What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-10 · 342 added, 301 removed, 708 unchanged (48% of the section changed)

2 unchanged sentences

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 26, 2021 and December 27, 2020 45

Consolidated Statements of Operations and Comprehensive Income for each of the three fiscal years ended December 26, 2021 46

Consolidated Statements of Changes in Stockholders' Equity for each of the three fiscal years ended December 26, 2021 47

Consolidated Statements of Cash Flows for each of the three fiscal years ended December 26, 2021 49

Consolidated Balance Sheets as of January 1, 2023 and December 26, 2021 41

Consolidated Statements of Operations and Comprehensive Income for each of the three fiscal years ended January 1, 2023 42

Consolidated Statements of Changes in Stockholders' Equity for each of the three fiscal years ended January 1, 2023 43

Consolidated Statements of Cash Flows for each of the three fiscal years ended January 1, 2023 45

Notes to Consolidated Financial Statements

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of BGSF, Inc.

(the “Company”) as of December 26, 2021 and December 27, 2020, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 26, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 26, 2021 and December 27, 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 26, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 26, 2021, based on criteria established in 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 9, 2022 expressed an unqualified opinion.

We have audited the accompanying consolidated balance sheets of BGSF, Inc., and its subsidiaries (the “Company”) as of January 1, 2023 and December 26, 2021, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended January 1, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 1, 2023 and December 26, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of January 1, 2023, based on criteria established in 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2023 expressed an unqualified opinion.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these financial statements based on our audits.

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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisition of Momentum Solutionz LLC – Fair Value of Intangible Assets and Contingent Consideration

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisition of Horn Solutions, Inc.

– Fair Value of Intangible Assets

Description of the Matter

As discussed in Note 3 to the financial statements, the Company acquired substantially all of the assets and assumed certain liabilities of Momentum Solutionz LLC (“Momentum”) for a purchase price of $3.8 million in cash and contingent consideration of up to $2.2 million.

The acquisition of Momentum resulted in a total of $3.3 million of intangible assets which are comprised primarily of customer relationships and tradename intangibles.

The determination of fair value for the customer relationships required management to make estimates of discounted future cash flows and included their subjective assumptions of the appropriate discount rate, the growth of revenue, and rate of attrition for the related customers.

Management estimated the fair value of the tradename using the relief from royalty method which is based on the costs saved by owning the tradename rather than licensing.

This method also required management to estimate discounted cash flows with subjective assumptions of the appropriate discount rate, an appropriate royalty rate, and future revenues.

The contingent consideration of up to $2.2 million is based on the forecasted performance of the acquired business for the two years following the date of the acquisition.

We identified the fair value of both the intangible assets acquired and contingent consideration liability in the Momentum business combination to be a critical audit matter due to the significant judgments made by management to estimate their fair values.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of discount, customer attrition, and royalty rates, as well as forecasts of future revenues and cash flows.

As discussed in Note 3 to the consolidated financial statements, the Company acquired substantially all of the assets and assumed certain liabilities of Horn Solutions, Inc., (“Horn”) for a purchase price of $42.7 million in cash, common stock and a two-year convertible promissory note.

The acquisition of Horn resulted in a total of $13.9 million of intangible assets, which are comprised primarily of client partner lists.

The determination of fair value for the client partner lists required management to make estimates of discounted future cash flows and included their subjective assumptions of the appropriate discount rate, the growth of revenue, and rate of attrition for the related customers.

We identified the fair value of the intangible assets acquired in the Horn business combination to be a critical audit matter due to the significant judgments made by management to estimate their fair values.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of discount and customer attrition rates, as well as forecasts of future revenues and cash flows.

How We Addressed the Matter in Our Audit

Our audit procedures related to the discount rates, royalty rate, and forecasts of future revenues and cash flows used by management to estimate the fair value of both the intangible assets acquired and contingent consideration liability in the Momentum business combination included the following, among others:

• We tested the effectiveness of controls over management’s Momentum purchase price allocation, including those over the determination of the fair value of intangible assets and contingent consideration, such as controls related to management’s selection of discount rates, customer attrition rate, the royalty rate, and forecasts of future revenues and cash flows.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the (i) valuation methodology, (ii) discount rates, (iii) customer attrition rate, (iv) the royalty rate, and (v) future revenue and growth rates, including testing the source information underlying the determination of the discount rates and the royalty rate, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.

• We evaluated management’s ability to accurately forecast future revenues and cash flows by considering the past financial performance of Momentum and current economic factors.

Our audit procedures related to the discount rates, and forecasts of future revenues and cash flows used by management to estimate the fair value of both the intangible assets acquired in the Horn business combination included the following, among others:

• We tested the effectiveness of controls over management’s Horn purchase price allocation, including those over the determination of the fair value of intangible assets, such as controls related to management’s selection of discount rates, client attrition rate, and forecasts of future revenues and cash flows.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the (i) valuation methodology, (ii) discount rates, (iii) client attrition rate, and (iv) future revenue and growth rates, including testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.

• We evaluated management’s ability to accurately forecast future revenues and cash flows by considering the past financial performance of Horn and current economic factors.

/s/ Whitley Penn LLP

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CONSOLIDATED BALANCE SHEETS

December 26, 2021 December 27, 2020

January 1, 2023 December 26, 2021

Current assets

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Long-term debt, less current portion 36,000,000 23,300,000

Convertible note 4,368,000 —

Contingent consideration, less current portion — 989,608

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Common stock, $0.01 par value per share;

19,500,000 shares authorized, 10,425,210 and 10,328,379 shares issued and outstanding for 2021 and 2020, respectively, net of treasury stock, at cost, 1,845 and 1,235 shares for 2021 and 2020, respectively 66,360 73,834

19,500,000 shares authorized, 10,772,515 and 10,425,210 shares issued and outstanding for 2022 and 2021, respectively, net of treasury stock, at cost, 1,845 shares for 2022 and 2021, respectively 69,833 66,360

Additional paid in capital 67,003,422 61,875,406

Retained earnings 33,663,278 14,592,087

Accumulated other comprehensive income (loss) 58,331 ( 122,874 )

Accumulated other comprehensive income — 58,331

Total stockholders’ equity 100,736,533 76,592,184

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Years ended December 26, 2021, December 27, 2020 and December 29, 2019

Years ended January 1, 2023, December 26, 2021 and December 27, 2020

2022 2021 2020

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Operating income (loss) 16,282,949 14,530,195 ( 1,228,913 )

Loss on extinguishment of debt — — 540,705

Interest expense, net ( 1,362,683 ) ( 1,432,733 ) ( 1,583,630 )

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Income (loss) from continuing operations 11,261,195 10,457,875 ( 2,071,887 )

Income from discontinued operations, net of tax 3,651,603 3,513,355 3,606,159

Income from discontinued operations:

Income 1,234,996 4,570,216 4,767,103

Gain on sale 17,675,044 — —

Income tax expense ( 4,810,362 ) ( 918,613 ) ( 1,253,748 )

Net income $ 25,360,873 $ 14,109,478 $ 1,441,468

Change in unrealized (gains) losses on cash flow hedges ( 181,205 ) 122,874 —

Change in unrealized losses (gains) on cash flow hedges 58,331 ( 181,205 ) 122,874

Other comprehensive (gain) loss 58,331 ( 181,205 ) 122,874

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Net income per share - basic:

Continuing operations $ 1.01 $ ( 0.20 ) $ 0.94

Discontinued operations $ 0.35 $ 0.34 $ 0.35

Net Income from continuing operations $ 1.08 $ 1.01 $ ( 0.20 )

Net income from discontinued operations:

Income 0.12 0.44 0.46

Gain on sale 1.69 — —

Income tax expense ( 0.46 ) ( 0.09 ) ( 0.12 )

Net income per share - basic $ 2.43 $ 1.36 $ 0.14

Net income per share - diluted:

Continuing operations 1.00 $ (0.20) 0.93

Discontinued operations 0.35 0.34 0.35

Net Income from continuing operations $ 1.07 $ 1.00 $ (0.20)

Net income from discontinued operations:

Income 0.12 0.44 0.46

Gain on sale 1.69 — —

Income tax expense ( 0.46 ) ( 0.09 ) ( 0.12 )

Net income per share - diluted $ 2.42 $ 1.35 $ 0.14

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years ended December 26, 2021, December 27, 2020 and December 29, 2019

Years ended January 1, 2023, December 26, 2021 and December 27, 2020

Stock Shares Par

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Share-based compensation from discontinued operations — — — — 63,725 — — 63,725

Cancellation of restricted shares — ( 2,250 ) ( 23 ) — 23 — — —

Issuance of shares — 47,403 474 — 999,526 — — 1,000,000

Exercise of common stock options and warrants, net of 176 shares of treasury stock — 36,836 369 ( 3,291 ) 41,121 — — 38,199

Change in accounting principle - operating leases — — — — — ( 200,608 ) — ( 200,608 )

