What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-16 · 376 added, 417 removed, 633 unchanged (56% of the section changed)

1 unchanged sentence

Audited Consolidated Financial Statements of BGSF, Inc.

Report of Independent Registered Public Accounting Firm

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

Report of Independent Registered Public Accounting Firm - Whitley Penn LLP (PCAOB ID 726)

Consolidated Balance Sheets as of December 31, 2023 and January 1, 2023 42

Consolidated Statements of Operations and Comprehensive (Loss) Income for each of the three fiscal years ended December 31, 2023 43

Consolidated Statements of Changes in Stockholders’ Equity for each of the three fiscal years ended December 31, 2023 44

Consolidated Statements of Cash Flows for each of the three fiscal years ended December 31, 2023 46

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., 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.

We have audited the accompanying consolidated balance sheets of BGSF, Inc., and its subsidiaries (the “Company”) as of December 31, 2023 and January 1, 2023, and the related consolidated statements of operations and comprehensive (loss) income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 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 December 31, 2023 and January 1, 2023, and the results of their operations and cash flows for each of the three years in the period ended December 31, 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 December 31, 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 14, 2024 expressed an unqualified opinion.

Basis for Opinion

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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

Acquisition of Arroyo Consulting, LLC – Fair Value of Intangible Assets

Description of the Matter

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.

As discussed in Note 3 to the consolidated financial statements, the Company acquired substantially all of the assets and assumed certain liabilities of Arroyo Consulting, LLC (“Arroyo”) for a purchase price of up to $8.7 million in cash and contingent consideration of up to $8.5 million.

The acquisition of Arroyo 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.

The contingent consideration of up to $8.5 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 the intangible assets acquired and contingent consideration liability in the Arroyo 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, 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.

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 and contingent consideration liability in the Arroyo business combination included the following, among others:

• We tested the effectiveness of controls over management’s Arroyo 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.

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

/s/ Whitley Penn LLP

We have served as the Company’s auditor since 2013.

Dallas, Texas

March 14, 2024

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CONSOLIDATED BALANCE SHEETS

January 1, 2023 December 26, 2021

(in thousands, except share amounts)

December 31, 2023 January 1, 2023

Current assets

Cash and cash equivalents $ — $ 112,104

Accounts receivable (net of allowance for credit losses of $557,605 for 2022 and $448,622 for 2021) 66,284,929 48,132,896

Accounts receivable (net of allowance for credit losses of $554 and $558, respectively) $ 56,776 $ 66,285

Prepaid expenses 2,963 2,418

Other current assets 7,172 7,459

Current assets of discontinued operations — 7,198,104

Total current assets 66,911 76,162

1 unchanged sentence

Deposits 2,699 2,616

Other assets 4,411,368 1,283,629

Software as a service, net 5,026 4,411

Deferred income taxes, net 7,271 2,196

2 unchanged sentences

Goodwill 59,588 55,193

Noncurrent assets of discontinued operations — 7,213,276

Total other assets 110,389 116,430

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Current liabilities

Long-term debt, current portion $ 4,000,000 $ 3,562,500

Accrued interest 273,267 102,304

Accounts payable $ 95 $ 587

Accrued payroll and expenses 14,902 19,171

Line of credit (net of debt issuance costs of $128) 24,746 —

Long-term debt, current portion 34,000 4,000

Accrued interest 438 273

Income taxes payable 282 253

Contingent consideration, current portion 4,208 1,081

Lease liability, current portion 1,841,638 1,896,253

Convertible note 4,368 —

Other current liabilities — 1,000

Income taxes payable 253,351 381,806

Current liabilities of discontinued operations — 1,262,056

Lease liabilities, current portion 2,016 1,842

Total current liabilities 85,055 28,207

Line of credit (net of deferred finance fees of $259,469 and $193,264 for 2022 and 2021, respectively) 22,302,423 12,587,591

Line of credit (net of debt issuance costs of $259) — 22,303

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

Convertible note 4,368,000 —

Contingent consideration, less current portion 4,112 —

Lease liability, less current portion 3,049,043 2,685,270

Convertible note — 4,368

Lease liabilities, less current portion 3,814 3,049

Other long-term liabilities — 10

Noncurrent liabilities of discontinued operations — 190,395

Total liabilities 92,981 93,937

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Common stock, $0.01 par value per share;

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

19,500,000 shares authorized, 10,887,509 and 10,772,515 shares issued and outstanding, respectively, net of treasury stock, at cost, of 3,930 and 1,845 shares, respectively 52 70

Additional paid in capital 68,551 67,003

Retained earnings 16,933 33,663

Accumulated other comprehensive income — 58,331

Total stockholders’ equity 85,536 100,736

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and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

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

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(in thousands, except per share and dividend amounts)

Years ended December 31, 2023, January 1, 2023 and December 26, 2021

2023 2022 2021

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Depreciation and amortization 7,774 4,054 3,698

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

Operating (loss) income ( 7,185 ) 16,283 14,530

Interest expense, net ( 5,976 ) ( 1,363 ) ( 1,433 )

Income (loss) from continuing operations before income taxes 14,920,266 13,097,462 ( 2,812,543 )

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

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

(Loss) income from continuing operations before income taxes ( 13,161 ) 14,920 13,097

Income tax benefit (expense) from continuing operations 2,938 ( 3,659 ) ( 2,639 )

(Loss) income from continuing operations ( 10,223 ) 11,261 10,458

Income from discontinued operations:

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Income tax expense — ( 4,810 ) ( 919 )

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

Net (loss) income $ ( 10,223 ) $ 25,361 $ 14,109

Change in unrealized (losses) gains on cash flow hedges — ( 58 ) 181

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

Net comprehensive income $ 25,302,542 $ 14,290,683 $ 1,318,594

Net income per share - basic:

