeRock acquisition with fifty-two weeks in Fiscal 2021 vs.

forty-seven weeks in Fiscal 2020, and the Momentum acquisition.

The components of selling, general and administrative expense are detailed in the following table:

Fiscal Year Ended

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IT roadmap 1,689 1 % 1,563 1 % 126 8 %

Workers' compensation loss retention return (348) — % (464) — % 116 (25) %

CARES Act credit, net (2,083) (1) % — — % (2,083) — %

Other 1,879 1 % 1,630 1 % 250 15 %

$ 60,558 22 % $ 56,199 19 % $ 4,359 8 %

Total $ 65,115 27 % $ 55,244 27 % $ 9,871 18 %

Gain on contingent consideration:

As a result of the certain business developments in Fiscal 2021, the Company recognized a $2.4 million gain on contingent consideration related to the 2019 LJK acquisition.

Depreciation and Amortization:

Depreciation and amortization charges increased approximately $0.1 million (2.9%).

The increase in depreciation and amortization is primarily due to the Professional segment with increases related to the 2019 LJK and 2020 EdgeRock acquisitions that are partially offset by decreases related to the 2015 VTS and 2015 D&W Talent acquisitions.

Depreciation and amortization charges decreased approximately $1.2 million (23.9%).

The decrease in depreciation and amortization is primarily due to the Professional segment with a decrease related to the 2015 Vision Technology Services acquisition, which was partially offset by an increase related to the information technology improvement project.

Impairment loss:

As a result of the certain business developments and changes in our long-term projections, we calculated the quantitative impairment test of the finance and accounting group, within the Professional segment, using the relief from royalty method for the indefinite-lived intangible assets and residual method for the definite-lived intangible assets by asset group.

We recognized a $3.7 million trade name impairment loss and a $3.5 million client partner list impairment loss within the Professional segment.

As a result of the certain business developments in Fiscal 2020 and changes in the Company's long-term projections, the Company calculated the quantitative impairment test of the finance and accounting group using the relief from royalty method for the indefinite-lived intangible assets and residual method for the definite-lived intangible assets by asset group.

In the Professional segment, the Company recognized a $3.7 million trade name impairment loss and a $3.5 million client partner list impairment loss in Fiscal 2020.

Interest Expense, net:

Interest expense, net was flat due to the increased borrowings on the Term Loan related to the EdgeRock acquisition that was partially offset by decreases in the Revolving Facility, deferred financing fees, and unused fee.

Interest expense, net decreased approximately $0.2 million (10)% primarily due to the lower average balance on the Revolving Facility, offset by an increase in interest income from our workers compensation loss retention program.

Income Taxes:

Income tax expense decreased $3.8 million (88.1%) primarily due to lower pre-tax 2020 income and intangible impairment losses, which were partially offset by non-deductible fees related to the 2020 EdgeRock transaction.

Income tax expense increased $3.4 million primarily due to higher pre-tax 2021 income, intangible impairment losses in 2020, non-deductible transaction fees in 2020 related to the EdgeRock acquisition, and a higher Work Opportunity Tax Credit in 2021.

Fifty-two Week Fiscal Year Ended December 27, 2020 (Fiscal 2020) Compared with Fifty-two Week Fiscal Year Ended December 29, 2019 (Fiscal 2019)

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Professional 138,370 66.8 % 123,342 56.1 %

Light Industrial 74,549 25.3 % 80,689 28.1 %

Total Revenues $ 207,126 100.0 % $ 219,764 100.0 %

Real Estate Revenues :

Real Estate revenues increased approximately $9.5 million (11.0%) due to our continued geographic expansion plan and overall growth in existing offices.

The increase was due to a 5.1% increase in billed hours and a 5.1% increase in average bill rate.

Revenue from new offices provided approximately $2.5 million of the increase.

Revenues from the commercial buildings group contributed $0.8 million of the increase.

Professional Revenues :

Professional revenues increased approximately $4.0 million (3.4%).

