What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-11 · 214 added, 153 removed, 506 unchanged (42% of the section changed)

2 unchanged sentences

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(in thousands, except share amounts)

2023 January 1, 2023

29 unchanged sentences

Long-term debt, less current portion 34,000 36,000

Contingent consideration, less current portion 3,184 —

Convertible note 4,368 4,368

5 unchanged sentences

Common stock, $ 0.01 par value per share;

19,500,000 shares authorized, 10,806,371 and 10,772,515 shares issued and outstanding, respectively, net of treasury stock, at cost, 1,845 , respectively.

19,500,000 shares authorized 10,838,776 and 10,772,515 shares issued and outstanding, respectively, net of treasury stock, at cost, 1,845 shares, respectively.

Additional paid in capital 67,761 67,003

6 unchanged sentences

(in thousands, except per share and dividend amounts)

For the Thirteen Week Periods Ended April 2, 2023 and March 27, 2022

Thirteen Weeks Ended

For the Thirteen and Twenty-six Week Periods Ended July 2, 2023 and June 26, 2022

Thirteen Weeks Ended Twenty-six Weeks Ended

2023 2022 2023 2022

Revenues $ 80,800 $ 74,089 $ 156,116 $ 142,631

4 unchanged sentences

Depreciation and amortization 1,940 922 3,696 1,821

Operating (loss) income ( 20,730 ) 2,815

Operating income (loss) 5,050 4,239 ( 15,679 ) 7,055

Interest expense, net ( 1,502 ) ( 69 ) ( 2,703 ) ( 343 )

(Loss) income from continuing operations before income taxes ( 21,930 ) 2,542

Income tax benefit (expense) from continuing operations 5,464 ( 534 )

(Loss) income from continuing operations ( 16,466 ) 2,008

Income (loss) from continuing operations before income taxes 3,548 4,170 ( 18,382 ) 6,712

Income tax (expense) benefit from continuing operations ( 944 ) ( 986 ) 4,520 ( 1,521 )

Income (loss) from continuing operations 2,604 3,184 ( 13,862 ) 5,191

Income from discontinued operations:

Income — — — 1,235

Gain on sale — 17,273

(Loss) gain on sale — ( 8 ) — 17,266

Income tax expense — — — ( 4,716 )

Net (loss) income $ ( 16,466 ) $ 15,800

Net income (loss) $ 2,604 $ 3,176 $ ( 13,862 ) $ 18,976

Change in unrealized losses on cash flow hedges:

Other comprehensive loss — — — ( 58 )

Net comprehensive (loss) income $ ( 16,466 ) $ 15,741

Net (loss) income per share - basic

Net (loss) income from continuing operations $ ( 1.54 ) $ 0.19

Net comprehensive income (loss) $ 2,604 $ 3,176 $ ( 13,862 ) $ 18,918

Net income (loss) per share - basic:

Net income (loss) from continuing operations $ 0.24 $ 0.30 $ ( 1.29 ) $ 0.50

Net income from discontinued operations:

2 unchanged sentences

Income tax expense — — — ( 0.45 )

Net (loss) income per share - basic $ ( 1.54 ) $ 1.52

Net (loss) income per share - diluted

Net (loss) income from continuing operations $ ( 1.54 ) $ 0.19

Net income (loss) per share - basic $ 0.24 $ 0.30 $ ( 1.29 ) $ 1.82

Net income (loss) per share - diluted:

Net income (loss) from continuing operations $ 0.24 $ 0.30 $ ( 1.29 ) $ 0.50

Net income from discontinued operations:

2 unchanged sentences

Income tax expense — — — ( 0.45 )

Net (loss) income per share - diluted $ ( 1.54 ) $ 1.51

Net income (loss) per share - diluted $ 0.24 $ 0.30 $ ( 1.29 ) $ 1.82

Weighted-average shares outstanding:

5 unchanged sentences

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

For the Thirteen Week Period Ended April 2, 2023

(in thousands)

For the Twenty-six Week Period Ended July 2, 2023

Stock Shares Par

2 unchanged sentences

Stockholders’ equity, January 1, 2023 — 10,772 $ 108 $ ( 38 ) $ 67,003 $ 33,663 $ — $ 100,736

Share-based compensation from continuing operations — — — — 361 — — 361

Share-based compensation — — — — 361 — — 361

Issuance of restricted shares — 23 — — — — — —

3 unchanged sentences

Stockholders’ equity, April 2, 2023 — 10,806 108 ( 38 ) 67,509 15,579 — 83,158

Share-based compensation — — — — 75 — — 75

Issuance of restricted shares — 11 — — — — — —

Issuance of ESPP shares — 17 — — 147 — — 147

Exercise of common stock options — 5 — — 30 — — 30

Cash dividend declared — — — — — ( 1,626 ) — ( 1,626 )