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

Other comprehensive (loss) gain — ( 58 ) 181

Net comprehensive (loss) income $ ( 10,223 ) $ 25,303 $ 14,290

Net (loss) income per share - basic:

Net (loss) income from continuing operations $ ( 0.95 ) $ 1.08 $ 1.01

Net income from discontinued operations:

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Income tax expense — ( 0.46 ) ( 0.09 )

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

Net income per share - diluted:

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

Net (loss) income per share - basic $ ( 0.95 ) $ 2.43 $ 1.36

Net (loss) income per share - diluted:

Net (loss) income from continuing operations $ ( 0.95 ) $ 1.07 $ 1.00

Net income from discontinued operations:

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Income tax expense — ( 0.46 ) ( 0.09 )

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

Net (loss) income per share - diluted $ ( 0.95 ) $ 2.42 $ 1.35

Weighted average shares outstanding:

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

(in thousands)

Years ended December 31, 2023, January 1, 2023 and December 26, 2021

Stock Shares Par

4 unchanged sentences

Share-based compensation from discontinued operations — — — — 54 — — 54

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

Share-based compensation from continuing operations — — — — 1,058,096 — — 1,058,096

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

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

6 unchanged sentences

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

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

and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

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

Stock Shares Par

Value Treasury Stock Amount Additional Paid in Capital Retained

Earnings Accumulated Other Comprehensive (Loss)/Income Total

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

Share-based compensation from continuing operations — — — — 1,085 — — 1,085

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

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

Transaction fees related to sale of discontinued operations — — — — 35 — — 35

Issuance of shares — 254 3 — 3,338 — — 3,341

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Issuance of ESPP shares — 60 — — 653 — — 653

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

Exercise of common stock options — 1 — — 10 — — 10

Cash dividends declared — — — — — ( 6,290 ) — ( 6,290 )

4 unchanged sentences

and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

(in thousands)

Years ended December 31, 2023, January 1, 2023 and December 26, 2021

Stock Shares Par

Value Treasury Stock Amount Additional Paid in Capital Retained

Earnings Accumulated Other Comprehensive (Loss)/Income Total

Stockholders’ equity, January 01, 2023 — 10,772 $ 108 $ ( 38 ) $ 67,003 $ 33,663 $ — $ 100,736

Share-based compensation — — — — 1,029 — — 1,029

Issuance of restricted shares, net of 2,085 shares of treasury stock — 57 1 ( 19 ) ( 23 ) — — ( 41 )

Issuance of ESPP shares — 54 — — 512 — — 512

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

Cash dividends declared — — — — — ( 6,507 ) — ( 6,507 )

Net loss — — — — — ( 10,223 ) — ( 10,223 )

Stockholders’ equity, December 31, 2023 — 10,888 $ 109 $ ( 57 ) $ 68,551 $ 16,933 $ — $ 85,536

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

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(in thousands)

Years ended December 31, 2023, January 1, 2023 and December 26, 2021

2023 2022 2021

Cash flows from operating activities

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

Net (loss) income $ ( 10,223 ) $ 25,361 $ 14,109

(Income) from discontinued operations — ( 1,235 ) ( 4,570 )

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

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

Depreciation 446 597 685

Amortization 7,328 3,457 3,013

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

Impairment losses 22,545 — —

CARES Act credit — — ( 2,368 )

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

Loss on disposal of property and equipment 17 6 8

Contingent consideration adjustment — — ( 2,403 )

Amortization of deferred financing fees 171,693 74,812 83,052

Amortization of debt issuance costs 199 172 75

Interest expense on contingent consideration payable 740 128 252

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Deposits ( 83 ) 1,503 ( 126 )

Other assets 660,512 319,178 ( 916,123 )

Accrued interest 170,963 24,170 5,107

Software as a service 720 660 319

Accounts payable ( 492 ) ( 228 ) 156

Accrued payroll and expenses ( 7,426 ) 1,633 5,730

Other current liabilities ( 4,549,549 ) 18,977 ( 16,565 )

Accrued interest 165 171 24

Income taxes receivable and payable 729 ( 1,202 ) ( 560 )

Other current liabilities ( 1,000 ) ( 4,551 ) 19

Operating leases ( 35 ) ( 127 ) ( 107 )

Other long-term liabilities — ( 64 ) ( 78 )

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

Net cash provided by (used in) continuing operating activities 20,386 ( 3,300 ) 1,358

Net cash (used in) provided by discontinued operating activities — ( 3,822 ) 5,305

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

Net cash provided by (used in) operating activities 20,386 ( 7,122 ) 6,663

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 — —

Businesses acquired, net of cash acquired ( 6,917 ) ( 33,940 ) ( 3,791 )

Businesses sold — 30,722 —

Capital expenditures ( 2,597 ) ( 5,680 ) ( 3,204 )

6 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

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

(in thousands)

Years ended December 31, 2023, January 1, 2023 and December 26, 2021

2023 2022 2021

Cash flows from financing activities

Net borrowings (payments) under line of credit 9,781,038 6,803,513 ( 14,367,615 )

Net borrowings under line of credit 2,312 9,781 6,804

Proceeds from issuance of long-term debt — 40,000 —

1 unchanged sentence

Payments of dividends ( 6,507 ) ( 6,290 ) ( 4,567 )

ESPP shares 654,249 340,451 —

Issuance of shares under the 2013 Long-Term Incentive Plan and Form S-3 registration statement, net of exercises ( 1,188 ) ( 41,209 ) ( 12,132 )

Issuance of ESPP shares 512 653 340

Issuance of shares under the 2013 Long-Term Incentive Plan and Form S-3 registration statement costs, net of exercises ( 10 ) ( 1 ) ( 41 )

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

Deferred financing costs ( 237,899 ) — —

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 financing activities 15,934,018 473,116 1,890,105

Debt issuance costs ( 69 ) ( 236 ) —

Net cash (used in) provided by continuing financing activities ( 10,872 ) 15,934 473

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

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Supplemental cash flow information:

Cash paid for interest $ 640,541 $ 879,219 $ 1,133,323

Cash paid for interest, net $ 4,668 $ 641 $ 879

Cash paid for taxes, net of refunds $ 1,378 $ 7,562 $ 3,676

3 unchanged sentences

NOTE 1 - NATURE OF OPERATIONS

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.”