The increase was due to an increase of 8.3% in average bill rate that was offset by a decrease in permanent placements of $0.1 million and a 5.7% decrease in billed hours.

Light Industrial Revenues :

Light Industrial revenues decreased approximately $6.1 million (7.6%).

Real Estate revenues decreased approximately $27.7 million (28.7%) due to the effects of the COVID-19 pandemic discussed above.

The decrease was due to a 31.7% decrease in billed hours partially offset by a 4.1% increase in average bill rate.

Revenue from new offices was $0.8 million.

Professional Revenues :

Professional revenues increased approximately $15.1 million (12.2%), primarily from LJK and EdgeRock acquisitions, which contributed $36.1 million of new revenues.

The remaining professional group revenues decreased $21.1 million.

Even with the overall increase, billed hours decreased 5.0% offsets by an increase of 17.7% in average bill rate and an increase in permanent placements revenue of $1.2 million.

Gross Profit:

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Professional 40,228 60.9 % 32,898 47.1 %

Light Industrial 10,855 13.5 % 12,075 15.8 %

Total Gross Profit $ 66,040 100.0 % $ 69,826 100.0 %

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Professional 29.1 % 26.7 %

Light Industrial 14.6 % 15.0 %

Company Gross Profit Percentage 31.9 % 31.8 %

Overall, our gross profit increased approximately $4.1 million (5.3%).

As a percentage of revenue, gross profit has increased to 27.4% from 26.7%, primarily due to higher gross profits across our Real Estate and Professional segments.

Overall, our gross profit decreased approximately $3.8 million (5.4%).

As a percentage of revenue, gross profit has increased to 31.9% from 31.8%, primarily due to higher gross profits in the Professional segment.

We determine spread as the difference between bill rate and pay rate.

Real Estate Gross Profit:

Real Estate gross profit increased approximately $4.0 million (12.1%) consistent with the increase in revenue.

The increase in gross profit was due primarily to 5.0% increase in average spread.

Real Estate gross profit decreased approximately $11.1 million (30.1%) consistent with the decrease in revenue, which was partially offset by a 2.2% increase in average spread.

Professional Gross Profit:

Professional gross profit increased approximately $1.3 million (4.2%) consistent with the increase in revenue.

The increase in gross profit was due to 9.3% increase in average spread.

Light Industrial Gross Profit:

Light Industrial gross profit decreased approximately $1.2 million (10.1%) consistent with the decrease in revenue which was partally offset by an increase of 2.2% in the average spread.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses increased approximately $5.1 million (10.1%) primarily related to various costs associated with our revenue growth and geographic expansion including increased headcount, commissions and bonuses as detailed in the following table.

Selling, general and administrative expenses increased approximately $5.0 million (10.0%), primarily related from LJK and EdgeRock acquisitions, which contributed $9.5 million of new expense that was partially offset by reduced compensation costs from the decline in gross profit and by many of our actions taken starting in March 2020 related to the COVID-19 pandemic to reduce actual and planned operating costs as detailed in the following table.

Fiscal Year Ended

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IT roadmap 1,563 1 % 721 — % 842 117 %

Workers' compensation loss retention return (464) — % (357) — % (107) 30 %

Other 1,630 1 % 1,437 1 % 193 13 %

$ 56,199 19 % $ 51,066 18 % $ 5,133 10 %

Total $ 55,244 27 % $ 50,222 23 % $ 5,022 10 %

Depreciation and Amortization:

Depreciation and amortization charges decreased approximately $0.2 million (4.4%).

The decrease in depreciation and amortization is primarily due to fully amortized intangible assets in the Light Industrial segment related to the 2013 InStaff acquisition and in the Professional segment related to the 2015 D&W acquisition.

Depreciation and amortization charges increased approximately $0.1 million (3.0%).

Impairment loss:

In the Professional segment, the Company recognized a $3.7 million trade name impairment loss and a $3.5 million client partner list impairment loss in Fiscal 2020.