Net income — — — — — 2,604 — 2,604

Stockholders’ equity, July 2, 2023 — 10,839 $ 108 $ ( 38 ) $ 67,761 $ 16,557 $ — $ 84,388

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

1 unchanged sentence

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

For the Thirteen Week Period Ended March 27, 2022

(in thousands)

For the Twenty-six Week Period Ended June 26, 2022

Stock Shares Par

Value Treasury Stock Amount Additional Paid in Capital Retained

Earnings Accumulated Other Comprehensive (Loss)/Income Total

Earnings Accumulated Other Comprehensive Income Total

Stockholders’ equity, December 26, 2021 — 10,425 $ 104 $ ( 38 ) $ 61,876 $ 14,592 $ 58 $ 76,592

1 unchanged sentence

Share-based compensation from discontinued operations — — — — 8 — — 8

Fully vested shares related to the sale of discontinue operations — — — — 35 — — 35

Fully vested shares related to the sale of discontinued operations — — — — 35 — — 35

Issuance of restricted shares — 6 — — — — — —

2 unchanged sentences

Net income — — — — — 15,800 — 15,800

Other comprehensive gain — — — — — — ( 59 ) ( 59 )

Other comprehensive loss — — — — — — ( 58 ) ( 58 )

Stockholders’ equity, March 27, 2022 — 10,445 104 ( 38 ) 62,299 28,827 — 91,192

Share-based compensation from continuing operations — — — — 243 — — 243

Share issuance cost — — — — ( 11 ) — — ( 11 )

Issuance of restricted shares — 13 — — — — — —

Issuance of ESPP shares — 23 1 — 249 — — 250

Exercise of common stock options — 1 — — 6 — — 6

Cash dividend declared — — — — — ( 1,572 ) — ( 1,572 )

Net income — — — — — 3,176 — 3,176

Stockholders’ equity, June 26, 2022 — 10,482 $ 105 $ ( 38 ) $ 62,786 $ 30,431 $ — $ 93,284

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

2 unchanged sentences

(in thousands)

For the Thirteen Week Periods Ended April 2, 2023 and March 27, 2022

For the Twenty-six Week Periods Ended July 2, 2023 and June 26, 2022

Cash flows from operating activities

6 unchanged sentences

Impairment losses 22,545 —

Loss on disposal of property and equipment — 2

Amortization of deferred financing fees 92 139

16 unchanged sentences

Other long-term liabilities — ( 58 )

Net cash provided by (used in) continuing operating activities 3,939 ( 1,060 )

Net cash provided by discontinued operating activities — 675

Net cash provided by continuing operating activities 12,549 1,217

Net cash used in discontinued operating activities — ( 2,274 )

Net cash provided by (used in) operating activities 12,549 ( 1,057 )

Cash flows from investing activities

Businesses acquired, net of cash received ( 6,740 ) —

Business sold — 30,305

7 unchanged sentences

(in thousands)

For the Thirteen Week Periods Ended April 2, 2023 and March 27, 2022

For the Twenty-six Week Periods Ended July 2, 2023 and June 26, 2022

Cash flows from financing activities

Net (payments) borrowings under line of credit ( 646 ) 1,405

Net borrowings under line of credit 2,438 4,935

Principal payments on long-term debt ( 2,000 ) ( 26,862 )

1 unchanged sentence

Issuance of ESPP shares 292 419

Issuance of shares under the 2013 Long-Term Incentive Plan and Form S-3 registration statement costs, net of exercises 30 ( 5 )

Contingent consideration paid ( 1,110 ) ( 1,110 )

1 unchanged sentence

Net cash used in continuing financing activities ( 3,659 ) ( 25,760 )

Net cash used in discontinued financing activities — —

Net cash used in financing activities ( 3,124 ) ( 27,963 )

Net change in cash and cash equivalents 660 ( 67 )

8 unchanged sentences

NOTE 1 - NATURE OF OPERATIONS

provides consulting, managed services, and professional 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 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.

provides consulting, managed services, and professional workforce solutions to a variety of industries through its various divisions in information technology (“IT”), Finance & Accounting, Managed Services, and Real Estate (apartment communities and commercial buildings) (collectively, the “Company”).

On March 21, 2022, the Company completed the sale of substantially all its Light Industrial segment (“InStaff”) assets to Jobandtalent, 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 (Loss) Income and Consolidated Statements of Cash Flows as discontinued operations.

4 unchanged sentences

See “Note 3- Acquisitions.”

On April 24, 2023, the Company acquired substantially all of the assets and assumed certain of the liabilities of Arroyo Consulting, LLC ("Arroyo Consulting"), which is a nearshore/offshore workforce solutions firm that specializes in IT and software development with operations in the United States, Columbia, and India.

