What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-17 compared with 2024-03-15 · 289 added, 317 removed, 692 unchanged (47% of the section changed)

2 unchanged sentences

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 Balance Sheets as of December 29, 2024 and December 31, 2023 42

Consolidated Statements of Operations and Comprehensive (Loss) Income for each of the three fiscal years ended December 29, 2024 43

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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 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 have audited the accompanying consolidated balance sheets of BGSF, Inc., and its subsidiaries (the “Company”) as of December 29, 2024 and December 31, 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 29, 2024, 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 29, 2024 and December 31, 2023, and the results of their operations and cash flows for each of the three years in the period ended December 29, 2024, 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 29, 2024, 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, 2025 expressed an unqualified opinion.

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Critical Audit Matter

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

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

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

Acquisition of 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 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.

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 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 Arroyo and current economic factors.

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

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

We determined that there are no critical audit matters.

/s/ Whitley Penn LLP

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(in thousands, except share amounts)

December 31, 2023 January 1, 2023

December 29, 2024 December 31, 2023

Current assets

Cash and cash equivalents $ 353 $ —

Accounts receivable (net of allowance for credit losses of $1,133 and $554, respectively) 40,194 56,776

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

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

Long-term debt, current portion (net of debt issuance costs of $24 and $0, respectively) 3,801 34,000

Accrued interest 223 438

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Convertible note 4,368 4,368

Other current liabilities — 1,000

Lease liabilities, current portion 1,573 2,016

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Line of credit (net of debt issuance costs of $770) 5,625 —

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

Long-term debt, less current portion (net of debt issuance costs of $198) 32,527 —

Contingent consideration, less current portion — 4,112

Convertible note — 4,368

Lease liabilities, less current portion 3,770 3,814

Other long-term liabilities — 10

Total liabilities 67,842 92,981

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Common stock, $0.01 par value per share;

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

19,500,000 shares authorized, 11,038,623 and 10,887,509 shares issued and outstanding, respectively, net of treasury stock, at cost, of 3,930 shares 53 52

Additional paid in capital 70,260 68,551

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(in thousands, except per share and dividend amounts)

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

Years ended December 29, 2024, December 31, 2023, and January 1, 2023

2024 2023 2022

Revenues $ 313,167 $ 298,422 $ 239,027

Revenues, net $ 272,499 $ 313,167 $ 298,422

Cost of services 179,636 201,383 194,874

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Depreciation and amortization 7,769 7,774 4,054

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

Operating income (loss) 1,213 ( 7,185 ) 16,283

Interest expense, net ( 4,921 ) ( 5,976 ) ( 1,363 )

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

(Loss) income before income taxes from continuing operations ( 3,708 ) ( 13,161 ) 14,920

Income tax benefit (expense) from continuing operations 370 2,938 ( 3,659 )

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Net (loss) income $ ( 3,338 ) $ ( 10,223 ) $ 25,361

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

Other comprehensive (loss) gain — ( 58 ) 181

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

Other comprehensive loss — — ( 58 )

Net comprehensive (loss) income $ ( 3,338 ) $ ( 10,223 ) $ 25,303

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(in thousands)

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

Years ended December 29, 2024, December 31, 2023, and January 1, 2023

Stock Shares Par

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

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

Issuance of restricted shares, net of 610 shares of treasury stock — 64 1 ( 9 ) ( 1 ) — — ( 9 )

Issuance of ESPP shares — 32 — — 340 — — 340

Exercise of common stock shares — 1 — — 8 — — 8

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

Net income — — — — — 14,109 — 14,109

Other comprehensive gain — — — — — — 181 181

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

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

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

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

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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.

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(in thousands)

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

Years ended December 29, 2024, December 31, 2023, and January 1, 2023

Stock Shares Par

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Earnings Accumulated Other Comprehensive (Loss)/Income Total

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

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

Share-based compensation — — — — 989 — — 989

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

Issuance of restricted shares — 51 1 — ( 1 ) — — —

Issuance of ESPP shares — 61 — — 459 — — 459

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(in thousands)

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

Years ended December 29, 2024, December 31, 2023, and January 1, 2023

2024 2023 2022

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Impairment losses — 22,545 —

CARES Act credit — — ( 2,368 )

Loss on disposal of property and equipment 14 17 6

Contingent consideration adjustment — — ( 2,403 )

Gain on contingent consideration ( 1,452 ) — —

Amortization of debt issuance costs 425 199 172

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Net cash provided by (used in) continuing operating activities 24,379 20,386 ( 3,300 )