Interest Expense, net:

Interest expense, net decreased $1.3 million (44.9%) primarily due to a May 2018 offering of common stock which proceeds were used to pay down existing indebtedness and the decrease in contingent consideration discounts related to the 2017 Zycron and Smart acquisitions.

Income Taxes:

Income tax expense increased $0.4 million (11.5%) primarily due to a May 2018 option cancellation agreement with a former senior executive and the share-based compensation exercises that are deductible for tax purposes that resulted in a reduced 2018 effective rate, which was partially offset by higher pre-tax 2018 income.

Income tax expense decreased $3.9 million (123.6%) primarily due to lower pre-tax 2020 income and intangible impairment losses, which were partially offset by non-deductible fees related to the 2020 EdgeRock transaction.

Liquidity and Capital Resources

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(dollars in thousands)

Working capital $ 25,385 $ 27,030 $ 20,555

Net cash provided by operating activities $ 22,257 $ 17,954 $ 18,426

Net cash used in investing activities (24,147) (9,729) (924)

Net cash provided by (used in) financing activities 1,890 (8,225) (17,502)

Working capital from continuing operations $ 25,851 $ 17,960 $ 20,532

Net cash provided by (used in):

Continuing operating activities $ 1,358 $ 19,680 $ 13,244

Continuing investing activities (6,990) (24,078) (9,576)

Continuing financing activities 473 1,890 (8,225)

Net change in cash and cash equivalents discontinued operations 5,271 2,508 4,557

Net change in cash and cash equivalents $ 112 $ — $ —

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Cash provided by operating activities consists of net income adjusted for non-cash items, including depreciation and amortization, share-based compensation expense, intangible impairment losses, interest expense on contingent consideration payable, gain on contingent consideration, loss on extinguishment of debt, and the effect of working capital changes.

The primary drivers of cash inflows and outflows are accounts receivable, accrued payroll and expenses, and other current and long-term liabilities.

During Fiscal 2020, net cash provided by operating activities was $22.3 million, an increase of $4.3 million compared with $18.0 million for Fiscal 2019.

The primary drivers of cash inflows and outflows are accounts receivable, accrued payroll and expenses, and income taxes payable.

During Fiscal 2021, net cash provided by continuing operating activities was $1.4 million, a decrease of $18.3 million compared with $19.7 million for Fiscal 2020.

This decrease is primarily attributable to increased accounts receivable and payments on accrued payroll and expenses, which were partially offset by an increase in the accrual in other long-term liabilities from deferred employer FICA for the CARES Act in Fiscal 2020.

During Fiscal 2020, net cash provided by continuing operating activities was $19.7 million, an increase of $6.4 million compared with $13.2 million for Fiscal 2019.

This increase is primarily attributable to the non-cash impact of intangible impairment losses, additional other long-term liabilities that includes the deferred employer FICA, and payments on accounts receivable, additional income taxes payable, which were partially offset by lower net income, reduced deferred income taxes, payments on accrued payroll and expenses, reduced prepaid expenses and other current assets, payments on accounts payable, and loss on extinguishment of debt in Fiscal 2019.

During Fiscal 2019, net cash provided by operating activities was $18.0 million, a decrease of $0.5 million compared with $18.4 million for Fiscal 2018.

This decrease is primarily attributable to higher net income, the timing of payments on operating assets and liabilities, net deferred tax assets, which was partially offset by contingent consideration adjustments.

During Fiscal 2019, net cash provided by continuing operating activities was $13.2 million primarily attributable to higher net income, the timing of payments on operating assets and liabilities, net deferred tax assets, which was partially offset by contingent consideration adjustments.

Investing Activities

Cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures.

In Fiscal 2021, we paid $3.8 million in connection with the Momentum acquisition and we made capital expenditures of $3.2 million mainly related to software and computer equipment purchased in the ordinary course of business and for the IT roadmap.