See “Note 16- Subsequent Events.”

See “Note 3- Acquisitions.”

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

The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 37 states and D.C., via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.

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

The Professional segment operates through three divisions, Information Technology, Managed Services, and Finance and Accounting.

The Professional segment provides specialized talent and business consultants on a nationwide basis for IT, managed services, finance, accounting, legal, and human resources.

The Professional segment operates through three divisions, IT, Managed Services, and Finance & Accounting.

The Company normally experiences seasonal fluctuations.

20 unchanged sentences

The Company has a 52/53 week fiscal year.

Fiscal periods for the consolidated financial statements included herein are as of April 2, 2023 and January 1, 2023, and include the thirteen week periods ended April 2, 2023 and March 27, 2022, referred to herein as Fiscal 2023 and 2022, respectively.

Fiscal periods for the consolidated financial statements included herein are as of July 2, 2023 and January 1, 2023, and include the thirteen and twenty-six week periods ended July 2, 2023 and June 26, 2022, referred to herein as Fiscal 2023 and 2022, respectively.

Reclassifications

8 unchanged sentences

Financial Instruments

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, and contingent consideration.

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.

5 unchanged sentences

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 April 2, 2023 and January 1, 2023 or revenue from continuing operations for the thirteen week periods ended April 2, 2023 and March 27, 2022.

No single client partner accounted for more than 10% of the Company’s accounts receivable from continuing operations as of July 2, 2023 and January 1, 2023 or revenue from continuing operations for the twenty-six week periods ended July 2, 2023 and June 26, 2022.

Geographic revenue from continuing operations in excess of 10% of the Company's consolidated revenue in Fiscal 2023 and the related percentage for Fiscal 2022 was generated in the following areas:

Thirteen Weeks Ended

2023 March 27,

Twenty-six Weeks Ended

2023 June 26,

Tennessee 11 % 11 %

11 unchanged sentences

Changes in the allowance for credit losses from continuing operations are as follows (in thousands):

Thirteen Weeks Ended

2023 March 27,

Thirteen Weeks Ended Twenty-six Weeks Ended

2023 June 26,

Beginning balance $ 558 $ 449 $ 558 $ 449

3 unchanged sentences

Property and Equipment

Property and equipment are stated net of accumulated depreciation and amortization of $ 5.0 million and $ 4.9 million at April 2, 2023 and January 1, 2023, respectively.

During the thirteen week period ended April 2, 2023, $ 1.0 million was reclassified to Other assets and Intangible assets from Property and equipment, primarily related to continued information technology improvements.

Property and equipment are stated net of accumulated depreciation and amortization of $ 5.1 million and $ 4.9 million at July 2, 2023 and January 1, 2023, respectively.

During the twenty-six week period ended July 2, 2023, $ 1.0 million was reclassified to Other assets and Intangible assets from Property and equipment, primarily related to continued information technology improvements.

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 $ 2.4 million, which are included in deposits in the accompanying consolidated balance sheets, as of April 2, 2023 and January 1, 2023, respectively.

The Company capitalizes direct costs incurred in 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.

Other assets are stated net of accumulated amortization of $ 1.4 million and $ 0.7 million at April 2, 2023 and January 1, 2023, respectively.

During the thirteen week period ended April 2, 2023, the Company added $ 0.2 million and reclassified $ 0.7 million to Other assets from Property and equipment, primarily related to continued information technology improvements.

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.

Other assets are stated net of accumulated amortization of $ 1.6 million and $ 1.2 million at July 2, 2023 and January 1, 2023, respectively.

During the twenty-six week period ended July 2, 2023, the Company added $ 0.4 million and reclassified $ 0.8 million to Other assets from Property and equipment, primarily related to continued information technology improvements.

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

The Company looks primarily to the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired.

19 unchanged sentences

The Company capitalizes purchased software and internal payroll costs directly incurred in the modification of internal use software.

During the thirteen week period ended April 2, 2023, the Company added $ 0.3 million and reclassified $ 0.2 million to Intangible assets from Property and equipment, primarily related to continued information technology improvements.

During the twenty-six week period ended July 2, 2023, the Company added $ 0.5 million and reclassified $ 0.2 million to Intangible assets from Property and equipment, primarily related to continued information technology improvements.

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

3 unchanged sentences

At the February 2023 Board of Directors meeting, managements's plan to rebrand as BGSF was approved, which will eliminate various trade names.

The decision to rebrand created an impairment of $ 22.5 million in trade names, which was written-off during Fiscal 2023.

The decision to rebrand created an impairment of $ 22.5 million in trade names, which was written-off during the first quarter of Fiscal 2023.

There were no impairment indicators for these assets during Fiscal 2022.