Issuance of restricted shares, net of 231 shares of treasury stock — 19,143 191 ( 2,132 ) ( 191 ) — — ( 2,132 )

Share issuance costs — — — — ( 10,000 ) — — ( 10,000 )

Cash dividends declared — — — — — ( 5,155,148 ) — ( 5,155,148 )

Net income — — — — — 1,441,468 — 1,441,468

Other comprehensive loss — — — — — — ( 122,874 ) ( 122,874 )

Stockholders’ equity, December 27, 2020 — 10,328,379 103,284 ( 29,450 ) 60,457,044 5,049,748 ( 122,874 ) 65,457,752

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Share-based compensation from discontinued operations — — — — 53,550 — — 53,550

Issuance of shares, net of offering costs — — — — ( 40,058 ) — — ( 40,058 )

Issuance of restricted shares, net of 610 shares of treasury stock — 64,092 640 ( 8,442 ) ( 640 ) — — ( 8,442 )

Share issuance costs — — — — ( 10,000 ) — — ( 10,000 )

Issuance of ESPP shares — 31,776 318 — 340,133 — — 340,451

Exercise of common stock shares — 963 10 — 7,281 — — 7,291

Cash dividends declared — — — — — ( 4,567,139 ) — ( 4,567,139 )

Net income — — — — — 14,109,478 — 14,109,478

Other comprehensive loss — — — — — — ( 122,874 ) ( 122,874 )

Other comprehensive gain — — — — — — 181,205 181,205

Stockholders’ equity, December 26, 2021 — 10,425,210 $ 104,252 $ ( 37,892 ) $ 61,875,406 $ 14,592,087 $ 58,331 $ 76,592,184

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and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years ended December 26, 2021, December 27, 2020 and December 29, 2019

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

Years ended January 1, 2023, December 26, 2021 and December 27, 2020

Stock Shares Par

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Share-based compensation from discontinued operations — — — — 7,697 — — 7,697

Issuance of shares, net of offering costs — — — — ( 40,058 ) — — ( 40,058 )

Issuance of restricted shares, net of 610 shares of treasury stock — 64,092 640 ( 8,442 ) ( 640 ) — — ( 8,442 )

Issuance of ESSP shares — 31,776 318 — 340,133 — — 340,451

Transaction fees related sale of discontinued operations — — — — 35,093 — — 35,093

Issuance of shares — 254,455 2,545 — 3,337,545 — — 3,340,090

Issuance of restricted shares — 32,344 323 — ( 323 ) — — —

Issuance of ESPP shares — 59,506 594 — 653,655 — — 654,249

Exercise of common stock shares — 1,000 11 — 9,711 — — 9,722

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Net income — — — — — 25,360,873 — 25,360,873

Other comprehensive gain — — — — — — 181,205 181,205

Stockholders’ equity, December 26, 2021 — 10,425,210 $ 104,252 $ ( 37,892 ) $ 61,875,406 $ 14,592,087 $ 58,331 $ 76,592,184

Other comprehensive loss — — — — — — ( 58,331 ) ( 58,331 )

Stockholders’ equity, January 1, 2023 — 10,772,515 $ 107,725 $ ( 37,892 ) $ 67,003,422 $ 33,663,278 $ — $ 100,736,533

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 26, 2021, December 27, 2020 and December 29, 2019

Years ended January 1, 2023, December 26, 2021 and December 27, 2020

2022 2021 2020

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Net income $ 25,360,873 $ 14,109,478 $ 1,441,468

(Income) from discontinued operations, net of tax ( 3,651,603 ) ( 3,513,355 ) ( 3,606,159 )

Adjustments to reconcile net income to net cash provided by operating activities

(Income) from discontinued operations ( 1,234,996 ) ( 4,570,216 ) ( 4,767,103 )

Adjustments to reconcile net income to net cash provided by (used in) operating activities

Depreciation 597,382 685,546 757,038

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CARES Act credit — ( 2,368,049 ) —

Gain on sale of discontinued operations ( 17,675,044 ) — —

Loss on disposal of property and equipment 6,018 8,347 —

Loss on extinguishment of debt, net — — 540,705

Contingent consideration adjustment — ( 2,402,843 ) ( 76,102 )

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Other long-term liabilities ( 63,398 ) ( 78,311 ) 7,232,667

Net cash provided by continuing operating activities 1,357,882 19,679,593 13,243,719

Net cash provided by discontinued operating activities 5,305,572 2,577,357 4,710,125

Net cash provided by operating activities 6,663,454 22,256,950 17,953,844

Net cash (used in) provided by continuing operating activities ( 3,300,372 ) 1,357,882 19,679,593

Net cash (used in) provided by discontinued operating activities ( 3,821,951 ) 5,305,572 2,577,357

Net cash (used in) provided by operating activities ( 7,122,323 ) 6,663,454 22,256,950

Cash flows from investing activities

Businesses acquired, net of cash received ( 33,940,000 ) ( 3,791,210 ) ( 22,002,109 )

Business sold 30,722,233 — —

Capital expenditures ( 5,680,277 ) ( 3,203,909 ) ( 2,076,216 )

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CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Years ended December 26, 2021, December 27, 2020 and December 29, 2019

Years ended January 1, 2023, December 26, 2021 and December 27, 2020

2022 2021 2020

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Deferred financing costs ( 237,899 ) — —

Net cash provided by (used in) continuing financing activities 473,116 1,890,105 ( 8,224,775 )

Net cash provided by continuing financing activities 15,934,018 473,116 1,890,105

Net cash provided by discontinued financing activities — — —

Net cash provided by (used in) financing activities 473,116 1,890,105 ( 8,224,775 )

Net cash provided by financing activities 15,934,018 473,116 1,890,105

Net change in cash and cash equivalents ( 112,104 ) 112,104 —

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NOTE 1 - NATURE OF OPERATIONS

BGSF, Inc., along with its wholly owned subsidiaries BGSF Professional, LLC (formally BG Staffing, LLC), B G Staff Services Inc., BG Personnel, LP, BG Finance and Accounting, Inc., BG California IT Staffing, Inc., BG California Multifamily Staffing, Inc., BG California Finance & Accounting Staffing, Inc., EdgeRock Technology Holdings, Inc., EdgeRock Technologies, LLC, and BG Personnel of Texas, LLC (collectively, the “Company”), is a national provider of workforce solutions.

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.

The Company anticipates that the transaction will close during the first fiscal quarter of 2022.

BGSF, Inc., provides workforce solutions to a variety of industries through its various divisions in IT, Cyber, Finance & Accounting, Managed Services, and Real Estate (apartment communities and commercial buildings) (collectively, the “Company”).

On February 8, 2021, the Company acquired substantially all of the assets, and assumed certain of the liabilities of Momentum Solutionz LLC (“Momentum”).

See “Note 3- Acquisitions.”

On March 21, 2022, the Company completed the sale of substantially all its Light Industrial segment (“InStaff”) assets to Jobandtalent (“J&T”), through the wholly-owned subsidiary, Sentech Engineering Services, Inc.

Instaff's financial results for reported periods 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 are classified as discontinued operations in our Consolidated Balance Sheets.

See “Note 4 - Discontinued Operations” in our Consolidated Financial Statements included elsewhere in this report for additional information.

The Company continues to operate primarily within the United States of America in the Real Estate and Professional industry segments, and discontinued operations in Light Industrial (see Note 4).

Additionally, the related assets and liabilities associated with the discontinued operations are classified as discontinued operations in the Consolidated Balance Sheets.

See “Note 4 - Discontinued Operations” in the Consolidated Financial Statements included elsewhere in this report for additional information.

On December 12, 2022, the Company acquired substantially all of the assets, and assumed certain of the liabilities of Horn Solutions, Inc.

and Horn Solutions Dallas, LLC (collectively “Horn Solutions”).

See “Note 3- Acquisitions.”

The Company operates primarily within the United States of America in the Real Estate and Professional industry segments.

The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 36 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.

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.

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.

Light Industrial segment operates through one division under the InStaff trade name.

The Company has adjusted, and continues to monitor and change, its operations in response to COVID-19 in all of its segment, client partner, and home office locations.

The outbreak continues to impact both operational and financial performance.

The duration of the pandemic, as well as the continued spread of the outbreak, impacts the Company's client partners, and the ongoing government and community reactions to the pandemic remain unpredictable.

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

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

The Professional segment currently operates through three divisions, IT Consulting, Managed Services, 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, Momentum Solutionz, and Horn Solutions.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The Company has a 52/53 week fiscal year.

Fiscal years for the consolidated financial statements included herein are for the 52 weeks ended December 26, 2021, December 27, 2020, and December 29, 2019, referred to herein as Fiscal 2021, 2020 and 2019, respectively.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal years for the consolidated financial statements included herein are for the 53 weeks ended January 1, 2023, and 52 weeks ended December 26, 2021, and December 27, 2020, referred to herein as Fiscal 2022, 2021, and 2020, respectively.