BGSF, 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 Solutions, and Property Management (formally known as Real Estate which includes apartment communities and commercial buildings) (collectively, with its consolidated subsidiaries, 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.

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 the Consolidated Balance Sheets.

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.

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

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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.

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.

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 and offshore workforce solutions company that specializes in IT and software development with operations in the United States, Colombia, and India.

See “Note 3- Acquisitions.”

The Company operates primarily within the United States of America (“U.S.”) through the Property Management and Professional segments.

The Property Management segment provides office and maintenance talent in 38 states and D.C., to property management companies responsible for the apartment communities’ and commercial buildings’ day-to-day operations.

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

The segment operates across the U.S.

in three divisions, IT, Managed Solutions, and Finance & Accounting, with the IT division providing additional nearshore and offshore solutions in Colombia and India.

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 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.

Fiscal years for the consolidated financial statements included herein are for the 52 weeks ended December 31, 2023, and 53 weeks ended January 1, 2023, and the 52 weeks ended December 26, 2021, referred as Fiscal 2023, 2022, and 2021, respectively.

Reclassifications

3 unchanged sentences

Actual results could differ from those estimates.

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

Significant estimates affecting the financial statements include allowances for credit losses, goodwill, intangible assets, lease liabilities, 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.

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.

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.

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, 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 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, convertible debt, contingent consideration, and interest rate swap agreements.

The carrying values of cash, accounts receivables, accounts payable, accrued payroll and expenses, 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, 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.

In Fiscal 2022 and 2021, 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 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:

2022 2021 2020

No single client partner accounted for more than 10% of the Company’s accounts receivable as of December 31, 2023 and January 1, 2023 or revenue from continuing operations in Fiscal 2023, 2022 and 2021.

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 and 2021 was generated in the following areas at:

2023 January 1,

2023 December 26,

Tennessee 13 % 10 % 12 %

5 unchanged sentences

The Company maintains an allowance for credit losses for expected losses resulting from client partners’ non-payment of balances due to the Company.

The Company’s determination of the allowance for uncollectible amounts is based on management’s judgments and assumptions, including general economic conditions, portfolio composition, prior loss experience, evaluation of credit risk related to certain individual client partners and the Company’s ongoing examination process.

The Company’s determination of the allowance for uncollectible amounts is based on management’s judgments and assumptions, including general economic conditions, portfolio composition, credit loss, evaluation of credit risk related to certain individual client partners and the Company’s ongoing examination process.

Receivables are written off after they are deemed to be uncollectible after all reasonable means of collection have been exhausted.

Recoveries of receivables previously written off are recorded when received.

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

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

2023 January 1,

Beginning balance $ 558 $ 449

12 unchanged sentences

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 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.

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 December 31, 2023 and January 1, 2023.

Software as a service

The Company capitalizes direct costs incurred in cloud computing implementation costs from hosting arrangements, and are reported as a component of Software as a service.

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

11 unchanged sentences

Right-of-use lease assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised.

The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date.

The present value of lease payments is determined using the incremental borrowing rate based on the information available at lease commencement date, unless the implicit rate in the lease is readily determinable.

The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses.

Intangible Assets

The Company holds intangible assets with indefinite and finite lives.

Intangible assets with indefinite useful lives are not amortized.

The Company holds intangible assets with finite lives.

Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to ten years , based on a pattern in which the economic benefit of the respective Intangible asset is realized.

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Significant unobservable inputs are used to determine the fair value of the identifiable Intangible assets based on the income approach valuation model whereby the present worth and anticipated future benefits of the identifiable Intangible assets are discounted back to their net present value.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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 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 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.

In the first quarter of Fiscal 2023, management decided to eliminate the use of various trade names and go to market under the BGSF brand.

Management’s rebranding created an impairment charge of $ 22.5 million.

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

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

The Company reviews goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill 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.

Based on annual testing, the Company has determined that there was no goodwill impairment in Fiscal 2023, 2022 or 2021.

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If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.

Deferred Financing Fees

Deferred financing fees are amortized using the effective interest method over the term of the respective loans.

Cash Flow Hedge

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.

There were no outstanding cash flow hedges at December 31, 2023 or January 1, 2023.

Debt Issuance Costs

Debt issuance costs are amortized using the effective interest method over the term of the respective loans.

Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability.

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Contingent Consideration

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

The Company has obligations, to be paid in cash, related to its acquisitions 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.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

The Company derives its revenues from continuing operations in Real Estate and Professional segments.

The Company provides workforce solutions and placement services.

The Company derives its revenues from continuing operations in Property Management and Professional segments by providing workforce solutions, placement services, and managed services.

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 (loss) income 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.

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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.

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

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

There were no unsatisfied performance obligations as of December 31, 2023 or January 1, 2023.

There were no revenues recognized during Fiscal 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 Fiscal 2022.