21 unchanged sentences

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

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

Revenues from continuing operations as presented on the consolidated statements of operations and comprehensive income (loss) represent services rendered to client partners less sales adjustments and allowances.

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

7 unchanged sentences

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 April 2, 2023.

There were no revenues recognized during the thirteen week period ended April 2, 2023 related to performance obligations satisfied or partially satisfied in previous periods.

There were no unsatisfied performance obligations as of July 2, 2023.

There were no revenues recognized during the thirteen and twenty-six week periods ended July 2, 2023 related to performance obligations satisfied or partially satisfied in previous periods.

There are no contract costs capitalized.

The Company did not recognize any contract impairments during the thirteen week period ended April 2, 2023.

The Company did not recognize any contract impairments during the thirteen and twenty-six week periods ended July 2, 2023.

and Subsidiaries

7 unchanged sentences

The following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the respective periods (in thousands):

Thirteen Weeks Ended

2023 March 27,

Thirteen Weeks Ended Twenty-six Weeks Ended

2023 June 26,

Weighted-average number of common shares outstanding:

6 unchanged sentences

Antidilutive shares 1,048 387 798 387

The consolidated effective tax rates were 24.9 % for both thirteen week periods ended April 2, 2023 and March 27, 2022.

The consolidated effective tax rates were 26.6 % and 24.6 % for the thirteen and twenty-six week periods ended July 2, 2023, respectively.

The consolidated rates were 23.7 % and 24.7 % for the thirteen and twenty-six week periods ended June 26, 2022, respectively.

Effective tax rates for all periods consist of federal statutory rate plus state income taxes.

The higher effective tax rate for the thirteen period ended July 2, 2023 is primarily due to greater state taxes.

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 April 2, 2023, the Company has a $ 3.6 million net operating loss carry forward from the 2020 EdgeRock acquisition with no expiration date..

As of July 2, 2023, the Company has a $ 3.3 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.

Additionally, there was a $ 5.2 million increase to deferred taxes related to the $ 22.5 million in impairment losses as of April 2, 2023.

Additionally, there was a $ 5.2 million increase to the deferred tax assets related to the $ 22.5 million in impairment losses as of July 2, 2023.

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

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

As of April 2, 2023, goodwill with an adjusted tax basis of $ 49.9 million is remaining to be amortized for tax purposes.

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

As of July 2, 2023, goodwill with an adjusted tax basis of $ 48.7 million is remaining to be amortized for tax purposes.

As a matter of operation, we first calculated the effective tax on continuing operations, and then allocated the remaining taxes to our discontinued operations, in accordance with Accounting Standards Codification (“ASC”) Topic 740.

The Company follows the guidance ASC Topic 740, Accounting for Uncertainty in Income Taxes.

ASC Topic 740 prescribes a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return.

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company follows the guidance ASC Topic 740, Accounting for Uncertainty in Income Taxes.

ASC Topic 740 prescribes a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return.

Recent Accounting Pronouncements

Management has considered all recent accounting pronouncements issued.

The Company's management believes that these pronouncements will not have a material effect on the Company's financial statements.

The Company's management believes that these pronouncements will not have a material effect on the Company's consolidated financial statements.

NOTE 3 - ACQUISITIONS

4 unchanged sentences

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

An additional portion of the purchase price, $ 1.0 million in cash, net of the true-up of working capital, was held back as partial security for a post-closing purchase price adjustment, which is expected to fund in May 2023, net of the net working capital and AR buyback adjustments.

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

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.

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

In May 2023, the hold back and true-up were paid, adjusting businesses acquired by $ 0.1 million in goodwill.

The purchase price at closing was paid out of funds under the Company's credit agreement led by BMO, see “Note 9 - Debt”.

2 unchanged sentences

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.

For the thirteen week period ended July 2, 2023, Horn Solutions contributed $ 6.4 million of revenue and $ 0.2 million of operating loss, which included $ 0.9 million in amortization expense on acquisition intangibles.

For the twenty-six week period ended July 2, 2023, Horn operations contributed $ 13.2 million of revenue and $ 0.4 million of operating loss, which included $ 1.7 million in amortization expense on acquisition intangibles.

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

9 unchanged sentences

Cash $ 33,940

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

Hold back 1,000

Convertible note 4,368

Common stock 3,351

Working capital adjustment (included in Other current assets) ( 534 )

Working capital adjustment ( 534 )

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

7 unchanged sentences

Total $ 13,484

The Company incurred costs of $ 0.4 million related to the Horn Solutions acquisition.

The Company incurred total costs of $ 0.4 million related to the Horn Solutions acquisition.

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

Arroyo Consulting

On April 24, 2023, the Company acquired substantially all of the assets, and assumed certain of the liabilities, of Arroyo Consulting for cash consideration of $ 6.8 million.