Reclassifications

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Significant estimates affecting the financial statements include allowances for credit losses, goodwill, intangible assets, lease liability, contingent consideration obligations related to acquisitions, and income taxes.

Additionally, the valuation of share-based compensation expense uses a model based upon interest rates, stock prices, maturity estimates, volatility and other factors.

Additionally, the valuation of share-based

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

compensation expense uses a model based upon interest rates, stock prices, maturity estimates, volatility and other factors.

The Company believes these estimates and assumptions are reliable.

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

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

In light of the ultimate duration and severity of COVID-19, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply the Company’s significant accounting policies.

While the ongoing COVID-19 response continues to evolve, management may continue to make changes to these estimates and judgments over time, which could result in meaningful impacts to the Company’s financial statements in future periods.

Actual results and outcomes may differ from management’s estimates and assumptions.

Financial Instruments

The Company uses fair value measurements in areas that include, but are not limited to, interest rate swap agreements used to mitigate interest rate risk, and the allocation of purchase price consideration to tangible and identifiable intangible assets and contingent consideration.

The Company uses fair value measurements in areas that include, but are not limited to, the allocation of purchase price consideration to tangible and identifiable intangible assets, contingent consideration, and interest rate swap agreements.

The carrying values of cash and cash equivalents, accounts receivables, prepaid expenses, accounts payable, accrued liabilities, and other current assets and liabilities approximate their fair values because of the short-term nature of these instruments.

The carrying value of bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement with BMO Harris Bank, N.A.

(“BMO”) that provides for a revolving credit facility and term loan and current rates available to the Company for debt with similar terms and risk.

The fair value on the interest rate swap is based on quoted prices from BMO.

(“BMO”) that provides for a revolving credit facility, term loan and current rates available to the Company for debt with similar terms and risk.

Management determined the fair value on the interest rate swap based on quoted prices from BMO.

Cash and Cash Equivalents

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Concentration of credit risk is limited due to the Company’s diverse client partner base and their dispersion across many different industries and geographic locations nationwide.

No single client partner accounted for more than 10% of the Company’s accounts receivable from continuing operations as of December 26, 2021 and December 27, 2020 or revenue from continuing operations in Fiscal 2021, 2020 and 2019.

No single client partner accounted for more than 10% of the Company’s accounts receivable from continuing operations as of January 1, 2023 and December 26, 2021 or revenue from continuing operations in Fiscal 2022, 2021 and 2020.

Geographic revenue from continuing operations in excess of 10% of the Company's consolidated revenue in Fiscal 2022 and the related percentage for Fiscal 2021 and 2020 was generated in the following areas:

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Consequently, weakness in economic conditions in these regions could have a material adverse effect on the Company’s financial position and results of future operations.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

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Recoveries of receivables previously written off are recorded when received.

The Company will continue to actively monitor the impact of COVID-19 on expected credit losses.

Changes in the allowance for credit losses from continuing operations for the fiscal years are as follows:

Beginning balance $ 448,622 $ 492,087

Provision for credit losses - EdgeRock Technology Holdings, Inc.

(“EdgeRock”) acquisition — 47,498

Acquired allowance for credit losses - Horn Solutions

Provision for credit losses, net 315,036 221,240

1 unchanged sentence

Ending balance $ 557,605 $ 448,622

CARES Act Receivable

Other current assets from continuing operations includes $ 2.4 million of the Employee Retention Credit ("ERC") at December 26, 2021.

The ERC was established by the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

The CARES Act allows relief to businesses affected by the coronavirus pandemic, by providing payment to employers for qualified wages and health insurance benefits for team members.

The CARES Act applies to taxes incurred from March 27, 2020, through the second quarter of 2021.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment

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The Company maintains guaranteed costs policies for workers' compensation coverage in monopolistic states and minimal loss retention coverage in all other states.

Under these policies, the Company is required to maintain refundable deposits of $ 3.9 million and $ 3.8 million, which are included in Deposits and other assets from continuing operations in the accompanying consolidated balance sheets, as of December 26, 2021 and December 27, 2020, respectively.

Long-Lived Assets

The Company capitalizes direct costs incurred in the development of internal-use software.

Cloud computing implementation costs incurred in hosting arrangements are capitalized and reported as a component of other assets.

Under these policies, the Company is required to maintain refundable deposits of $ 2.4 million and $ 3.9 million, which are included in Deposits and other assets from continuing operations in the accompanying consolidated balance sheets, as of January 1, 2023 and December 26, 2021, respectively.

The Company capitalizes direct costs incurred cloud computing implementation costs from hosting arrangements and are reported as a component of Other assets.

All other internal-use software development costs are capitalized and reported as a component of computer software within intangible assets.

In Fiscal 2022, the Company added software assets of $ 2.5 million and reclassified $ 1.3 million from property and equipment related to the information technology improvement project.

The Company reviews its long-lived assets, primarily fixed assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered.

1 unchanged sentence

There were no impairments with respect to long-lived assets during Fiscal 2022, 2021 or 2020.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company leases all their office space through operating leases, which expire at various dates through 2028.

16 unchanged sentences

Software maintenance and training costs are expensed in the period incurred.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

The Company annually evaluates 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, the Company 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 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 (see “Note 8 - Intangible Assets”).

The Company determined that there were no impairment indicators for these assets in Fiscal 2022 or 2021.

At the February 2023 Board of Directors meeting, management’s plan was approved to rebrand as BGSF, eliminating various current trade names.

See “Note 8 - Intangible Assets”.

Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized net asset fair values including identifiable intangible asset values in a business combination.

5 unchanged sentences

If after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company then estimates the fair value of the reporting unit and compares the fair value of the reporting unit with its carrying amount, including goodwill, as discussed below.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In assessing whether it is more likely than not that an indefinite-lived intangible asset is impaired, the Company assesses relevant events and circumstances that could affect the significant inputs used to determine the fair value.

11 unchanged sentences

Contingent Consideration

The Company has obligations, to be paid in cash, related to its acquisitions if certain operating and financial goals are met.

The Company has an obligation, to be paid in cash, related to an acquisition if certain operating and financial goals are met.

The fair value of this contingent consideration is determined using expected cash flows and present value technique.

1 unchanged sentence

The resulting discount is amortized as interest expense over the outstanding period using the effective interest method.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

9 unchanged sentences

Retained search placement revenues - Any revenues from these workforce solutions are recognized based on the contractual amount for services completed to date which best depicts the transfer of control of services, which is less than 1% of consolidated revenues.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Managed services revenues - include both workforce solution revenues and fixed fee revenues from client partner contracts.

Services performed represent the transfer of control to the client partner over a given period of time.

Fixed fee revenues are recognized in equal amounts at fixed intervals as promised services are delivered.

Contracts generally include an enforceable right to payment for services provided to date.

The Company estimates the effect of placement candidates who do not remain with its client partners through the guarantee period (generally 90 days) based on historical experience.

6 unchanged sentences

The term between invoicing and when payment is due is not significant.

There were no unsatisfied performance obligations as of December 26, 2021.

There were no unsatisfied performance obligations as of January 1, 2023.

There were no revenues recognized during Fiscal 2022 related to performance obligations satisfied or partially satisfied in previous periods.

5 unchanged sentences

The Company recognizes compensation expense in selling, general and administrative expenses over the service period for options or restricted stock that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share

9 unchanged sentences

Stock options and restricted stock 46,024 49,556 26,423

Warrants — — 21,529

Weighted-average number of diluted common shares outstanding 10,472,845 10,416,610 10,338,029

1 unchanged sentence

Warrants — — 25,862

Convertible note 255,140 — —

Antidilutive shares 614,790 401,450 449,212

1 unchanged sentence

The Company recognizes any penalties when necessary as part of selling, general and administrative expenses.

As of December 26, 2021, goodwill of $29.7 million, which is limited annually, is expected to be deductible for tax purposes.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of January 1, 2023, goodwill of $ 50.4 million, which is limited annually, is expected to be deductible for tax purposes.

Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts are classified as noncurrent in the consolidated balance sheets.

2 unchanged sentences

Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment.

As of December 26, 2021, the Company has a $5.2 million net operating loss carry forward from the 2020 EdgeRock acquisition (see Note 3) with no expiration date.

As of January 1, 2023, the Company has a $ 3.9 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.

1 unchanged sentence

In determining whether a valuation allowance is appropriate, the Company considers whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results.

The Company believes that it is more likely than not that all deferred tax assets will be realized and thus, believes that a valuation allowance is not required as of December 26, 2021 or December 27, 2020.

The Company believes that it is more likely than not that all deferred tax assets will be realized and thus, believes that a valuation allowance is not required as of January 1, 2023 or December 26, 2021.

The Company follows the guidance of Accounting Standards Codification (“ASC”) Topic 740, Accounting for Uncertainty in Income Taxes.

1 unchanged sentence

Recent Accounting Pronouncements

In March 2020 and January 2021, the FASB issued ASU No.