The Company did not recognize any contract impairments during Fiscal 2023, 2022, and 2021.

The opening balance of accounts receivable at December 26, 2021, was $ 48.1 million.

The Company recognizes advertising expense in selling, general and administrative expenses as the services are incurred.

Total advertising expense from continuing operations for Fiscal 2023, 2022, and 2021 was $ 2.1 million, $ 2.0 million, and $ 2.0 million, respectively.

Share-Based Compensation

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.

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Share-Based Compensation

Earnings Per Share

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Antidilutive shares are excluded from the calculation of earnings per share.

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:

2023 December 26,

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):

2023 January 1,

2023 December 26,

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Stock options and restricted stock 812 360 402

Warrants — — 25,862

Convertible note 255 255 —

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

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

As of December 31, 2023 and January 1, 2023, goodwill of $ 45.9 million and $ 50.4 million, respectively, which is limited annually and 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.

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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 January 1, 2023, the Company has a $ 3.9 million net operating loss carry forward from the 2020 EdgeRock acquisition with no expiration date.

As of December 31, 2023, the Company has a $ 2.6 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 an increase of $ 5.2 million to the deferred tax assets related to the $ 22.5 million in impairment losses as of December 31, 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 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.

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 31, 2023 or January 1, 2023.

The Company follows the guidance of 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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting:

Improvements to Reportable Segment Disclosures.

The new standard provides guidance to improve reportable segment disclosure with enhanced reporting of significant segment expenses.

The new guidance is effective after December 15, 2023, and interim periods beginning after December 15, 2024, early adoption is permitted.

The Company is evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

In December 2023, FASB issued ASU 2023-09, Income Taxes:

Improvements to Income Tax Disclosures.

The new standard requires annual disclosure of the specific categories in the rate reconciliation, and additional information for reconciling items that meet a quantitative threshold.

Additional information may be required on reconciling items.

The new guidance is effective after December 15, 2024, early adoption is permitted.

The Company is evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

NOTE 3 - ACQUISITIONS

Momentum Solutionz

On February 8, 2021, 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 cash, subject to customary purchase price adjustments as specified in the purchase agreement.

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, which was not material.

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), as well as a two-year convertible promissory note of $ 4.4 million with an annual interest rate of 6 %, with interest 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.

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 12 - Debt”.

The acquired business was assigned to the Professional segment.

The acquisition of Momentum allows the Company to strengthen its operations in IT consultants and technology professionals.

Momentum provides IT consulting and managed workforce solutions for organizations utilizing ERP systems.

The IT consulting workforce solutions include strategic planning, software selection, road mapping, cloud migration, and implementation of ERP systems.

The IT managed workforce solutions include optimization and maintenance of ERP systems.

Momentum provides workforce solutions to clients throughout the United States in a variety of industries, including but not limited to hospitals, retail, universities and mid-size businesses.

The 2020 consolidated statement of operations does not include any operating results of Momentum.

The Fiscal 2021 Momentum operations included forty-seven weeks for approximately $ 3.5 million of revenue and of $ 0.7 million operating income.

All amounts recorded to goodwill are expected to be deductible for tax purposes.

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

The acquisition of Horn Solutions allowed the Company to strengthen and expand its finance and accounting operations 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.

Shortly after closing, Horn Solutions was fully integrated into the Company's organizational structure and does not operate as a discrete entity.

Consequently, the amount of revenue and earnings of Horn Solutions included in the Consolidated Statement of Comprehensive (Loss) Income since the acquisition date is impracticable to provide.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Accounts receivable $ 3,734

Prepaid expenses and other assets 118

Property plant and equipment, net 5,101

Property and equipment, net 83

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

Intangible assets 13,484

Goodwill 2,089,823

Liabilities Assumed ( 73,708 )

Goodwill (deductible tax basis of $26.1 million) 26,610

Current liabilities assumed ( 1,787 )

Lease liability - operating leases ( 1,528 )

Total net assets acquired $ 42,242

Cash $ 33,940

Fair value of contingent consideration 1,926,723

Hold back 1,000

Convertible Note 4,368

Common stock 3,351

Working capital adjustment ( 417 )

Total fair value of consideration transferred for acquired business $ 42,242

The allocation of the intangible assets is as follows:

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

Estimated Fair

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Covenants not to compete $ 50 5 years

Trade name 1,420,000 Indefinite

Client partner list 13,434 10 years

Total $ 13,484

The Company incurred costs of approximately $ 0.2 million related to the Momentum acquisition.

The Company incurred costs of $ 0.4 million in Fiscal 2023 and Fiscal 2022 related to the Horn Solutions acquisition.

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

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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.

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.

Certain post-closing liabilities were held back of $ 0.4 million and a partial security for any indemnification obligation was held back for one year of $ 0.9 million.

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 12 - Debt”.

The purchase agreement contained a provision for a “true up” of acquired working capital within 120 days after the closing date, which has not yet been finalized with the seller.

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.

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:

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.

The 2022 and 2021 consolidated statements of operations do not include any operating results of Arroyo Consulting.

The Fiscal 2023 consolidated statement of operation and comprehensive (loss) income included thirty-six weeks for approximately $ 14.8 million of revenue and $ 4.0 million of operating income, which included $ 0.7 million in amortization expense on acquisition intangibles.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Prepaid expenses and other assets 117,767

Property and equipment 83,234

Right-of-use asset - operating leases 141

Intangible assets 11,468

Goodwill 26,051,018

Goodwill (no deductible tax basis) 3,836

Current liabilities assumed ( 2,471 )

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Total net assets acquired $ 16,286

Cash $ 33,940,000

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

Convertible Note 4,368,000

Common stock 3,351,000

Hold back, working capital* 350

Hold back, indemnities* 850

Working capital adjustment* 677

Fair value of contingent consideration 7,609

Total fair value of consideration transferred for acquired business $ 16,286

The allocation of the intangible assets is as follows:

*Included in Other current liabilities

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

Estimated Fair

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Client partner list 10,946 10 years

Computer software 170 3 years

Total $ 11,468

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

The Company incurred costs of $ 0.6 million in Fiscal 2023 related to the Arroyo Consulting acquisition.