$ 0.4 million was held back for certain post-closing liabilities and $ 0.9 million was held back for one year as partial security for any indemnification obligations.

The purchase agreement further provides for contingent consideration of up to $ 8.5 million based on the performance of the acquired business for the two years following the date of acquisition.

The purchase price at closing was paid out of funds under the Company's credit agreement led by BMO, see “Note 9 - Debt”.

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

The acquired business was assigned to the Professional segment.

The acquisition of Arroyo Consulting allows the Company to strengthen the go-to-market cross-selling efforts providing clients a cost effective alternative offering nearshore and offshore IT resources.

Arroyo Consulting provides nearshore and offshore professional workforce solutions specializing in IT and software development with operations in the United States, Colombia, and India.

For the thirteen week period ended July 2, 2023, Arroyo Consulting contributed $ 4.1 million of revenue and $ 1.0 million of operating income, which included $ 0.2 million in amortization expense on acquisition intangibles.

The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows (in thousands):

Accounts receivable $ 3,452

Property and equipment, net 170

Right-of-use asset - operating lease 141

Intangible assets 11,315

Goodwill 2,879

Current liabilities assumed ( 2,471 )

Lease liabilities - operating leases ( 141 )

Total net assets acquired $ 15,345

Hold back, working capital* $ 350

Hold back, indemnities* $ 850

Working capital adjustment* $ 677

Fair value of contingent consideration $ 6,668

Total fair value of consideration transferred for acquired business $ 15,345

*Included in Other current liabilities

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The allocation of the intangible assets is as follows (in thousands):

Estimated Fair

Value Estimated

Covenants not to compete $ 298 5 years

Client partner list 11,017 10 years

Total $ 11,315

The Company incurred costs of $ 0.5 million related to the Arroyo Consulting acquisition.

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

Supplemental Unaudited Pro Forma Information

The Company estimates what would have been reported if the revenues and net income from continuing operations of the Horn Solutions acquisition had taken place on the first day of Fiscal 2022 (in thousands, except income per share):

Thirteen Weeks Ended

March 27, 2022

The Company estimates what would have been reported if the revenues and net income from continuing operations of the Horn Solutions and Arroyo Consulting acquisition had taken place on the first day of Fiscal 2022 (in thousands, except income per share):

Thirteen Weeks Ended Twenty-six Weeks Ended

June 26, 2022

Revenues $ 82,428 $ 86,696 $ 162,919 $ 166,219

Gross profit $ 30,026 $ 30,678 $ 58,527 $ 58,772

Net Income $ 2,558

Income per share from continuing operations:

Net income (loss) $ 2,755 $ 4,751 $ ( 12,933 ) $ 7,004

Income (loss) per share from continuing operations:

Basic $ 0.26 $ 0.45 $ ( 1.21 ) $ 0.67

Diluted $ 0.26 $ 0.45 $ ( 1.21 ) $ 0.67

Pro forma net income includes amortization of primarily client partner lists, interest expense on additional borrowings on the New Term Loan (see “Note 9 - Debt”) at a rate of 2.5 %, and tax benefit of the pro forma adjustments at an effective tax rate of 24.9 % for Fiscal 2022.

The pro forma operating results include adjustments to 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 Horn Solutions acquisition taken place on the first day of Fiscal 2022 or the results that may be achieved by the combined enterprise in the future.

Pro forma net income (loss) includes amortization of primarily client partner lists, interest expense on additional borrowings on the New Term Loan and the Revolving Facility (see “Note 9 - Debt”) at a rate of 2.5 %.

The tax benefit of the pro forma adjustments at effective tax rates of 26.6 % and 24.6 % for the thirteen and twenty-six week periods ended July 2, 2023, respectively, and effective tax rates of 23.7 % and 24.7 % for the thirteen and twenty-six week periods ended June 26, 2022, respectively.

The pro forma operating results include adjustments to Horn Solutions and Arroyo Consulting 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 Horn Solutions and Arroyo Consulting acquisitions taken place on the first day of Fiscal 2022 or the results that may be achieved by the combined enterprise in the future.

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - DISCONTINUED OPERATIONS

1 unchanged sentence

(“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.

The purchase agreement provided for deferred consideration of $ 2.0 million, which was received by April 3, 2023.

The purchase agreement provided for deferred consideration of $ 2.0 million, which was received April 3, 2023.

The sale resulted in an original pre-tax gain on sale of discontinued operations of $ 17.3 million, with an additional gain of $ 0.4 million recognized as part of the net working capital adjustment in October 2022.

The InStaff financial results for periods prior to the sale have been reflected in our Consolidated Statements of Operations and Comprehensive (Loss) Income and Consolidated Statements of Cash Flows as discontinued operations.