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

Net cash used in discontinued operating activities — — ( 3,822 )

Net cash provided by (used in) operating activities 24,379 20,386 ( 7,122 )

3 unchanged sentences

Capital expenditures ( 1,640 ) ( 2,597 ) ( 5,680 )

Proceeds from sale of property and equipment — — 5

Net cash used in continuing investing activities ( 1,640 ) ( 9,514 ) ( 8,898 )

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(in thousands)

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

Years ended December 29, 2024, December 31, 2023, and January 1, 2023

2024 2023 2022

Cash flows from financing activities

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

Net (payments) borrowing line of credit ( 18,479 ) 2,312 9,781

Proceeds from issuance of long-term debt 4,250 — 40,000

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Issuance of ESPP shares 459 512 653

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

Issuance of shares under the 2013 Long-Term Incentive Plan 262 ( 10 ) ( 1 )

Contingent consideration paid ( 4,250 ) ( 1,110 ) ( 1,110 )

Debt issuance costs ( 69 ) ( 236 ) —

Payments of debt issuance costs ( 1,289 ) ( 69 ) ( 236 )

Net cash (used in) provided by continuing financing activities ( 22,386 ) ( 10,872 ) 15,934

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NOTE 1 - NATURE OF OPERATIONS

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”).

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 (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 (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.

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

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

See “Note 4 - Discontinued Operations”.

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

See “Note 3 – Acquisitions.”

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

On April 24, 2023, the Company acquired substantially all of the assets and assumed certain liabilities of Arroyo Consulting, LLC (“Arroyo Consulting”).

See “Note 3 - Acquisitions.”

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The Company has a 52/53 week fiscal year.

Fiscal years for the consolidated financial statements included herein are for the 52 weeks ended December 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.

Fiscal years for the consolidated financial statements included herein are for the 52 weeks ended December 29, 2024, and 52 weeks ended December 31, 2023, and the 53 weeks ended January 1, 2023, referred as Fiscal 2024, 2023, and 2022, respectively.

Reclassifications

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Management Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

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.

Significant estimates affecting the consolidated 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.

The Company believes these estimates and assumptions are reliable.

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

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

In Fiscal 2022 and 2021, Management determined the fair value on the interest rate swap based on quoted prices from BMO.

In Fiscal 2022, 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 as of December 31, 2023 and January 1, 2023 or revenue from continuing operations in Fiscal 2023, 2022 and 2021.

No single client partner accounted for more than 10% of the Company’s accounts receivable as of December 29, 2024 and December 31, 2023 or revenue from continuing operations in Fiscal 2024, 2023, and 2022.

Geographic revenue from continuing operations in excess of 10% of the Company’s consolidated revenue in Fiscal 2024 and the related percentage for Fiscal 2023 and 2022 was generated in the following areas at:

2023 January 1,

2024 December 31,

2023 January 1,

Tennessee 17 % 13 % 10 %

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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, credit loss, 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, historical credit losses, evaluation of credit risk related to certain individual client partners and the Company’s ongoing examination process.

During Fiscal 2024, the Company identified an additional risk pool related to the Property Management segment, which increased the estimate of expected credit losses.

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 are as follows at (in thousands):

2023 January 1,

Recoveries of receivables previously written off are recorded as income when received.

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

2024 December 31,

Beginning balance $ 554 $ 558

Acquired allowance for credit losses - Horn Solutions

Provision for credit losses, net 798 315

Amounts written off, net ( 802 ) ( 315 )

Provision for credit losses 2,066 798

Amounts written off ( 1,533 ) ( 842 )

Recoveries 46 40

Ending balance $ 1,133 $ 554

8 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, which are included in Deposits in the accompanying consolidated balance sheets, as of December 31, 2023 and January 1, 2023.

Under these policies, the Company is required to maintain refundable deposits of $ 1.8 million and $ 2.4 million, which are included in Deposits in the accompanying consolidated balance sheets, as of December 29, 2024 and December 31, 2023, respectively.

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.

The Company capitalizes direct costs incurred in cloud computing implementation costs from hosting arrangements, which are categorized as long-lived assets, and are reported as a Software as a service in the accompanying consolidated balance sheets.

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

In Fiscal 2023, the Company added software assets of $ 0.6 million and reclassified $ 0.7 million from property and equipment related to the information technology improvement project.

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

The Company reviews its long-lived assets, primarily Property and equipment and Software as a service, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered.

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

There were no impairments with respect to long-lived assets during Fiscal 2023, 2022 or 2021.