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

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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 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):

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

2023 January 1,

Revenues $ 320 $ 346

Gross profit $ 114 $ 123

Net income $ 11,106 $ 8,997

Net income per share:

Net (loss) income from continuing operations $ ( 10 ) $ 13

Net (loss) income per share from continuing operations:

Basic $ ( 0.89 ) $ 1.29

Diluted $ ( 0.89 ) $ 1.29

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.

Pro forma net (loss) income includes amortization of primarily client partner lists, interest expense on additional borrowings on the New Term Loan and the revolving facility (the “Revolving Facility”)(see “Note 12 - Debt”) at a rate of 2.5 %.

The tax benefit of the pro forma adjustments at an effective tax rate of 22.3 % for Fiscal 2023 and 24.5 % for Fiscal 2022.

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.

There were no material nonrecurring adjustments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 of the results that may be achieved by the combined enterprise in the future.

NOTE 4 – 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 financial results of InStaff are as follows (dollars in thousands):

2022 2021 2020

(“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 April 3, 2023.

The sale resulted in an original pre-tax gain on sale of discontinued operations of $ 17.3 million, with an additional pre-tax 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.

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

2023 December 26, 2021

Revenue $ 16,465 $ 71,292

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Depreciation 24 90

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

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Carrying amount of assets included as part of discontinued operations:

Accounts receivable $ 7,198

Property and equipment, net 201

Right-of-use assets - operating leases 303

Intangible assets, net 1,648

Goodwill 5,025

Total assets classified as discontinued operations $ 14,411

Carrying amount of liabilities included as part of discontinued operations:

Accrued payroll and expenses $ 1,129

Lease liability, current portion 133

Lease liability, less current portion 190

Total liabilities classified as discontinued operations $ 1,452

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

NOTE 5 - OTHER CURRENT ASSETS

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

Other current assets consist of the following at (in thousands):

2023 January 1,

CARES Act receivable $ 2,188 $ 2,368

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Workers’ compensation deposit refund receivable — 448

Due from Sentech 410,771 —

Other 31,389 13,148

Due from Arroyo and Sentech, respectively 3,843 411

$ 7,172 $ 7,459

CARES Act Receivable

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

The Employee Retention Credit (“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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - PROPERTY AND EQUIPMENT, NET

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

Property and equipment consist of the following at (in thousands):

2023 January 1,

Leasehold improvements $ 665 $ 1,397

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Computer systems 3,476 4,077

6,980,108 8,624,699

Accumulated depreciation ( 4,076 ) ( 4,899 )

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Total depreciation expense from continuing operations in Fiscal 2023, 2022 and 2021 was $ 0.4 million, $ 0.6 million, and $ 0.7 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In Fiscal 2023, the Company completed software assets and reclassed $ 0.7 million to Software as a service and $ 0.2 million to Intangible assets related to the information technology improvement project.

NOTE 7 - LEASES

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Short-term leases were immaterial.

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

2022 2021 2020

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

2023 January 1,

2023 December 26, 2021

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

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Continuing operating lease expense $ 2,155 $ 1,887 $ 1,907

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

January 1, 2023

2023 $ 2,042,792

2024 1,538,403

Right-of -use assets obtained in exchange for new operating lease liabilities $ 2,837 $ 2,248 $ 6

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

December 31, 2023

Thereafter 74

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NOTE 8 - INTANGIBLE ASSETS

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

January 1, 2023

In the first quarter of Fiscal 2023, management decided to eliminate the use of various trade names and go to market under the BGSF brand.

Management’s rebranding created an impairment charge of $ 22.5 million.

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

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Finite and indefinite lived intangible assets consist of the following at (in thousands):

December 31, 2023

Gross Value Accumulated

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Client partner lists $ 69,114 $ 44,150 $ 24,964

Covenant not to compete 2,391,385 1,886,225 505,160

Covenants not to compete 2,743 2,153 590

Computer software 7,825 3,009 4,816

68,208,376 43,200,531 25,007,845

Indefinite lives:

Trade names 23,977,000 1,432,434 22,544,566

Total $ 79,682 $ 49,312 $ 30,370

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December 26, 2021

January 1, 2023

Gross Value Accumulated

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Client partner lists $ 58,609 $ 38,227 $ 20,382

Covenant not to compete 2,341,385 1,663,444 677,941

Covenants not to compete 2,391 1,886 505

Computer software 7,208 3,087 4,121

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Total $ 92,185 $ 44,633 $ 47,552

Estimated future amortization expense from continuing operations for the next five years and thereafter is as follows:

Estimated future amortization expense for the next five years and thereafter is as follows (in thousands):

Fiscal Years Ending:

2023 $ 6,563,709

2024 5,442,478

2025 4,017,497

2026 2,882,030

2027 2,329,279

Thereafter 7,666

2 unchanged sentences

In Fiscal 2023, the Company added software assets of $ 1.5 million and reclassified $ 0.2 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

The changes in the carrying amount of goodwill from continuing operations as of and during the years ended were as follows at:

Real Estate Professional Total

December 27, 2020 $ 1,073,755 $ 25,978,305 $ 27,052,060

Additions from acquisitions — 2,089,823 2,089,823

The changes in the carrying amount of goodwill as of and during the years ended were as follows at (in thousands):

Property Management Professional Total

December 26, 2021 $ 1,074 $ 28,068 $ 29,142

1 unchanged sentence

January 1, 2023 1,074 54,119 55,193

Additions from acquisitions — 4,395 4,395

December 31, 2023 $ 1,074 $ 58,514 $ 59,588

and Subsidiaries

1 unchanged sentence

NOTE 10 - ACCRUED PAYROLL AND EXPENSES AND CONTINGENT CONSIDERATION

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

2023 December 26,

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

2023 January 1,

Field talent payroll $ 5,014 $ 6,923

3 unchanged sentences

Accrued payroll and expenses $ 14,902 $ 19,171

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.