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Thirteen Weeks Ended

March 27, 2022

Twenty-six Weeks Ended

June 26, 2022

Cost of services

2 unchanged sentences

NOTE 5 - OTHER CURRENT ASSETS

Other current assets as of April 2, 2023 and January 1, 2023 consist of the following (in thousands):

Other current assets as of July 2, 2023 and January 1, 2023 consist of the following (in thousands):

2023 January 1, 2023

7 unchanged sentences

Short-term leases were immaterial.

Supplemental information related to leases consisted of the following:

The supplement cash flow information related to the Company's operating leases were as follows (dollars in thousands):

Thirteen Weeks Ended

2023 March 27,

The Company had $ 0.5 million from continuing operations in operating lease costs for the thirteen week periods ended July 2, 2023 and June 26, 2022, respectively.

The Company had $ 1.0 million from continuing operations in operating lease expense for the twenty-six week periods ended July 2, 2023 and June 26, 2022, respectively.

The supplemental balance sheet information related to the Company's operating leases were as follows:

2023 January 1,

Weighted average remaining lease term of operation leases 3.4 years 3.3 years

Weighted average discount rate for continuing operating leases 5.7 % 5.2 %

Cash paid for operating leases $ 584 $ 558

Operating lease costs $ 525 $ 502

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The supplemental cash flow information related to the Company's operating leases were as follows (dollars in thousands):

Twenty-six Weeks Ended

2023 June 26,

Cash paid for operating leases $ 1,115 $ 1,081

Right-of -use assets obtained in exchange for new operating lease liabilities $ 917 $ 48

The undiscounted annual future minimum lease payments consist of the following at (in thousands):

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NOTE 7 - INTANGIBLE ASSETS

Intangible assets from continuing operations are stated net of accumulated amortization of $ 44.8 million and $ 44.6 million at April 2, 2023 and January 1, 2023, respectively.

During the quarter, the Company reevaluated the Horn Solutions client partner lists, reclassifying $ 0.4 million reducing the carrying value of the client lists and increasing $ 0.4 million to goodwill.

Intangible assets from continuing operations are stated net of accumulated amortization of $ 46.7 million and $ 44.6 million at July 2, 2023 and January 1, 2023, respectively.

During the second quarter of Fiscal 2023, the Company reevaluated the Horn Solutions client partner list, reclassifying $ 0.4 million reducing the carrying value of the client lists and increasing $ 0.4 million to goodwill.

Amortization expense from continuing operations for Fiscal 2023 and Fiscal 2022 are comprised of following (in thousands):

Thirteen Weeks Ended

2023 March 27,

Thirteen Weeks Ended Twenty-six Weeks Ended

2023 June 26,

Client partner lists $ 1,482 $ 488 $ 2,788 $ 990

5 unchanged sentences

Total expense $ 1,829 $ 809 $ 3,458 $ 1,586

NOTE 8 - ACCRUED PAYROLL AND EXPENSES, OTHER LONG-TERM LIABILITIES, AND CONTINGENT CONSIDERATION

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - ACCRUED PAYROLL AND EXPENSES AND CONTINGENT CONSIDERATION

Accrued payroll and expenses from continuing operations consist of the following at (in thousands):

5 unchanged sentences

Accrued payroll and expenses $ 17,286 $ 19,171

The contingent consideration of $ 1.1 million was paid April 25, 2023.

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - DEBT

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The Company also had the option to request an increase in the aggregate Term Loan by $ 40.0 million, which was done in connection with the Horn Solutions acquisition.

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

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 August 18, 2022, the Company entered into an amendment to the Credit Agreement with BMO, which changed the interest rate component from LIBOR to the Secured Overnight Financing Rate ("SOFR"), plus the Applicable Margin.

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 Amendment”).

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 April 2, 2023.

On April 24, 2023, in connection with the acquisition of Arroyo Consulting (See "Note 16 - Subsequent Events") the Company entered into a third amendment to the Credit Agreement ("Third Credit Amendment") with BMO.

In connection with the Horn Solutions acquisition on December 12, 2022 (See “Note 3 - Acquisitions”), the Company exercised the option to borrow $ 40.0 million, as noted above, pursuant to a second amendment to the Credit Agreement (“Second Credit Amendment”).

The Second Credit Amendment requires 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.

On April 24, 2023, in connection with the acquisition of Arroyo Consulting, the Company entered into a Third Amendment to the Credit Agreement (“Third Credit Amendment”) with BMO.

The Third Credit Amendment revised language to permit an acquisition of a foreign entity under certain circumstances and modified the terms of permitted distributions and guarantors.

On May 19, 2023, the Company entered into a Fourth Amendment to the Credit Agreement (“Fourth Credit Amendment”).

The Fourth Credit Amendment increased the Revolving Facility by $ 6.0 million to an aggregate amount up to $ 41.0 million.

The Company is subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio (as such terms are defined in the amended Second Credit Amendment).