2020-04, Reference Rate Reform:

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) and ASU No.

2021-01, Reference Rate Reform:

Scope (“ASU 2021-01”), respectively.

Together, ASU 2020-04 and ASU 2021-01 provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) contract modifications, hedging relationships, and other arrangements that are expected to be impacted by the global transition away from certain reference rates, such as the London Interbank Offered Rate, towards new reference rates.

The guidance in ASU 2020-04 and ASU 2021-01 was effective upon issuance and, once adopted, may be applied prospectively to contract modifications and hedging relationships through December 31, 2022.

The Company is evaluating the impact that the guidance will have on its consolidated financial statements and related disclosures, if adopted, and currently does not expect that it would be material.

In November 2021, ASU No.

2021-10, Government Assistance:

Disclosures by Business Entities about Government Assistance.

The ASU provides for additional reporting details for entities that receive Government funds.

Additional disclose will include, the type of assistance, the method for accounting used, and the effect of the assistance on the company's financials statements.

The guidance was effective December 15, 2021, and once adopted, may be applied prospectively to Government funds received through December 31, 2022.

NOTE 3 - ACQUISITIONS

EdgeRock Technology Holding, Inc.

On February 3, 2020, the Company acquired 100 % of the equity of EdgeRock for a net purchase price cash consideration of $ 21.0 million.

The purchase price at closing was paid out of available funds under the Company’s credit agreement led by BMO.

The acquired business was assigned to the Professional segment.

The acquisition of EdgeRock allows the Company to strengthen its operations in specialized IT consultants and technology professionals specialized in leading software and data ecosystems, as well as expand its IT geographic operations with offices in Arizona, Florida and Massachusetts.

The 2019 consolidated statement of operations does not include any operating results of EdgeRock.

The Fiscal 2020 consolidated statement of operations and comprehensive income includes forty-seven weeks of EdgeRock operations, which is approximately $ 34.7 million of revenue and $ 1.6 million of operating income.

The acquisition has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2020-06").

The new standard eliminates the cash conversion and beneficial conversion feature models that previously required separate accounting for conversion features.

Entities that had those conversion features will report less interest expense as those conversion features were recorded as debt discounts which were amortized over the term of the debt.

In addition, ASU 2020-06 requires the application of the if-converted method when calculating diluted earnings per share.

Under the new standard, the conversion of debt that is accounted for as a liability in its entirety will not result in any gain or loss if the conversion feature is exercised according to the original conversion terms.

If those terms allowed the issuer to include cash as

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts receivable $ 6,728,261

Prepaid expenses and other assets 56,108

Property and equipment 296,309

Right-of-use asset - operating leases 1,714,984

Intangible assets 10,264,000

Goodwill (non-deductible for tax purposes) 6,882,241

Current liabilities assumed ( 2,567,617 )

Deferred income taxes ( 657,193 )

Lease liability - operating leases ( 1,714,984 )

Total net assets acquired $ 21,002,109

Cash $ 21,600,000

Working capital adjustment ( 597,891 )

Total fair value of consideration transferred for acquired business $ 21,002,109

The allocation of the intangible assets is as follows:

Estimated Fair

Value Estimated

Covenants not to compete $ 171,000 5 years

Trade name 6,000,000 Indefinite

Client partner list 4,093,000 6 years

Total $ 10,264,000

The Company incurred costs of $ 0.7 million related to the EdgeRock acquisition.

These costs were expensed as incurred in selling, general and administrative expenses.

part of the settlement of the conversion feature, the issuer will first reduce the carrying amount of the convertible debt, including any unamortized premium, discount or issuance costs, by the value of the cash or other assets transferred and then recognize the remaining carrying value of the debt in the capital accounts.

ASU 2020-06 was effective for fiscal years beginning after December 15, 2021.

The Company adopted this ASU in Fiscal 2022, which did not have a material impact on the consolidated financial statements.

NOTE 3 - ACQUISITIONS

Momentum Solutionz

1 unchanged sentence

The purchase agreement further provides for contingent consideration of up to $ 2.2 million based on the performance of the acquired business for the two years following the date of acquisition.

As of January 1, 2023, contingent consideration of $ 1.1 million has been paid.

At closing, the purchase price was paid out of currently available funds under the Company’s credit agreement led by BMO.

The purchase agreement

contained a provision for a “true up” of acquired working capital 60 days after the closing date.

The purchase agreement contained a provision for a “true up” of acquired working capital 60 days after the closing date, which was not material.

The acquired business was assigned to the Professional segment.

8 unchanged sentences

The acquisition has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts receivable $ 345,121

17 unchanged sentences

These costs were expensed as incurred in selling, general and administrative expenses.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Horn Solutions

On December 12, 2022, the Company acquired substantially all of the assets, and assumed certain of the liabilities, of Horn Solutions.

The purchase price of $ 42.7 million was paid at closing with $ 33.9 million in cash and $ 3.4 million of the Company common stock ( 254,455 shares of the Company common stock privately placed under Section 4(a)(2) of the Securities Act of 1933, as amended, based upon the volume weighted average closing price of the Company’s shares for the ten business days prior to closing), as well as a two-year convertible promissory note of $ 4.4 million with an annual interest rate of 6 %, with accrued and unpaid interest to be paid quarterly.

The promissory note is convertible into shares of the Company common stock at any time after the one-year anniversary of the promissory note at a conversion price equal to $ 17.12 per share.

The promissory note is subordinate to the Company’s senior debt.

An additional portion of the purchase price, $ 1.0 million in cash, was held back as partial security for a post-closing purchase price adjustment, which is expected to fund in March 2023.

The asset purchase agreement contains a provision for a “true up” of acquired working capital within 120 days after the closing date.

The purchase price at closing was paid out of funds under the Company's credit agreement led by BMO, see “Note 12 - Debt”.

The acquired business was assigned to the Professional segment.

The acquisition of Horn Solutions allows the Company to strengthen and expand its finance and accounting operations across the country by providing consulting, project loan staff, interim staff, direct hire, and managed services through three complementary business units, strategic accounting and finance, information technology, and transactional accounting and office staffing.

Horn Solutions provides services to clients in a variety of industries including, but not limited to energy, financial services, healthcare, real estate and construction, service, manufacturing, and software industries.

The 2021 and 2020 consolidated statements of operations do not include any operating results of Horn Solutions.

The Fiscal 2022 consolidated statement of operations and comprehensive income includes three weeks of Horn Solutions operations, which is approximately $ 1.4 million of revenue and zero operating income.

The purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:

Accounts receivable $ 3,733,515

Prepaid expenses and other assets 117,767

Property and equipment 83,234

Right-of-use asset - operating leases 1,528,073

Intangible assets 13,926,585

Goodwill 26,051,018

Current liabilities assumed ( 1,786,715 )

Lease liability - operating leases ( 1,528,073 )

Total net assets acquired $ 42,125,404

Cash $ 33,940,000

Hold back (included in Other current liabilities) 1,000,000

Convertible Note 4,368,000

Common stock 3,351,000

Working capital adjustment ( 533,596 )

Total fair value of consideration transferred for acquired business $ 42,125,404

The allocation of the intangible assets is as follows:

Estimated Fair

Value Estimated

Covenants not to compete $ 50,000 5 years

Client partner list 13,876,585 10 years

Total $ 13,926,585

The Company incurred costs of $ 0.3 million related to the Horn Solutions acquisition.

These costs were expensed as incurred in selling, general and administrative expenses.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Unaudited Pro Forma Information

The Company estimates the revenues and net income from continuing operations for the periods below that would have been reported if the EdgeRock and Momentum acquisitions had taken place on the first day of the Company's Fiscal 2020 would be as follows (dollars in thousands, except per share amounts):

The Company estimates the revenues and net income from continuing operations for the periods below that would have been reported if the Momentum and Horn Solutions acquisitions had taken place on the first day of the Company's Fiscal 2021 would be as follows (dollars in thousands, except per share amounts):

Revenues $ 326,798 $ 262,398

4 unchanged sentences

Diluted $ 1.05 $ 0.86

Pro forma net income from continuing operations includes amortization of identifiable intangible assets, interest expense on additional borrowings on the Revolving Facility (see Note 11) at a rate of 2.3 % and tax expense of the pro forma adjustments at an effective tax rate of 20.1 % for Fiscal 2021 and 26.3 % for Fiscal 2020.

The pro forma operating results include adjustments to EdgeRock and Momemtum related to synergy adjustments for expenses that would be duplicative and other non-recurring, non-operating and out of period expense items once integrated with the Company.

Amounts set forth above are not necessarily indicative of the results that would have been attained had the EdgeRock and Momentum acquisitions taken place on the first day of Fiscal 2020 or of the results that may be achieved by the combined enterprise in the future.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pro forma net income from continuing operations includes amortization of identifiable intangible assets, interest expense on additional borrowings on the Revolving Facility related to Momentum and the New Term Loan related to Horn Solutions (see “Note 12 - Debt”) at a rate of 4.3 % in 2022 and 2.3 % in 2021 and tax expense of the pro forma adjustments at an effective tax rate of 23.1 % for Fiscal 2022 and 20.2 % for Fiscal 2021.