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:

The following is a schedule of future estimated contingent consideration payments at (in thousands):

December 31, 2023

Estimated Cash Payment Discount Net

Less than one year $ 4,250 $ ( 42 ) $ 4,208

One to two years 4,250 ( 138 ) 4,112

Contingent consideration $ 8,500 $ ( 180 ) $ 8,320

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:

2022 2021 2020

At December 31, 2023, federal income tax receivable of $ 0.7 million is included in Other current assets and state income tax payable of $ 0.3 million is included in Income taxes payable.

At January 1, 2023, federal income tax receivable of $ 1.7 million is included in Other current assets and state income tax payable of $ 0.3 million is included in Income taxes payable.

The Company’s income tax expense for the fiscal years are comprised of the following at (in thousands):

December 31, 2023 January 1,

2023 December 26, 2021

Current federal income tax $ ( 1,312 ) $ ( 589 ) $ ( 594 )

Current state income tax ( 825 ) ( 717 ) ( 766 )

Deferred income tax (benefit) 2,352,601 1,279,388 ( 2,413,019 )

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

Deferred tax benefit (income) 5,075 ( 2,353 ) ( 1,279 )

Income tax benefit (expense) from continuing operations 2,938 ( 3,659 ) ( 2,639 )

Income tax (expense) from discontinued operations — ( 4,810 ) ( 919 )

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

Income tax benefit (expense) $ 2,938 $ ( 8,469 ) $ ( 3,558 )

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant components of the Company’s deferred income taxes from continuing operations are as follows at:

2023 December 26,

Significant components of the Company’s deferred income taxes are as follows at (in thousands):

2023 January 1,

Deferred tax assets:

3 unchanged sentences

Contingent consideration 2,087 271

Other long-term liabilities (deferred employer FICA) — 1,843,081

Share-based compensation 602 504

2 unchanged sentences

Prepaid expenses and other current assets ( 735 ) ( 579 )

Fixed assets ( 302,651 ) ( 367,751 )

Property and equipment ( 1,388 ) ( 303 )

Deferred income taxes, net $ 7,271 $ 2,196

The income tax provision, reconciled to the tax computed at the statutory federal rate, is as follows:

2022 2021 2020

Tax expense (benefit) at federal statutory rate $ 3,133,256 21.0 % $ 2,750,467 21.0 % $ ( 590,634 ) 21.0 %

State income taxes, net of federal benefit 794,554 5.3 % 1,100,072 8.4 % 96,269 ( 3.4 ) %

The income tax provision, reconciled to the tax computed at the statutory federal rate, is as follows at (in thousands):

December 31, 2023 January 1, 2023 December 26, 2021

Tax benefit (expense) at federal statutory rate $ 2,764 ( 21.0 ) % $ ( 3,133 ) ( 21.0 ) % $ ( 2,750 ) ( 21.0 ) %

State income tax benefit (expense), net of federal benefit 194 ( 1.5 ) % ( 795 ) ( 5.3 ) % ( 1,100 ) ( 8.4 ) %

Equity, permanent differences and other ( 319 ) 2.3 % ( 178 ) ( 1.2 ) % 503 3.7 %

Work Opportunity Tax Credit, net 299 ( 2.3 ) % 447 3.0 % 708 5.4 %

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

Income tax benefit (expense) from continuing operations 2,938 ( 22.5 ) % ( 3,659 ) ( 24.5 ) % ( 2,639 ) ( 20.3 ) %

Income tax (expense) from discontinued operations — — % ( 4,810 ) ( 24.5 ) % ( 919 ) ( 20.3 ) %

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

Income tax benefit (expense) $ 2,938 ( 22.5 ) % $ ( 8,469 ) ( 24.5 ) % $ ( 3,558 ) ( 20.3 ) %

NOTE 12 - DEBT

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

The Credit Agreement provides for a revolving facility (the “Revolving Facility”) permitting the Company to borrow funds from time to time in an aggregate amount up to $ 35 million.

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

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 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 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

The Company pays an unused commitment fee on the daily average unused amount of the 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 (as such terms are defined in the amended credit agreement).

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.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

On May 19, 2023, the Company entered into a Fourth Amendment to the Credit Agreement (“Fourth Credit Amendment”) increasing 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 December 31, 2023.

The indebtedness under the Credit Agreement had a maturity date of July 16, 2024, which has been classified within current liabilities as of December 31, 2023.

The Credit Agreement was amended and restated on March 12, 2024.

See Note 21 - Subsequent Events.

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 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.

As of December 31, 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 January 1, 2023.

Accordingly, no liability has been recorded in respect to these arrangements as of December 31, 2023 or January 1, 2023.

Line of Credit

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

At December 31, 2023 and January 1, 2023, $ 24.9 million and $ 22.6 million, respectively, was outstanding on the revolving facilities.

Average daily balance for Fiscal 2023, 2022 and 2021 was $ 23.1 million, $ 18.4 million, and $ 9.9 million, respectively.