There were no impairment triggering events identified with respect to long-lived assets during Fiscal 2024, 2023, or 2022.

The Company leases all their office space through operating leases, which expire at various dates through 2030.

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The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Contracts with lease and non-lease components are accounted for on a combined basis.

The Company determines if an arrangement is an operating lease at inception.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

All other leases are recorded on the balance sheet as right-of-use assets and lease liabilities for the lease term.

Leases and subleases with an initial term of 12 months or less are not recorded on the balance sheet.

All other leases and subleases are recorded on the balance sheet as right-of-use assets and lease liabilities for the lease term.

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.

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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 develops and implements software to enhance the performance and capabilities of the IT infrastructure.

Direct internal payroll costs and external costs for the development of software are capitalized from the time internal-use software is considered probable until the software is deployed.

All other preliminary and planning stage costs are expensed as incurred.

Minor upgrades and enhancements to software systems are are expensed in the period incurred as software maintenance and training costs.

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.

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

In 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.

There were no impairment indicators identified during Fiscal 2024 or 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.

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

Based on annual testing, the Company has determined there was no impairment indicators for goodwill assets during Fiscal 2024, 2023, or 2022.

The Company first evaluates qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the reporting unit is less than its carrying amount, including goodwill.

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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.

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 are amortized into interest expense 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.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contingent Consideration

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

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

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Contingent placement revenues - Any revenues associated with workforce solutions that are provided on a contingent basis are recognized once the contingency is resolved, as this is when control is transferred to the client partner, usually when employment candidates start their employment.

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

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

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

Managed services revenues - include workforce solution revenues, fixed fee revenues, and input method revenues for one partner contract.

Workforce solution services performed represent the transfer of control to the client partner over a given period of time.

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

Input method revenues accounts for less than 8% of total revenue and are recognized based on the Company's efforts or inputs to the satisfaction of a performance obligation, relative to the total expected inputs required for completion.

The Company believes this method best reflects its progress in transferring the performance obligation to the customer

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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These assumptions determine the timing of revenue recognition for the reported period.

Refer to Note 19 for disaggregated revenues by segment.

Refer to Note 19 for disaggregated revenues by functional specialization and segment.

Payment terms in the Company’s contracts vary by the type and location of its client partner and the workforce solutions offered.

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

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

There were no unsatisfied performance obligations as of December 29, 2024 or December 31, 2023.

There were no revenues recognized during Fiscal 2024 related to performance obligations satisfied or partially satisfied in previous periods.

1 unchanged sentence

The Company did not recognize any contract impairments during Fiscal 2024, 2023, and 2022.

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

The opening balance of accounts receivable at January 1, 2023, was $ 66.3 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 2024, 2023, and 2022 was $ 2.1 million, $ 2.1 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 common stock options or restricted stock that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Earnings Per Share

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period.

Basic earnings per common share are computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period adjusted to reflect potentially dilutive securities.

1 unchanged sentence

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,

2024 December 31,

2023 January 1,

Weighted-average number of common shares outstanding:

8 unchanged sentences

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

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.

As a matter of operation, the Company 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 29, 2024 and December 31, 2023, goodwill of $ 46.6 million and $ 45.9 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.

4 unchanged sentences

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.

Additionally, there was an increase of $ 1.2 million to the deferred tax assets as of December 29, 2024.

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 December 31, 2023 or January 1, 2023.

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 29, 2024 or December 31, 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.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements

2 unchanged sentences

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.

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

The Company adopted this ASU in Fiscal 2024, which did not have a material impact on the consolidated financial statements.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2 unchanged sentences

Additional information may be required on reconciling items.

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

The new guidance is effective for fiscal years beginning after December 15, 2024, early adoption is permitted.

The Company's management believes that this pronouncement will not have material effect on the Company's consolidated financial statements.

In November 2024, FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures, which will require the Company to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization, as applicable, included in certain expense captions in the Consolidated Statements of Operations The new guidance is effective for fiscal years beginning after December 15, 2026, early adoption is permitted.

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

14 unchanged sentences

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.

Consequently, the amount of revenue and earnings of Horn Solutions included in the consolidated statement of operations and comprehensive (loss) income since the acquisition date is impracticable to provide.

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

and Subsidiaries

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

13 unchanged sentences

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

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

11 unchanged sentences

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 purchase agreement contained a provision for a “true up” of acquired working capital, which was paid on July 1, 2024, out of the delayed draw funds under the Company's credit agreement along with the hold backs and the year one payment of $ 4.3 million for contingent consideration.