The pro forma operating results include adjustments to Momemtum and Horn Solutions related to synergy adjustments for expenses that would be duplicative and other non-recurring, non-operating and out of period expense items once integrated with the Company.

Amounts set forth above are not necessarily indicative of the results that would have been attained had the Momentum and Horn Solutions acquisitions taken place on the first day of Fiscal 2021 or of the results that may be achieved by the combined enterprise in the future.

NOTE 4 – DISCONTINUED OPERATIONS

On February 28, 2022, the Company entered into an Asset Purchase Agreement (“APA”) with Sentech Engineering Services, Inc., (“Sentech”), and Job and Talent Holding Limited, the indirect parent of Sentech, solely as guarantor of certain obligations of Sentech, pursuant to which the Company would sell to Sentech substantially all of the assets pertaining to the Company’s Light Industrial segment (“InStaff”).

Under the APA, Sentech will (i) pay to the Company approximately $ 30.3 million at the closing of the transaction, (ii) subject to the terms and conditions of the APA, pay to the Company an additional $ 2 million on the first anniversary of the closing of the transaction, and (iii) assume certain liabilities and obligations of the Company pertaining to the Light Industrial segment.

The APA further provides for customary purchase price adjustments, including a net working capital adjustment.

Job and Talent Holding Limited has guaranteed certain of Sentech’s obligations under the APA.

The APA contains customary representations and warranties, covenants (including certain non-competition and non-solicitation covenants restricting the Company with respect to the light industrial staffing business), closing conditions, and indemnification provisions.

After the closing of the transaction, the Company will provide certain back-office services to Sentech for a limited period of time.

Discontinued operations – InStaff Operations

In accordance with ASC 205-10-05-3, the Light Industrial financial results for periods prior to the sale have been reflected in our Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows as discontinued operations.

On March 21, 2022, the Company sold substantially all of the assets and certain liabilities of InStaff to Sentech Engineering Services, Inc.

(“Sentech”) for a sale price of approximately $ 30.3 million cash, subject to customary sales price and working capital adjustments specified in the purchase agreement, which were received in the amount of $ 0.6 million in October 2022.

The purchase agreement further provides for deferred consideration of $ 2 million one year following the date of the acquisition, which is included in Other current assets, see “Note 5 - Other Current Assets”.

The sale resulted in a pre-tax gain on sale of discontinued operations of $ 17.7 million.

The Company provided certain back-office services to Sentech through February 2023.

The InStaff financial results for periods prior to the sale 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 periods presented are classified as discontinued operations in our Consolidated Balance Sheets.

The following table presents the financial results of InStaff for the fiscal years presented (dollars in thousands):

The financial results of InStaff are as follows (dollars in thousands):

2022 2021 2020

4 unchanged sentences

Depreciation 24 90 99

Income from operations of discontinued operations before taxes 4,570 4,766 4,776

Income taxes ( 918 ) ( 1,253 ) ( 1,170 )

Income from discontinued operations, net of income taxes $ 3,652 $ 3,513 $ 3,606

Income from operations of discontinued operations before gain on sale and income taxes $ 1,235 $ 4,570 $ 4,767

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the aggregate carrying amounts of assets to be sold and liabilities to be assumed of discontinued operations for InStaff in the Consolidated Balance Sheet (dollars in thousands):

2021 December 27,

Carrying amount of assets included as part of discontinued operations:

1 unchanged sentence

Property and equipment, net 201

Deposits 36 36

Right-of-use assets - operating leases 303

7 unchanged sentences

Total liabilities classified as discontinued operations $ 1,452

NOTE 5 - OTHER CURRENT ASSETS

Other current assets as of January 1, 2023 and December 26, 2021 consist of the following:

CARES Act receivable $ 2,368,049 $ 2,368,049

Deferred consideration 2,000,000 —

Income tax receivable

Horn Solutions working capital adjustment 533,596 —

Workers' compensation deposit refund receivable

Due from Sentech 410,771 —

Other 31,389 13,148

$ 7,459,195 $ 2,381,197

CARES Act Receivable

The Employee Retention Credit (“ERC”) ERC was established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

The CARES Act allows relief to businesses affected by the coronavirus pandemic, by providing payment to employers for qualified wages and health insurance benefits for team members.

The CARES Act applies to taxes incurred from March 27, 2020, through the second quarter of 2021.

NOTE 6 - PROPERTY AND EQUIPMENT, NET

Property and equipment as of December 26, 2021 and December 27, 2020 consist of the following:

Property and equipment as of January 1, 2023 and December 26, 2021 consist of the following:

Leasehold improvements $ 1,397,316 $ 1,384,009

5 unchanged sentences

Total depreciation expense from continuing operations in Fiscal 2022, 2021 and 2020 was $ 0.6 million, $ 0.7 million, and $ 0.8 million, respectively.

In Fiscal 2022, the Company added software assets of $ 1.4 million and reclassed $ 1.3 million to Other assets and $ 1.9 million to Intangible assets related to the information technology improvement project.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - LEASES

At December 26, 2021, the weighted average remaining lease term and weighted average discount rate for continuing operating leases was 2.7 years and 5.0 %, respectively.

The Company's future continuing operating lease obligations that have not yet commenced are immaterial.

For Fiscal 2021, the Company's cash paid for continuing operating leases was $ 2.1 million, and continuing operating lease and short-term lease costs were $ 1.9 million and $ 0.1 million, respectively.

Short-term leases were immaterial.

Supplemental information related to leases consisted of the following (dollars in thousands):

2022 2021 2020

Weighted average remaining lease term of operation leases 3.3 years 2.7 years 3.5 years

Weighted average discount rate for continuing operating leases 5.2 % 5.0 % 4.9 %

Cash paid for continuing operating leases $ 2,115 $ 2,136 $ 1,987

Continuing operating lease expense $ 1,887 $ 1,907 $ 1,859

The undiscounted annual future minimum lease payments of continuing operations consist of the following at:

December 26, 2021

January 1, 2023

2023 $ 2,042,792

2024 1,538,403

Thereafter 168,333

Total lease payment 5,336,035

1 unchanged sentence

Present value of lease liabilities $ 4,890,681

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - INTANGIBLE ASSETS

Finite and indefinite lived intangible assets from continuing operations consist of the following at:

December 26, 2021

January 1, 2023

Gross Value Accumulated

8 unchanged sentences

Total $ 92,185,376 $ 44,632,965 $ 47,552,411

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 26, 2021

19 unchanged sentences

Total amortization expense from continuing operations for Fiscal 2022, 2021 and 2020 was $ 3.5 million, $ 3.0 million and $ 4.1 million, respectively.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In Fiscal 2022, the Company added software assets of $ 1.7 million and reclassified $ 1.9 million from property and equipment related to the information technology improvement project.

At the February 2023 Board of Directors meeting, management’s plan was approved to rebrand as BGSF, eliminating various current trade names.

$ 22.5 million in trade name assets, which will be written off in 2023.

Since the trade name asset has an indefinite life, the carrying value is not amortized.

Thus, the impairment will have no cash impact.

NOTE 9 - GOODWILL

5 unchanged sentences

Additions from acquisitions — 26,051,018 26,051,018

December 26, 2021 $ 1,073,755 $ 28,068,128 $ 29,141,883

NOTE 9 - ACCRUED PAYROLL AND EXPENSES, CONTINGENT CONSIDERATION, AND OTHER LONG-TERM LIABILITIES

January 1, 2023 $ 1,073,755 $ 54,119,146 $ 55,192,901

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - ACCRUED PAYROLL AND EXPENSES AND CONTINGENT CONSIDERATION

Accrued payroll and expenses from continuing operations consist of the following at:

5 unchanged sentences

Accrued payroll and expenses $ 19,170,794 $ 16,153,920

Other current liabilities of continuing operations includes $ 3.5 million of deferred employer FICA and other long-term liabilities includes $ 3.5 million of deferred employer FICA at December 26, 2021.

Under the CARES Act, employers affected by the coronavirus epidemic were allowed relief from the payment of employer FICA taxes.

At December 26, 2021, Other current liabilities includes $ 3.5 million of deferred employer FICA.

Under CARES Act, employers affected by the coronavirus epidemic were allowed relief from the payment of employer FICA taxes.

The CARES Act only applies to taxes incurred from March 27, 2020 through December 31, 2020.

Half of the delayed payments were due by December 31, 2021, and the other half are due by December 31, 2022.

The Company elected to delay the payment of these taxes.

The following is a schedule of future estimated contingent consideration payments from continuing operations to various parties as of December 26, 2021:

The second half of the delayed payments were paid by December 31, 2022.