Borrowings under the revolving facilities consisted of and bore interest at:

2023 December 26,

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

2023 January 1,

Base Rate $ 4,874 9.75 % $ 2,562 8.25 %

SOFR 3,000 7.69 % 20,000 6.45 %

LIBOR — — % 10,000,000 2.35 %

SOFR 2,000 7.71 % — — %

SOFR 15,000 7.77 % — — %

Total $ 24,874 $ 22,562

Long-Term Debt

Long-term debt consisted of and bore interest at:

2023 December 26,

Base Rate $ — — % $ 2,237,500 2.35 %

Fixed rate — — % 24,625,000 2.39 %

Long-term debt consisted of and bore interest at (in thousands):

2023 January 1,

SOFR $ 34,000 7.79 % $ 40,000 6.72 %

Long-term debt $ 34,000 $ 40,000

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

Maturities on the Revolving Facility with BMO and long-term debt as of , are as follows at (in thousands):

2024 $ 58,874

Less deferred finance fees ( 259,469 )

Less debt issuance costs ( 128 )

Total, net $ 58,746

5 unchanged sentences

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.

On March 21, 2022, the Company paid down the balance, which cancelled the 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.

At December 31, 2023 and January 1, 2023, the Company had a two-year convertible unsecured 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, prior to the maturity date of December 12, 2024.

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

6 unchanged sentences

Level 3 - Unobservable inputs - includes amounts derived from valuation models where one or more significant inputs are unobservable and require us to develop relevant assumptions.

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 January 1,

2023 December 26,

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

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 (in thousands):

Amounts Recorded at Fair Value Financial Statement Classification Fair Value Hierarchy December 31,

2023 January 1,

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

Contingent consideration, net Contingent consideration, net - current and long-term Level 3 $ 8,320 $ 1,081

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

The changes in the Level 3 fair value measurements from January 1, 2023 to December 31, 2023 relates primarily to an increase from Arroyo Consulting acquisition, including $ 0.7 million in accretion, offset by a $ 1.1 million payment for the 2021 Momentum Solutionz acquisition.

Key inputs in determining the fair value of the contingent consideration as of December 31, 2023 and January 1, 2023 included discount rates of approximately 7 % and 9 %, respectively, as well as management’s estimates of future sales volumes and earnings before interest, income taxes, depreciation, and amortization (“EBITDA”).

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

11 unchanged sentences

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

The CFO’s employment agreement was effective as of October 1, 2018 and the agreement remains in effect under successive one-year extensions unless terminated pursuant to its terms.

The CFO’s employment agreement was effective as of March 20, 2023 and remains in effect through December 31, 2025 with successive one-year extensions unless terminated pursuant to its terms.

In the event that his employment is terminated by the Company without cause or by him for good reason, he will be entitled to (i) twelve months of base salary, (ii) accrued bonus, and (iii) eighteen months of COBRA premiums for him and his dependents, grossed-up for federal income taxes.

Additionally, he will become 100% vested in any awards outstanding under the 2013 Plan or similar plan.

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.”

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

NOTE 15 - EQUITY

5 unchanged sentences

In connection with the vesting portions of the restricted stock, the Company repurchased 2,085 , - 0 -, and 610 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 2023, 2022, and 2021, 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.

6 unchanged sentences

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

As of December 31, 2023, a total of 1,215,987 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.

14 unchanged sentences

For Fiscal 2023, 2022 and 2021, the Company recognized $ 0.4 million, $ 0.7 million and $ 0.6 million of compensation expense from continuing operations related to stock awards, respectively.

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.

Unamortized share-based compensation expense from continuing operations as of December 31, 2023 amounted to $ 0.9 million which is expected to be recognized over the next 2.6 years.

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

2022 2021 2020

December 31, 2023 January 1, 2023 December 26, 2021

Weighted-average fair value of awards $ 3.00 $ 5.17 $ 4.91

10 unchanged sentences

Granted 116,374 $ 11.57

Exercised ( 1,350 ) $ 9.72

Forfeited / Canceled ( 72,350 ) $ 15.01

3 unchanged sentences

Forfeited / Canceled ( 36,650 ) $ 17.65

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

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

Granted 126,470 $ 10.02

1 unchanged sentence

Forfeited / Canceled ( 21,039 ) $ 17.38

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 outstanding at December 31, 2023 922,310 $ 15.30 6.0 $ 104

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

Awards exercisable at December 31, 2023 663,740 $ 16.84 5.0 $ 103

Shares Weighted Average Grant Date Fair Value

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

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.

Non-vested outstanding at December 31, 2023 258,570 $ 7.84

During Fiscal 2023 and 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.

Restricted Stock

For Fiscal 2023, 2022 and 2021, the Company recognized $ 0.6 million, $ 0.4 million, and $ 0.5 million, respectively, of compensation expense related to restricted stock.

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.

Unamortized share-based compensation expense as of December 31, 2023 amounted to $ 0.6 million which is expected to be recognized over the next 1.8 years.

and Subsidiaries

8 unchanged sentences

Vested ( 31,168 ) $ 11.79

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

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

Issued 57,974 $ 11.22

Vested ( 43,303 ) $ 11.71

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

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

Forfeited / Canceled ( 967 ) $ 12.62

Restricted outstanding at December 31, 2023 75,724 $ 11.73

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

Nonvested outstanding at December 31, 2023 75,724 $ 11.73

Warrant Activity

For Fiscal 2023, 2022 and 2021, the Company did not recognize compensation cost related to warrants.

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

There was no unamortized stock compensation expense remaining to be recognized as of December 31, 2023.