The Company was in compliance with the customary affirmative and negative covenants as of July 2, 2023.

Letter of Credit

In March 2020, in conjunction with the 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 April 2, 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.

As of July 2, 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 April 2, 2023.

Accordingly, no liability has been recorded in respect to these arrangements as of July 2, 2023.

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Line of Credit

At April 2, 2023 and January 1, 2023, $ 21.9 million and $ 22.6 million respectively, was outstanding on the revolving facilities.

Average daily balance for the thirteen week periods ended April 2, 2023 and March 27, 2022 was $ 20.7 million and $ 15.3 million, respectively.

At July 2, 2023 and January 1, 2023, $ 25.0 million and $ 22.6 million respectively, was outstanding on the revolving facilities.

Average daily balance for the thirteen week periods ended July 2, 2023 and June 26, 2022 was $ 25.4 million and $ 13.8 million, respectively.

Average daily balance for the twenty-six week periods ended July 2, 2023 and June 26, 2022 was $ 23.0 million and $ 14.5 million, respectively.

Borrowings under the revolving facilities consisted of and bore interest at (in thousands):

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SOFR 5,000 7.49 % — — %

SOFR 20,000 7.45 % 20,000 6.45 %

Total $ 25,000 $ 22,562

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt

3 unchanged sentences

Convertible Note

At April 2, 2023 and January 1, 2023, the Company had a two-year convertible promissory note of $ 4.4 million due to the seller with an annual interest rate of 6 %, with interest paid quarterly related to the Horn Solutions acquisition on December 12, 2022 (See “Note 3 - Acquisitions”).

At July 2, 2023 and January 1, 2023, the Company had a two-year convertible promissory note of $ 4.4 million due to the seller with an annual interest rate of 6 %, with interest 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.

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Amounts Recorded at Fair Value Financial Statement Classification Fair Value

Hierarchy April 2,

Hierarchy July 2,

2023 January 1,

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

Contingent consideration, net Contingent consideration, net - current Level 3 1,102 1,081

Key inputs in determining the fair value of the contingent consideration as of April 2, 2023 and January 1, 2023 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”).

Contingent consideration, net Contingent consideration, net - current and long-term Level 3 $ 6,841 $ 1,081

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The change in the Level 3 fair value measurements from January 1, 2023 to July 2, 2023 relates primarily to an increase from the Arroyo Consulting acquisition, including $ 0.2 million in accretion, offset by a $ 1.1 million payment for Momentum Solutionz acquisition.

Key inputs in determining the fair value of the contingent consideration as of July 2, 2023 and January 1, 2023 included discount rates of approximately 16 % as well as management's estimates of future sales volumes and earnings before interest, income taxes, depreciation, and amortization (“EBITDA”).

NOTE 11 - CONTINGENCIES

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Stock Options

For the thirteen week periods ended April 2, 2023 and March 27, 2022, the Company recognized $ 0.2 million and $ 0.1 million of compensation expense from continuing operations related to stock options, respectively.

Unamortized share-based compensation expense from continuing operations as of April 2, 2023 amounted to $ 1.0 million which is expected to be recognized over the next 2.7 years.

As of April 2, 2023, a total of 1.0 million shares remain available for issuance under 2013 Plan.

For the thirteen week periods ended July 2, 2023 and June 26, 2022, the Company recognized $ 0.1 million of compensation expense from continuing operations related to stock options.

For the twenty-six week periods ended July 2, 2023 and June 26, 2022, the Company recognized $ 0.2 million and $ 0.3 million, respectively, of compensation expense from continuing operations related to stock options.

Unamortized share-based compensation expense from continuing operations as of July 2, 2023 amounted to $ 0.9 million which is expected to be recognized over the next 2.4 years.

As of July 2, 2023, a total of 1.0 million shares remain available for issuance under 2013 Plan.

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

A summary of stock option activity is presented as follows:

3 unchanged sentences

Granted 22,970 $ 11.84

Exercised ( 4,800 ) $ 6.25

Forfeited / Canceled ( 8,000 ) $ 11.91

Options outstanding at April 2, 2023 836,649 $ 16.00 6.3 $ 248

Options outstanding at July 2, 2023 831,849 $ 16.06 6.1 $ 108

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

Options exercisable at April 2, 2023 581,928 $ 17.65 5.2 $ 213

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Options exercisable at July 2, 2023 577,128 $ 17.75 5.0 $ 108

Shares Weighted Average Grant Date Fair Value

Nonvested outstanding at January 1, 2023 247,816 $ 7.64

Nonvested outstanding at April 2, 2023 254,721 $ 7.34

For the thirteen week periods ended April 2, 2023 and March 27, 2022, the Company did not issue shares under a cashless exercise.