The acquired business was assigned to the Professional segment.

1 unchanged sentence

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.

and Subsidiaries

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):

The 2022 consolidated statements of operations and comprehensive (loss) income do not include any operating results of Arroyo Consulting.

The Fiscal 2023 consolidated statement of operations 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.

The final purchase price has been allocated to the assets acquired and liabilities as follows (in thousands):

Preliminary Adjustments Final

Accounts receivable $ 3,452 $ 24 $ 3,476

Prepaid expenses and other assets — 72 72

Property and equipment, net — 145 145

Right-of-use asset - operating leases 141 — 141

10 unchanged sentences

*Included in Other current liabilities

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5 unchanged sentences

Total $ 11,761

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

The Company incurred costs of $ 0.6 million in Fiscal 2024 and 2023 related to the Arroyo Consulting acquisition.

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

Supplemental Unaudited Pro Forma Information

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

The Company estimates what would have been reported if the revenues and net loss from continuing operations of the Horn Solutions and Arroyo Consulting acquisition had taken place on the first day of the Company’s Fiscal 2023 (in thousands, except income per share):

2023 January 1,

1 unchanged sentence

Gross profit $ 114 $ 123

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

Net (loss) income per share from continuing operations:

Net loss from continuing operations $ ( 10 ) $ 13

Net loss per share from continuing operations:

Basic $ ( 0.88 ) $ 1.29

Diluted $ ( 0.88 ) $ 1.29

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 %.

Pro forma net loss 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 7.1 %.

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.

The pro forma operating results include adjustments to 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.

and Subsidiaries

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.

Amounts set forth above are not necessarily indicative of the results that would have been attained had the Arroyo Consulting acquisition 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

3 unchanged sentences

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.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The InStaff financial results for periods prior to the sale have been reflected in the consolidated statements of operations and comprehensive (loss) income and the 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

6 unchanged sentences

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

2023 January 1,

2024 December 31,

CARES Act receivable $ 1,661 $ 2,188

Deferred consideration — 2,000

Income tax receivable 513 685

Horn Solutions working capital adjustment — 534

Workers’ compensation deposit refund receivable — 448

Due from Arroyo and Sentech, respectively 3,843 411

Due from Arroyo — 3,843

Other 141 456

$ 2,315 $ 7,172

3 unchanged sentences

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

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In Fiscal 2024, the Company received $ 0.8 million and filed additional amendments for $ 0.3 million.

NOTE 6 - PROPERTY AND EQUIPMENT, NET

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

2023 January 1,

2024 December 31,

Leasehold improvements $ 513 $ 665

4 unchanged sentences

Total depreciation expense from continuing operations in Fiscal 2024, 2023, and 2022 was $ 0.3 million, $ 0.4 million, and $ 0.6 million, respectively.

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.

In Fiscal 2024, the Company completed software assets and reclassified $ 0.2 million to Intangible assets related to new features on the IT infrastructure.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - LEASES

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

Short-term leases were immaterial.

Short-term leases and subleases were immaterial.

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,

2024 December 31,

2023 January 1,

Weighted average remaining lease term of operation leases 3.7 years 3.5 years 3.3 years

10 unchanged sentences

NOTE 8 - INTANGIBLE ASSETS

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.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

7 unchanged sentences

Total $ 81,253 $ 56,736 $ 24,517

January 1, 2023

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023

Gross Value Accumulated

4 unchanged sentences

Computer software 7,825 3,009 4,816

68,208 43,200 25,008

Indefinite lives:

Trade names 23,977 1,433 22,544

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

4 unchanged sentences

Total amortization expense from continuing operations for Fiscal 2024, 2023, and 2022 was $ 7.4 million, $ 7.3 million and $ 3.5 million, respectively.

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.

In Fiscal 2024, the Company added software assets of $ 1.1 million and reclassified $ 0.2 million from property and equipment related to the new features on the IT infrastructure.

NOTE 9 - GOODWILL

1 unchanged sentence

Property Management Professional Total

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

Additions from acquisitions — 26,051 26,051

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

1 unchanged sentence

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

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquisition adjustment — ( 437 ) ( 437 )

December 29, 2024 $ 1,074 $ 58,077 $ 59,151

NOTE 10 - ACCRUED PAYROLL AND EXPENSES AND CONTINGENT CONSIDERATION

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

2023 January 1,

2024 December 31,

Field talent payroll $ 4,506 $ 5,014

3 unchanged sentences

Accrued payroll and expenses $ 13,001 $ 14,902

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

December 31, 2023

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Estimated Cash Payment Discount Net

Less than one year $ 2,750 $ ( 88 ) $ 2,662

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

Contingent consideration $ 2,750 $ ( 88 ) $ 2,662

During Fiscal 2024, a performance adjustment was made to the estimated fair value of the contingent consideration payment, resulting in a gain of $ 1.5 million included in earnings.