The following is a schedule of future estimated contingent consideration payments from continuing operations as of January 1, 2023:

Estimated Cash Payment Discount Net

Less than one year $ 1,110,000 $ ( 28,940 ) $ 1,081,060

One to two years 1,110,000 ( 120,392 ) 989,608

Contingent consideration $ 2,220,000 $ ( 156,491 ) $ 2,063,509

NOTE 11 - INCOME TAXES

At January 1, 2023, federal income tax receivable of $ 1.7 million is included in Other current assets from continuing operations, see “Note 5 - Other Current Assets,” and state income tax payable of $ 0.3 million is included in Income taxes payable from continuing operations.

At December 26, 2021, federal and state income tax payable of $ 0.4 million is included in Income taxes payable from continuing operations.

The Company's income tax expense for the fiscal years are comprised of the following:

4 unchanged sentences

Income tax expense (benefit) from continuing operations 3,659,071 2,639,587 ( 740,656 )

Income tax expense (benefit) from discontinued operations 918,613 1,253,748 1,170,211

Income tax expense (benefit) $ 3,558,200 $ 513,092 $ 4,304,978

Income tax expense from discontinued operations 4,810,362 918,613 1,253,748

Income tax expense $ 8,469,433 $ 3,558,200 $ 513,092

and Subsidiaries

21 unchanged sentences

Income tax expense (benefit) from continuing operations 3,659,071 24.5 % 2,639,587 20.1 % ( 740,656 ) 26.4 %

Income tax expense (benefit) from discontinued operations 918,613 20.1 % 1,253,748 26.4 % 1,170,211 24.5 %

Income tax expense (benefit) $ 3,558,200 20.1 % $ 513,092 26.4 % $ 4,304,978 24.5 %

Income tax expense from discontinued operations 4,810,362 24.5 % 918,613 20.1 % 1,253,748 26.4 %

Income tax expense $ 8,469,433 24.5 % $ 3,558,200 20.1 % $ 513,092 26.4 %

NOTE 12 - DEBT

2 unchanged sentences

The Credit Agreement also provided for a term loan commitment (the “Term Loan”) permitting the Company to borrow funds from time to time in an aggregate amount not to exceed $ 30 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Credit Agreement, all of which has been funded.

The Company may from time to time, with a maximum of two, request an increase in the aggregate Term Loan by $ 40 million, with minimum increases of $ 10 million.

The Company’s obligations under the Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.

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).

The Company also pays an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan.

The Credit Agreement contains customary affirmative and negative covenants.

The Company is 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, the Company 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.

On February 8, 2021, the Company borrowed $ 3.8 million on the Revolving Facility in conjunction with the closing of the Momentum Solutionz acquisition.

The Company also had the option to request an increase in in the aggregate Term Loan by $ 40 million, which was done in connection with the Horn Solutions acquisition.

The Credit Agreement bore interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin through August 17, 2022 (as such terms are defined in the Credit Agreement).

The Company pays an unused commitment fee on the daily average unused amount of Revolving Facility.

On February 8, 2021, the Company borrowed $ 3.8 million on the Revolving Facility in conjunction with the closing of the Momentum acquisition.

On March 21, 2022, the Company paid down the balance on the existing Term Loan and a portion of the Revolving Facility using the proceeds from the sale of InStaff (See “Note 4 - Discontinued Operations”).

On August 18, 2022, the Company entered into an amendment to the Credit Agreement with BMO to temporarily increase the Revolving Facility to $ 60 million for a period of ninety days and change the interest rate component from LIBOR to the Secured Overnight Financing Rate (“SOFR”).

In connection with the Horn Solutions acquisition on December 12, 2022 (See “Note 3 - Acquisitions”), the Company borrowed $ 40 million, as noted above, pursuant to a second amendment to the Credit Agreement (“Second Credit

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company borrowed $20 million under the Revolving Facility to pay off existing indebtedness of the Company under an Amended and Restated Credit Agreement with Texas Capital Bank, National Association (“TCB”) and such agreement (and related ancillary documentation) was terminated on July 16, 2019 in connection with such repayment.

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

The Company’s obligations under the Second Credit Amendment are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.

The Second Credit Amendment bears interest either at the Base Rate plus the Applicable Margin or Adjusted Term SOFR plus the Applicable Margin (as such terms are defined in the Second Credit Amendment), with 2.5 % of the original principal balance of the New Term Loan payable on the last business day of each quarter, beginning on March 31, 2023.

The Second Credit Amendment contains customary affirmative and negative covenants.

The Company is subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Second Credit Amendment.

The Company was in compliance with these covenants as of January 1, 2023.

Letter of Credit

In March 2020, in conjunction with the 2020 EdgeRock acquisition, the Company entered into a standby letter of credit arrangement, which expires December 31, 2024, for purposes of protecting a lessor against default on lease payments.

As of December 26, 2021, the Company had a maximum financial exposure from this standby letter of credit totaling $ 0.1 million, all of which is considered usage against the Revolving Facility.

As of January 1, 2023, the Company had a maximum financial exposure from this standby letter of credit totaling $ 0.1 million, all of which is considered usage against the Revolving Facility.

The Company has no history of default, nor is it aware of circumstances that would require it to perform under, any of these arrangements and believes that the resolution of any disputes thereunder that might arise in the future would not materially affect the Company's consolidated financial statements.

Accordingly, no liability has been recorded in respect to these arrangements as of December 26, 2021.

Accordingly, no liability has been recorded in respect to these arrangements as of January 1, 2023.

Line of Credit

At December 26, 2021 and December 27, 2020, $ 12.8 million and $ 6.0 million, respectively, was outstanding on the revolving facilities.

At January 1, 2023 and December 26, 2021, $ 22.6 million and $ 12.8 million, respectively, was outstanding on the revolving facilities.

Average daily balance for Fiscal 2022, 2021 and 2020 was $ 18.4 million, $ 9.9 million, and $ 11.7 million, respectively.

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Base Rate $ 2,561,892 8.25 % $ 2,780,855 4.50 %

SOFR 20,000,000 6.45 % — — %

LIBOR — — % 10,000,000 2.35 %

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Fixed rate — — % 24,625,000 2.39 %

SOFR 40,000,000 6.72 % — — %

Long-term debt $ 40,000,000 $ 26,862,500

Maturities on the Revolving Facility with BMO and long-term debt from continuing operations as of December 26, 2021, are as follows:

2022 $ 3,562,500

Maturities on the Revolving Facility with BMO and long-term debt from continuing operations as of January 1, 2023, are as follows:

2023 $ 4,000,000

6 unchanged sentences

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

The $ 25.0 million notional amount was effective on June 3, 2020 and designed as a cash flow hedge on the underlying variable rate interest payments against a fixed interest rate that terminates on June 1, 2023.

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

The unrealized gains or losses associated with the change in the fair value of the effective portion of the hedging instrument is recorded in accumulated other comprehensive income or loss.

The Company reclassifies the interest rate swap from accumulated other comprehensive gain or loss against interest expense in the same period in which the hedge transaction affects earnings.

Hedge effectiveness is tested quarterly.

As of December 26, 2021, the instrument was perfectly effective and no additional amounts were reclassed from accumulated other comprehensive income or loss into income for Fiscal 2021.

See Note 12 for location on the balance sheet.

The $ 25.0 million notional amount was designed as a cash flow hedge on the underlying variable rate interest payments against a fixed interest rate.

In accordance with cash flow hedge accounting treatment, the Company had determined that the hedge was perfectly effective using the change-in-variable-cash-flow method.

On March 21, 2022, the Company paid down the balance on the existing Term Loan containing the $ 25.0 million notional amount, which cancelled the pay-fixed/receive-floating interest rate swap agreement.

The unrealized gains or losses associated with the change in the fair value of the effective portion of the hedging instrument was recorded in accumulated other comprehensive income or loss.

The Company reclassified the interest rate swap from accumulated other comprehensive gain or loss against interest expense in the same period in which the hedge transaction affected earnings.

As of January 1, 2023, these amounts have been removed from Other long-term assets (See “Note 13 - Fair Value Measurements”).

Convertible Note

At January 1, 2023, the Company has a two-year convertible promissory note of $ 4.4 million due to the seller with an annual interest rate of 6 %, with accrued and unpaid interest to be paid quarterly related to the Horn Solutions acquisition on December 12, 2022 (See “Note 3 - Acquisitions”).

The promissory note is convertible into shares of our common stock at any time after the one-year anniversary of the promissory note at a conversion price equal to $ 17.12 per share.

The promissory note is subordinate to the Company’s senior debt.

NOTE 13 - FAIR VALUE MEASUREMENTS

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The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis and the level they fall within the fair value hierarchy:

Amounts Recorded at Fair Value Financial Statement Classification Fair Value Hierarchy December 26,

Amounts Recorded at Fair Value Financial Statement Classification Fair Value Hierarchy January 1,

2023 December 26,

Interest rate swap Other long-term assets Level 2 $ — $ 58,331

Interest rate swap Other long-term liabilities Level 2 $ — $ 122,874

Convertible note Convertible note Level 2 $ 4,368,000 $ —

Contingent consideration, net Contingent consideration, net - current and long-term Level 3 $ 1,081,060 $ 2,063,509

The changes in the Level 2 fair value measurements from December 27, 2020 to December 26, 2021 relates to changes in the fair value of the interest rate swap agreement.