In Fiscal 2020, we paid net $22.0 million in connection with the 2020 EdgeRock and 2019 LJK acquisitions and we made capital expenditures of $2.1 million mainly related to software and computer equipment purchased in the ordinary course of business and for the IT roadmap.

In Fiscal 2019 we paid $7.5 million in connection with the LJK acquisition, excluding the hold back paid in 2020, and we made capital expenditures of $2.1 million mainly related to software and computer equipment purchased in the ordinary course of business and for the IT roadmap project.

In Fiscal 2018, we made capital expenditures of $0.9 million mainly related to furniture and fixtures and computer equipment purchased in the ordinary course of business.

Financing Activities

Cash flows from financing activities consisted principally of borrowings and payments under our credit agreement, payment of dividends, and contingent consideration paid.

For Fiscal 2021, we borrowed $6.8 million on our Revolving Facility for increased working capital needs and to fund the Momentum acquisition, paid $4.6 million in cash dividends on our common stock, and paid down $2.1 million on the Term Loan, as defined below.

For Fiscal 2020, we borrowed $22.5 million on our Term Loan, as defined below, to fund the EdgeRock acquisition and pay down the Revolving Facility, we reduced $14.4 million on our Revolving Facility, paid $5.2 million in cash dividends on our common stock, and paid down $1.1 million on the Term Loan.

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We borrowed $9.7 million on our Revolving Facility and borrowed $7.5 million on our Term Loan in connection with the LJK acquisition.

For Fiscal 2018, we paid $13.8 million in principal payments on the term loan with TCB, paid $10.9 million in cash dividends on our common stock, reduced our revolving credit facility by $10.7 million, paid $3.3 million related to Option Cancellation Agreement, and paid $1.0 million of contingent consideration related to the VTS and Zycron acquisitions.

We received net proceeds from the issuance of the common stock of $22.2 million and used the net proceeds to reduce outstanding indebtedness under our credit agreement with TCB and cancel outstanding options pursuant to the Option Cancellation Agreement, as noted above.

Credit Agreements

On July 16, 2019, we entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, with BMO, as administrative agent, lender, letters of credit issuer, and swing line lender.

On July 16, 2019, we entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, led by BMO, as lead administrative agent, lender, letters of credit issuer, and swing line lender.

The Credit Agreement provides for the Revolving Facility permitting us to borrow funds from time to time in an aggregate amount up to $35 million.

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Our obligations under the Credit Agreement are secured by a first priority security interest in substantially all our tangible and intangible property.

The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin plus the Applicable Margin or LIBOR (as such terms are defined in the Credit Agreement).

The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Credit Agreement).

We also pay an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan.

The Credit Agreement contains customary affirmative covenants and negative covenants, including certain limitations on our ability to pay cash dividends.

The Credit Agreement contains customary affirmative covenants and negative covenants.

We are subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Credit Agreement.

The Company was in compliance with these covenants as of December 26, 2021.

On February 3, 2020, we borrowed $18.5 million on the Term Loan in conjunction with the closing of the EdgeRock acquisition.

In April 2020, we entered into a pay-fixed/receive-floating interest rate swap agreement with BMO that reduces the floating interest rate component on the Term Loan obligation.

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In accordance with cash flow hedge accounting treatment, we have determined that the hedge is perfectly effective using the change-in-variable-cash-flow method.

On December 13, 2019, we borrowed $7.5 million on the Term Loan in conjunction with the closing of the LJK acquisition.

On February 3, 2020, we borrowed $18.5 million on the Term Loan in conjunction with the closing of the EdgeRock acquisition.

On April 6, 2020, the Company borrowed the remaining $4.0 million on the Term Loan and the proceeds were used to pay down the Revolving Facility.

We borrowed $20 million under the Revolving Facility to pay off our existing indebtedness with TCB and our credit agreement with TCB (and related ancillary documentation) was terminated on July 16, 2019 in connection with such repayment.

We recognized a loss on extinguishment of debt of approximately $0.5 million related to the unamortized deferred finance fees.