NOTE 11 - INCOME TAXES

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.

At December 29, 2024, federal income tax receivable of $ 0.5 million is included in Other current assets and state income tax payable of $ 0.2 million is included in Income taxes payable in the consolidated balance sheets.

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 in the consolidated balance sheets.

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 )

December 29, 2024 December 31,

2023 January 1, 2023

Current Federal income tax benefit (expense) $ 523 $ ( 1,312 ) $ ( 589 )

Current state income tax ( 1,338 ) ( 825 ) ( 717 )

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

Deferred tax benefit (expense) 1,185 5,075 ( 2,353 )

Income tax benefit (expense) from continuing operations 370 2,938 ( 3,659 )

1 unchanged sentence

Income tax benefit (expense) $ 370 $ 2,938 $ ( 8,469 )

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2023 January 1,

2024 December 31,

Deferred tax assets:

9 unchanged sentences

Deferred income taxes, net $ 8,456 $ 7,271

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

December 29, 2024 December 31, 2023 January 1, 2023

Tax benefit (expense) at federal statutory rate $ 784 ( 21 ) % $ 2,764 ( 21 ) % $ ( 3,133 ) ( 21 ) %

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

State income tax (expense) benefit, net of federal benefit ( 366 ) 10 % 194 ( 2 ) % ( 795 ) ( 6 ) %

Equity, permanent differences and other ( 48 ) 1 % ( 319 ) 2 % ( 178 ) ( 1 ) %

4 unchanged sentences

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 provided for 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 and repaid.

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 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.

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

The Company entered into four amendments from August 18, 2022 through May 19, 2023, which changed the interest rate component from LIBOR to the Secured Overnight Financing Rate (“SOFR”), exercised the option to borrow $ 40 million, required 2.5 % of the original principal balance of the new term loan, permitted a foreign entity acquisition, modified the distributions terms, and increased a revolving credit facility (the "Revolving Facility") by $ 6.0 million.

On March 13, 2024, the Credit Agreement was amended and restated through the Company’s entry into an Amended and Restated Credit Agreement, which would have matured on March 13, 2028, led by BMO as administrative agent, letter of credit issuer, and swing line lender (the “Restated Agreement”).

The Restated Agreement provided for a Revolving Facility which permitted the Company to borrow funds in an aggregate amount up to $ 40 million.

The Restated Agreement also provided for a term loan commitment, which permitted the Company to borrow funds from time to time (the “Term Loan”).

In July 2024, the Company exercised the option to borrow on a delayed draw term loan of $ 4.3 million related to payments on the Arroyo Consulting Acquisition's working capital “true up”, hold backs, and year one contingent consideration.

On November 6, 2024, the Company entered into the First Amendment to Amended and Restated Credit Agreement, maturing December 31, 2026, led by BMO as administrative agent, letter of credit issuer, and swing line lender (the “First Credit Amendment”).

The availability on the Revolving Facility, which permits the Company to borrow funds from time to time, was reduced in an aggregate amount up to $ 20 million.

The Company is required to repay the Term Loan in quarterly principal installments equal to 2.5 % of the aggregate principal balance.

The First Credit Amendment provides for interest either at the Base Rate plus the Applicable Margin, or the Adjusted Term SOFR plus the Applicable Margin (as defined in the First Credit Amendment).

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

The First Credit Amendment provides for amended financial covenants with a maximum Leverage Ratio, a minimum Fixed Charge Coverage Ratio, and a minimum earnings before interest, income taxes, depreciation, and amortization (“EBITDA”) (as such terms are defined in the First Credit Amendment).

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

The Company was not in compliance with the foregoing financial covenants as of the fiscal quarter ended December 29, 2024.

the Company was also not in compliance with certain affirmative covenants, and the Company anticipated that they would not be in compliance with the foregoing financial covenants as of the fiscal quarter ended March 31, 2025.