Key inputs in determining the fair value of the interest rate swap as of December 26, 2021 are quoted prices from BMO (See Note 11).

The changes in the Level 3 fair value measurements from December 27, 2020 to December 26, 2021 relates to $ 1.9 million for the addition of the Momentum acquisition, partially offset by $ 0.3 million in accretion, and gains included in earnings.

Key inputs in determining the fair value of the contingent consideration as of December 26, 2021 and December 27, 2020 included discount rates of approximately 9 % as well as management's estimates of future sales volumes and earnings before interest, income taxes, depreciation, and amortization "EBITDA."

The changes in the Level 2 fair value measurements from December 26, 2021 to January 1, 2023 relate to the convertible note of $ 4.4 million on the Horn acquisition and to the cancellation of the interest rate swap agreement.

Key inputs in determining the fair value of the convertible note was the interest rate of 6 % and the interest rate swap as of December 26, 2021 were quoted prices from BMO.

The changes in the Level 3 fair value measurements from December 26, 2021 to January 1, 2023 relates primarily to payments of $ 1.1 million on the Momentum acquisition, partially offset by $ 0.1 million in accretion.

Key inputs in determining the fair

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

value of the contingent consideration as of January 1, 2023 and December 26, 2021 included discount rates of approximately 9 % as well as management's estimates of future sales volumes and earnings before interest, income taxes, depreciation, and amortization (“EBITDA”).

NOTE 14 - CONTINGENCIES

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The Company has also entered into indemnification agreements with its directors and certain officers.

Impact of COVID-19

Our business, results of operations, and financial condition have been, and may continue to be, 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 economic and labor markets.

Employment Agreements

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Should there be a sale of the Company that results in the termination of his employment or a material adverse change in his duties and responsibilities, he will be entitled to all of the amounts listed above, however, base salary shall equal eighteen months.

See “Note 21 - Subsequent Events.”

NOTE 15 - EQUITY

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Restricted Stock

The Company issued net restricted common stock of 64,092 shares to non-team member (non-employee) directors in Fiscal 2021, and 19,143 shares to various team members and directors in Fiscal 2020.

The Company issued net restricted common stock of 32,344 and 64,092 shares to team members and non-team member (non-employee) directors in Fiscal 2022 and Fiscal 2021, respectively.

The restricted shares of $ 0.01 par value per share were issued under the 2013 Plan and contain a three-year service condition.

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In connection with the vesting portions of the restricted stock, the Company repurchased 610 , and 231 shares of company stock, or treasury stock, to satisfy the withholding obligation in connection with the vesting of a portion of the restricted stock for Fiscal 2021, and 2020, respectively.

No treasury stock was repurchased in 2022.

Treasury stock is accounted for under the cost method whereby the entire cost of the acquired stock is recorded.

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Under the original 2013 Plan team members, directors and consultants of the Company may receive incentive stock options and other awards.

A total of 900,000 shares of common stock of BGSF, Inc.

were initially reserved for issuance pursuant to the original 2013 Plan.

On November 3, 2020 and May 16, 2017, stockholders of the Company approved and made effective amendments to the 2013 Plan, which each added an additional 250,000 shares of common stock reserved for issuance, for total of 500,000 shares.

To the extent any option or award expires unexercised or is canceled, terminated or forfeited in any manner without the issuance of common stock thereunder, such shares shall again be available for issuance under the original 2013 Plan.

As of December 26, 2021, a total of 1,043,630 shares remain available for issuance under the 2013 Plan.

As of January 1, 2023, a total of 1,012,967 shares remain available for issuance under the 2013 Plan.

The term of each option is determined by the board of directors but cannot exceed 10 years.

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For Fiscal 2022, 2021 and 2020, the Company recognized $ 0.7 million, $ 0.6 million and $ 0.5 million of compensation expense from continuing operations related to stock awards, respectively.

Unamortized share-based compensation expense from continuing operations as of December 26, 2021 amounted to $ 0.9 million which is expected to be recognized over the next 2.4 years.

Unamortized share-based compensation expense from continuing operations as of January 1, 2023 amounted to $ 0.9 million which is expected to be recognized over the next 2.7 years.

The following assumptions were used to estimate the fair value of stock options for the years ended:

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Granted 93,610 $ 10.28

Exercised ( 39,190 ) $ 12.60

Forfeited / Canceled ( 5,800 ) $ 22.22

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Granted 116,374 $ 11.57

Exercised ( 1,350 ) $ 9.72

Forfeited / Canceled ( 72,350 ) $ 15.01

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Granted 164,000 $ 12.87

Exercised ( 1,000 ) $ 9.75

Forfeited / Canceled ( 36,650 ) $ 17.65

Awards outstanding at December 26, 2021 695,329 $ 16.91 6.7 $ 665

Awards exercisable at December 27, 2020 416,717 $ 16.96 6.3 $ 463

Awards outstanding at January 1, 2023 821,679 $ 16.08 6.4 $ 1,907

Awards exercisable at December 26, 2021 475,765 $ 17.62 5.9 $ 452

Awards exercisable at January 1, 2023 573,863 $ 17.50 5.4 $ 1,164

Shares Weighted Average Grant Date Fair Value

Non-vested outstanding at December 26, 2021 219,564 $ 12.73

During Fiscal 2021 the Company issued 213 shares of common stock upon the cashless exercise of 600 shares, during Fiscal 2020 there were no issuances of stock options, and during Fiscal 2019, the Company issued 16,777 shares of common stock upon the cashless exercise of 39,014 stock options.

Non-vested outstanding at January 1, 2023 247,816 $ 7.64

During Fiscal 2022 there were no cashless stock option exercises.

During Fiscal 2021 the Company issued 213 shares of common stock upon the cashless exercise of 600 stock options, and during Fiscal 2020, there were no cashless stock option exercises.

Restricted Stock

For Fiscal 2022, 2021 and 2020, the Company recognized $ 0.4 million, $ 0.5 million, and $ 0.3 million, respectively, of compensation expense related to restricted stock.

Unamortized share-based compensation expense as of December 26, 2021 amounted to $ 0.6 million which is expected to be recognized over the next 2.4 years.

Unamortized share-based compensation expense as of January 1, 2023 amounted to $ 0.6 million which is expected to be recognized over the next 1.8 years.

and Subsidiaries

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Restricted outstanding at December 29, 2019 18,000 $ 28.61

Issued 21,624 $ 9.02

Vested ( 14,406 ) $ 21.26

Forfeited / Canceled ( 4,500 ) $ 28.61

Restricted outstanding at December 27, 2020 25,218 $ 16.01

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Vested ( 31,168 ) $ 11.79

Restricted outstanding at December 26, 2021 60,844 $ 11.91

Nonvested outstanding at December 27, 2020 25,218 $ 16.01

Restricted outstanding at January 1, 2023 62,020 $ 12.21

Nonvested outstanding at December 26, 2021 60,844 $ 11.91

Nonvested outstanding at January 1, 2023 62,020 $ 12.21

Warrant Activity

For Fiscal 2022, 2021 and 2020, the Company did not recognize compensation cost related to warrants.

There was no unamortized stock compensation expense remaining to be recognized as of December 26, 2021.

There was no unamortized stock compensation expense remaining to be recognized as of January 1, 2023.

A summary of warrant activity is presented as follows:

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Warrants outstanding at December 29, 2019 64,482 $ 13.84 0.8 $ 473

Exercised ( 28,734 ) $ 6.55

Warrants exercisable at December 29, 2019 64,482 $ 13.84 0.8 $ 473

Expired ( 38,620 ) $ 11.85

Warrants outstanding at December 27, 2020 25,862 $ 16.80 0.4 $ —

Expired ( 25,862 ) $ 16.80

Warrants outstanding at December 26, 2021 — $ — 0 $ —

Warrants exercisable at December 27, 2020 25,862 $ 16.80 0.4 $ —

Warrants exercisable at December 26, 2021 — $ — 0 $ —

There were no non-vested warrants outstanding at December 26, 2021 and December 27, 2020.

Expired ( 25,862 ) $ 16.80

Warrants outstanding at December 26,2021 and January 1, 2023 — $ — 0.0 $ —

Warrants exercisable at December 26, 2021 and January 1, 2023 — $ — 0.0 $ —

There were no non-vested warrants outstanding at January 1, 2023, December 26, 2021, and December 27, 2020.

There were no exercises of warrants in Fiscal 2022, 2021, and 2020.

During Fiscal 2019, the Company issued 20,059 shares of common stock upon the cashless exercise of 28,734 warrants.