Nonvested outstanding at July 2, 2023 254,721 $ 7.35

Restricted Stock

For the thirteen week periods ended April 2, 2023 and March 27, 2022, the Company recognized $ 0.2 million and $ 0.1 million of compensation expense related to restricted stock awards, respectively.

Unamortized share-based compensation expense as of April 2, 2023 amounted to $ 0.8 million which is expected to be recognized over the next 1.9 years.

For the thirteen week periods ended July 2, 2023 and June 26, 2022, the Company recognized $ 0.1 million of compensation expense related to restricted stock awards, respectively.

For the twenty-six week periods ended July 2, 2023 and June 26, 2022, the Company recognized $0.3 million and $0.2 million of compensation expense related to restricted stock awards, respectively.

Unamortized share-based compensation expense as of July 2, 2023 amounted to $ 0.7 million which is expected to be recognized over the next 1.7 years.

NOTE 14 - TEAM MEMBER BENEFIT PLAN

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The Company matches participants contributions 100 % up to the first 3 % and 50 % of the next 2 % of a team member's or field talent’s compensation.

The Company contributed $ 0.5 million from continuing operations to the 401(k) Plan for the thirteen week periods ended April 2, 2023 and March 27, 2022.

The Company contributed $0.5 million and $0.4 million from continuing operations to the 401(k) Plan for the thirteen week periods ended July 2, 2023 and June 26, 2022, respectively.

The Company contributed $ 1.0 million and $ 0.9 million from continuing operations to the 401(k) Plan for the twenty-six week periods ended July 2, 2023 and June 26, 2022, respectively.

NOTE 15 - BUSINESS SEGMENTS

The Company has continuing operations in two industry segments Real Estate and Professional.

Segment income from continuing operations includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense and excludes all general and administrative (home office) expenses.

Segment income (loss) from continuing operations includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense and excludes all general and administrative (home office) expenses.

Assets of home office include cash, unallocated prepaid expenses, property and equipment, deferred income taxes, and other assets.

The following table provides a reconciliation of revenue and income from continuing operations by reportable segment to consolidated results for the periods indicated (in thousands):

Thirteen Weeks Ended

2023 March 27,

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a reconciliation of revenue and income (loss) from continuing operations by reportable segment to consolidated results for the periods indicated (in thousands):

Thirteen Weeks Ended Twenty-six Weeks Ended

2023 June 26,

Real Estate $ 31,071 $ 29,980 $ 59,477 $ 55,896

6 unchanged sentences

Total $ 111 $ 152 $ 238 $ 313

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Thirteen Weeks Ended

2023 March 27,

Thirteen Weeks Ended Twenty-six Weeks Ended

2023 June 26,

Amortization:

2 unchanged sentences

Total $ 1,829 $ 770 $ 3,458 $ 1,508

Operating (loss) income:

Operating income (loss):

Real Estate $ 5,774 $ 4,817 $ 10,464 $ 8,852

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NOTE 16 - SUBSEQUENT EVENTS

On May 3, 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 May 22, 2023 to all shareholders of record as of the close of business on May 15, 2023 .

Arroyo Consulting

On April 24, 2023, the Company acquired substantially all of the assets and assumed certain of the liabilities of Arroyo Consulting for an initial purchase price of $ 8.0 million cash, subject to customary price adjustments as specified in the acquisition agreement.

The purchase includes $ 0.4 million which was held back until the later of (i) the working capital adjustment, if any, or (ii) the Company’s receipt of a tax clearance letter from Seller, and $ 0.9 million which was held back for a period of one year as security for any indemnification obligation of the Seller.

The Purchase Agreement further provides for earn-out payments of up to an aggregate of $ 8.5 million, provided certain agreed upon performance targets are met over a two-year period following the acquisition date.

At closing, $ 6.8 million of the closing price was paid out of currently available funds under the Company's credit agreement led by BMO.

The acquired business was assigned to the Professional segment.

The acquisition of Arroyo Consulting adds global delivery capabilities, expands the Company’s presence into Latin America and India, expands our recruitment and retention of IT talent, and brings strategic pricing flexibility.

Arroyo Consulting is a nearshore/offshore workforce solutions firm that specializes in IT and software development with operations in the United States, Columbia, and India.

As the transaction was recently completed, the initial accounting for the acquisition, including estimating the fair values of assets and liabilities acquired, has not been completed.

On August 9, 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 August 28, 2023 to all shareholders of record as of the close of business on August 21, 2023 .

and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Credit Agreement

On April 24, 2023, in connection with the acquisition of Arroyo Consulting, the Company entered into the Third Credit Amendment with BMO.

The Third Credit Amendment revised language to permit an acquisition of a foreign entity under certain circumstances and modified the terms of permitted distributions and guarantors.

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-Q

Item 1. Financial Statements