On March 12, 2025, the Comapny entered into a Waiver and Second Amendment to Amended and Restated Credit Agreement (the “Second Amendment”) pursuant to which, among other things, the lenders unanimously waived noncompliance with the foregoing covenants as of December 29, 2024 and March 31, 2025, and certain amendments were made to the Amended and Restated Credit Agreement including, but not limited to, a new definition of Applicable Margin, a reduction of the swing line sublimit to zero, and limiting the aggregate revolving credit borrowings to $ 8.0 million.

The amendments described in the Second Amendment are effective as of March 13, 2025, subject to the satisfaction or waiver of certain conditions described therein relating to, among other things, debt financing and refinancing and our previously announced strategic alternatives review.

Letter of Credit

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

As of December 29, 2024, the Company had a maximum financial exposure from this standby letter of credit totaling $ 0.1 million, all of which is

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.

considered usage against the Revolving Facility.

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

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

Accordingly, no liability has been recorded in respect to these arrangements as of December 29, 2024 or December 31, 2023.

Line of Credit

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

At December 29, 2024 and December 31, 2023, $ 6.4 million and $ 24.9 million, respectively, was outstanding on the revolving facilities.

Average daily balance for Fiscal 2024, 2023, and 2022 was $ 12.4 million, $ 23.1 million, and $ 18.4 million, respectively.

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

2023 January 1,

2024 December 31,

Base Rate $ 2,395 10.25 % $ 4,874 9.75 %

5 unchanged sentences

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

2023 January 1,

2024 December 31,

SOFR $ 36,550 8.23 % $ 34,000 7.79 %

1 unchanged sentence

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

2024 $ 58,874

Less debt issuance costs ( 992 )

Total, net $ 41,953

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash Flow Hedge

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

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

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

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

Convertible Note

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.

At December 29, 2024 and December 31, 2023, the Company had a two-year convertible unsecured promissory note (“Convertible 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.

The promissory note is convertible into shares of the Company's 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.

On January 30, 2025, the Convertible Note was amended to increase the interest rate to 7 % and extend the maturity date to December 12, 2025.

NOTE 13 - FAIR VALUE MEASUREMENTS

2 unchanged sentences

The fair value hierarchy established prioritizes the inputs used in valuation techniques into three levels as follows:

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Level 1 - Observable inputs - quoted prices in active markets for identical assets and liabilities;

1 unchanged sentence

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 (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 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

There were no transfers between the respective Levels during Fiscal 2024.

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

Financial Statement Classification Fair Value Hierarchy Fair Value

Convertible note

December 31, 2023 and December 29, 2024 Level 2 $ 4,368

Contingent consideration, net - current and long-term

December 31, 2023 Level 3 $ 8,320

Interest expense 44

Gain on contingent consideration ( 1,452 )

Contingent consideration paid ( 4,250 )

December 29, 2024 Level 3 $ 2,662

Key inputs in determining the fair value of the convertible note as of December 29, 2024 and December 31, 2023 included the current stock price, the conversion price, and the maturity date.

Key inputs in determining the fair value of the contingent consideration as of December 29, 2024 and December 31, 2023 included discount rates of approximately 7 % as well as management’s estimates of future sales volumes and 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.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

10 unchanged sentences

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

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - SHARE-BASED COMPENSATION

20 unchanged sentences

For Fiscal 2024, 2023, and 2022, the Company recognized $ 0.4 million, $ 0.4 million and $ 0.7 million of compensation expense from continuing operations related to stock awards, respectively.

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.

Unamortized share-based compensation expense from

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

continuing operations as of December 29, 2024 amounted to $ 0.6 million, which is expected to be recognized over the next 2.1 years.

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

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

December 29, 2024 December 31, 2023 January 1, 2023

Weighted-average fair value of awards $ 5.95 $ 3.00 $ 5.17

3 unchanged sentences

Weighted-average expected life 10.0 yrs 10.0 yrs 10.0 yrs

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of stock option activity is presented as follows:

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

Granted 40,000 $ 8.80

2 unchanged sentences

Awards outstanding at December 29, 2024 901,612 $ 15.41 5.3 $ —

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

Awards exercisable at December 29, 2024 717,076 $ 16.59 4.6 $ —

Shares Weighted Average Grant Date Fair Value

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

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

Non-vested outstanding at December 29, 2024 184,536 $ 7.94

During Fiscal 2024, 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

8 unchanged sentences

Vested ( 31,168 ) $ 11.79

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

Issued 32,344 $ 13.14

Vested ( 31,168 ) $ 11.79

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

3 unchanged sentences

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

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

Issued 50,790 $ 8.86

Vested ( 51,694 ) $ 11.38

Restricted outstanding at December 29, 2024 74,820 $ 10.02

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 December 31, 2023.