The intrinsic value in the tables above is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options or warrants, before applicable income taxes and represents the amount holders would have realized if all in-the-money options or warrants had been exercised on the last business day of the period indicated.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2020 Employee Stock Purchase Plan (“2020 ESPP”)

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were initially reserved for issuance pursuant to the 2020 ESPP.

For the year-ended December 26, 2021, the Company issued 31,776 shares of common stock under the 2020 ESPP.

For Fiscal 2022, and 2021, the Company issued 59,506 and 31,776 shares of common stock under the 2020 ESPP, respectively.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - RELATED PARTY TRANSACTIONS

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Total $ 3,455,876 $ 3,012,783 $ 4,103,750

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2021 2020 2019

Operating income (loss):

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Professional - without CARES Act credit and impairment loss 15,603,944 10,340,171 7,514,924

Professional - CARES Act credit, net 921,093 — —

Professional - CARES Act credit — 921,093 —

Professional - impairment loss — — ( 7,239,514 )

Home office - selling ( 931,974 ) ( 663,110 ) ( 516,190 )

Home office - general and administrative ( 19,124,010 ) ( 14,947,796 ) ( 11,251,929 )

Home office - CARES Act credit, net 1,150,440 — —

Home office - CARES Act credit — 1,150,440 —

Home office - gain on contingent consideration — 2,402,844 76,102

Total $ 16,282,949 $ 14,530,195 $ ( 1,228,913 )

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2022 2021 2020

Capital Expenditures:

9 unchanged sentences

Total $ 194,673,165 $ 148,293,966

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - QUARTERLY FINANCIAL DATA (UNAUDITED)

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Gross profit $ 23,430,799 $ 25,059,426 $ 27,999,845 $ 27,057,401 $ 103,547,470

(Loss) income from continuing operations $ ( 211,583 ) $ 2,635,226 $ 3,713,480 $ 4,320,752 $ 10,457,875

Income from discontinued operations, net of tax $ 923,380 $ 807,612 $ 930,129 $ 990,482 $ 3,651,603

Income from continuing operations $ 2,007,769 $ 3,183,642 $ 4,652,473 $ 1,417,311 $ 11,261,195

Income (loss) from discontinued operations, net of tax $ 13,792,014 $ ( 7,228 ) $ — $ 314,892 $ 14,099,678

Net income $ 15,799,783 $ 3,176,414 $ 4,652,473 $ 1,732,203 $ 25,360,873

Net (loss) income per share - basic:

Continuing operations $ ( 0.02 ) $ 0.25 $ 0.36 $ 0.42 $ 1.01

Discontinued operations $ 0.09 $ 0.08 $ 0.09 $ 0.09 $ 0.35

Net income per share - basic:

Net (loss) income per share - diluted:

Continuing operations $ ( 0.02 ) $ 0.25 $ 0.36 $ 0.41 $ 1.00

Discontinued operations $ 0.09 $ 0.08 $ 0.09 $ 0.09 $ 0.35

Income from continuing operations $ 0.19 $ 0.30 $ 0.44 $ 0.14 $ 1.08

Income from discontinued operations 0.12 — — — 0.12

Gain on sale 1.66 — — 0.03 1.69

Income tax expense ( 0.45 ) — — ( 0.01 ) ( 0.46 )

Net income per share - basic $ 1.52 $ 0.30 $ 0.44 $ 0.16 $ 2.43

Net income per share - diluted:

Income from continuing operations $ 0.19 $ 0.30 $ 0.44 $ 0.14 $ 1.07

Income from discontinued operations 0.12 — — — 0.12

Gain on sale 1.65 — — 0.03 1.69

Income tax expense ( 0.45 ) — — ( 0.01 ) ( 0.46 )

Net income per share - diluted $ 1.51 $ 0.30 $ 0.44 $ 0.16 $ 2.42

Weighted-average shares outstanding:

1 unchanged sentence

Diluted 10,485,104 10,514,261 10,532,918 10,544,323 10,472,845

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Quarter Second

4 unchanged sentences

Gross Profit $ 16,214,709 $ 19,247,481 $ 22,046,888 $ 23,431,825 $ 80,940,903

Income (loss) from continuing operations $ 690,298 $ ( 5,470,787 ) $ 1,627,513 $ 1,081,089 $ ( 2,071,887 )

(Loss) income from continuing operations $ ( 211,583 ) $ 2,635,226 $ 3,713,480 $ 4,320,752 $ 10,457,875

Income from discontinued operations, net of tax $ 923,380 $ 807,612 $ 930,129 $ 990,482 $ 3,651,603

Net income $ 711,797 $ 3,442,838 $ 4,643,609 $ 5,311,234 $ 14,109,478

Net income (loss) per share - basic:

Net (loss) income per share - basic:

Continuing operations $ ( 0.02 ) $ 0.25 $ 0.36 $ 0.42 $ 1.01

Discontinued operations $ 0.09 $ 0.08 $ 0.09 $ 0.09 $ 0.35

Net income (loss) per share - basic $ 0.15 $ ( 0.47 ) $ 0.25 $ 0.21 $ 0.14

Net income (loss) per share - diluted:

Net income per share - basic $ 0.07 $ 0.33 $ 0.45 $ 0.51 $ 1.36

Net (loss) income per share - diluted:

Continuing operations $ ( 0.02 ) $ 0.25 $ 0.36 $ 0.41 $ 1.00

Discontinued operations 0.09 0.08 0.09 0.09 0.35

Net income (loss) per share - diluted $ 0.15 $ ( 0.47 ) $ 0.25 $ 0.21 $ 0.14

Net income per share - diluted $ 0.07 $ 0.33 $ 0.45 $ 0.50 $ 1.35

Weighted-average shares outstanding:

1 unchanged sentence

Diluted 10,394,841 10,391,925 10,427,114 10,464,885 10,416,610

NOTE 21 - SUBSEQUENT EVENTS

On February 13, 2023, the Company's board of directors declared a cash dividend in the amount of $ 0.15 per share of common stock to be paid on March 2, 2023 to all shareholders of record as of the close of business on February 23, 2023.

At the February 2023 Board of Directors meeting, management’s plan was approved to rebrand as BGSF, eliminating various current trade names.

Management intends to complete this rebranding by the end of the second quarter of 2023.

The decision to rebrand creates an indication of impairment of the $ 22.5 million in trade name assets, which will be written off in 2023.

Since the trade name asset has an indefinite life, the carrying value is not amortized.

Thus, the impairment will have no cash impact.

Appointment of Chief Financial Officer and Secretary

On March 3, 2023, the Board of Directors of the Company approved the appointment of John Barnett, as Chief Financial Officer and Secretary of the Company, effective March 20, 2023 (the “Commencement Date”).

B G Staff Services, Inc., a subsidiary of the Company, entered into an Executive Employment Agreement (the “Employment Agreement”) with Mr.

The Employment Agreement remains in effect through December 31, 2025, and then under successive one-year extensions unless terminated pursuant to its terms.

In the event that Mr.

Barnett’s employment is terminated for any reason, he is eligible to receive his accrued but unpaid base salary, earned but unpaid acquisition bonus, and (if the termination is due to death, involuntary termination without “cause,” termination for “good reason,” or expiration of the employment period) earned but unpaid bonus for the preceding fiscal year and a prorated annual bonus for the fiscal year in which the termination occurs (each calculated as described in the Employment Agreement).

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - SUBSEQUENT EVENTS

Light Industrial Segment

On February 28, 2022, the Company 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.

Under the terms of the agreement, the Company will receive approximately $ 30.3 million at the closing of the transaction, and subject to the terms of the agreement, an additional $ 2 million on the first anniversary of the closing.

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.

See Note 4 for additional information.

On February 2, 2022 , the Company's board of directors declared a cash dividend in the amount of $ 0.15 per share of common stock to be paid on February 22, 2022 to all shareholders of record as of the close of business on February 14, 2022 .

Resignation of Chief Financial Officer and Secretary

On March 3, 2023, Dan Hollenbach resigned as the Chief Financial Officer and Secretary of the Company and its subsidiaries, effective March 20, 2023, and will then act as a senior advisor with BGSF through April 30, 2024.

Hollenbach’s resignation was part of the Company’s leadership succession plan and Mr.

Hollenbach’s planned retirement.

On March 3, 2023, the Company and BG Staff Services, Inc., a subsidiary of the Company, entered into an Amended Executive Employment Agreement (the “Amended Employment Agreement”) with Mr.

The Amended Employment Agreement remains in effect through April 30, 2024, unless extended by mutual agreement or terminated pursuant to its terms.

In the event that Mr.

Hollenbach’s employment is terminated for any reason, he is eligible to receive his accrued but unpaid base salary, earned but unpaid acquisition bonus, and (if the termination is due to death or expiration of the employment period) unpaid bonus for 2023 and unpaid acquisition bonus (each calculated as described in the Amended Employment Agreement).

The Company and Mr.

Hollenbach have also entered into a confidentiality, non-solicitation, non-interference and non-competition agreement, which remains in effect.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data