A summary of warrant activity is presented as follows:

3 unchanged sentences

Expired ( 25,862 ) $ 16.80

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

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.

Warrants outstanding at December 26,2021, January 1, 2023, and December 31, 2023 — $ — 0.0 $ —

Warrants exercisable January 1, 2023 and December 31, 2023 — $ — 0.0 $ —

There were no non-vested warrants outstanding at December 31, 2023, January 1, 2023, and December 26, 2021.

There were no exercises of warrants in Fiscal 2023, 2022, and 2021.

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”)

4 unchanged sentences

For Fiscal 2023, and 2022, the Company issued 54,305 and 59,506 shares of common stock under the 2020 ESPP, respectively.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - RELATED PARTY TRANSACTIONS

7 unchanged sentences

NOTE 19 - BUSINESS SEGMENTS

The Company has continuing operations within 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.

The Company has continuing operations through the Property Management and Professional segments.

Segment (loss) 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.

Assets of home office include cash, unallocated prepaid expenses, property and equipment, deferred tax assets, 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:

2022 2021 2020

Real Estate $ 121,093,109 $ 92,017,975 $ 68,755,975

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

December 31, 2023 January 1, 2023 December 26, 2021

Property Management $ 125,077 $ 121,093 $ 92,018

Professional 188,090 177,329 147,009

1 unchanged sentence

Depreciation:

Real Estate $ 178,904 $ 210,180 $ 218,425

Property Management $ 133 $ 179 $ 210

Professional 263 355 390

5 unchanged sentences

Total $ 7,328 $ 3,457 $ 3,013

Operating income (loss):

Real Estate $ 19,803,015 $ 14,663,443 $ 9,671,504

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023 January 1, 2023 December 26, 2021

Operating (loss) income:

Property Management $ 23,155 $ 19,803 $ 14,663

Professional - without CARES Act credit and impairment loss 12,292 15,604 10,340

5 unchanged sentences

Total $ ( 7,185 ) $ 16,283 $ 14,530

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2022 2021 2020

Capital Expenditures:

Real Estate $ 135,259 $ 105,547 $ 81,918

Property Management $ 70 $ 135 $ 106

Professional 444 90 107

2 unchanged sentences

Total Assets:

Real Estate $ 29,302,189 $ 20,753,085

Property Management $ 29,884 $ 29,302

Professional 122,751 141,018

Home office 25,882 24,353

Discontinued operations — 14,411,380

Total $ 178,517 $ 194,673

NOTE 20 - QUARTERLY FINANCIAL DATA (UNAUDITED)

December 31, 2023

Quarter Second

4 unchanged sentences

Gross profit $ 26,784 $ 29,574 $ 29,979 $ 25,447 $ 111,784

Net (loss) income $ ( 16,466 ) $ 2,604 $ 2,640 $ 999 $ ( 10,223 )

Net (loss) income per share:

Basic $ ( 1.54 ) $ 0.24 $ 0.24 $ 0.11 $ ( 0.95 )

Diluted $ ( 1.54 ) $ 0.24 $ 0.24 $ 0.11 $ ( 0.95 )

Weighted-average shares outstanding:

Basic 10,712 10,759 10,791 10,812 10,766

Diluted 10,712 10,770 10,803 10,823 10,766

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 1, 2023

Quarter Second

Quarter Third

Quarter Fourth

Quarter Fiscal

Revenues $ 68,542 $ 74,089 $ 78,508 $ 77,283 $ 298,422

Gross Profit $ 23,431 $ 25,059 $ 28,000 $ 27,058 $ 103,548

Income from continuing operations $ 2,008 $ 3,184 $ 4,652 $ 1,417 $ 11,261

18 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Quarter Second

Quarter Third

Quarter Fourth

Quarter Fiscal

Revenues $ 49,750,192 $ 57,397,722 $ 64,184,813 $ 67,694,450 $ 239,027,177

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

(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 (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 $ 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 per share - diluted $ 0.07 $ 0.33 $ 0.45 $ 0.50 $ 1.35

Weighted-average shares outstanding:

Basic 10,332,817 10,340,243 10,380,902 10,414,262 10,367,054

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

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.

On February 7, 2024, 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 27, 2024 to all shareholders of record as of the close of business on February 20, 2024.

Credit Agreement

On March 12, 2024, the Credit Agreement was amended and restated through the Company’s entry into an Amended and Restated Credit Agreement with certain lenders, BMO Bank, N.A., as administrative agent, letter of credit Issuer, and swing line lender, and BMO Capital Markets Corp., as sole lead arranger and sole book runner.

The Amended and Restated Credit Agreement has a maturity date of March 12, 2028.

The Amended and Restated Credit Agreement provides for a revolving credit facility permitting us to borrow funds from time to time in an aggregate amount up to $40 million.

Term loans with an outstanding principal balance of $34 million were outstanding under the Credit Agreement remain outstanding under the Amended and Restated Credit Agreement.

The Amended and Restated Credit Agreement further provides for a delayed draw term loan commitment of $4.3 million.

The Company is required to repay the term loans in quarterly principal installments in an amount equal to 2.5% of the aggregate principal balance thereof.

The Amended and Restated Credit Agreement provides for interest either at the Base Rate plus the Applicable Margin, or the Adjusted Term SOFR plus the Applicable Margin (in each case, as such terms are defined in the Amended and Restated Credit Agreement).

The Amended and Restated Credit Agreement also provides for letter of credit fees and commitment fees as further described therein.

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

The Amended and Restated Credit Agreement provides for a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio (as such terms are defined in the Amended and Restated Credit Amendment), and also provides for, among other items, representations and warranties and affirmative and negative covenants, as described therein.

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