A summary of warrant activity is presented as follows:

Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life Total Intrinsic Value of Warrants

(in thousands)

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

Expired ( 25,862 ) $ 16.80

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

Nonvested outstanding at December 29, 2024 74,820 $ 10.02

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, before applicable income taxes and represents the amount holders would have realized if all in-the-money options had been exercised on the last business day of the period indicated.

2020 Employee Stock Purchase Plan (“2020 ESPP”)

1 unchanged sentence

Under the 2020 ESPP, eligible team members of the Company may elect for payroll deductions to purchase shares on each purchase date during an offering period.

A total of 250,000 shares of common stock of BGSF, Inc.

A total of 250 thousand shares of common stock of BGSF, Inc.

were initially reserved for issuance pursuant to the 2020 ESPP.

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

For Fiscal 2024, 2023,and 2022, the Company issued 61 thousand, 54 thousand, 60 thousand shares of common stock under the 2020 ESPP, respectively.

NOTE 17 - RELATED PARTY TRANSACTIONS

6 unchanged sentences

The Company contributed $ 1.9 million, $ 2.0 million, and $ 1.5 million from continuing operations to the 401(k) Plan for Fiscal 2024, 2023, and 2022, respectively.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - BUSINESS SEGMENTS

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

The Company has continuing operations through the Property Management and Professional segments (see “Note 1 - Nature of Operations”).

The Home Office provides centralized support services through executive, marketing, human resources, IT, accounting, treasury, and billing operations.

The chief operating decision-maker (the “CODM”), the President and Chief Executive Officer, establishes the strategic direction of the Company, priorities, and long-term financial objectives.

The CODM is ultimately responsible for evaluating segment performance and making decisions regarding resource allocation.

The CODM considers variances between actual results and expectations as well as historical trends for segment income when making decisions about allocating capital and personnel resources to each segment.

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.

1 unchanged sentence

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

Total $ 313,167 $ 298,422 $ 239,027

Depreciation:

Property Management $ 133 $ 179 $ 210

Professional 263 355 390

Home office 50 63 85

Total $ 446 $ 597 $ 685

Amortization:

Professional $ 6,198 $ 2,338 $ 2,431

Home office 1,130 1,119 582

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

December 29, 2024

Property Mgmt Professional Home Office Total

Contract field talent $ 102,618 $ 162,759 $ — $ 265,377

Contingent placements 1,784 5,338 — 7,122

Revenue 104,402 168,097 — 272,499

Compensation and related 65,870 113,305 — 179,175

Other 163 298 — 461

Gross profit 38,369 54,494 — 92,863

Compensation 18,936 34,854 9,394 63,184

Advertising, occupancy, and travel 1,837 4,059 617 6,513

Software, insurance, and professional fees 1,275 1,754 5,665 8,694

Other 2,645 1,765 2,532 6,942

Gain on contingent consideration

— ( 1,452 ) — ( 1,452 )

Depreciation and amortization 112 6,434 1,223 7,769

Operating income (loss) 13,564 7,080 ( 19,431 ) 1,213

Interest expense, net — — ( 4,921 ) ( 4,921 )

Income tax benefit from continuing operations — — 370 370

Income (loss) from continuing operations $ 13,564 $ 7,080 $ ( 23,982 ) $ ( 3,338 )

Capital expenditures $ 57 $ 423 $ 1,160 $ 1,640

Total assets $ 19,782 $ 106,766 $ 23,563 $ 150,111

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

Professional - CARES Act credit — — 921

Professional - impairment loss ( 22,545 ) — —

Home office - general and administrative ( 20,087 ) ( 19,124 ) ( 14,948 )

Home office - CARES Act credit — — 1,150

Home office - gain on contingent consideration — — 2,404

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

December 31, 2023

Property Mgmt Professional Home Office Total

Contract field talent $ 121,827 $ 182,120 $ — $ 303,947

Contingent placements 3,250 5,970 — 9,220

Revenue 125,077 188,090 — 313,167

Compensation and related 75,132 125,737 — 200,869

Other 160 354 — 514

Gross profit 49,785 61,999 — 111,784

Compensation 21,737 36,583 10,215 68,535

Advertising, occupancy, and travel 2,087 3,959 724 6,770

Software, insurance, and professional fees 1,278 1,697 4,916 7,891

Other 1,395 1,006 3,053 5,454

Impairment loss — 22,545 — 22,545

Depreciation and amortization 133 6,461 1,180 7,774

Operating income (loss) 23,155 ( 10,252 ) ( 20,088 ) ( 7,185 )

Interest expense, net — — ( 5,976 ) ( 5,976 )

Income tax benefit from continuing operations — — 2,938 2,938

Income (loss) from continuing operations $ 23,155 $ ( 10,252 ) $ ( 23,126 ) $ ( 10,223 )

Capital expenditures $ 70 $ 444 $ 2,083 $ 2,597

Property Management $ 70 $ 135 $ 106

Professional 444 90 107

Home office 2,083 5,455 2,991

Total $ 2,597 $ 5,680 $ 3,204

Total assets $ 29,884 $ 122,751 $ 25,882 $ 178,517

Property Management $ 29,884 $ 29,302

Professional 122,751 141,018

Home office 25,882 24,353

Total $ 178,517 $ 194,673

January 1, 2023

Property Mgmt Professional Home Office Total

Contract field talent $ 117,086 $ 172,769 $ — $ 289,855

Contingent placements 4,007 4,560 — 8,567

Revenue 121,093 177,329 — 298,422

Compensation and related 73,358 121,474 — 194,832

Other 40 2 — 42

Gross profit 47,695 55,853 — 103,548

Compensation 23,312 32,607 8,862 64,781

Advertising, occupancy, and travel 2,222 2,836 747 5,805

Software, insurance, and professional fees 1,153 1,461 5,776 8,390

Other 1,026 652 2,557 4,235

Depreciation and amortization 179 2,693 1,182 4,054

Operating income (loss) 19,803 15,604 ( 19,124 ) 16,283

Interest expense, net — — ( 1,363 ) ( 1,363 )

Income tax expense from continuing operations — — ( 3,659 ) ( 3,659 )

Income (loss) from continuing operations $ 19,803 $ 15,604 $ ( 24,146 ) $ 11,261

Capital expenditures $ 135 $ 90 $ 5,455 $ 5,680

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - QUARTERLY FINANCIAL DATA (UNAUDITED)

6 unchanged sentences

Gross profit $ 23,438 $ 23,630 $ 24,329 $ 21,466 $ 92,863

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

Net (loss) income per share:

Net loss $ ( 792 ) $ ( 761 ) $ ( 804 ) $ ( 981 ) $ ( 3,338 )

Net loss per share:

Basic $ ( 0.07 ) $ ( 0.07 ) $ ( 0.07 ) $ ( 0.10 ) $ ( 0.31 )

3 unchanged sentences

Diluted 10,831 10,880 10,919 10,943 10,896

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 1, 2023

December 31, 2023

Quarter Second

4 unchanged sentences

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

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

Income (loss) from discontinued operations, net of tax $ 13,792 $ ( 7 ) $ — $ 315 $ 14,100

Net income $ 15,800 $ 3,177 $ 4,652 $ 1,732 $ 25,361

Net income per share - basic:

Income from continuing operations $ 0.19 $ 0.31 $ 0.44 $ 0.14 $ 1.08

Income from discontinued operations 0.12 — — — 0.12

Gain on sale 1.65 — — 0.04 1.69

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

Net income per share - basic $ 1.51 $ 0.31 $ 0.44 $ 0.17 $ 2.43

Net income per share - diluted:

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

Income from discontinued operations 0.12 — — — 0.12

Gain on sale 1.66 — — 0.03 1.69

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

Net income per share - diluted $ 1.52 $ 0.30 $ 0.44 $ 0.16 $ 2.42

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:

1 unchanged sentence

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

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21 - SUBSEQUENT EVENTS

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.

Convertible Note

On January 30, 2025, the Company amended the Convertible Note of $ 4.4 million due to the seller of the Horn Solutions acquisition which increased the interest rate to 7 % and extended the maturity date to December 12, 2025 (see “Note 12 - Debt”).

The Company was not in compliance with the foregoing financial covenants as of the fiscal quarter ended December 29, 2024.

On March 13, 2025, the Comapny entered into a Waiver and Second Amendment to Amended and Restated Credit Agreement (the “Second Amendment”) pursuant to which, among other things, the lenders unanimously waived noncompliance with the foregoing covenants as of December 29, 2024 and March 31, 2025, and certain amendments were made to the Amended and Restated Credit Agreement including, but not limited to, a new definition of Applicable Margin, a reduction of the swing line sublimit to zero, and limiting the aggregate revolving credit borrowings to $ 8.0 million.

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