On February 8, 2021, the Company borrowed $3.8 million on the Revolving Facility in conjunction with the closing of the Momentum Solutionz acquisition, as described in Note 19 in the Notes to Consolidated Financial Statements.

On February 8, 2021, the Company borrowed $3.8 million on the Revolving Facility in conjunction with the closing of the Momentum acquisition, as described in Note 3 in the Notes to Consolidated Financial Statements

Contractual Obligations

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Contractual cash obligations $ 53,849 $ 10,295 $ 43,276 $ 277 $ —

* included in Other long-term liabilities (see Note 8 in the Notes to Consolidated Financial Statements)

* included in Other current liabilities of continuing operations and Other long-term liabilities of continuing operations (see Note 9 in the Notes to Consolidated Financial Statements)

Off-Balance Sheet Arrangements

10 unchanged sentences

However, these estimates and assumptions may change in the future based on actual experience as well as market conditions.

We have classified the related assets and liabilities associated with our Light Industrial segment, InStaff, as discontinued operations in our Consolidated Balance Sheets.

The sale represents a strategic shift in our business that will have a major effect on our operations and financial results.

See “Note 4 — Discontinued Operations” for additional information.

The COVID-19 pandemic continues to have a significant impact on our economy as a result of measures designed to stop the spread of the virus.

3 unchanged sentences

Revenue Recognition

We derive our revenues from three segments:

Real Estate, Professional, and Light Industrial.

We derive our revenues from continuing operations in Real Estate and Professional segments.

We provide workforce solutions and placement services.

Revenues are recognized when promised workforce solutions are delivered to client partners, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

Revenues as presented on the consolidated statements of operations represent workforce solutions rendered to client partners less sales adjustments and allowances.

Revenues as presented on the consolidated statements of operations and comprehensive income represent workforce solutions rendered to client partners less sales adjustments and allowances.

Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and the related amounts of reimbursable expenses are included in cost of services.

20 unchanged sentences

We evaluate the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

We annually evaluate the remaining useful lives of all intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.

We considered the current and expected future economic and market conditions surrounding COVID-19 and its impact on each of the reporting units.

Further, during second quarter 2020, we assessed the current market capitalization, forecasts and the current carrying value in the 2020 impairment test.

As a result of the certain business developments and changes in our long-term projections, we concluded a triggering event had occurred that required an interim impairment assessment to be performed.

The qualitative assessment thresholds were met on all reporting units except the finance and accounting group, within the Professional segment.

We calculated the quantitative impairment test of the finance and accounting group using the relief from royalty method for the indefinite-lived intangible assets and residual method for the definite-lived intangible assets by asset group (see Note 6 in the Notes to Consolidated Financial Statements).

We annually evaluate the remaining useful lives of all intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.

In the Professional segment, we recognized a $3.7 million trade name impairment loss and a $3.5 million client partner list impairment loss in Fiscal 2020 (see Note 7 in the Notes to Consolidated Financial Statements).

We determined that there were no impairment indicators for these assets in Fiscal 2021 and 2019.

2 unchanged sentences

We considered the current and expected future economic and market conditions surrounding COVID-19 and its impact on each of the reporting units.

As a result of the certain business developments and changes in our long-term

projections, during second quarter 2020, we concluded a triggering event had occurred that required an interim impairment assessment to be performed.

The qualitative assessment thresholds were met on all reporting units except the finance and accounting group.

We calculated the quantitative impairment test of the finance and accounting group using the discounted cash flow method and concluded there was no goodwill impairment loss.

Based on annual testing, the Company has determined that there was no goodwill impairment in Fiscal 2021, 2020 or 2019.

41 unchanged sentences

As of December 26, 2021, we have a $5.2 million net operating loss carry forward from the 2020 EdgeRock acquisition with no expiration date.

These net operating losses are subject to an annual Internal Revenue Code Section 382 limitation of $1.3 million.

When appropriate, we will record a valuation allowance against net deferred tax assets to offset future tax benefits that may not be realized.

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis